UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
x EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19244
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, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617)423-2233
Securities registered pursuant to Section 12(b) of the Act:
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
<PAGE>
The exhibit index is located on pages 10-20.
<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 in excess of
mortgage amounts insured under GNMA or FHA programs 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 provide the Trust with semi-
annual interest payments and may provide additional interest in the future
while the participating mortgage provides for Trust participation in the
net income and residual value, if any, of the underlying property.
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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
asic 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.
Prior to December 14, 1997 the Trust could reinvest or commit for
reinvestment principal proceeds or other realization of the mortgages in
new mortgages. However, the Trust will distribute any and all proceeds
from prepayments or other, realizations of mortgage assets to investors
either through quarterly dividends or possibly special dividends.
Although the Trust will terminate no later than December 31, 2029, the
value of the PIMs and PIMIs may 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 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
quarterbased 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 dividends 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 dividends to
shareholders or for reinvestment. To the extent that dividends 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, 1997, there were no personnel directly employed by
the Trust.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
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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.
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, 1997 is
approximately 13,200.
The Trust has and intends to continue declaring and paying dividends on
a quarterly basis. The Trustees established a dividend rate per Share per
quarter of $.325 for 1997 and 1996.
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>
<CAPTION>
(Amounts in thousands, except for per Share amounts)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total revenues $ 17,618 $ 16,358 $ 17,200 $ 16,846 $ 18,046
Net income $ 12,899 $ 12,481 $ 13,022 $ 12,599 $ 13,869
Net income
per Share $ .86 $ .83 $ .87 $ .84 $ .92
Weighted average Shares
outstanding 15,053 15,053 15,053 15,053 15,053
Total assets at
December 31 $221,779 $241,634 $247,620 $251,333 $256,565
Average dividends
per Share $ 2.22 $ 1.30 $ 1.30 $ 1.30 $ 1.70
</TABLE>
page
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, 1997, the Trust has significant liquidity
consisting of cash and cash equivalents, of approximately $10 million as
well as the cash inflows provided by PIMs, PIMIs, MBS, cash and cash
equivalents. 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 1997, the Trust declared an annual
dividend of $1.30 per share, paid in quarterly installments of $.325 per
share and a one time special dividend of $.92 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 and prepayments 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,
may provide the Trust with additional income through participation in the
cash generated by the operations of the underlying properties and a
portionof 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 eight 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, 1997, Mountain View and
Red Run have sufficient escrows to make the required Additional Loan base
interest payments in 1998 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 operating results during 1997.
High occupancy rates were maintained and rental rate increases were
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achieved at more than half the properties due to stable or improving
markets or the unique character of the specific property. As a result of
strong operating performances during 1997, the Advisor expects that two
properties will generate sufficient operating cash flow to pay
participation interest to the Trust during 1998: Lincoln Green and The
Seasons. During 1997, the Trust received participation interest based on
1996 operating results from three properties. Two properties with PIM s
held by the Trust paid participation interest: Lincoln Green paid $102,233
and Riverview paid $4,466. One property with a PIMI held by the Trust paid
participation interest beyond the base interest requirement on the
additional loan: The Seasons paid $32,622.
Most of the other properties underlying the PIMs and PIMIs
generate sufficient operating revenues to adequately maintain the assetsand
pay principal and interest on the insured first mortgage and, in the
case of the PIMIs, the base interest on the Additional Loan. However, the
operating results of four of the construction properties with PIMIs have
been inadequate to fully cover debt service requirements. Red Run
experienced a slow initial lease-up and has relied on reserve funds to pay
the base interest on its Additional Loan. Lifestyles Apartments, Windward
Lakes Apartments and Coconut Palm Apartments all have been affected by
strong competition from newly built apartment communities and affordable
single-family homes in markets where the ability to raise rents is limited.
Lifestyles operating performance began deteriorating in early 1996. The
borrower of the Lifestyles PIMI requested debt service relief. The
Advisor and the borrower finalized a workout agreement that included a 1%
per annum reduction in the interest paid monthly on the insured first
mortgage for a 24-month period which ended in December 1997. The agreement
also specified that the Additional Loan base interest payments will be
based on surplus cash and extended the prepayment lockout date by five
years. The borrower contributed $150,000 to fund 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 Advisor, which has
occurred. In addition to the workout s financial attributes, the Advisor
also required a change in the property s on-site management. Since the new
company assumed responsibility for day-to-day operations, the property s
occupancy has improved and more closely reflects typical market conditions.
However, the market is still absorbing new product, and many competing
properties offer concessions as rental incentives. The Advisor expects
that additional debt service relief may be necessary until the rental
market is less volatile. Windward Lakes operating performance also
deteriorated during 1996 when the property was the scene of a number of
burglary incidents which affected occupancy. The drop in occupancy
exacerbated the operating deficits the property was already experiencing,
leading 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 fora
12 month period and then 1% per annum for a 36 month period. The
agreement also specifies the Additional Loan base interest payments will be
based on surplus cash. In addition, the borrower contributed $133,000 of
new equity. Since the workout was finalized, Windward Lakes occupancy has
fluctuated with increasing market competitiveness fueled by the building
boom in south Florida. Occupancy at Coconut Palm Apartments, located in
the same regional market as Windward Lakes, also has been adversely
affected by highly competitive market conditions. Operating deficits and
base interest payments have been funded with reserves established with a
portion of the Additional Loan proceeds. However, the reserves have been
drawn down and will be inadequate to cover 1998 requirements. The borrower
is attempting to secure additional equity to bring into the deal, and the
Advisor expects to negotiate loan restructure that will provide some
interim debt service relief to improve the property s economic outlook
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until the market stabilizes. Management will continue to closely monitor
the operations of all of these properties.
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 sufficientcash
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.
During the first quarter of 1997, the Trust received a
prepayment of the Timber Ridge Apartments PIMI. The Trust received
$1,540,000 to repay the additional loan, $1,246,159 representing additional
interest which includes prepayment penalties and $5,630,985 to repay the
outstanding first mortgage principal balance.
During the third quarter, the Trust made a special dividend of
$.92 per share to its investors. This special dividends consisted of the
1996 Canyon Ridge PIM prepayment and the 1997 Timber Ridge prepayment
proceeds, net of the reinvestment in a $3,400,000 face value insured
multifamily mortgage.
For the first five years of the PIMs and PIMIs the borrowers areprohibited 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.
Assessment of Credit Risk
The Trust's investments in mortgages are guaranteed or insured
by FNMA, FHLMC, GNMA and HUD and therefore the certainty of their cash
flows and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
FNMA is a federally chartered private corporation that
guarantees obligations originated under its programs. FHLMC is a federally
chartered corporation that guarantees obligations originated under its
programs and is wholly-owned by the twelve Federal Home Loan Banks. These
obligations are not guaranteed by the U.S. Government or the Federal Home
Loan Bank Board. GNMA guarantees the full and timely payment of principal
and basic interest on the securities it issues, which represents interest
in pooled mortgages insured by HUD. Obligations insured by HUD, an agency
of the U.S. Government, are backed by the full faith and credit of the U.S.
Government.
The Trust's Additional Loans have similar risks as those
associated with higher risk debt instruments, including: reliance on the
owner's operating skills, ability to maintain occupancy levels, control
operating expenses, maintain the properties and obtain adequate insurance
coverage; adverse changes in general economic conditions, adverse local
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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, 1997, 1996 and 1995. Dollars are
stated in thousands, except for per Share amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
Per Per Per
Amount Share Amount Share Amount Share
<S>
Interest income on PIMs
and PIMIs:
<S> <C> <C> <C> <C> <C> <C>
Base Interest $12,181 $ .81 $12,808 $ .86 $13,690 $ .91
Additional loan interest 794 .05 - - - -
Participation income 1,385 .09 359 .02 372 .02
Interest income on MBS 2,199 .15 2,306 .15 2,608 .17
Interest income on cash
and cash equivalents 1,059 .07 886 .06 531 .04
Trust expenses (2,313) (.15) (2,264) (.15) (2,496) (.17)
Amortization of prepaid
fees, expenses and
organization costs (2,406) (.16) (1,614) (.11) (1,683) (.10)
Net income $12,899 $ .86 $12,481 $ .83 $13,022 $ .87
Weighted average
Shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
The Trust s net income for 1997 increased by approximately $418,000 when
compared to 1996. This increase resulted from higher participation
income, additional loan interest income and other interest income of
approximately $1,026,000 , $793,000 and $173,000, respectively, net of
lower base interest income on PIMs and interest income on MBS of
approximately $627,000 and 107,000, respectively and increases in
amortization expense and Trust expenses of $791,000 and $49,000,
respectively. The increase in participation income and additional loan
interest income are primarily related to the Timber Ridge PIMI. The Trust
received $1,246,000 of participation interest upon early repayment of the
PIMI. The Trust also received participation interest from the Lincoln
Green PIM, The Seasons PIMI and the Riverview PIM of $102,000, $33,000 and
$4,000, respectively. Interest income on cash and cash equivalents
increased as a result of short-term investments made with the proceeds
from the Canyon Ridge and Timber Ridge prepayments prior to the special
distribution made in the third quarter. Base interest decreased as a
result of the repayment of the Timber Ridge PIMI during the first quarter
of 1997, the repayment of the Canyon Ridge PIM during the second quarter
of 1996 and the interest rate reduction given to Windward Lakes
Apartments. Interest income on MBS will continue to decline as principal
collections reduce the outstanding balance of the MBS portfolio.
Amortization expenses increased for 1997 as compared to 1996 due primarily
to the Trust fully amortizing the prepaid acquisition and servicing fees
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associated with Canyon Ridge Apartments PIM and Timber Ridge Apartments
PIMI.
The Trust's net income for 1996 decreased by approximately $541,000 as
compared to 1995 due primarily to decreases in interest income on PIMs and
insured mortgages and interest income on MBS of approximately $882,000 and
$302,000, respectively, which were partially offset by an increase in
interest income on cash and cash equivalents 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 Lifestyles Apartments
PIMs. Interest income on MBS will continue to decline as principal
collections reduce the outstanding balance of the MBS portfolio. Interest
income on cash and cash equivalents 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, expense reimbursements to affiliates and general
and administrative expenses.
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 (51) Chairman of Board of Trustees and Trustee
* Charles N. Goldberg (56) Trustee
* E. Robert Roskind (52) Trustee
* J. Paul Finnegan (72) Trustee
Robert A. Barrows (40) Treasurer
Scott D. Spelfogel (37) Clerk
K. Scott Griggs (35) Assistant Clerk
* Independent Trustee
Douglas Krupp is Co-Founder and Chairman of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston,
the Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition,
The Berkshire Group has a majority ownership interest in Harborside
Healthcare (NYSE-HBR), a long-term and subacute care company and a
significant ownership interest in Berkshire Realty Company, Inc. (NYSE-
BRI), a real estate investment trust specializing in apartment
investments. Mr. Krupp is a graduate of Bryant College. In 1989 he
received an honorary Doctor of Science in Business Administration from
this institution and was elected trustee in 1990. Mr. Krupp is Chairman of
the Board and a Director of both Berkshire Realty Company, Inc. and
Harborside Healthcare. Mr. Krupp also serves as Chairman of the Board and
Trustee of Krupp Government Income Trust II.
Charles N. Goldberg is of counsel to the law firm of Broocks, Baker
& Lange, L.L.P. Prior to joining Broocks, Baker & Lange, L.L.P., Mr.
Goldberg was a partner in the law firm of Hirsch & Westheimer from March
of 1996 to December of 1997. Prior to Hirsch & Westheimer, he was the
Managing Partner of Goldberg Brown, Attorneys at Law from 1980 to March of
1996. He currently serves as a Trustee of Krupp Government Income Trust
II. He is also currently a director of Berkshire Realty Company, Inc.
(NYSE-BRI). He received a B.B.A. degree and a J.D. degree from the
University of Texas. 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.
E. Robert Roskind is the Chairman and Co-Chief Executive Officer of
Lexington Corporate Properties, a self-administered REIT, the shares of
which are listed on the NYSE. Mr. Roskind is also the Managing Partner of
The LCP Group, a real estate investment firm based in New York, the
predecessor of which he co-founded in 1974. He currently serves as a
Trustee of Krupp Government Income Trust II. He is also currently a
director of Berkshire Realty Company, Inc. (NYSE-BRI). Mr. Roskind holds
a B.A. degree from the University of Pennsylvania and a J.D. degree from
Columbia Law School. He has been a member of the New York Bar since 1970.
J. Paul Finnegan retired as a partner of Coopers & Lybrand in 1987.
Since then, he has been engaged in business as a consultant, a director
and arbitrator. Mr. Finnegan holds a B.A. degree from Harvard College, a
J.D. degree from Boston College Law School and an ASA from Bentley
College. Mr. Finnegan currently serves as a Trustee of Krupp Government
Income Trust II. He is also currently a director at Scituate Federal
Savings Bank and a director of Berkshire Realty Company, Inc. (NYSE-BRI).
Mr. Finnegan is a Certified Public Accountant and an attorney.
Robert A. Barrows is the Treasurer of the Trust and is Senior Vice
President and Chief Financial Officer of Berkshire Mortgage Finance. Mr.
Barrows has held several positions within The Berkshire Group since joining
the company in 1983 and is currently responsible for accounting, financial
reporting, treasury, management information systems and loan closing and
servicing for Berkshire Mortgage Finance. 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.
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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 the Vice
President 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 53) is the Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston, the
Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments. Mr. Krupp
received his undergraduate education from the University of Pennsylvania
and Harvard University Extension School and holds a Master s Degree in
History from Brown University.
Peter F. Donovan (age 44) is Chief Executive Officer of Berkshire
Mortgage Finance and oversees the strategic growth plans of this mortgage
banking firm which is the 12th largest in the United States based on
servicing and asset management of a $4.5 billion loan portfolio.
Previously he served as President of Berkshire Mortgage Finance and
directed the production underwriting and servicing and asset management
activities of the firm. Prior to that, 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
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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
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 5, 1998, 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.
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
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 ***
** 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.
*** The amount owned does not exceed one percent of the shares of
beneficial interest of the Trust outstanding as of February 5, 1998.
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
13
<PAGE>
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
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 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)].*
15
<PAGE>
(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 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)].*
16
<PAGE>
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)].*
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)].*
17
<PAGE>
(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)].*
(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)].*
(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
19
<PAGE>
(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").
[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)].*
21
<PAGE>
(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 (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
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)].*
23
<PAGE>
(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").
[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)].*
24
<PAGE>
(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)].*
Lincoln Green Apartments
(10.74) 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)].*
(10.75) 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)].*
(10.76) 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
(10.77) Additional Loan Agreement dated September 16,
1993 between The Krupp Company Limited
Partnership-IV (the "Borrower") and Krupp
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)].*
(10.78) 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)].*
(10.79) 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 Registrants report on form
10-K for the year ended December 31, 1994
(File No. 0-19244)].*
(10.80) 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)].*
(10.81) 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)].*
(10.82) 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)].*
(10.83) 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
(10.84) 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)].*
(10.85) 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)].*
(10.86) 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)].*
26
<PAGE>
(10.87) 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, 1997,
the Trust did not file any reports on Form 8-K.
27
<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
12th day of March, 1998.
KRUPP GOVERNMENT INCOME TRUST
By:/s/ Douglas Krupp
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 12th day of
March, 1998.
Signatures Title(s)
/s/ Douglas Krupp Chairman of Board of Trustees and a
Douglas Krupp Trustee of Krupp Government Income Trust
/s/ Robert A. Barrows Treasurer of Krupp Government
Income Trust
Robert A. Barrows
/s/ Charles N. Goldberg Trustee of Krupp Government Income
Trust
Charles N. Goldberg
/s/ E. Robert Roskind Trustee of Krupp Government Income
Trust
E. Robert Roskind
/s/ J. Paul Finnegan Trustee of Krupp Government Income
Trust
J. Paul Finnegan
28
<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, 1997
1
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended December 31, 1997,
1996 and 1995 F-5
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended December 31, 1997, 1996
and 1995 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.
2
<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 these 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, these financial statements referred to above
present fairly, in all material respects, the financial position of Krupp
Government Income Trust as of December 31, 1997 and 1996, and the results
of its operations and cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 9, 1998
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
19971996
<S>
Participating Insured Mortgage Investments
("PIMIs") (Notes B, C and J):
<C> <C>
Insured Mortgages $108,470,247 $114,625,179
Additional loans 19,209,108 20,749,108
Participating Insured Mortgages ("PIMs")
(Notes B, D and J) 48,112,523 48,479,897
Mortgage-Backed Securities and insured
mortgage ("MBS") (Notes B, E and J) 27,085,341 26,754,326
Total mortgage investments 202,877,219 210,608,510
Cash and cash equivalents (Notes B and J) 9,749,804 19,053,931
Interest receivable and other assets 1,294,240 1,707,799
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,658,224
and $6,090,173 respectively (Note B) 5,608,226 7,383,186
Prepaid participation servicing fees, net of
accumulated amortization of $1,839,070
and $1,610,677 respectively (Note B) 2,249,643 2,880,328
Total assets $221,779,132 $241,633,754
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 7,871,606 $ 7,325,414
Other liabilities 25,414 27,733
Total liabilities 7,897,020 7,353,147
Commitments (Note H)
Shareholders' equity (Notes A, F, H and I):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 212,496,510 233,015,255
Unrealized gain on MBS (Note B) 1,385,602 1,265,352
Total Shareholders equity 213,882,112 234,280,607
Total liabilities and Shareholders'
equity $221,779,132 $241,633,754
</TABLE>
4
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S>
Revenues:
Interest income - PIMs and PIMIs:
<S> <C> <C> <C>
Base interest $ 12,180,539 $12,807,392 $13,689,837
Additional Loan interest 793,577 - -
Participation income 1,385,480 359,161 372,228
Interest income - MBS 2,199,234 2,305,613 2,607,682
Interest income cash and cash
equivalents 1,058,966 885,874 530,669
Total revenues 17,617,796 16,358,040 17,200,416
Expenses:
Asset management fee
to an affiliate (Note G) 1,531,026 1,604,853 1,692,943
Expense reimbursements
to affiliates (Note G) 395,934 343,214 440,891
Amortization of prepaid fees,
expenses and organization costs 2,405,645 1,613,665 1,682,629
General and administrative 385,956 315,613 362,321
Total expenses 4,718,561 3,877,345 4,178,784
Net income $12,899,235 $12,480,695 $13,021,632
Earnings per share $ .86 $ .83 $ .87
Weighted average shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
6
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Total
Common Retained Unrealized Shareholders'
Stock Earnings Gain on MBS Equity
<S> <C> <C> <C> <C>
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 (7,088,400) (12,480,695) - (19,569,095)
Net income - 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
Dividends (Notes F and I) (20,518,745) (12,899,235) - (33,417,980)
Net income (Note I) - 12,899,235 - 12,899,235
Change in unrealized gain
on MBS - - 120,250 120,250
Balance at December 31, 1997 $212,496,510 $ - $ 1,385,602 $213,882,112
Shared issued and outstanding for each of the three years ended December 31, 1997 are
15,053,135
</TABLE>
8
<PAGE>
The accompanying notes are an integral
part of the financial statements.
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Operating activities:
<S> <C> <C> <C>
Net income $ 12,899,235 $12,480,695 $13,021,632
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premium and discounts 2,816 (1,110) 8,663
Amortization of prepaid fees, expenses
and organization costs 2,405,645 1,613,665 1,682,629
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 413,559 154,536 246,218
Increase (decrease) in other
liabilities (2,319) 7,156 (17,148)
Net cash provided by operating
activities 15,718,936 14,254,942 14,941,994
Investing activities:
Principal collections on PIMs and PIMIs 891,321 855,308 844,835
Principal collections on MBS 3,152,419 4,331,574 3,554,556
Increase in deferred income on
Additional Loans 546,192 1,404,457 1,276,777
PIM prepayment 5,630,985 8,862,450 -
Collection of Additional Loan 1,540,000 - -
Acquisition of MBS (3,366,000) - (3,203,221)
Net cash provided by investing
activities 8,394,917 15,453,789 2,472,947
Financing activity:
Dividends (33,417,980) (19,569,095) (19,569,096)
Net increase (decrease) in cash and
cash equivalents (9,304,127) 10,139,636 (2,154,155)
Cash and cash equivalents, beginning
of year 19,053,931 8,914,295 11,068,450
Cash and cash equivalents, end of year $ 9,749,804 $19,053,931 $ 8,914,295
</TABLE>
10
<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 Mortgage Advisors Limited
Partnership ("BMALP")(the Advisor ), 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 during its
public offering. 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.
B. Significant Accounting Policies
The Trust uses the following accounting policies for financial
reporting purposes:
MBS
The Trust, in accordance with the Financial Accounting
Standards Board's Statement 115, "Accounting for Certain
Investments in Debt and Equity Securities" ( FAS 115"),
classifies its MBS portfolio as available-for-sale. As
such the Trust carries its MBS at fair market value and
reflects any unrealized gains (losses) as a separate
component of Shareholders' Equity. The Trust amortizes
purchase premiums or discounts over the life of the
underlying mortgages using the effective interest method.
PIMs and PIMIs
The Trust accounts for its MBS portion of a PIM or PIMI
investments in accordance with FAS 115 under the
classification of held to maturity. The Trust carries
those MBS at amortized cost.
The Federal Housing Administration Participating Insured
Mortgages and all Additional Loans are carried at
amortized cost unless the Advisor of the Trust believes
there is a impairment in value, in which case a valuation
allowance is established in accordance with Financial
Accounting Standards No. 114, Accounting by Creditors
for impairment of a Loan, and Financial Accounting
Standard No. 118, Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures.
Base interest is recognized based on the stated rate of
the Department of Housing and Urban Development ("HUD")
insured mortgage loan (less the servicer's 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 are 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 estimated term of the Additional Loan.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
PIMs and PIMIs, Continued
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 onsuch 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 Trustinvests its cash
primarily in commercial paper 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 feespaid 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 payoff of the underlying
mortgage. 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.
Income Taxes
The Trust has elected to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended, and believes it
13
<PAGE>
will continue to meet all such qualifications.
Accordingly, the Trust will not be subject to federal
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. Significant estimates include the net carrying
value of Additional Loans and the unrealized gain on MBS
investments. Actual results could differ from those
estimates.
C. PIMIs
The Trust has investments in eight 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
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
(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
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 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 with the Secretary of HUD on the insured
mortgage is canceled prior to the accelerated maturity
date.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
15
<PAGE>
C. PIMIs, Continued
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.
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.
On February 6, 1997, the Trust, with the approval of the
independent Trustees, agreed to a workout with the borrower
of the 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. ( McNab ), contributed $133,036
16
<PAGE>
of new equity into the property; c) the borrower will cap
the annual management fee paid to an affiliate at 3% ofrevenues; 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 the Trust s share of Surplus Cash and unpaid
amounts accrue at 7.5% per annum; and f) the Trust s
participation in a sale or refinancing, after repayment
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
of the first mortgage and additional loans, interest rate
relief, 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.
During the first quarter the Trust received proceeds from
the prepayment of The Timber Ridge Apartments PIMI as
follows: $1,540,000 to payoff the Additional Loan;
$1,246,159 representing additional interest which includes
prepayment penalties; $5,630,985 to payoff the outstanding
first mortgage principal balance. During the third
quarter, the Trust made a special dividend of $.92 per
share to it s investors. This special dividends consisted
of the 1996 Canyon Ridge PIM prepayment and the 1997 Timber
Ridge prepayment proceeds, net of the reinvestment in a
$3,400,000 face value insured multifamily mortgage.
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 Rate 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.
At December 31, 1997 and 1996 there are no insured mortgage
loans within the Trust s portfolio that are delinquent of
principal or interest.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
The Trust's investments in PIMIs consist of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
Original
Loan Interest Maturity Balance Outstanding
Amount Rate Date at December 31,
<S>
PIM
1997 1996
<S> <C> <C> <C> <C> <C>
Lifestyles (GNMA) $10,292,394 7.25%(a) 5/1/32 $10,074,176$ 10,121,765
Windward (GNMA) 14,000,778 6.50%(b) 6/1/32 13,732,172 13,791,753
Audubon Villas(GNMA) 15,250,000 7.75% 9/15/33 14,985,694 15,056,168
Coconut Palm (GNMA) 16,155,100 8.25% 5/1/33 15,899,315 15,966,932
Mountain View (FHA) 9,547,700 8.125%
(c) 1/1/34 9,407,192 9,447,473
Red Run (FHA) 19,019,600 7.875% 5/1/34 18,742,124 18,832,455
Park Highland (FHA) 17,068,500 7.625% 1/1/34 16,788,083 16,869,418
Timber Ridge (FHA) 5,775,000 8.125% 10/1/29 - 5,634,320
The Seasons (FHA)(d) 9,075,351 7.875% 10/1/28 8,841,491 8,904,895
$116,184,423 $108,470,247 $114,625,179
(f)
</TABLE>
<PAGE>
Base Preferred
Outstanding Balance Interest Interest
Additional Loan 1997 1996 Rate Rate
Lifestyles (a) $ 1,817,665 $1,817,665 7.5% 11%
Windward (b) 2,471,294 2,471,294 7.5% 11%
Audubon Villas 2,691,000 2,691,000 7.0% 10%
Coconut Palm 2,850,900 2,850,900 7.5% 11%
Mountain View (c) 1,553,600 1,553,600 7.0% 10%
Red Run 2,900,000 2,900,000 7.0% 10%
Park Highland 3,000,000 3,000,000 7.5% 9.5%
Timber Ridge - 1,540,000 9.0% 11%
The Seasons (d) 1,924,649 1,924,649 9.0% 10%
(e)
$19,209,108 $20,749,108
<PAGE>
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
(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 above.
(b) The Trust entered into an agreement which reduced the
interest rate on the insured mortgage by 2.0% per annum for 1997 and by
1.0% for 1998 through 2000.
(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) 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.
(e) The base interest rate was 6% per annum for the first
three years and beginning in September 1996 increased to
9% per annum.
(f) The aggregate cost for federal income tax purposes is
$108,470,247.
A reconciliation of activity for each of the three years in
the period ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $114,625,179 $115,131,611 $115,612,833
PIM prepayment (5,630,985) - -
Principal collections (523,947) (506,432) (481,222)
Balance at end of period $108,470,247 $114,625,179 $115,131,611
</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.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
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, 1997.
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 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, (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
an 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.
25
<PAGE>
Under the Agreement, the Trust, upon giving twelve months
written notice, can accelerate the maturity date of the
Agreement to a date not earlier
D. PIMs, continued
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 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.
At December 31, 1997 and 1996 there are no insured mortgage
loans within the Trust s portfolio that are delinquent of
principal or interest.
The Trust's PIMs consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
Original
Loan Interest Maturity
PIM Amount Rate Date Balance at December 31,
1997 1996
<S> <C> <C> <C> <C> <C>
River View (GNMA) $ 9,284,877 8.00% 1/15/33 $ 9,116,775 $ 9,159,679
Mill Pond (FHA) 7,812,100 8.15% 1/1/33 7,661,308 7,697,101
Waterford (FHA) 6,935,900 8.125% 8/1/32 6,787,988 6,841,912
Rivergreens (FHA) 10,003,000 8.005% 4/1/33 9,815,836 9,862,103
Lincoln Green (FNMA) 15,565,000 6.75% 10/1/02 14,730,616 14,919,102
(a)
Total $49,600,877 $48,112,523 $48,479,897
(b)
</TABLE>
26
<PAGE>
(a) 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.
(b) The aggregate cost for federal income tax purposes is $48,112,523.
A reconciliation of activity for each of the three years in the period
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $48,479,897 $57,691,223 $58,054,836
PIM prepayment - (8,862,450) -
Principal collections (367,374) (348,876) (363,613)
Balance at end of period $48,112,523 $48,479,897 $57,691,223
</TABLE>
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, continued
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.
Lincoln Green Apartments ("Lincoln Green") is a 616-unit apartment
complex in Greensboro, North Carolina.
E. MBS
At December 31, 1997, the Trust's MBS portfolio had an amortized cost
of $25,699,739 and gross unrealized gains of $1,385,602. 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. The Trust's
MBS have maturities ranging from 2008 to 2029.
During the first quarter of 1997, the Trust acquired a $3,400,000
face value insured multi-family mortgage for $3,366,000 having a
coupon rate of 7.5% per annum and a maturity of April 2032.
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, 1997, the Trust received
interest collections on Additional Loans with affiliates of the
Advisor of the Trust of $400,838, $234,593 and $300,825 respectively.
In addition, the Trust received $32,622 in 1997 related to
Participating Interest Income.
28
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
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.
<TABLE>
<CAPTION>
I. Federal Income Taxes
<S> <C>
Net income per statement of income $ 12,899,235
Add: Additional Loan interest deferred
for book purposes 605,259
Book to tax difference for amortization
of prepaid fees and expenses 867,928
Net income for federal income tax purposes $ 14,372,422
</TABLE>
The Trust paid dividends of $2.22 per share during 1997 which
represents approximately $.95 from ordinary income and $1.27
represents a non-taxable distribution for federal income tax
purposes.
The basis of the Trust s assets for financial reporting purposes is
less than its tax basis by approximately $4,622,000 and $3,815,000
at December 31, 1997 and 1996, respectively. The basis of the
Trust s liabilities for financial reporting purposes exceeded its
tax basis by approximately $7,872,000 and $7,325,000 at December 31,
1997 and 1996, respectively.
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 Trust estimates the fair value of MBS based on quoted market
prices.
PIMs and PIMIs
There is no active trading market for these investments, so
management estimates the fair value of the PIMs and the insured
mortgage portion of the 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
J. Fair Value Disclosures of Financial Instruments, continued
using these methods and assumptions, the Trust's investments in
PIMs and PIMIs had gross unrealized losses and gains of
approximately $6,511,000 and $381,000, respectively, at December
31, 1997 and gross unrealized losses and gains of approximately
$5,668,000 and $889,000, respectively, at December 31, 1996.
At December 31, 1997 and 1996, the Trust estimated the fair
value of its financial instruments as follows:
( amounts in thousands)
1997 1996
Cash and cash equivalents $ 9,750 $ 19,054
MBS 27,085 26,754
PIMs and PIMIs:
PIMs 48,382 48,783
Insured mortgages 109,902 116,869
Additional Loans 11,378 13,424
$206,497 $224,884
30
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
For the Quarter Ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
<S> <C> <C> <C> <C>
Total revenues $6,057,058 $3,850,203 $3,951,415 $3,759,120
Net income $5,041,789 $2,876,464 $2,173,105 $2,807,877
Earnings per Share $ .33 $ .20 $ .14 $ .19
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
<S> <C> <C> <C> <C>
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
</TABLE>
<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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,749,804
<SECURITIES> 202,877,219<F1>
<RECEIVABLES> 1,294,240
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,857,869<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 221,779,132
<CURRENT-LIABILITIES> 7,897,020<F3>
<BONDS> 0
0
0
<COMMON> 212,496,510
<OTHER-SE> 1,385,602<F4>
<TOTAL-LIABILITY-AND-EQUITY> 221,779,132
<SALES> 0
<TOTAL-REVENUES> 17,617,796<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,718,561<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,899,235
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,899,235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,899,235
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $108,470,247 and Additional Loans of $19,209,108), Participating
Insured Mortgages ("PIMs") of $48,112,523 and Mortgage-backed Securities
("MBS") of $27,085,341.
<F2>Includes prepaid acquisition fees and expenses of $12,266,450 net of
accumulated amortization of $6,658,224 and prepaid participation servicing fees
of $4,088,713 net of accumulated amortization of $1,839,070.
<F3>Includes deferred income on Additional Loans of $7,871,606.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $2,405,645 of amortization of prepaid fees and expenses.
</FN>
</TABLE>
