UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
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 (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code)
(617) 523-0066
Securities registered pursuant to Section 12(b) of the Act:
Title Name of Exchange on which Registered
Shares of Beneficial Interest None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates:
Not applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 13-19
<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 Fannie Mae, 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 the participation 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.
The Trust also acquired MBS collateralized by single-family and multi-family
mortgage loans issued or originated by GNMA, Fannie Mae, the Federal Home Loan
Mortgage Corporation ("FHLMC") or FHA. Fannie Mae and FHLMC guarantee the
principal and basic interest of the Fannie Mae and FHLMC MBS, respectively. GNMA
guarantees the timely payment of principal and interest on its MBS, and HUD
insures the pooled mortgage loans underlying the GNMA MBS and FHA mortgage
loans. The Trust will distribute all proceeds from prepayments or other
realizations of mortgage assets to investors either through quarterly dividends
or 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 quarter based upon the
participation features of its investments. The requirements for compliance with
federal, state and local regulations to date have not adversely affected the
Trust's operations, and the Trust anticipates no adverse effect in the future.
<PAGE>
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 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, 1999, there were no personnel directly employed by the Trust.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Trust is a party
or to which any of its investments are subject to.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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, 1999 is approximately
11,911.
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 1999 and 1998 and $.17 per Share per quarter for 2000.
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.
<PAGE>
<TABLE>
<CAPTION>
(Amounts in thousands, except for per Share amounts)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Total revenues $ 15,632 $ 21,922 $ 17,618 $ 16,358 $ 17,200
Net income $ 12,317 $ 14,836 $ 12,899 $ 12,481 $ 13,022
Net income per Share $ .82 $ .99 $ .86 $ .83 $ .87
Weighted average Shares
outstanding 15,053 15,053 15,053 15,053 15,053
Total assets at
December 31 $ 142,096 $171,422 $221,779 $241,634 $247,620
Average dividends
per Share $ 2.60 $ 4.16 $ 2.22 $ 1.30 $ 1.30
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Impact of the Year 2000 Issue
Starting in 1997 the Advisor conducted an assessment of the Trust's core
internal and external computer information systems to understand the nature and
extent of work required to make its systems Year 2000 ready. The Year 2000
readiness issue was concerned with the inability of computerized information
systems to accurately calculate, store or use a date after 1999. The Advisor
believed that a system failure or miscalculation could cause disruptions of
operations.
As a result of this concern, the Advisor, along with certain affiliates,
upgraded their computer systems including their hardware and software so they
would be Year 2000 ready. In addition, the Advisor surveyed the Trust's material
third-party service providers and significant vendors and received assurances
that they were Year 2000 ready. The Advisor also developed contingency plans for
all of its "mission-critical functions" to insure business continuity. As a
result of these efforts and the efforts of third parties, the Year 2000 did not
result in any disruption of activities to the Trust.
Liquidity and Capital Resources
At December 31, 1999 the Trust had liquidity consisting of cash and cash
equivalents, of approximately $4.6 million as well as the cash inflows provided
by PIMs, PIMIs, MBS, cash and cash equivalents. The Trust may also receive
additional cash flow from the participation features of its PIMs and PIMIs. The
Trust anticipates that these sources will be adequate to provide the Trust with
sufficient liquidity to meet its obligations, including providing dividends to
its investors.
The most significant demand on the Trust's liquidity is quarterly dividends,
paid to investors of approximately $2.6 million, and special distributions.
Funds for dividends come from interest income received on PIMs, PIMIs, MBS, cash
and cash equivalents net of operating expenses and the principal collections
received on PIMs, PIMIs and MBS. The portion of dividends funded from principal
collections reduces the capital resources of the Trust. As the capital resources
of the Trust decrease, the total cash flows to the Trust will also decrease
which may result in periodic adjustments to the dividends paid to the investors.
<PAGE>
The Advisor periodically reviews the dividend rate to determine whether an
adjustment is necessary based on projected future cash flows. Based on current
projections, the Advisor presented the Board of Trustees with a proposal to
reduce the dividend rate to $.17 per Share per quarter commencing in February
2000. The Board of Trustees approved the new rate at their quarterly meeting in
November. In general, the Advisor tries to set a dividend rate that provides for
level quarterly distributions. To the extent quarterly dividends do not fully
utilize the cash available for distribution and cash balances increase, the
Advisor may adjust the dividend rate or distribute such funds through a special
distribution.
The Trust's PIMIs funded the construction or significant rehabilitation of
multifamily housing, which requires time to achieve stabilized operations
following the completion of the work. With this in mind, the Trust required
those borrowers to escrow a portion of the Additional Loan proceeds in reserves
so funds would be available for the PIMI Additional Loan payments during the
construction and lease-up periods. As these reserves become depleted, full
payment of the Additional Loan interest becomes primarily dependent on whether
the underlying property generates sufficient operating cash flow to make such
payments.
The Seasons was the only property that made its full scheduled 1999 Additional
Loan interest payments from operating cash flow. Red Run generated some surplus
cash during 1999, which funded a portion of the Additional Loan interest
payment, the balance was funded with reserves held in escrow by the Trust. Three
others, Lifestyles, Mountain View and Windward Lakes, operated under workout
agreements with the Trust during 1999 that require Additional Loan interest
payments only if surplus cash is generated through property operations after
servicing the insured first mortgage. Lifestyles and Mountain View did not
generate any surplus cash during 1999 and consequently did not make any
Additional Loan interest payments. Windward Lakes generated some surplus cash
and made a partial Additional Loan interest payment during 1999 that the Trust
has recognized as income.
The Trust also can receive additional income through its participation in the
underlying properties' cash flow generated by operations over and above
operating and capital requirements and any Additional Loan interest payment
obligation, or any appreciation in value realized at the time of a sale or
refinance. However, this participation is dependent upon whether property
operations meet certain criteria. During 1999, the property operating results of
one of the Trust's PIM investments and two of the Trust's PIMI investments
exceeded the thresholds established by that criteria and paid the Trust
participation income: (Lincoln Green, $143,324; Red Run, $4,781 and The Seasons,
$153,498).
Most of the properties had stable operating results during 1999. High occupancy
rates were maintained and moderate rental income increases were achieved at many
of the properties due to stable or improving markets. Occupancy at the three
properties that generated participation income was consistently in the high 90%
range as was a fourth, Waterford Townhomes. Market forces have affected
occupancy at three other properties more; Mill Pond, Rivergreens and Riverview
had average occupancy during 1999 in the 90% range, although all three showed
some improvement at year-end. These three properties generate sufficient
revenues to address capital needs and pay debt service, but do not generate
sufficient surplus cash to pay any participation income to the Trust. Occupancy
and operating results at these three properties are operating under workout
agreements with the Trust which are being closely monitored. Occupancy at
Windward Lakes was generally consistent in the low 90% range; occupancy at
Lifestyles improved substantially during 1999, ending the year in the high 90%
range; and occupancy at Mountain View recovered to the high 80% range after
falling to 80% during the first quarter.
Windward Lakes operating results deteriorated during 1995 and 1996, and in early
1997 the independent Trustees approved a workout with the borrower of the
Windward Lakes PIMI, an affiliate of the Advisor of the Trust. In the workout,
the Trust agreed to reduce the effective basic interest rate on the insured
first mortgage by 2% per annum for 1997 and 1% per annum for 1998, 1999 and
2000. The borrower made an equity contribution of $133,036 to the property and
agreed to cap the annual management fee paid to an affiliate at 3% of revenues.
The Trust's participation in current operations is 50% of any Surplus Cash as
determined under HUD guidelines and the Trust's Additional Loan interest is
payable out of its share of Surplus Cash. Any unpaid Additional Loan interest
accrues at 7.5% per annum. During 1999, the Trust received $51,938 as its share
of Surplus Cash generated by Windward Lakes and credited it towards Additional
Loan interest income. When the property is sold or refinanced, the Trust will
receive 50% of any net proceeds remaining after repayment of the insured
mortgage, the Additional Loan, the interest rate relief, accrued and unpaid
Additional Loan interest and the borrower's equity up to the point that the
Trust has received a cumulative, non-compounded 10% preferred return on its
investments in the insured mortgage and Additional Loan.
<PAGE>
Lifestyles operating results deteriorated during 1995, and the Trust approved a
two-year workout that effectively reduced the interest rate on the insured
mortgage by 1%. When that workout ended in 1997, the property was not able to
generate sufficient revenues to maintain the property and service the original
interest rate. Consequently, the borrower on the Lifestyles PIMI defaulted on
its May 1, 1998 debt service payment on the insured mortgage. The Trust agreed
to a new workout through 2007. Under its terms, the Trust agreed to reduce the
effective interest rate on the insured mortgage by 1.75% retroactively for 1998
to clear the default, by 1.75% for 1999, and by 1.5% each year thereafter until
the property is sold or refinanced. The borrower made a $550,000 equity
contribution, which has been escrowed for the exclusive purpose of correcting
deferred maintenance and making capital improvements to the property. Any
Surplus Cash that is generated by property operations will be split evenly
between the Trust and the borrower. When the property is sold or refinanced, the
first $1,100,000 of any proceeds remaining after the insured mortgage is paid
off will be split 50% / 50%; the next $1,690,220 of proceeds will be split 75%
to the Trust and 25% to the borrower; and any remaining proceeds will be split
50% / 50%. The borrower's new equity and the reduction in the effective interest
rate on the insured mortgage will provide funds for repairs and improvements
that should help reposition Lifestyles so it can compete more effectively for
residents and rental rates. As a result of the factors described above, in
December 1998 the Advisor determined that the Additional Loan collateralized by
the Lifestyles asset was impaired. As a result, the Trust recorded a valuation
allowance of $1,130,346 in the fourth quarter of 1998 and has maintained such
allowance in 1999.
Mountain View is similar to Lifestyles with respect to competitive market
conditions. In June 1999, the Trust entered into a second modification agreement
(the "Agreement") with the borrowers of the Mountain View Apartments PIMI
reducing the interest rate on the insured mortgage by 1.25% per annum beginning
January 1, 1999 and continuing through December 31, 2004 and changing the
participation feature. The Agreement eliminated the Preferred Interest required
under the Additional Loan and changed the Trust's participation in the surplus
cash generated by property. Under the Agreement, the Trust will receive 75% of
the first $130,667 of surplus cash and 50% of any remaining surplus cash on an
annual basis to pay the base interest on the Additional Loan. Unpaid Additional
Loan base interest will accrue and be payable if there are sufficient proceeds
from a sale or refinancing of the property except that $288,580 of existing
accruals related to the Additional Loan had been forgiven, In addition, the
borrower repaid $153,600 of the Additional Loan and funded approximately $54,000
to a reserve for property improvements. As a result of the Advisor determining
that the Mountain View Additional Loan was impaired, the Trust recorded a
valuation allowance of $984,000 in the fourth quarter of 1998. During the fourth
quarter of 1999, the Trust increased this reserve by $48,272 as a result of
additional decreases in the collateral value.
Whether the operating performance at any of the properties mentioned above
provide sufficient cash flow from operations to pay either the Additional Loan
interest or participation income will depend on factors that the Trust has
little or no control over. Should the properties be unable to generate
sufficient cash flow to pay the Additional Loan interest, it would reduce the
Trust's distributable cash flow and could affect the value of the Additional
Loan collateral.
There are contractual restrictions on the repayment of the PIMs and PIMIs.
During the first five years of the investment, borrowers are prohibited from
repayment. During the second five years, the PIM borrowers can prepay the
insured first mortgage by paying the greater of a prepayment penalty or the
participation due at the time of the prepayment. Similarly, the PIMI borrowers
can prepay the insured first mortgage and the Additional Loan by satisfying the
Preferred Return obligation. The participation features and Additional Loans are
neither insured nor guaranteed. If the prepayment of the PIM or PIMI results
from the foreclosure on the underlying property or an insurance claim, the Trust
would probably not receive any participation income or any amounts due under the
Additional Loan.
During the third quarter of 1999, the Trust received a prepayment of the Audubon
Villas PIMI when the property was refinanced. The Trust received the prepayment
of the principal balance of the insured mortgage, $14,861,957, the principal
balance of the Additional Loan, $2,691,000, and participation income of
$1,966,901. Also, $1,962,261 was recognized as Additional Loan interest income
which was previously recorded as deferred income. On August 18, 1999, the
Advisor declared a special dividend of $1.30 per share that was paid on
September 17, 1999 from the payoff of the mortgage on Audubon Villas PIMI.
<PAGE>
During the third quarter 1998, the Trust received a prepayment of the Park
Highlands PIMI when the property was sold. This prepayment occurred prior to the
expiration of the five-year prohibition. However, the Advisor agreed to allow
the transaction to be completed while market conditions were favorable in return
for an additional prepayment penalty. The Trust received the prepayment of the
principal balance of the insured first mortgage, $16,752,295, the principal
balance of the Additional Loan, $3,000,000, the Additional Loan interest due at
the time of the prepayment, $57,945, and the prepayment penalty for the early
payoff, $479,476. In addition, the Trust received participation interest
comprised of the outstanding Preferred Return on the Trust investment,
$1,481,865, and the Trust's share in the increase in the value of the underlying
property, $1,206,719.
Also during the third quarter of 1998, the Trust received a prepayment of
the Coconut Palm Club PIMI. This transaction was the result of a sale of the
underlying property as well, although the Trust received less than its full
Preferred Return. The Advisor agreed to allow the transaction because the
purchase price was judged to be favorable in light of the highly competitive
rental market in Broward County, Florida. In addition, without the sale it was
likely that the Advisor would have agreed to a loan restructure with the
borrower rather than expose the Trust to the uncertainty of a probable default.
The Trust received the prepayment of the principal balance of the insured first
mortgage, $15,851,211, the principal balance of the Additional Loan, $2,850,900,
and the Additional Loan interest due at the time of the repayment, $89,090. In
addition, the Trust received participation interest of $1,419,116 towards the
Preferred Return.
The Trust paid a special dividend on September 9, 1998 of $2.86 per Share
from the prepayment proceeds of the Park Highlands and Coconut Palm Club PIMIs.
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 Advisor will determine the merits of exercising the call
option for each PIM and PIMI as economic conditions warrant. Such factors as the
condition of the asset, local market conditions, the interest rate environment
and available financing will have an impact on these decisions.
Assessment of Credit Risk
The Trust's investments in insured mortgages and MBS are guaranteed or
insured by Fannie Mae, the Federal Home Loan Mortgage Corporation (FHLMC), the
Government National Mortgage Association (GNMA) and the Department of Housing
and Urban Development (HUD) and therefore the certainty of their cash flows and
the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
Fannie Mae 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,
ability to maintain the properties and obtain adequate insurance coverage;
adverse changes in general economic conditions, adverse local conditions, and
changes in governmental regulations, real estate zoning laws, or tax laws; and
other circumstances over which the Trust may have little or no control.
The Trust includes in cash and cash equivalents approximately $4.2 million
of Agency paper.
Interest Rate Risk
<PAGE>
The Trust's primary market risk exposure is to interest rate risk, which
can be defined as the exposure of the Trust's net income, comprehensive income
or financial condition to adverse movements in interest rates. At December 31,
1999, the Trust's PIMs, PIMIs and MBS comprise the majority of the Trust's
assets. As such, decreases in interest rates may accelerate the prepayment of
the Trust's investments. The Trust does not utilize any derivatives or other
instruments to manage this risk as the Trust plans to hold all of its
investments to expected maturity.
The Trust monitors prepayments and considers prepayment trends, as well as
distribution requirements of the Trust, when setting regular dividend
distribution policy. For MBS, the fund forecasts prepayments based on trends in
similar securities as reported by statistical reporting entities such as
Bloomberg. For PIMs and PIMIs, the Trust incorporates prepayment assumptions
into planning as individual properties notify the Trust of the intent to prepay
or as they mature.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. The expected maturity date is
contractual maturity adjusted for expectations of prepayments.
<TABLE>
<CAPTION>
Expected maturity dates ($ in thousands)
2000 2001 2002 2003 2004 Thereafter Total Fair Value
Face Value
Interest-sensitive assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MBS $1,731 $ 1,498 $ 1,297 $ 1,126 $ 980 $ 10,833 $ 17,465 $ 17,495
Weighted
average interest rate 8.34% 8.34% 8.34% 8.34% 8.34% 8.34% 8.34%
PIMS 440 476 14,051 258 280 31,827 47,332 46,995
Weighted
average interest rate 7.67% 7.67% 8.06% 8.06% 8.06% 8.06% 7.90%
PIMIS 377 409 445 484 525 57,889 60,129 59,081
Weighted
average interest rate 7.49% 7.72% 7.72% 7.72% 7.72% 7.91% 7.71%
Additional Loans 0 0 2,471 1,400 2,900 3,743 10,514 8,351
Weighted
Average interest rate 6.27% 6.27% 5.90% 5.66% 4.63% 4.63% 5.82%
Total Interest-
Sensitive Assets $2,548 $2,383 $18,264 $3,268 $ 4,685 $ 104,292 $ 135,440 $ 131,922
</TABLE>
<PAGE>
Operations
The following discussion relates to the operations of the Trust during the
years ended December 31, 1999, 1998 and 1997. Dollars are stated in thousands,
except for per Share amounts.
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
Per Per Per
Amount Share Amount Share Amount Share
Interest income on PIMs
and PIMIs:
<S> <C> <C> <C> <C> <C> <C>
Basic Interest $ 8,789 $ .58 $10,636 $ .71 $12,181 $ .81
Additional Loan interest 2,535 .18 3,081 .20 794 .05
Participation income 2,269 .15 5,094 .34 1,385 .09
Interest income on MBS 1,531 .10 1,930 .13 2,199 .15
Interest income on cash
and cash equivalents 508 .03 1,181 .08 1,059 .07
Trust expenses (1,595) (.11) (1,973) (.13) (2,313) (.15)
Amortization of prepaid
fees and expenses (1,672) (.11) (2,999) (.20) (2,406) (.16)
Provision for impaired
mortgage loans (48) - (2,114) (.14) - -
Net income $ 12,317 $ .82 $14,836 $ .99 $12,899 $ .86
Weighted average
Shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
The net income of the Trust for 1999 decreased as compared to 1998 and
1997. During the three years in the periods ended December 31, the Trust's
operations have experienced changes in the mix of interest income as the Trust
has had prepayments in its PIMs and PIMIs. These prepayments have reduced the
basic interest on PIMs and PIMIs, and decreased participation income and
additional loan interest income in 1999 as compared to 1998. The Trust's net
income decreased by approximately $2.5 million for 1999 when compared to 1998
due primarily to decreases in interest income net of decreases in asset
management fees due to an affiliate, the provision for impaired mortgage loans
and amortization expense. The prepayment of Park Highland and Coconut Palm in
1998, and Audubon Villas in 1999 caused a decrease in basic interest income on
PIM and PIMIs. Participation income was higher in 1998 by $2.8 million as
compared to 1999 resulting from the participation income received when the Park
Highlands and Coconut Palm PIMIs prepaid, exceeding the income received when the
Audubon Villas PIMI prepaid in 1999. Interest income on MBS will continue to
decline as principal collections reduce the MBS investment balance. Other
interest income decreased due to lower average cash balances.
Amortization expense decreased due to the payoffs of the Audubon Villas,
Park Highland and Coconut Palm PIMIs. The decrease in asset management fees is
due to the Trust's asset base declining. The provision for impaired mortgage
loans decreased from 1998 to 1999. In 1998, the Trust recorded a provision for
impaired mortgage loans in connection with the Lifestyles and Mountain View
Additional Loans. In 1999, the trust recorded an additional $48,000 to adjust
the carrying value of the loan to the estimated fair value of the collateral.
The Trust's net income for 1998 increased by approximately $1.9 million
when compared to 1997 due primarily to higher participation income and
Additional Loan interest caused by the prepayments of Coconut Palm and Park
Highlands PIMI's. This was somewhat offset by the Trust recording a provision
for impaired mortgage loans of $ 2,114,000 in 1998 related to Lifestyles and
Mountain View as discussed above and lower basic interest. The Trust received
$1,419,000 from Coconut Palm Club and $3,168,000 from Park Highlands for
participation income and the Trust recognized all of the previously deferred
Additional Loan interest of $1,290,000 from Coconut Palm Club and $1,295,000
from Park Highlands as Additional Loan interest. The prepayments also caused the
majority of the decline in basic interest. Other interest income increased
$122,000 due primarily to the Trust having higher short-term investment balances
during 1998 when compared to 1997.
<PAGE>
The Trust saw a decline in expense reimbursements in 1998 due to a rebate
for expense reimbursements related to 1997 received in 1998. Asset management
fees decreased $199,000 in 1998 primarily as a result of the Coconut Palm and
Park Highland PIMI prepayments. The increase in amortization expense is because
the Trust fully amortized the remaining balances of prepaid fees and expenses
associated with the Park Highlands and Coconut Palm Club PIMI's.
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 (53) Chairman of Board of Trustees and Trustee
* Charles N. Goldberg (58) Trustee
* E. Robert Roskind (55) Trustee
* J. Paul Finnegan (75) Trustee
Robert A. Barrows (42) Treasurer
Scott D. Spelfogel (39) Clerk
Kristin L. Hicks (33) Assistant Clerk
* Independent Trustee
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Group, an integrated real estate financial services
firm engaged in real estate acquisition and property management, investment
sponsorship, venture capital investing, mortgage banking, financial management,
and ownership of three operating companies through private equity investments.
Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was
established as The Krupp Companies in 1969 and he has served as the Chief
Executive Officer since 1992. Mr. Krupp serves as a member of the Board of
Trustees at Brigham & Women's Hospital. He is a graduate of Bryant College where
he received an honorary Doctor of Science in Business Administration in 1989 and
was elected trustee in 1990.
Charles N. Goldberg is of counsel to the law firm of Broocks, Baker &
Lange, L.L.P., which position he has held since December of 1997. 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 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. He currently serves as a Trustee of
Krupp Government Income Trust.
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 has served in this capacity since October of
1993. 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 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. He currently serves as a Trustee of Krupp Government Income Trust and
Chairman of the Board of Trustees of Lexington Corporate Properties.
<PAGE>
J. Paul Finnegan retired as a partner of Coopers & Lybrand in 1987. Since
then, he has been engaged in business as a consultant, 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 degree from Bentley College. Mr. Finnegan is a
Certified Public Accountant and an attorney. Mr. Finnegan currently serves as a
Trustee of Krupp Government Income Trust and a director at Scituate Federal
Savings Bank.
Robert A. Barrows is the Treasurer of the Trust, 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 and
management information systems 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.
Scott D. Spelfogel is the Clerk of the Trust, Senior Vice President and
General Counsel to The Berkshire Group. Prior to 1997, he 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 and is a licensed real estate
broker in Massachusetts.
Kristin L. Hicks is the Assistant Clerk of the Trust and is Assistant
General Counsel to The Berkshire Group. Prior to 1999, she served as Staff
Attorney for The Berkshire Group beginning in September 1997, and prior to that
position, she was the manager of the transfer department for Krupp Funds Group
from May of 1992 through September of 1997. She received a B.A. degree from
Northeastern University in 1989 and a J.D. degree from the Suffolk University
Law School in 1995. She is admitted to practice law in Massachusetts and is a
member of the American, Massachusetts and Boston bar associations.
In addition, the following are deemed to be Executive Officers
of the registrant:
George Krupp (age 55) is the Co-Founder and Co-Chairman of The Berkshire
Group, an integrated real estate financial services firm engaged in real estate
acquisition and property management, investment sponsorship, venture capital
investing, mortgage banking, financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University.
Peter F. Donovan (age 46) is Chief Executive Officer of Berkshire Mortgage
Finance which position he has held since January of 1998 and in this capacity,
he oversees the strategic growth plans of this mortgage banking firm. Berkshire
Mortgage Finance is the 16th largest in the United States based on servicing and
asset management of a $7.2 billion loan portfolio. Previously he served as
President of Berkshire Mortgage Finance from January of 1993 to January of 1998
and in that capacity he directed the production, underwriting, 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.
Ronald Halpern (age 58) is President and Chief Operating Officer of
Berkshire Mortgage Finance. He has served in these positions since January of
1998 and in this capacity, he is responsible for the overall operations of the
Company. Prior to January of 1998, he was Executive Vice President, managing the
underwriting, closing, portfolio management and servicing departments for
Berkshire Mortgage Finance. Before joining the firm in 1987, he held senior
management positions with the Department of Housing and Urban Development in
Washington D.C. and several HUD regional offices. Mr. Halpern has over 30 years
of experience in real estate finance. He is currently a member of the Advisory
Council for Fannie Mae and Freddie Mac and was prior Chairman of the MBA
Multifamily Housing Committee. He holds a B.A. degree from the University of the
City of New York and a J.D. degree from Brooklyn Law School.
<PAGE>
Carol J.C. Mills (age 50) is Senior Vice President for Loan Management of
Berkshire Mortgage Finance and in this capacity, she is responsible for the Loan
Servicing and Asset Management functions of the Boston, Bethesda and Seattle
offices of Berkshire Mortgage Finance. She manages the estimated $7.2 billion
portfolio of loans. Ms. Mills joined Berkshire in December 1997 as Vice
President and was promoted to Senior Vice President in January 1999. From
January 1989 through November 1997, Ms. Mills was Vice President of First
Winthrop Corporation and Winthrop Financial Associates, in Cambridge, MA. Ms.
Mills earned a B.A. degree from Mount Holyoke College and a Master of
Architecture degree from Harvard University. Ms. Mills is a member of the Real
Estate Finance Association, New England Women in Real Estate and the Mortgage
Bankers Association.
ITEM 11. EXECUTIVE COMPENSATION
Except for the Independent Trustees as described below, the Trustees and
Officers of the Trust have not been and will not be compensated by the Trust for
their services. However, the Officers will be compensated by the Advisor or an
affiliate of the Advisor.
Compensation of Trustees
The Trust paid each of the Independent Trustees a fee of $25,000 in 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 5, 2000, no person owned of record or was known by the
Advisor to own beneficially more than 5% of the Trust's 15,053,135 outstanding
Shares. The only shares held by the Advisor or any of its affiliates consist of
the original 10,000 Shares.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
Shares of Douglas Krupp
Beneficial One Beacon Street
Interest Boston, Mass. 02108 10,000 Shares** ***
Shares of
Beneficial All Directors and
Interest Officers 10,000 Shares ***
</TABLE>
** 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, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note G to Financial Statements included in Appendix A of
this report.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - see Index to Financial Statements and
Supplementary Data included under Item 8, Appendix A, on
page F-2 of this report.
2. Financial Statement Schedules - see Index to Financial
Statements and Supplementary Data included under Item 8,
Appendix A, on page F-2 of this report. All schedules are
omitted as they are not applicable, not required or the
information is provided in the Financial Statements or the Notes
thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
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 Registrant'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) 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)].*
(10.4) 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)].*
(10.5) 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)].*
<PAGE>
(10.6) 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)].*
(10.7) 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)].*
(10.8) Mortgage Note dated December 11, 1991 between Lifestyles at
Boot Ranch (the "Borrower") and Krupp Mortgage Corporation (the
"Holder"). [Exhibit 10.6 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (File No. 0-19244)].*
(10.9) 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)].*
(10.10) 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)].*
(10.11) 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)].*
(10.12) Second Modification Agreement by and between Krupp Government
Income Trust and Lifestyles at Boot Ranch and M&D Palm Harbor
Partnership and FL-Tampa, Inc. +
Windward Lakes Apartments
(10.13) 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)].*
(10.14) 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)].*
(10.15) 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)].*
(10.16) 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)].*
(10.17) 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)].*
<PAGE>
(10.18) 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)].*
(10.19) Modification Agreement between Krupp Government Income Trust,
Love Funding Corporation, McNab-KC3 Limited Partnership, and Krupp GP,
Inc. +
River View Apartments
(10.20) 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)].*
(10.21) 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)].*
(10.22) 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)].*
(10.23) 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
(10.24) 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)].*
(10.25) 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)].*
(10.26) Subordinated Multifamily Mortgage dated May 28, 1991 between
Mill Pond Limited Partnership (the "Mortgagor") and Krupp Government
Income Trust (the "Mortgagee") [Exhibit 19.7 to Registrant's report on
Form 10-Q for the quarter ended June 30, 1991 (File No. 0-19244)].*
(10.27) 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)].*
(10.28) 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)].*
(10.29) 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)].*
<PAGE>
Waterford Townhome Apartments
(10.30) 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)].*
(10.31) 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)].*
(10.32) 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)].*
(10.33) 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)].*
(10.34) 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)].*
(10.35) 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
(10.36) 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)].*
(10.37) 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)].*
(10.38) 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)].*
(10.39) 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)].*
(10.40) 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)].*
Mountain View Apartments
(10.41) 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)].*
<PAGE>
(10.42) 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)].*
(10.43) 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)].*
(10.44) 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)].*
(10.45) 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)].*
(10.46) 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)].*
(10.47) 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)].*
(10.48) Second Modification Agreement by and between Krupp Government
Trust and Mountain View LTD. [Exhibit 10.1 to Registrant's report Form
10-Q for the quarter ended June 30, 1999 (File No. 0-19244)]*
Red Run Apartments
(10.49) 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)].*
(10.50) 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)].*
(10.51) 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)].*
(10.52) 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)].*
(10.53) 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)].*
<PAGE>
(10.54) Deed of Trust Note dated May 5, 1992 between Red Run Limited
Partnership and Maryland National Mortgage Corporation. [Exhibit 19.3
to Registrant's report on Form 10-Q for the quarter ended September
30, 1992 (File No. 0-19244)].*
(10.55) 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)].*
Lincoln Green Apartments
(10.56) 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)].*
(10.57) 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)].*
(10.58) 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
(10.59) 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)].*
(10.60) 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)].*
(10.61) Subordinated Promissory Note dated September 16, 1993 between
Maryland Associates Limited Partnership (the "Maker") and Krupp
Government Income Trust II (the "Holder") [Exhibit 10.82 to
Registrant's report on Form 10-K for the year ended December 31, 1994
(File No. 0-19244)].*
(10.62) 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)].*
(10.63) 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)].*
(10.64) 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)].*
<PAGE>
(10.65) 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
(10.66) 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)].*
(10.67) 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)].*
(10.68) Allonge to Deed of Trust Note dated July 1, 1994 between
Rosemont Ltd. and Rockport Mortgage Corporation [Exhibit 10.89 to
Registrant's report on Form 10-K for the year ended December 31, 1994
(File No. 0-19244)].*
(10.69) 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
+ Filed Herein
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 1999, the Trust
did not file any reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
the 9th day of March, 2000.
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 9th day of March, 2000.
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
<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, 1999
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 1999 and 1998 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7
Notes to Financial Statements F-8 - F-20
Schedule II - Valuation and Qualifying Accounts F-21
Supplementary Data - Selected Quarterly Financial Data (Unaudited) F-22
All other schedules are omitted as they are not applicable or not required,
or the information is provided in the financial
statements or the notes thereto.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and the Shareholders of
Krupp Government Income Trust:
In our opinion, the accompanying balance sheets and the related statements
of income and comprehensive income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Krupp
Government Income Trust (the "Trust") at December 31, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 in conformity with auditing principles generally
accepted in the United States. 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 of these statements in
accordance with auditing standards generally accepted in the United States which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2000
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
Participating Insured Mortgage Investments
("PIMIs") (Notes B, C and J):
<S> <C> <C>
Insured Mortgages $ 60,129,492 $ 75,386,460
Additional loans, net of impairment provision of $2,162,618 and
$2,114,346, respectively 8,350,990 11,243,862
Participating Insured Mortgages ("PIMs")
(Notes B, D and J) 47,331,673 47,737,583
Mortgage-Backed Securities and insured
mortgage loan("MBS") (Notes B, E and J) 17,495,423 22,132,858
Total mortgage investments 133,307,578 156,500,763
Cash and cash equivalents (Notes B and J) 4,627,499 9,004,397
Interest receivable and other assets 973,491 1,057,365
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,089,755
and $6,125,191, respectively (Note B) 2,243,706 3,445,605
Prepaid participation servicing fees, net of
accumulated amortization of $1,834,434
and $1,776,625, respectively (Note B) 943,315 1,413,559
Total assets $ 142,095,589 $ 171,421,689
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 3,918,021 $ 5,773,669
Other liabilities 25,025 33,230
Total liabilities 3,943,046 5,806,899
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 137,921,227 164,742,014
Accumulated comprehensive income (Note B) 231,316 872,776
Total Shareholders' equity 138,152,543 165,614,790
Total liabilities and Shareholders'
equity $ 142,095,589 $ 171,421,689
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Revenues:
Interest income - PIMs and PIMIs:
<S> <C> <C> <C>
Basic interest $ 8,789,439 $ 10,635,959 $ 12,180,539
Additional Loan interest 2,534,790 3,080,944 793,577
Participation income 2,268,505 5,094,353 1,385,480
Interest income - MBS 1,531,351 1,930,383 2,199,234
Interest income cash and cash
equivalents 508,144 1,180,647 1,058,966
Total revenues 15,632,229 21,922,286 17,617,796
Expenses:
Asset management fee
to an affiliate (Note G) 1,104,431 1,331,745 1,531,026
Expense reimbursements
to affiliates (Note G) 220,657 207,165 395,934
Amortization of prepaid fees
and expenses 1,672,143 2,998,705 2,405,645
General and administrative 269,345 433,860 385,956
Provision for impaired mortgage
loans (Notes B and C) 48,272 2,114,346 -
Total expenses 3,314,848 7,085,821 4,718,561
Net income (Note I) 12,317,381 14,836,465 12,899,235
Other comprehensive income:
Net change in unrealized (loss)
gain on MBS (641,460) (512,826) 120,250
Total comprehensive income $ 11,675,921 $ 14,323,639 $ 13,019,485
Basic earnings per share $ .82 $ .99 $ .86
Weighted average shares outstanding 15,053,135 15,053,135 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
Accumulated Total
Common Retained Comprehensive Shareholders'
Stock Earnings Income Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 233,015,255 $ - $ 1,265,352 $ 234,280,607
Dividends (20,518,745) (12,899,235) - (33,417,980)
Net income - 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
Dividends (47,754,496) (14,836,465) - (62,590,961)
Net income - 14,836,465 - 14,836,465
Change in unrealized gain
on MBS - - (512,826) (512,826)
Balance at December 31, 1998 164,742,014 - 872,776 165,614,790
Dividends (26,820,787) (12,317,381) - (39,138,168)
Net income - 12,317,381 - 12,317,381
Change in unrealized gain
on MBS - - (641,460) (641,460)
Balance at December 31, 1999 $ 137,921,227 $ - $ 231,316 $ 138,152,543
Shares issued and outstanding for each of the three years ended
December 31, are 15,053,135
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
Operating activities:
<S> <C> <C> <C>
Net income $ 12,317,381 $ 14,836,465 $ 12, 899,235
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premium and (discounts) 3,044 (7,646) 2,816
Provision for impaired mortgage loans 48,272 2,114,346 -
Amortization of prepaid fees and expenses 1,672,143 2,998,705 2,405,645
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 83,874 236,875 413,559
(Decrease) increase in deferred income
on Additional Loans (1,855,648) (2,097,937) 546,192
(Decrease) increase in other
liabilities (8,205) 7,816 (2,319)
Net cash provided by operating
activities 12,260,861 18,088,624 16,265,128
Investing activities:
Principal collections on Insured Mortgages 800,921 855,221 891,321
Principal collections on MBS 3,992,931 4,447,303 3,152,419
Insured mortgage prepayments 14,861,957 32,603,506 5,630,985
Additional Loan prepayments 2,844,600 5,850,900 1,540,000
Acquisition of MBS - - (3,366,000)
Net cash provided by investing
activities 22,500,409 43,756,930 7,848,725
Financing activity:
Dividends (39,138,168) (62,590,961) (33,417,980)
Net decrease in cash and
cash equivalents (4,376,898) (745,407) (9,304,127)
Cash and cash equivalents, beginning
of year 9,004,397 9,749,804 19,053,931
Cash and cash equivalents, end of year $ 4,627,499 $ 9,004,397 $ 9,749,804
Non Cash Activities:
(Decrease) increase in Fair Value of MBS $ (641,460) $ (512,826) $ 120,250
</TABLE>
The accompanying notes are an integral
part of the financial statements.
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Government Income Trust (the "Trust") was formed on November 1,
1989 by filing a Declaration of Trust in The Commonwealth of
Massachusetts. The Trust is authorized to sell and issue not more than
17,510,000 shares of beneficial interest (the "Shares"). The Trust was
organized for the purpose of investing in commercial and multi-family
loans and mortgage backed securities. 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.
Effective January 1, 1998, the Trust adopted "Statement of Financial
Accounting Standards No. 130, 'Reporting Comprehensive Income'" (FAS
130). FAS 130 established standards for reporting and displaying
comprehensive income and its components. FAS 130 requires
comprehensive income and its components, as recognized under
accounting standards, to be displayed in a financial statement with
the same prominence as other financial statements, if material. FASB
130 had no material effect on the Trust's financial position or
results of operations.
The Federal Housing Administration (FHA) insured mortgage is carried
at amortized cost. The Trust holds this loan at amortized cost since
it is fully insured by FHA.
PIMs and PIMIs
The Trust accounts for its MBS portion of a PIM or PIMI in accordance
with FAS 115 under the classification of held to maturity. The Trust
carries those MBS at amortized cost.
The insured mortgage portion of the FHA PIM or FHA PIMI is carried at
amortized cost. The Trust holds these mortgages at amortized cost
since they are fully insured by FHA.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
PIMs and PIMIs, Continued
The Additional Loans are carried at amortized cost unless the Advisor
of the Trust believes there is an impairment in value, in which case a
valuation allowance is established in accordance with FAS 114 and FAS
118.
Basic interest is recognized based on the stated rate of the
Department of Housing and Urban Development ("HUD") Insured Mortgage
loan (less the servicer's fee) or the coupon rate of the Government
National Mortgage Association ("GNMA") or Fannie Mae MBS. The Trust
recognizes interest related to the participation features when it
deems these amounts estimable and 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
PIMI's generate sufficient operating cash flow to make the required
Additional Loan interest payments the Trust recognizes income as
earned commences amortization of the deferred interest amounts into
income over the remaining estimated term of the Additional Loan.
During periods where mortgage loans are impaired the Trust suspends
amortizing deferred interest.
The Trust also fully reserves the portion of any Additional Loan
interest payment satisfied through the issuance of an operating loan
and any associated interest due on such operating loan. The Trust will
recognize the income related to the operating loan when the borrower
repays amounts due under the operating loan.
Impaired Mortgage Loans
Impaired loans are those loans which the Advisor believes that the
collection of all amounts due in accordance with the contractual terms
of the loan agreement are not likely. Impaired loans are measured
based on the fair value of the underlying collateral. Interest
received on the impaired loans is generally applied against the loan
principal or as interest income if deemed collectable by the Advisor.
Cash Equivalents
The Trust includes all short-term investments with maturities of three
months or less from the date of acquisition in cash and cash
equivalents. The Trust invests its cash primarily in Agency paper,
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 fees paid for the
acquisition and servicing of PIMs and PIMIs. The Trust amortizes
prepaid acquisition fees and expenses using a method that approximates
the effective interest method over a period of ten to twelve years,
which represents the actual maturity or anticipated call payoff of the
underlying mortgage.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, Continued
Prepaid Fees and Expenses, Continued
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 or a GNMA MBS and at closing if a Fannie Mae 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 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 had investments in five PIMIs on December 31, 1999 and six
PIMIs on December 31, 1998 that provide the permanent financing of
multi-family housing. One component of a PIMI is either a securitized
HUD-insured first mortgage loan issued and guaranteed by GNMA or a
sole participation interest in a first mortgage loan originated under
the Federal Housing Administration ("FHA") lending program and insured
by HUD (collectively the "Insured Mortgages"). The FHA first mortgage
or the first mortgage underlying the GNMA security provides the
borrower (generally a limited partnership) with a below market
interest rate loan in exchange for providing the Trust with
participation in a percentage of the cash generated from property
operations and in a percentage of any appreciation of the underlying
property to a preferred return, then a percentage of any appreciation
thereafter. The borrower conveys these rights to the Trust through a
subordinated promissory note and mortgage. In addition, the Trust made
an Additional Loan to the owners of the borrower to provide additional
funds for the construction and permanent financing of the property.
The owners generally collateralize the Additional Loan through a
pledge and security agreement 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.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
The Trust receives level monthly principal and interest ("Basic
Interest") payments amortizing over thirty to forty years, on the
Insured Mortgage and is entitled to receive participation income
under the subordinated promissory note and mortgage, and
semi-annual interest payments ("Additional Loan 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 income 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 or insurance,
but in certain cases for construction loans after the eleventh or
twelfth anniversary of initial endorsement (commencement of
construction) for coinsurance or 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 insurance or coinsurance with the
Secretary of HUD on the insured mortgage is canceled prior to the
accelerated maturity date.
Additional Loan 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 Additional Loan 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 Additional Loan
Interest shortfall and the Trust in certain situations could
convert the remaining 50% into an operating loan.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
In addition to the Additional Loan 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
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 less: (i) interest
payments paid to the Trust under the Insured Mortgage, (ii)
Participating Income Interest and (iii) Additional Loan 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.
In June 1999, the Trust entered into a second modification
agreement (the "Agreement") with the borrowers of the Mountain
View Apartments PIMI reducing the interest rate on the insured
mortgage by 1.25% per annum beginning January 1, 1999 and
continuing through December 31, 2004 and changing the
participation feature. The Agreement eliminated the Preferred
Interest required under the Additional Loan and changed the
Trust's participation in the surplus cash generated by the
property. Under the Agreement, the Trust will receive 75% of the
first $130,667 of surplus cash and 50% of any remaining surplus
cash on an annual basis to pay the base interest on the
Additional Loan. Unpaid Additional Loan base interest will accrue
and be payable if there are sufficient proceeds from a sale or
refinancing of the property except that $288,580 of existing
accruals related to the Additional Loan had been forgiven. In
addition, the borrower repaid $153,600 of the Additional Loan and
funded approximately $54,000 to a reserve for property
improvements.
During the third quarter of 1999, the Trust received a prepayment
of the Audubon Villas PIMI including the Insured mortgage with a
remaining principal balance of $14,861,957, the Additional Loan
of $2,691,000 and participation income of $1,966,901. Also,
$1,962,261 was recognized as Additional Loan interest income
which was previously recorded as deferred income. On August 18,
1999, the Advisor declared a special dividend of $1.30 per share
that was paid on September 17, 1999 from the payoff of the
mortgage on the Audubon Villas PIMI.
On May 1, 1998, the borrowers on the Lifestyles PIMI defaulted on
its May 1998 debt service payment. The Trust continued to receive
its monthly principal and interest payments guaranteed by GNMA.
In December 1998, the Trust entered into a second modification
agreement with the borrowers of the Lifestyles PIMI reducing the
interest paid monthly on the insured mortgage by 1.75% per annum
for 1998 and 1999 and 1.5% per annum for 2000 through 2007. In
addition, the borrowers made a $550,000 equity contribution,
which has been escrowed, for the exclusive purpose of correcting
deferred maintenance. Under the Agreement any future surplus cash
generated by property operations will be split evenly between the
Trust and the borrowers as Participating Income Interest. When
the property is sold or refinanced, the first $1,100,000 of any
proceeds remaining after the insured first mortgage is paid off
will be split 50% / 50%; the next $1,690,220 of proceeds will be
split 75% to the Trust and 25% to the borrower(the repayment of
the Additional Loan); and any remaining proceeds will be split
50% / 50% between the Trust and the borrower. The Trust will not
earn any Preferred Return or Additional Loan interest.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
During June of 1998, the Trust received a prepayment of the Park
Highlands Insured Mortgage and Additional Loan having a remaining
principal balances of $16,752,295 and $3,000,000 respectively. In
addition, the Trust received the following: (i) a Preferred
Return of $1,481,865, (ii) Participating Appreciation interest of
$1,206,719, (iii) a Prepayment Premium of $479,476, (iv)
Participating Income interest of $211,316 and (v) Additional Loan
interest payable through the date of sale of $57,945.
On July 15, 1998, the Trust received a prepayment of The Coconut
Palm Club Insured Mortgage having a remaining principal balance
of $15,851,211. In addition, in June the Trust received a
prepayment of the Coconut Palm Club Additional Loan of
$2,850,900. The Trust also received a preferred return of
$1,419,116 and Additional Loan interest payable through the date
of sale of $89,091.
Due to the prepayments of the Park Highlands and Coconut Palm
Club Additional Loans in June, the Trust also recognized
Additional Loan interest of $1,290,000 and $1,295,354
respectively, that had been previously classified as deferred
income on these Additional Loans.
On August 6, 1998, the Advisor of the Trust declared a special
dividend of $2.86 per share that was paid on September 9, 1998
from the prepayment proceeds of the Park Highlands and Coconut
Palm Club PIMIs.
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 of new equity into the property;
c) the borrower will cap the annual management fee paid to an
affiliate at 3% of revenues; d) the Trust's participation in
current operations shall be 50% of Surplus Cash as determined
under HUD guidelines; e) Additional Loan Interest 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 of the first mortgage and additional
loans, interest rate relief, accrued Additional Loan 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 of 1997 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
Participation income which includes prepayment penalties;
$5,630,985 to payoff the outstanding first mortgage principal
balance. During the third quarter of 1997, the Trust made a
special dividend of $.92 per share to its investors. This special
dividend was funded from 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.
At December 31, 1999 and 1998 there are no Insured Mortgage loans
within the Trust's portfolio that are delinquent as to principal
or interest.
Continued
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
The Trust's investments in PIMIs consist of the following at
December 31, 1999 and 1998:
C. PIMIs, Continued
Original
Loan Monthly Interest Maturity Balance Outstanding
PIMI's Amount Payments Rate Date at December 31,
1999 1998
<S> <C> <C> <C> <C> <C> <C>
Lifestyles (GNMA) $ 10,292,394 $ 60,958 7.00%(a) 05/01/32 $ 9,966,008 $ 10,022,381
Windward (GNMA) 14,000,778 91,165 7.50%(b) 06/01/32 13,596,232 13,667,163
Audubon Villas (GNMA) 15,250,000 - 7.75% 09/15/33 - 14,909,371
Mountain View (FHA) 9,547,700 57,504 6.875%(c) 01/01/34 9,315,978 9,363,459
Red Run (FHA) 19,019,600 130,312 7.875% 05/01/34 18,552,815 18,651,261
The Seasons (FHA) (d) 9,075,351 63,552 7.875% 10/01/28 8,698,459 8,772,825
$ 77,185,823 $ 403,491 $ 60,129,492 $ 75,386,460
(f)
</TABLE>
<TABLE>
<CAPTION>
Base Preferred
Outstanding Balance Maturity Interest Interest
Additional Loan 1999 1998 Date Rate Rate
<S> <C> <C> <C> <C> <C>
Lifestyles (a) $ 1,817,665 $ 1,817,665 05/14/2007 - -
Windward (b) 2,471,294 2,471,294 07/07/2002 7.5% 10%
Audubon Villas - 2,691,000 - 7.0% 10%
Mountain View (c) 1,400,000 1,553,600 09/16/2003 7.0% -
Red Run 2,900,000 2,900,000 06/23/2004 7.0% 10%
The Seasons(d)(e) 1,924,649 1,924,649 10/01/2028 9.0% 10%
$ 10,513,608 $ 13,358,208
(a) The Trust entered into an Agreement which reduced the interest rate on the
Insured Mortgage by 1.75% per annum effective January 1, 1998 for a period
of twenty-four months and 1.5% per annum for 2000 though 2007. The Trust
will not receive any Additional Loan interest or Preferred Return due to
the workout.
(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. Additional loan interest is payable from surplus cash.
</TABLE>
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
(c) The Trust entered into a second modification agreement which reduced the
interest rate on the Insured Mortgage by 1.25% per annum effective January
1, 1999 and continuing through December 31, 2004. The Agreement eliminated
the Preferred Interest required under the Additional Loan and changed the
Trust's participation in the surplus cash generated by the property.
Furthermore, debt service relief provided by the first modification was
forgiven.
(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 Additional Loan 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 $60,129,492.
Impaired Mortgage Loans
The Advisor of the Trust has determined that the
Lifestyles Additional Loan is impaired. As a result, during 1998, a valuation
allowance of $1.1 million was established to adjust the carrying amount of the
loan to the estimated fair market value of the collateral less anticipated costs
of sale. The Trust will recognize interest income to the extent cash is received
and supported by operating cash flow generated by the collateral. The Trust did
not recognize interest income on the Lifestyles Additional Loan during 1999 or
1998.
The Advisor of the Trust has determined that the Mountain View Additional Loan
is impaired. As a result, during 1998, a valuation allowance of $984,000 was
established to adjust the carrying amount of the loan to the then estimated fair
market value of the collateral less anticipated costs of sale. During 1999, the
Trust increased the valuation allowance of Mountain View by $48,272. The Trust
will recognize interest income to the extent cash is received and supported by
operating cash flow generated by the collateral. The Trust did not recognize
interest income income on the Mountain View Additional Loan during 1999 or 1998.
<TABLE>
<CAPTION>
The activity in the valuation allowance together with the related recorded and
carrying value of the mortgage loans is as follows:
Recorded Valuation Carrying
Value Allowance Value
<S> <C> <C> <C>
Lifestyles $1,817,665 $1,130,346 $ 687,319
Mountain View 1,400,000 1,032,272 367,728
Balance at
December 31, 1999 $3,217,665 $2,162,618 $1,055,047
</TABLE>
The recorded value of the impaired mortgage loans did not differ materially from
the balances reported at the end of each quarter with the exception of the
impairment recorded in the fourth quarter of 1998 for the Lifestyles and
Mountain View Additional Loans. The Trust has also deferred income related to
Lifestyles and Mountain View of $687,319 and$367,383, respectively.
Continued
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
A reconciliation of activity for each of the three years in the period ended
December 31, is as follows:
Insured Mortgages
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of period $ 75,386,460 $ 108,470,247 $ 114,625,179
Insured mortgage prepayments (14,861,957) (32,603,506) (5,630,985)
Principal collections (395,011) (480,281) (523,947)
Balance at end of period $ 60,129,492 $ 75,386,460 $ 108,470,247
Additional Loans
Balance at beginning of period $ 11,243,862 $ 19,209,108 $ 20,749,108
Additional loan prepayments (2,844,600) (5,850,900) (1,540,000)
Valuation allowance (48,272) (2,114,346) -
Balance at end of period $ 8,350,990 $ 11,243,862 $ 19,209,108
</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.
- - 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.
- - The Seasons is a 1,088-unit apartment complex located in Laurel, Maryland.
D. PIMs
The Trust had investments in five PIMs at December 31, 1999. The Trust's PIMs
consist of a GNMA or Fannie Mae 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 level monthly payments of principal and interest,
amortizing over thirty to forty years on the GNMA and Fannie Mae 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 income related
to its participation interests in the underlying property, however, these
amounts are neither insured nor guaranteed.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, continued
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 income from the operations of the property is limited
to 50% of net revenue or surplus cash as defined by Fannie Mae or HUD,
respectively. Payment of participation income at the time of the prepayment of
the PIM or upon its maturity generally cannot exceed 50% of any increase in
value of the underlying property.
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.
Under the Agreement, the Trust, upon giving twelve months written notice, can
accelerate the maturity date of the Agreement to a date not earlier than ten
years from the date of the Agreement for (a) the payment of all participation
interest due under the Agreement as of the accelerated maturity date, or (b) the
payment of all participation interest due under the Agreement plus all amounts
due on the first mortgage note on the property.
At December 31, 1999 and 1998 there are no Insured Mortgage loans within the
Trust's portfolio that are delinquent of principal or interest.
<TABLE>
<CAPTION>
The Trust's PIMs consisted of the following at December 31, 1999 and 1998:
Original
Loan Monthly Interest Maturity
PIM Amount Payments Rate Date Balance Outstanding at December 31,
1999 1998
<S> <C> <C> <C> <C> <C> <C>
River View (GNMA) $ 9,284,877 $ 64,535 8.00% 01/15/33 $ 9,019,623 $ 9,070,196
Mill Pond (FHA) 7,812,100 55,157 8.15% 01/01/33 7,580,257 7,622,447
Waterford (FHA) 6,935,900 48,832 8.125% 08/01/32 6,713,520 6,752,284
Rivergreens (FHA) 10,003,000 69,518 8.005% 04/01/33 9,711,260 9,765,665
Lincoln Green (FNMA) 15,565,000 99,571 6.75% 10/01/02 14,307,013 14,526,991
(a)
Total $ 49,600,877 $ 337,613 $ 47,331,673 $ 47,737,583
(b)
(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 $47,331,673.
</TABLE>
Continued
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, continued
A reconciliation of activity for each of the three years in the period ended
December 31, is as follows:
1999 1998 1997
<S> <C> <C> <C>
Balance at beginning of period $ 47,737,583 $ 48,112,523 $ 48,479,897
PIM prepayment - - -
Prinicipal collections (405,910) (374,940) (367,374)
Balance at end of period $ 47,331,673 $ 47,737,583 $ 48,112,523
</TABLE>
Property descriptions:
- River View Apartments ("River View") is a 220-unit apartment complex
located in Columbia, South Carolina.
- Mill Pond Apartments ("Mill Pond") is a 146-unit apartment complex in
Bellbrook, Ohio.
- Waterford Townhomes Apartments ("Waterford") is a 122-unit apartment
complex in Eagen, Minnesota.
- Rivergreens Apartments ("Rivergreens") is a 208-unit apartment complex
in Gladstone, Oregon.
- Lincoln Green Apartments ("Lincoln Green") is a 616-unit apartment
complex in Greensboro, North Carolina.
E. MBS
At December 31, 1999, the Trust's MBS portfolio had an amortized cost of
$12,377,145 and gross unrealized gains and losses of $258,056 and $26,740,
respectively. At December 31, 1999, the Trust has a FHA insured mortgage with an
amortized cost of $4,886,962. At December 31, 1998, the Trust's MBS portfolio
had an amortized cost of $16,355,176 and gross unrealized gains and losses of
$875,328 and $2,552, respectively. At December 31, 1998, the Trust's FHA insured
mortgage had an amortized cost of $4,904,906. The Trust's MBS have maturities
ranging from 2008 to 2035.
<TABLE>
<CAPTION>
Unrealized
Maturity Date Fair Value Gain/(Loss)
<S> <C> <C>
2001 - 2005 $ - $ -
2006 - 2010 462,299 (3,694)
2011 - 2035 17,032,700 234,586
Total $ 17,494,999 $ 230,892
</TABLE>
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.
Continued
<PAGE>
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
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, 1999, 1998, and 1997, the Trust
received interest collections on Additional Loans with affiliates of the Advisor
of the Trust of $ 225,156, $218,841, and $400,838, respectively. In addition,
the Trust received $ 153,499 in 1999, $ 93,457 in 1998 and $32,622 in 1997
related to Participating Interest Income.
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 $ 12,317,381
Add: Provision for impaired mortgage loan 48,272
Less: Additional Loan interest recognized and previously
deferred for book purposes (1,825,446)
Book to tax difference for amortization
of prepaid fees and expenses (109,242)
Net income for federal income tax purposes $ 10,430,965
</TABLE>
The Trust paid dividends of $2.60 per share during 1999 which represents
approximately $.69 from ordinary income and $1.91 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 $7,921,000 and $7,311,000 at December
31, 1999 and 1998, respectively. The basis of the Trust's liabilities for
financial reporting purposes exceeded its tax basis by approximately
$3,918,000 and $5,774,000 at December 31, 1999 and 1998, respectively.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
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
while it estimates the fair value of insured mortgages based on quoted
price of MBS with similar interest rates. Based on the estimated fair value
determined using these methods and assumptions the Trust's investments in
MBS had gross unrealized gains and losses of approximately $258,000 and
$27,000 at December 31, 1999 and $875,000 and $3,000 at December 31, 1998.
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. Additional Loans are based on the estimated
fair value of the underlying properties. Management does not include any
participation income in the Trust's estimated fair values, because
Management does not believe it can predict the time of realization of the
feature with any certainty. Based on the estimated fair value determined
using these methods and assumptions, the Trust's investments in PIMs and
PIMIs had gross unrealized gains and losses of approximately $419,000 and
$1,804,000, respectively at December 31, 1999 and gross unrealized gains of
approximately $3,732,000, at December 31, 1998.
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, the Trust estimated the fair value of its
financial instruments as follows:
(amounts in thousands)
1999 1998
Fair Carrying Fair Carrying
Value Value Value Value
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 4,627 $ 4,627 $ 9,004 $ 9,004
MBS 17,495 17,495 22,133 22,133
PIMs and PIMIs:
PIMs 46,995 47,332 49,229 47,738
Insured mortgages 59,081 60,129 77,627 75,386
Additional Loans 8,351 8,351 11,244 11,244
$ 136,549 $ 137,934 $ 169,237 $ 165,505
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning costs and end of
Description of period expenses Revenues period
<S> <C> <C> <C> <C>
Additional Loan
impairment provision $2,114,346 $ 48,272 $ - $ 2,162,618
(1)
(1) The Trust recognized a valuation allowance related to the Lifestyles
and Mountain View Additional Loans.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
For the Quarter Ended
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
<S> <C> <C> <C> <C>
Total revenues $ 2,972,169 $ 2,930,082 $ 7,000,373 $ 2,729,605
Net income $ 2,305,965 $ 2,128,720 $ 5,800,454 $ 2,082,242
Earnings per Share $ .15 $ .14 $ .39 $ .14
For the Quarter Ended
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
Total revenues $ 3,838,996 $ 11,336,961 $ 3,772,455 $ 2,973,874
Net income $ 2,909,567 $ 9,604,704 $ 2,224,441 $ 97,753
Earnings per Share $ .19 $ .64 $ .15 $ .01
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
(Amounts in thousands, except per Share amounts)
Year Inception
Ended Through
12/31/99 12/31/99
Distributable Cash Flow (a):
<S> <C> <C>
Net income $ 12,317 $ 124,788
Items not requiring or providing the
use of operating funds:
Provision for impaired mortgage loan 49 2,163
Amortization of prepaid fees and
expenses and organization costs 1,672 14,828
Additional Loan Interest Deferred (1,855) 3,918
Total Distributable Cash Flow ("DCF") 12,183 145,697
DCF per Share based on Shares
outstanding at December 31, 1999 $ .81 $ 9.68 (c)
Dividends:
Total dividends to Shareholders $ 36,805 (b) $ 269,494 (b)
Average dividend per Share based
on Shares outstanding at
December 31, 1999 $ 2.44 $ 17.90 (b)(c)
</TABLE>
(a) Distributable Cash Flow consists of income before provision for
impaired mortgage loans, amortization of prepaid fees and expenses and
organization costs and includes deferred interest on Additional Loans.
The Trust believes Distributable Cash Flow is an appropriate
supplemental measure of operating performance, however, it should not
be considered as a substitute for net income as an indication of
operating performance or cash flows as a measure of liquidity.
(b) Includes an estimate of the distribution to be paid February 2000.
(c) Shareholders average per Share return of capital on a cash basis as of
February 2000 is $8.22 [$17.90 - $9.68]. Return of capital represents
that portion of the dividends which is not funded from DCF such as
principal collections received from MBS and PIMs.
This document should be returned after recording to:
Peggy DeMuth
Berkshire Mortgage Finance
One Beacon Street
14th Floor
Boston, MA 02108
SPACE ABOVE THIS LINE FOR RECORDER'S USE
Second Modification Agreement
This Second Modification Agreement (the "Agreement") is made and entered into as
of the day of December 1999 by and among KRUPP GOVERNMENT INCOME TRUST, a
Massachusetts business trust ("GIT"); BERKSHIRE MORTGAGE FINANCE CORPORATION, a
Massachusetts corporation (the "First Mortgagee"); LIFESTYLES AT BOOT RANCH, a
Florida general partnership (the "Partnership"); and M&D Palm Harbor
Partnership, a Florida partnership, and FL-TAMPA, Inc., a Florida corporation
(collectively, the "Partners" or "Borrowers").
W I T N E S S E T H:
WHEREAS, Krupp Mortgage Corporation, now known as Berkshire Mortgage Finance
Corporation (the "First Mortgagee") made a mortgage loan to the Partnership in
the principal sum of Ten Million Three Hundred Thousand One Hundred and No/100
Dollars ($10,300,100) which loan was coinsured by the U.S. Department of Housing
and Urban Development (the "Coinsured Loan");
WHEREAS, the Coinsured Loan was made with respect to Lifestyles at Boot Ranch
Apartments (the "Project") located on the land described in Exhibit A hereto
attached (the "Project") and the terms of the following Coinsured Loan
documents:
A. The Coinsured Loan is evidenced by a certain Mortgage Note (the "Coinsured
Note") dated December 11, 1990 from the Partnership to the First Mortgagee
in the original principal sum of $10,300,100.00;
B. The repayment of the indebtedness evidenced by the Coinsured Note is
secured by, among other things, (i) a Mortgage dated December 11, 1990 and
recorded in the Official Records of Pinellas County, Florida in Book 7446,
Page 1133 (the "Coinsured Mortgage"); (ii) a Regulatory Agreement dated
December 11, 1990 (the "Regulatory Agreement") and recorded in the Official
Records of Pinellas County, Florida in Book 7446, Page 1140 (the Coinsured
Note, Coinsured Mortgage and Regulatory Agreement are collectively referred
to as the "First Mortgage Loan Documents")
WHEREAS, the First Mortgagee obtained funding for the Coinsured Loan through the
purchase of a GNMA MBS by GIT. The interest rate on the Coinsured Loan was below
the then-prevailing interest rates for comparable loans and securities and GIT
was unwilling to participate in the Coinsured Loan unless the Partnership agreed
to pay additional interest to GIT;
<PAGE>
WHEREAS, the Partnership agreed to pay additional interest to GIT pursuant to a
subordinated promissory note (the "Subordinated Note") made by the Partnership
in favor of GIT which is secured by a subordinated multifamily mortgage (the
"Subordinated Mortgage") dated December 11, 1990 and recorded in the Official
Records of Pinellas County, Florida in Book 7447, Page 1096 (the Subordinated
Note and Subordinated Mortgage are collectively referred to as the
"Participating Loan Documents");
WHEREAS, the Partners have executed an Additional Loan Agreement and a
Additional Loan Note evidencing an Additional Loan in the principal sum of One
Million Eight Hundred Seventeen Thousand Six Hundred Sixty-five and No/100
Dollars ($1,817,665.00) (the "Additional Loan"), which Additional Loan is
secured by Pledge and Security Agreements and UCC financing statements with all
documents dated December 11, 1990 (collectively, the "Additional Loan
Documents");
WHEREAS, the Additional Loan Agreement was amended in the Addendum to Additional
Loan Agreement executed by the Partners and GIT on May 14, 1992;
WHEREAS, the Project experienced financial difficulties and the Partnership and
the Partners requested assistance from GIT in regards to their obligations under
the Coinsured Loan Documents, the Participating Loan Documents and the
Additional Loan Documents;
WHEREAS, the Partnership, Partners, the First Mortgagee and GIT executed a
Modification Agreement dated August 1, 1996 (the "1996 Modification Agreement")
that provided debt service relief on the Coinsured Loan for two years ending
December 31, 1997, that changed the payment obligations under the Additional
Loan Documents, and that changed the participation features of the Participating
Loan Documents for that period;
WHEREAS, the Project has continued to experience financial difficulties and the
Partnership and the Partners have requested additional assistance from GIT in
regards to their obligations under the Coinsured Loan Documents, the
Participating Loan Documents and the Additional Loan Documents;
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have agreed
to further modify the Subordinated Note, the Additional Loan Agreement and the
Additional Loan Note based on GIT's providing the financial assistance described
herein, and
WHEREAS, the Partnership, the Partners, the First Mortgagee and GIT have reached
an agreement to the terms and conditions of the financial assistance which is
set forth herein.
NOW THEREFORE, in consideration of the foregoing, Ten and No/100 Dollars
($10.00) in hand paid to GIT and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound, the Partnership, the Partners, the First Mortgagee and GIT hereby agree
as follows:
1. Recitals Incorporated. The foregoing Recitals are hereby incorporated
herein to the same extent as if hereafter fully set forth.
2. Coinsured Loan Default. The Coinsured Loan must be fully reinstated
concurrent with the execution of this Agreement. All delinquent principal,
interest, escrow deposits and late charges then owing to the First
Mortgagee must be paid in full through the date of execution.
<PAGE>
3. Interest Rebate. The Partnership shall continue to make monthly debt service
payment in accordance with the Coinsured Note. Retroactively to January 1, 1998
and during the period of the next ten years thereafter (the "Workout Term"), GIT
will rebate monthly to the Partnership the difference between (i) the interest
rate payable under the Coinsured Note (i.e., 8.5% per annum) and (ii) the rate
indicated for each of the following calendar years during the Workout Term
(collectively, the "Modified Rate"):
Calendar Year Modified Rate
1998 6.75%
1999 6.75%
2000 7.00%
2001 7.00%
2002 7.00%
2003 7.00%
2004 7.00%
2005 7.00%
2006 7.00%
2007 7.00%
4. Partnership and/or Partners' New Equity Contribution. The Partnership
and/or the Partners will provide upon execution of this Agreement an equity
contribution of $550,000 to be deposited in an interest-bearing escrow
account controlled by GIT. Withdrawals from the escrow account may be used
solely for Project repairs and replacements mutually agreed to by the
managing general partner of the Partnership and GIT.
5. Additional Interest under the Subordinated Note. Paragraph 1 of the
Subordinated Note, Payment of Additional Interest appearing on pages two,
three and four, is hereby deleted in its entirety. The following is
substituted in lieu thereof.
1. Additional Interest. The Maker covenants and agrees to pay the Holder
"Additional Interest" which shall mean and include "Participating Income
Interest" and "Participating Appreciation Interest" as defined below. All
payments of Participating Income Interest made by the Maker to the Holder under
this Subordinated Note shall be calculated in accordance with the provisions of
this Paragraph 1 and shall be applied towards those amounts due to the Holder,
GIT, under the Additional Loan Documents. Notwithstanding anything to the
contrary contained or implied in the preceding sentence, the Maker shall be
obligated only for payments of Additional Interest pursuant to this Subordinated
Note and shall not be in any way directly liable for making payments under the
Additional Loan Note, except for the guarantee specifically providing for under
Section 8.N. of the Additional Loan Agreement.
A. Participating Income Interest. Participating Income Interest shall mean
fifty percent (50%) of the following:
(i) all distributable Surplus Cash, as that term is defined in the
Regulatory Agreement, subject, however, to the extent then applicable, to the
provisions of Paragraph 4 herein relating to Surplus Cash and the requirement in
the Regulatory Agreement that Surplus Cash may only be distributed at the end of
a semiannual or annual fiscal year, (except for proceeds of refinancing,
casualty insurance proceeds, and capital contributions to the Maker from any
Partner);
<PAGE>
(ii) any unrestricted cash of the Maker generated from the operation of the
Project; and
(iii) any balance in reserve or escrow accounts not used to satisfy closing
prorations or paid to a third party for the purpose of such escrow.
Solely for the purpose of calculating Participating Income Interest, any
management fees in excess of 4% gross income, or such higher management fee as
HUD or the Lender may determine to be necessary in order to obtain proper
management of the Project, shall not be recognized as a deduction from the
Maker's distributable Surplus Cash or unrestricted cash in determining
Participating Income Interest.
Participating Income Interest shall be deemed to be earned on an annual basis,
concurrent with the calculation period for Surplus Cash, beginning with the
first full fiscal year after the execution of this Agreement. Participating
Income Interest, to the extent it is earned, shall be payable annually to the
Holder within 90 days of the end of any fiscal year in which Surplus Cash has
been generated. In order to verify the accuracy of the computation of
Participating Income Interest, Holder may review the Maker's books and records
during normal business hours upon three (3) days' notice. Maker also shall
submit to the Holder monthly unaudited and annual audited financial statements
and shall submit to the Holder all financial statements submitted to the Lender.
B. Participating Appreciation Interest. Participating Income Interest shall mean
and include,
(i) in the event of a Sale or a Refinancing, Net Proceeds from the Sale or
Refinancing Transaction allocated as follows (all terms as hereinafter
defined):
(a) pari parsu 50% to the Maker and 50% to the Holder up to an aggregate of
the first $1,100,000 of Net Proceeds,
(b) pari parsu 25% to the Maker and 75% to the Holder up to an aggregate of
the next $1,690,220 of Net Proceeds, and
(c) pari parsu 50% to Maker and 50% to the Holder of any remaining Net
Proceeds; or
(ii) upon the Accelerated Maturity Date or upon acceleration pursuant to
Paragraph 1.D. below, an allocation of the Value over the Outstanding
Indebtedness as follows (all terms as hereinafter defined):
(a) pari parsu 50% to the Maker and 50% to the Holder up to an aggregate of
the first $1,100,000 of Net Proceeds,
(b) pari parsu 25% to the Maker and 75% to the Holder up to an aggregate of
the next $1,690,220 of Net Proceeds, and
(c) pari parsu 50% to Maker and 50% to the Holder of any remaining Net
Proceeds.
"Sale" means any bona fide sale, transfer, conveyance, assignment, exchange,
liquidation or other disposition for value to a third party or parties of the
Project or of 10% or more of the beneficial interest in the Maker, including a
transfer as described in Section 6.0 below. Any sale to a "Related Party" or
"Affiliate" must receive the prior
<PAGE>
written approval of the Holder. A "Related Party" includes, without limitation,
any spouse, brother, sister, parent, child or grandchild or the Maker or general
partner of the Maker. An "Affiliate" means, as to the Maker, any individual or
entity (i) that directly or indirectly controls or is controlled by or is under
common control with the Maker, (ii) that is an officer of, partner in or trustee
of, or serves in a similar capacity with respect to the Maker of which the Maker
is an officer, partner or trustee, or with respect to which the Maker serves in
a similar capacity, or (iii) that is the beneficial owner, directly or
indirectly, of 10% or more of any class of equity securities of the Maker or of
which the Maker is directly or indirectly the owner of 10% or more of any class
of equity securities.
"Refinancing" means the payment in full of the Coinsured Loan prior to the
Maturity Date from the proceeds of a loan or loans secured by the Project or
loans secured by a pledge of any beneficial interest in the Project or the
Maker.
"Net Proceeds from a Sale or Refinancing Transaction" means,
(i) in the case of a Sale, all consideration paid in connection with a Sale of
the Project including the stated purchase price, cash, notes, interest on
any deferred portion of the purchase price and the value of any and all
other consideration for or with respect to the Project, direct or indirect,
and whether paid to the Maker or to any other person or party, less (a)
prorations and reasonable selling expenses including reasonable independent
third party broker's commissions, (b) title searches, (c) survey costs, (d)
recording costs, escrowed charges and transfer taxes, and (e) reasonable
attorneys' fees paid by Maker in connection with such Sale, or
(ii) in the case of a Refinancing, "Value" less "Outstanding Indebtedness" and
(a) points paid by the Maker as origination fees on the loan, (b)
reasonable underwriting expenses paid by the Maker, including appraisal,
engineering, environmental and survey fees, and (c) reasonable attorneys'
fees paid by the Maker to close the loan.
"Outstanding Indebtedness" means:
(i) the unpaid principal balance of the Coinsured Loan and all accrued and
unpaid interest thereon;
(ii) any and all other sums then due and owing by the Maker to the Lender in
accordance with the Coinsured Mortgage, including, without limitation, (a)
all late charges and any applicable penalties, (b) all amounts which the
Lender may have advanced to pay obligations of the Maker under the
Coinsured Mortgage (including, without limitation, insurance premiums,
taxes, costs of maintenance and repair of the Project, title costs and
filing fees and charges), together with interest thereon at the rate
stipulated in the Coinsured Note, reduced by all insurance proceeds,
condemnation awards, or reserve or escrowed funds to which the Lender shall
then be entitled.
In connection with a Sale of a beneficial interest in the Maker that is greater
than 10% of the total beneficial interests in the Maker, the Outstanding
Indebtedness, as calculated in subparagraphs (i) and (ii) above shall be reduced
proportionately so that it
<PAGE>
bears the same ratio to the total Outstanding Indebtedness that the amount of
the beneficial interest sold bears to the total of all of the beneficial
interests in the Maker.
"Value" of the Project shall be determined by an appraisal of the Project,
prepared not earlier than sixty (60) days prior to, as applicable, the Maturity
Date or the date of Refinancing. The appraisal shall be prepared by a qualified
M.A.I. appraiser selected by the Maker from a list of three M.A.I. appraisers
selected by the Holder. The determination of appraised value shall be based on
the then prevailing market rates for comparable multifamily rental space in the
same vicinity of the Project even if the actual rent then being paid is less
than the rental income of the Project shown in the appraisal. To determine the
highest appraised value, the appraisal shall separately specify:
(i) The Value of the Project assuming the Coinsured Loan may be assumed by
the purchaser of the Project with financing charge or expense imposed by the
Holder in connection with such assumptions (other than fees permitted by the
Secretary of HUD for approving a transfer of physical assets);
(ii) The Value of the Project assuming the Loan may not be assumed; and
(iii) The Value of the Project assuming conversion to condominium or
cooperative ownership, provided, however, that there is evidence satisfactory to
the Holder that there exists a market for condominium or cooperative conversions
in the area where the Project is located and taking into account an allowance
for reasonable costs incurred in connection with such conversion. In the absence
of such evidence, Value shall be determined in accordance with subparagraphs (i)
and (ii) above.
The Value established under (i) above may be utilized only if the Holder has not
elected to direct the Lender to declare the principal sum owing with respect to
the Coinsured Loan to be due and payable.
In the event either the Maker or Holder does not agree with the appraisal,
within ten (10) business days after receipt thereof, the party not agreeing with
the appraisal must notify the other party, and the Holder will arrange for
another appraisal of the Project by one of the other two M.A.I. appraisers on
the list, which appraisal must be completed and submitted to the Maker and
Holder within sixty (60) days.
If the second appraisal amount differs from the first appraisal amount by 5% or
less, the average of the two appraisals shall become the Value. If the second
appraisal differs from the first appraisal by more than 5% and the Maker and
Holder to not agree upon Value, within ten (10) days the two appraiser shall
select a third M.A.I. appraiser who shall review the two appraisals and within
thirty (30) days shall establish the Value.
The cost of the first appraisal shall be paid by the Maker. The cost of
subsequent appraisals will be divided equally between Maker and Holder.
C. Participating Appreciation Interest shall be deemed earned and payable on
the first to occur of (i) the date of Sale or Refinancing; (ii) the
Maturity Date or Accelerated Maturity Date, or (iii) a permitted prepayment
of all sums owed under this Subordinated Note and the Coinsured Note.
<PAGE>
D. Notwithstanding the foregoing, in the event of a default by the Maker,
and upon the Holder's election, in its sole discretion, to accelerate
all amounts owned under this Subordinated Note, the Holder may obtain
the appraisal described above, and the Participating Appreciation
Interest, if any, owed to the Holder as a result of such appraisal
shall be due and payable within ten (10) days after a copy of the
completed appraisal is delivered to the Maker.
E. Notwithstanding any provision herein to the contrary, the Maker
expressly understands and agrees to pay to the Holder all Additional
Interest which has not been paid, when the Secretary of HUD or his
successors or assigns is no longer the coinsurer of the Coinsured
Loan.
6. Operating Loan Notes and Interest Advance. Principal and interest outstanding
for the following four (4) Operating Loan Notes and the Interest Advance
outstanding under the 1996 Modification Agreement shall be payable exclusively
from the amounts payable to Holder as Participating Appreciation Interest
pursuant to this Agreement. Any such payments shall be credited first against
accrued and unpaid interest due under the Operating Loan Notes, second against
principal due under the Operating Loan Notes, and third against the Interest
Advance outstanding under the 1996 Modification Agreement. The current principal
balances are:
<TABLE>
<CAPTION>
<S> <C>
Operating Loan Note dated September 1, 1993 $ 32,710
Operating Loan Note dated March 1, 1994 32,681
Operating Loan Note dated September 1, 1994 32,706
Operating Loan Note dated September 1, 1995 12,840
Interest Advance for 1996 101,458
Interest Advance for 1997 101,003
Total Current Outstanding Principal $ 313,398
</TABLE>
7. Acceleration of Maturity Date. The first paragraph of Paragraph 3.A. of the
Subordinated Note, Acceleration of Maturity appearing at the top of page five,
is hereby deleted and the following is substituted therefore.
At any time on or after the 14th anniversary of Final Endorsement, namely, June
14, 2006, the Holder of this Subordinated Promissory Note may, in its sole
discretion, upon not less than twelve (12) calendar months written notice to the
Maker, accelerate the Maturity Date ("Accelerated Maturity Date") of this
Subordinated Note:
8. General Provisions of Subordinated Note. The first sentence of Paragraph 6.C.
is hereby deleted in its entirety and the following substituted in lieu thereof.
C. Notwithstanding anything to the contrary contained in the Subordinated
Note, payment of Participating Income Interest shall be due and
payable within 90 days of the end of any fiscal year in which Surplus
Cash was generated.
9. Additional Loan Interest. Paragraph 1.(b) of the Additional Loan Agreement is
hereby deleted in its entirety and the following substituted in lieu thereof.
(b) Additional Loan Interest shall mean Base Interest as described in
Paragraph 1.(e).
<PAGE>
10. Base Interest on Additional Loan. Section 1.(e) of the Additional Loan
Agreement is hereby deleted in its entirety and the following substituted in
lieu thereof:
(e) "Base Interest" shall mean any surplus cash earned by the Holder in
any calendar year and characterized as Participating Income Interest
in accordance with the terms of the Subordinated Note.
11. Capital Calls. Paragraph 1.(f) of the Additional Loan Agreement is hereby
deleted in its entirety.
12. Preferred Interest on Additional Loan. Section 1.(n) of the Additional Loan
Agreement is hereby deleted in its entirety. Any subsequent references to
Preferred Interest within the Additional Loan agreement are hereby deleted as
well.
13. Payment of Additional Loan. Section 2 of the Additional Loan Agreement is
deleted in its entirety and the following substituted in lieu thereof:
Borrowers hereby jointly and severally covenant and agree to pay all obligations
under the Additional Loan Note and this Agreement, including without limitation,
principal and Base Interest to the Holder in accordance with the terms of the
Additional Loan Note.
A. Base Interest shall be payable from any surplus cash received by the
Holder pursuant to the Subordinated Note and characterized therein as
Participating Income Interest but credited as Base Interest under the
Additional Loan Note.
B. Principal shall be due and payable in the manner set forth in the
Additional Loan Note.
14. Payment Shortfalls/Capital Calls. Section 3 of the Additional Loan Agreement
is deleted in its entirety.
15. Acceleration of Payment Date. Section 6.A. of the Additional Loan Agreement
is hereby deleted in its entirety and the following substituted in lieu thereof:
A. At any time on or after the 14th anniversary date of the Final
Endorsement, namely, June 14, 2006, the Holder of this Additional Loan
Agreement may, in its sole discretion, upon not less than twelve (12)
calendar months written notice to the Borrowers, accelerate the
Payment Date of the Additional Loan Note.
16. Additional Loan Note. The first paragraph of the Additional Loan Note shall
be deleted in its entirety and the following substituted in lieu thereof:
FOR VALUE RECEIVED, FL-TAMPA, INC. AND M&D PALM HARBOR PARTNERSHIP
(collectively, the "Borrowers") jointly and severally promise to pay to the
order of Krupp Government Income Trust, a Massachusetts business trust organized
and existing under the laws of Massachusetts ("Holder") or order, as it
principal place of business at One Beacon Street, Boston, Massachusetts 02108 or
at such other place as may be designated in writing by Holder, the principal sum
of One Million Eight Hundred Seventeen Thousand Six Hundred Sixty-Five and
No/100 Dollars ($1,817,665.00) together with Base Interest as that term is
defined in and computed in Subsections 1(e) of the Additional Loan Agreement
executed between Holder and Borrowers of even date herewith and attached hereto
and made a part hereof (the "Additional Loan Agreement") as follows:
<PAGE>
A. Unless otherwise accelerated as provided herein or in the Additional
Loan Agreement, the outstanding principal balance shall be payable on
the earlier of the 15th anniversary of the Final Endorsement, namely
May 14, 2007 (the "Payment Date").
B. Base Interest shall be payable in annual installments equal to the
Holder's share of Surplus Cash payable as Participating Income
Interest in accordance with the Subordinated Note, within 90 days of
the end of each fiscal year in which Surplus Cash is generated.
C. This Note may be prepaid in full without prepayment penalty so long as
any amounts due under the Coinsured Note and the Subordinated
Promissory Note have been paid in full at the time of such prepayment.
17. Certain Definitions. All capitalized terms unless defined herein shall have
the same meaning as those terms are defined in the Subordinated Note, the
Additional Loan Agreement and the Additional Loan Note.
18. Notice Requirements.
(a) All notices and other communications required or permitted under this
Agreement shall be in writing and, if mailed by prepaid United States
first-class, certified mail, return receipt requested, at any time other than a
general discontinuance of postal service due to strike, lockout or otherwise,
shall be deemed to be received on the earlier of the date shown on the return
receipt or three (3) business days after the postmarked day thereof. In
addition, notices hereunder may be delivered by hand or by overnight courier, in
which event the notice shall be deemed effective when delivered. All notices and
other communications under this Agreement shall be given to the parties hereto
at the following addresses:
If to the Partnership or Partners:
c/o Forest City Enterprises
700 Terminal Tower
Cleveland, Ohio 44113
Attention: James J. Prohaska
If to the Partners:
FL-Tampa, Inc.
c/o Forest City Enterprises
700 Terminal Tower
Cleveland, Ohio 44113
Attention: James J. Prohaska
M&D Palm Harbor, Inc.
3816 W. Linebaugh Ave., Suite 105
Tampa, Florida 33624
Attention: Kenneth Mamula
<PAGE>
If to the First Mortgagee:
Berkshire Mortgage Finance Corporation
One Beacon Street
Boston, Massachusetts 02108
If to GIT:
c/o Berkshire Mortgage Finance Corporation
One Beacon Street
Boston, Massachusetts 02108
with a copy to
Peabody & Brown
Suite 800
1255 23rd Street, NW
Washington, D.C. 20037
Attention: George L. Daves, Esquire
(b) Any party hereto may change the address to which notices shall be
directed under this paragraph 17 by giving ten (10) days written notice of such
change to the other parties.
19. Loan Documents Not Impaired. Except as expressly set forth herein with
respect to the Subordinated Note, the Additional Loan Agreement and the
Additional Loan Note, the agreements set forth herein are not intended to affect
or alter the obligations of the Partnership and the Partners under the First
Mortgage Documents, the Subordinated Loan Documents or Additional Loan Documents
and this Agreement shall not be construed as a novation, renegotiation or
release under any of these documents.
20. Representations of Borrower. The Partnership and Partners hereby acknowledge
and confirm with the First Mortgagee and GIT that:
(i) They have no offset, counterclaim or defense with respect to the
obligations under the First Mortgage Loan Documents, the Subordinated Loan
Documents or Additional Loan Documents and to the extent that they have any
offset, counterclaim or defense with respect to the obligations thereunder, they
hereby waive and release such offset, counterclaim and defense.
(ii) The Partnership and Partners ratify and affirm all obligations under
the First Mortgage Loan Documents and the Subordinated Loan Documents and the
Additional Loan Documents.
(iii) Except for the matters expressly set forth herein, the Partnership
and the Partners hereby release and forever discharge the First Mortgagee and
GIT and all its directors, officer, employees, administrators, agents,
subsidiaries, affiliates, appraisers, inspectors, accountant, attorneys,
successors and assigns from any and all present existing causes of action,
demands, claims, debts, accounts, liabilities, costs, expenses, contracts,
promises, agreements and damages whatsoever (hereinafter referred to
individually and collectively as the "Claims") which related to the First
Mortgage Loan Documents, the Subordinated Loan Documents, the Additional Loan
Documents and also including without limitation any and all claims arising out
of or relating to the exercise by the First Mortgagee and GIT of any rights
pursuant thereto.
<PAGE>
21. Representation of the First Mortgagee and GIT. The First Mortgagee and GIT
hereby acknowledge that all payment obligations identified in this Agreement,
First Mortgage Loan Documents, the Subordinated Loan Documents, and the
Additional Loan Documents are nonrecourse.
22. Execution in Counterparts. This Agreement may be signed in counterparts by
the parties and shall be effective upon the signature of the second party to
sign the Agreement.
23. Binding Effect. The terms and provisions of this Agreement shall be binding
upon the parties hereto and their heirs, successors and assigns.
24. Time is of the Essence. Time is of the essence in this Agreement.
25. Governing Law. This Agreement shall be construed under the laws of the State
of Florida and if any provisions of this Agreement are held by a court of
competent jurisdiction to be illegal, invalid or unenforceable, then such
illegality, invalidity or unenforceability shall not affect the legality,
validity or enforceability of the other provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned parties have caused this instrument to be
executed as of the day, month and year first written above.
PARTNERSHIP:
Lifestyles at Boot Ranch, a Florida general partnership
By: FL-Tampa, Inc. a Florida corporation, general partner
By:
Name: James J. Prohaska
Title: Executive Vice President
By: M&D Palm Harbor Partnership, a Florida partnership,
general partner
By:
Name: Kenneth G. Mamula
Title: General Partner
PARTNERS:
FL-Tampa, Inc., a Florida corporation
By:
Name: James J. Prohaska
Title: Executive Vice President
<PAGE>
M&D Palm Harbor Partnership, a Florida partnership
By:
Name: Kenneth G. Mamula
Title: General Partner
GIT:
Krupp Government Income Trust, a Massachusetts business trust
By: Berkshire Mortgage Advisors Limited Partnership, its Advisor
By: BRF Corporation, its general partner
By:
Name: Carol J.C. Mills
Title: Vice President
FIRST MORTGAGEE:
Berkshire Mortgage Finance Corporation
By:
Name: Carol J.C. Mills
Title: Vice President
COUNTY OF: Cuyahoga
STATE OF OHIO
The foregoing instrument was acknowledged before me this __th day of December
1999 by James J. Prohaska, Executive Vice President of FL-Tampa, Inc., a
Florida corporation, a general partner of Lifestyles at Boot Ranch, a Florida
general partnership, on behalf of said partnership.
WITNESS my hand and Notarial Seal.
Jennifer E. Carpenter
NOTARY PUBLIC, State of Ohio
Recorded in Cuyahoga County
My Commission Expires Mar.17,2002
<PAGE>
My Commission Expires:
COUNTY OF: Hillsborough
STATE OF: Florida
The foregoing instrument was acknowledged before me this __th day of December
1998 by Kenneth G. Mamula, General Partner of M&D Palm Harbor,
Inc., a Florida corporation, a general partner of Lifestyles at Boot Ranch, a
Florida general partnership, on behalf of said partnership.
WITNESS my hand and Notarial Seal.
Mary Ann Pyett
NOTARY PUBLIC, State of Florida
Commission # CC 783993
Expires NOV.19,2002
Bonded Thru Atlantic Bonding Co.,Inc.
My Commission Expires:
COUNTY OF SUFFOLK
COMMONWEALTH OF MASSACHUSETTS
The foregoing instrument was acknowledged before me this __th day of December
1998 by Carol J.C. Mills, Vice President of BRF Corporation, general partner of
Berkshire Mortgage Advisors Limited Partnership, advisor to Krupp Government
Income Trust, a Massachusetts business trust, on behalf of said trust.
WITNESS my hand and Notarial Seal.
Theresa T. Campbell
NOTARY PUBLIC
My Commission Expires: March 13, 2003
COUNTY OF SUFFOLK
COMMONWEALTH OF MASSACHUSETTS
The foregoing instrument was acknowledged before me this __th day of December
1998 by Carol J.C. Mills, Vice President of Berkshire Mortgage Finance
Corporation, a Massachusetts corporation, on behalf of said corporation.
WITNESS my hand and Notarial Seal.
Theresa T. Campbell
NOTARY PUBLIC
My Commission Expires: March 13, 2003
MODIFICATION AGREEMENT
This modification agreement (the "Agreement") is made into as of the ___
day of May, 1997 by and among KRUPP GOVERNMENT INCOME TRUST, a
Massachusetts business trust ("GIT"), LOVE FUNDING CORPORATION, a Virginia
Corporation ("The First Mortgage"), McNAB-K C 3 LIMITED PARTNERSHIP, a
Massachusetts limited partnership ("The Partnership") and KRUPP GP, INC., a
Massachusetts corporation, GEORGE KRUPP, an individual (collectively, the
"Partners")
WITNESSETH
WHEREAS, First Mortgage made a mortgage loan to the Partnership in the
principal sum Fourteen Million Four Thousand and no/100 dollars
($14,004,000.00) which loan was coinsured by the U.S. Department of Housing
and Urban Development (the "Coinsured loan");
WHEREAS, the Coinsured Loan was made with respect to the Winward Lakes
Apartments (the "Project") located in Pompano Beach, Broward County,
Florida on the land described in Exhibit A attached hereto (the "Property")
and the terms of the following coinsured loan documents:
A. The Coinsured Loan is evidenced by a certain Mortgage note ("the
Coinsured Note") dated December 28, 1990 from the Partnership to the First
Mortgage in the original principal sum of $14,004,000.00;
B. The repayment of the indebtedness evidenced by the Coinsured Note is
secured by, among other things, (I) a Mortgage dated December 28, 1990 and
recorded in the Official Records of Broward County, Florida in Book 18030,
Page 946 ("the Coinsured Mortgage"); (II) a Regulatory Agreement ("the
Regulatory Agreement") dated December 28, 1990 and recorded in said
Official Records in book 18030, the Page 957 ( the Coinsured Note,
Coinsured Mortgage and Regulatory Agreement are collectively referred to as
the "First Mortgage Loan Documents");
WHEREAS, the First Mortgage obtained funding for the Coinsured Loan through
purchase of a Government National Mortgage Association ("GNMA") Mortgage
backed Security ("MBS") by GIT. The interest rates on the Coinsured Loan
were below the then prevailing interest rates for comparable loans and
securities and GIT was unwilling to participate in the Coinsured Loan,
unless the Partnership agreed to pay additional interest to GIT;
WHEREAS, the Partnership agreed to pay additional interest to GIT pursuant
to a Subordinated Promissory note ("the Subordinated Note") made by the
Partnership in favor of GIT which is secured by a Subordinated Multifamily
Mortgage, Assignment of Rents and Security Agreement ("the Subordinated
Mortgage") dated December 28, 1990 and recorded in the Official Records of
Broward County, Florida on January 2, 1991 under Clerk's File No. 91-002643
(collectively, the "Subordinated Loan Documents");
WHEREAS, the Partners have executed an Additional Loan Agreement and an
Additional Loan Note evidencing additional indebtedness of the Partners to
GIT of Two Million Four Hundred Seventy-One Thousand Two Hundred
Ninety-Four and no/100 Dollars ($2,471,294.00) ("Additional Loan") which
Additional Loan is secured by Pledge and Security Agreements and UCC
financing statements with all documents dated December 28, 1990
(collectively, the "Additional Loan Documents")
WHEREAS, the Project has experienced financial difficulties and the
Partnership and Partners have requested assistance from GIT in regards to
their obligation under the Coinsured Loan Documents and The Additional Loan
Documents;
WHEREAS, the Partnership, the Partners, the First Mortgage and GIT have
agreed to modify the Subordinated Note, the Additional Loan Agreement and
the Additional Loan Note based upon GIT's providing the financial
assistance described herein; and
WHEREAS, the Partnership, the Partners, the First Mortgage and GIT have
reached an agreement the terms and conditions of which agreement are set
forth herein.
NOW THEREFORE, in consideration of the foregoing and Ten and no/100 Dollars
($10.00) in hand paid to GIT, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, intending to
be legally bound, the Partnership, the Partners, the First Mortgage and GIT
hereby agree as follows:
1. Recitals Incorporated. The foregoing Recitals are hereby incorporated
herein to the same extent as hereafter fully set forth
2. Interest Rebate. The Partnership shall continue to make monthly debt
service payments in accordance with Coinsured Note. Effective January
1, 1997 and during a period of forty-eight (48) months thereafter (the
"Workout Term"), GIT will rebate monthly to the Partnership the
difference between (I) the interest rate (i.e. 8.75%) payable under
the Coinsured Note (the "Original Rate") and (ii) the following rates
for each of the following calendar years during the Workout Term
)collectively, the "Modified Rate");
<TABLE>
<CAPTION>
<S> <C> <C>
Calendar Year Modified Rate Interest Rebate
1997 6.75% $275,298 (2%)
1998 7.75% $137,028 (1%)
1999 7.75% $136.352 (1%)
2000 7.75% $135,613 (1%)
TOTAL $684,291
</TABLE>
The difference between the Original Rate and Modified Rate for each such
monthly payment in the aggregate (hereinafter the "Interest Rebate") shall
be treated as a loan by GIT to the Partnership and shall be repaid as
provided in Section 6 below.
3. Additional Equity Contribution The Partnership and/or Partners will
provide upon execution of this agreement an additional equity contribution
of $133,036 to be deposited in the Project operating accountable and used
for such Project related costs as may be approved by GIT
4. Payment of participating Income and Base Interest
Section 1. A. Of the Subordinated Promissory Note is hereby amended to
include the following paragraph:
The Maker agrees that Surplus shall be calculated in accordance with the
Regulatory Agreement twice each year as of June 30 and December 31 until
Coinsured Loan and Additional Loan have been paid in full. Furthermore, the
Maker agrees that the Holder's 50% share of any distributable Surplus Cash
calculated as of (a) June 30 shall be distributed no later than August 31
of the same year, or (b) December 31 shall be distibuted no later than
March 31 of next year.
Section 2. A. of the Additional Loan Agreement is hereby deleted in its
entirety and the following is substituted in lieu thereof:
A. Base Interest shall be payable only to the extent that the Holder
receives 50% of distributable Surplus Cash at participating Income
Interest pursuant to the Subordinated Promissory Note. Any unpaid Base
Interest pursuant to the Subordinated Promissory Note. Any unpaid base
Interest shall accrue and shall be repaid as provided in Section 6 of
the Modification Agreement dated May___, 1997
5. Definition and Payment of Preferred Interest. Section 1 (n) of the
Additional Loan Agreement is deleted in it's entirety and substituted in
lieu thereof is the following:
(n) "Preferred Interest" shall mean and refer to the amount which, as of
the time of calculation, would be equal to a cumulative, noncompounded
preferred return to the Holder of ten percent (10%) per annum simple
interest from the date of Final Endorsement to the date of such calculation
on the outstanding balance of the Holder's total capital investment in the
Coinsured Loan and the Additional Loan, which total capital investment
shall include the aggregate principal amount of the Coinsured Loan and the
Additional Loan, which outstanding balance shall be reduced from time to
time by the aggregate amount of any prepayments of principal under the
Coinsured loan and/or the Additional Loan, less (A) interest payments
received by holder pursuant to the GNMA MBS, (B) Participating Income
Interest as set forth in the Subordinated Note, and (C) Base Interest
payments made under the Additional Loan Note.
Section 2.B. (I) of the Additional Loan Agreement is deleted in its
entirety and the following is substituted in lieu thereof:
(I) ten percent (10%) per annum simple interest from the date of Final
Endorsement to the date of calculation of such interest on the outstanding
balance of the Coinsured Loan plus the Additional Loan, which outstanding
balance shall be reduced from time to time by the aggregate amount of any
permitted prepayments of principal under Coinsured Loan and/or the
Additional Loan, until the Coinsured Loan and the Additional Loan have been
paid in full, less (a) interest payments received by the Holder pursuant to
the GNMA MBS, (b) Participating Income Interest made under the Subordinated
Note, and (c) Base Interest payments made under the Additional Loan Note.
6. Payment Obligation Priorities: Notwithstanding any provisions to the
contrary contained in the Subordinated Note, Additional Loan Agreement of
the Additional Loan Note, the undersigned parties agree that the priority
and payment of the following shall occur upon the earlier of (I) Sale or
Refinancing, (II) prepayment of the Additional Loan, (III) prepayment of
the Coinsured Loan, (IV) the Accelerated Maturity Date, (V) the Payment
Date or (VI) the Maturity of the Coinsured Loan and shall be paid in the
following order:
(a) Payment of principal and interest of the Coinsured Loan
(b) Payment of the principal of the Additional Loan
(c) Payment of any unpaid or accrued Interest Rebate.
(d) Payment of any unpaid or accrued Base Interest
(e) Repayment of the $133,036 deposit as provided in Section 3 above and
any Capital Call advance made by the Partners in accordance with
Section 3 of the Additional Loan Agreement, as modified by this
Agreement, pari- passu with any Capital Call advance made by GIT.
(f) Any remaining proceeds shall be split 50% to the Partnership and 50%
to GIT until all Preferred Interest has been paid to GIT in full.
Thereafter, any remaining proceeds shall be paid 100% to the
Partnership.
7. Reduction of Management Fee The Partnership agrees that, until payment
in full of the Coinsured Loan and the Additional Loan, the management fee
paid to the Partnership or any affiliate thereof with respect to the
management of the Project shall be limited to 3% of monthly gross rental
income.
8. Certain Definitions. All Capitalized terms unless defined herein shall
have the same meaning as the term is defined in the Subordinated Note, the
Additional Loan Agreement and the Additional Loan Note.
9. Notice Requirement
a) All notices and other communication required or permitted under this
Agreement shall be in writing and, if mailed by prepaid United States
first-class, certified mail, return receipt requested, at any other
than a general discontinuance of postal service due to strike, lockout
or otherwise, shall be deemed to be received on the earlier of the
date shown on the return receipt or three (3) business days after the
postmarked day thereof. In addition, notices hereunder may be
delivered by hand or by overnight courier, in which event the notice
shall be deemed effective when delivered. All notices and other
communications under this Agreement shall be given to the parties
hereto at the following addresses:
If the Partnership or the Partners
c/o McNab-K C 3 Limited Partnership
470 Atlantic Avenue
Boston, MA 02210
Attn: Steve Parthum
If to the First Mortgagee:
Love Funding Corporation
1220 Nineteenth Street, N.W.
Suite 801
Washington, DC 20036
If to GIT:
c/o Berkshire Mortgage Finance Corporation
470 Atlantic Avenue
Boston, MA 02210
Attn: Ronald F. Halpern
with a copy to:
Hinckley, Allen & Snyder
One Financial Center
Suite 4600
Boston, MA 02111
Attn: Scott E. Cooper, Esq.
b) Any party hereto may change the address to which notices shall be
directed under this section 9 by giving ten (10) days written notice
of such change to the other parties.
10. Loan Documents Not Impaired Except as expressly set forth herein with
respect to the Subordinated Note, the Additional Loan Agreement and the
Additional Loan Note, the agreements set forth herein are not intended to
affect or alter the obligations of the Partnership and/or the Partners
under the First Mortgage Documents, the Subordinated Loan Document or the
Additional Loan Documents and this Agreement shall not be construed as a
novation, renegotiation or release under any of these documents.
11. Representation of Borrower. The Partnership and the Partners hereby
acknowledge and confirm with the First Mortgage and GIT that:
a) They have no offset, counterclaim or defense with respect to the
obligations under the First Mortgage Loan Document, the Subordinated
Loan Documents or the Additional Loan Documents and to the extent that
they have any offset, counterclaim or defense with respect to the
obligations thereunder, they hereby waive and release such offset,
counterclaim and defense.
b. The Partnership and the Partners ratify and affirm all obligations
under the First Mortgage Loan Documents, the Subordinated Loan
Documents and the Additional Loan Documents.
c. Except for the matters expressly set forth herein, the Partnership and
the Partners hereby release and forever discharge the First Mortgagee
and GIT and all its directors, officers, employees, administrators,
agents subsidiaries, affiliates, appraisers, inspectors, accountants,
attorneys, successors, and assigns from any and all present existing
causes of action, demands, claims, debts, accounts liabilities, costs,
expenses, contracts, promises, agreements and damages whatsoever
(hereinafter referred to individually and collectively as the
"Claims") which related to the First Mortgage Loan Documents, the
Subordinated Loan Documents and/or the Additional Loan Documents and
also including, without limitation, any and all Claims arising out of
or relating to the exercise by the First Mortgagee or GIT of any
rights pursuant thereto.
12. Execution in Counterparts. This Agreement may be signed in counterparts
by the parties and shall be effective upon the signature of the second
party to sign the Agreement.
13. Binding Effect. The terms and provisions of this Agreement shall be
binding upon the parties hereto and their heirs, successors and assigns.
14. Time of Essence. Time is of the essence in this Agreement.
15. Governing Law. This Agreement shall be construed under the laws of the
State of Florida and if any provisions of this Agreement are held by a
court of competent jurisdiction to be illegal, invalid or unenforceable,
then such illegality, invalidity or unenforceability shall not affect the
legality, validity or enforceability of the other provisions of this
Agreement.
IN WITNESS WHEREOF, the undersigned parties have caused this instrument to
be executed as of the day, month and year first written above.
PARTNERSHIP:
McNab-K C 3 Limited Partnership, a
Massachusetts limited partnership
By: Krupp GP, Inc. a Massachusetts
corporation, general partner
By: __________________________
Name:
Title
<PAGE>
PARTNERS
Krupp GP, Inc., a Massachusetts Corporation
By: _________________________
Name:
Title
George Krupp, individually
Douglas Krupp, individually
GIT:
Krupp Government Income Trust, a
Massachusetts business trust
By: Berkshire Mortgage Advisors Limited
Partnership, its advisor
By: BRF Corporation, its general partner
By:
Name: Ronald F. Halpern
Title:
FIRST MORTGAGEE
Love Funding Corporation
By:
Name:
Title:
<PAGE>
Exhibit "A"
LEGAL DESCRIPTION
ALL OF TRACT A, ACCORDING TO THE PLAT OF McNAB ESTATES, AS RECORDED IN PLAT
BOOK 142 AT PAGE 29 OF THE PUBLIC RECORES OF BROWARD COUNTY, FLORIDA
RECORDED IN THE OFFICIAL RECORDS BOOK
OF BROWARD COUNTY, FLORIDA
L.A. HESTER
COUNTY ADMINISTRATOR
BK 18030PG0956
246CP4071E
<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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,627,499
<SECURITIES> 133,307,578<F1>
<RECEIVABLES> 973,491
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,187,021<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,095,589
<CURRENT-LIABILITIES> 3,943,046<F3>
<BONDS> 0
0
0
<COMMON> 137,921,227
<OTHER-SE> 231,316<F4>
<TOTAL-LIABILITY-AND-EQUITY> 142,095,589
<SALES> 0
<TOTAL-REVENUES> 15,632,229<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,314,848<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,317,381
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,317,381
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,317,381
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1> Includes Participating Insured Mortgage Investments ("PIMIs")(insured
mortgages of $60,129,492 and Additional Loans of $8,350,990), Participating
Insured Mortgages ("PIMs") of $47,331,673 and Mortgage-backed Securities
("MBS") of $17,495,423.
<F2> Includes prepaid acquisition fees and expenses of $8,333,461 net of
accumulated amortization of $6,089,755 and prepaid participation servicing
fees of $2,777,749 net of accumulated amortization of $1,834,434.
<F3> Includes deferred income on Additional Loans of $3,918,021.
<F4> Unrealized gain on MBS.
<F5> Represents interest income on investments in mortgages and cash.
<F6> Includes $48,272 for impaired mortgage loans and $1,672,143 of
amortization of prepaid fees and expenses.
</FN>
</TABLE>
