UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESx
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-20164
Krupp Government Income Trust II
(Exact name of registrant as specified in its charter)
Massachusetts 04-3073045
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
470 Atlantic Avenue, Boston, Massachusetts 02210
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 423-2233
Securities registered pursuant to Section 12(b) of the Act:
Title Name of Exchange on which
Registered
Shares of Beneficial Interest None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 11-21.
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 II (the "Trust") is a Massachusetts
business trust which was formed on February 8, 1991 and is authorized to
sell up to 25,000,000 shares of beneficial interest (the "Shares").
Berkshire Realty Advisors Limited Partnership acquired 10,000 of such
Shares and 18,315,158 Shares were sold under the Trust's public offering
for $365,686,058 net of purchase volume discounts of $617,102. On December
29, 1994, Berkshire Mortgage Advisors Limited Partnership acquired
Berkshire Realty Advisors Limited Partnership's 10,000 shares and assumed
the role of the Advisor to the Trust. Under the Dividend Reinvestment Plan
("DRP"), 46,319 Shares were sold for $880,061 (the remaining 6,572,204
Shares are available for general Trust purposes). See Note A of Notes to
Financial Statements included in Appendix A of this report for additional
information. The Trust has utilized the net proceeds from the public
offering 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, 2030, unless earlier terminated by the
affirmative vote of holders of a majority of the outstanding shares
entitled to vote thereon. See Note A of Notes to Financial Statements
included in Appendix A of this report for additional information.
The Trust's investments in PIMs on multi-family residential properties
consist of a MBS or an insured mortgage loan (collectively, the "insured
mortgage") guaranteed or insured as to principal and basic interest and a
participation interest. The insured mortgages were issued or originated
under or in connection with the housing programs of the Federal National
Mortgage Association ("FNMA") or 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 the residual value, if any, from a sale or other
realization of the underlying property. The borrower conveys these rights
to the Trust through a subordinated promissory note and mortgage. The
participation features are neither insured nor guaranteed.
The PIMIs consist of an insured mortgage, as discussed above, and an
additional loan ("Additional Loan") to the borrower or owners of the
borrower that increases the Trust's total financing with respect to that
property and participation in cash generated by property operations and any
appreciation in the value of the property. The participation features
related to all PIMIs are neither insured nor guaranteed. Additional Loans
associated with insured mortgages issued or originated under or in
connection with HUD cannot, under government regulations, be collateralized
by a mortgage on the underlying property. These Additional Loans are
typically collateralized with collateral satisfactory to the Advisor, but
are neither insured nor guaranteed. Additional Loans associated with FNMA
insured mortgages are collateralized by a subordinated mortgage on the
underlying property. The borrower conveys these rights to the Trust
through a subordinated loan agreement. Under the Additional Loans, the
Trust should receive semi-annual interest payments and a Preferred Return
representing a non-compounded cumulative return on the outstanding
indebtedness, usually the aggregate amount of the insured mortgage and
Additional Loan.
Prior to December 27, 1998 the Trust can reinvest principal proceeds
received from its mortgage investments in new mortgages. Any reinvestment
in mortgages will be based on management's evaluation of market conditions
for mortgages. When the reinvestment period ends, the Trust will
distribute proceeds from prepayments or other realizations of mortgage
assets to investors either through quarterly distributions or possibly
special distributions.
The Trust also acquired MBS collateralized by single-family mortgage
loans issued or originated by FNMA or the Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA and FHLMC guarantee the principal and interest
of the FNMA and FHLMC MBS, respectively.
Although the Trust will terminate no later than December 31, 2030,
management expects that the value of the PIMIs and PIMs generally will be
realized by the Trust through repayment or sale as early as ten years from
the dates of the closings of the permanent loans, and that the Trust may
realize the value of all of its other investments within that time frame
thereby resulting in a dissolution of the Trust significantly prior to
December 31, 2030.
The requirements for compliance with federal, state and local
regulations to date have not had an adverse effect on the Trust's
operations, and the Trust anticipates no adverse effect in the future.
To qualify as a REIT for federal income tax purposes, the Trust made a
valid election to be so treated and must continue to satisfy a range of
complex requirements including criteria related to its ownership structure,
the nature of its assets, the sources of its income and the amount of its
distributions to shareholders. The Trust intends to qualify as a REIT in
each year of operation, however, certain factors may have an adverse effect
on the Trust's REIT status. If for any taxable year, the Trustees and the
Advisor determine that any of the asset, income, or distribution tests are
not likely to be satisfied, the Trust may be required to borrow money,
dispose of mortgages or take other action to avoid loss of REIT status.
Additionally, if the Trust does not qualify as a REIT for any taxable
year, it will be subject to federal income tax as if it were a corporation
and the shareholders will be taxed as shareholders of a corporation. If
the Trust were taxed as a corporation, the payment of such tax by the Trust
would substantially reduce the funds available for distribution to
shareholders or for reinvestment. To the extent that distributions had been
made in anticipation of the Trust's qualification as a REIT, the Trust
might be required to borrow additional funds or to liquidate certain of its
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investments in order to pay the applicable tax. Moreover, should the
Trust's election to be taxed as a REIT be terminated or voluntarily
revoked, the Trust may not be able to elect to be treated as a REIT for the
following five-year period.
As of December 31, 1996, there were no personnel directly employed by
the Trust.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Trust is a
party or to which any of its investments are subject to.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Currently there is no established public trading market for the Shares.
The number of investors holding Shares as of December 31, 1996 was
approximately 16,400.
The Trust has and will continue to declare and pay dividends on a
quarterly basis. The Trustees established a dividend rate per Share per
quarter of $.3125 for 1996 and 1995.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Trust's financial position and operating results. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements
and Supplementary Data, which are included in Item 7 and Item 8, Appendix A
of this report, respectively.
<TABLE>
<CAPTION>
(Amounts in thousands, except for per Share
amounts)
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues $ 19,877 $ 20,033 $ 18,200 $ 15,867 $ 11,599
Net income $ 14,999 $ 13,747 $ 13,882 $ 13,853 $ 10,485
Net income per Share $ .82 $ .75 $ .76 $ .75 $ .80
Weighted average Shares
outstanding 18,371 18,371 18,371 18,364 13,117
-4-
<PAGE>
Total assets at December 31 $298,297 $306,965 $314,250 $322,855 $337,728
Average dividends per Share $ 1.25 $ 1.25 $ 1.25 $ 1.60 $ 1.07
</TABLE>
The Trust began its public offering in 1991 and completed its public
offering in 1993, therefore the Selected Financial Data for 1992 is not
indicative of the Trust's future results and is not comparable with 1996,
1995, 1994 and 1993.
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 including those
concerning Management s expectations regarding the future financial
performance and future events. These forward-looking statements involve
significant risk and uncertainties, including those described herein.
Actual results may differ materially from those anticipated by such
forward-looking statements.
Liquidity and Capital Resources
At December 31, 1996, the Trust has significant liquidity consisting of
cash and cash equivalents, of approximately $9 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 are dividends paid
to investors which currently approximate $22.9 million per year ($5.7
million per quarter). For 1996, the Trust declared an annual dividend of
$1.25 per share, paid in quarterly installments of $.315 per share. Funds
for dividends come from interest income received on PIMs, PIMIs, MBS and
cash and cash equivalents net of operating expenses, and the principal
collections received on PIMs, PIMIs and MBS. The portion of dividends
funded from principal collections reduces the capital resources of the
Trust. As the capital resources of the Trust decrease, the total cash
flows to the Trust will also decrease which may result in periodic
adjustments to the dividends paid to the investors.
In addition to funding its quarterly dividends paid to investors the
Trust has a remaining commitment of approximately $1.0 million on a PIM in
the construction phase. The Trust has sufficient cash reserves to fund
this commitment.
The Advisor of the Trust periodically reviews the dividend rate to
determine whether an adjustment to the dividend rate is necessary based on
projected future cash flows. Based on current projections, the Advisor
believes the Trust can maintain the current dividend rate for the
foreseeable future. In general, the Advisor tries to set a dividend rate
that provides for level quarterly distribution. To the extent quarterly
dividends do not fully utilize the cash available for distribution and cash
balances increase, the Advisor may reinvest the available proceeds, adjust
the dividend rate or distribute such funds through a special distribution.
-5-
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from prepaying. For the second five years, the borrowers can
prepay the loans incurring a prepayment penalty for PIMs or paying all
amounts due under the PIMIs and satisfying the required preferred return.
The Trust has the option of calling certain PIMs and all the PIMIs by
accelerating their maturity if the loans are not prepaid by the tenth year
after permanent funding. The Trust will determine the merits of exercising
the call option for each PIM or PIMI as economic conditions warrant. Such
factors as the condition of the asset, local market conditions, interest
rates and available financing will have an impact on this decision.
<TABLE>
<CAPTION>
(Amounts in thousands, except per Share amounts)
Year Inception
Ended Through
12/31/96 12/31/96
Distributable Cash Flow (a):
<S> <C> <C>
Net income $14,999 $ 67,405
Items not requiring the use of
operating funds:
Loss on sale of MBS - 1,379
Amortization of prepaid fees and
expenses and organization costs 2,095 5,821
Additional Loan interest received
and deferred 555 1,582
Total Distributable Cash Flow ("DCF") $17,649 $ 76,187
DCF per Share based on Shares
outstanding at December, 31 1996 $ .96 $ 4.15(d)
Dividends:
Total dividends to Shareholders $22,964(b) $118,385(c)
Average dividend per Share based
on Shares outstanding at
December 31, 1996 $ 1.25(b) $ 6.44(c)(d)
</TABLE>
(a) Distributable Cash Flow consists of income before amortization
of prepaid fees and expenses and organization costs and
includes interest collections 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) Represents all dividends paid in 1996 except the February 1996
dividend and includes an estimate of the dividend to be paid in
February 1997.
(c) Includes an estimate of the distribution to be paid in February
1997.
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(d) Shareholders average per Share return of capital on a cash
basis as of February 1997 is $2.29 [$6.44 - $4.15]. Return of
capital represents that portion of dividends which is not
funded from DCF, such as proceeds from the sale of assets and
substantially all of the principal collections received from
MBS and PIMs.
Assessment of Credit Risk
The Trust's investments in mortgages, with the exception of the
Additional Loans, are guaranteed or insured by FNMA, FHLMC or HUD, and
therefore, the risk of a material loss of amounts invested is remote. The
certainty of principal on the Trust's investments primarily depends upon
the creditworthiness of these entities.
FNMA is a federally chartered private corporation that guarantees
obligations originated under its programs. However, obligations of FNMA
are not backed by the U.S. Government. FNMA is one of the largest
corporations in the United States and the Secretary of the Treasury of the
United States has discretionary authority to lend up to $2.25 billion to
FNMA at any time. 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. HUD, an agency
of the U.S. Government, insures the obligations originated under its
programs which 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
conventional real estate lending, including: reliance on the owner's
operating skills and their ability to maintain occupancy levels, including
control of operating expenses, maintain 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 $2 million
of commercial paper, which is issued by entities with a credit rating equal
to one of the top two rating categories of a nationally recognized
statistical rating organization.
<TABLE>
Operations
(amounts inthousands, except per Shareamounts)
Year Ended December 31,
<CAPTION>
1996 1995 1994
Amount Per
Share Amount Per
Share Amount Per
Share
Interest on PIMs:
<S> <C> <C> <C> <C> <C> <C>
Base interest $13,952 $ .76 $12,371 $ .67 $ 8,225 $ .45
Additional loan interest
received 2,077 .11 2,020 .11 1,281 .07
Participation interest 768 .04 422 .02 130 .01
Interest income on MBS 3,123 .17 4,616 .25 6,732 .37
Interest income - other 512 .03 1,150 .06 2,313 .13
-7-
Trust Expenses (2,783) (.15) (2,997) (.15) (2,895) (.16)
DCF 17,649 .96 17,582 .96 15,786 .87
Reconciliation to net income:
Loss on sale of MBS - - (1,379) (.08) - -
Additional loan interest deferred (555) (.03) (546) (.03) (481) (.03)
Amortization of prepaid fees and
expenses and organization costs (2,095) (.11) (1,910) (.10) (1,423) (.08)
Net income $14,999 $ .82 $13,747 $.75 $13,882 $ .76
Weight Average Shares Outstanding 18,371,477 18,371,477 18,371,477
</TABLE>
The net income of the Trust for 1996 increased as compared to 1995 and
1994, but did not change materially during 1995 as compared to 1994. There
were significant changes in the mix of interest income from PIMs and PIMIs,
MBS, cash and other short-term investments, as well as, increases in Trust
expenses and amortization of prepaid fees and expenses and organization
costs during each of the three years ended December 31, 1996, 1995 and
1994.
During the three years ended December 31, 1996 the Trust's operations
underwent significant changes as the Trust invested in PIMs and PIMIs.
Interest income from PIMs and PIMIs increased by approximately $1,975,000
in 1996 as compared to 1995 and approximately $5,112,000 in 1995 as
compared to 1994 due to significant investments in PIMs and PIMIs made
during late 1994 and 1995.
The Trust s total interest income for 1996 as compared to 1995 decreased by
approximately $156,000, due to lower interest income on MBS and interest
income other, which was partially offset by increases in interest income on
PIMs. Interest income on PIMs increased due to additional investments in
PIMs and PIMIs. Interest income-other and interest income on MBS decreased
as the Trust used available cash to fund its commitments in PIMs and PIMIs,
and funded a portion of its dividends with principal collections. To the
extent the Trust uses principal collections to fund a portion of the
dividend it will continue to reduce the income generating assets of the
Trust, which could reduce interest income in the future.
As a result of investments in PIMs and PIMIs, the Trust increased its total
interest income by approximately $1,833,000 in 1995 over 1994. Total
interest income improved in 1995 as compared to 1994, because the Trust's
PIMs and PIMIs provided the Trust with higher interest rates than those
available from short-term interest rates. Short-term interest rates ranged
from 3% to 6% per annum during 1995 and 1994, while the Trust's PIMs and
the PIM portion of its PIMIs have interest rates ranging from 6.5% to
7.875% per annum and the Additional Loans generally have interest rates of
about 7% per annum. In addition during 1995 and 1994 the Trust had a
substantial amount of available cash for short-term investing due to the
significant prepayments of the mortgages underlying the MBS.
Many of the properties had stable or improving performances in 1996. All
but one of the underlying properties with stabilized operations had high
average 1996 occupancies, generally between 90% and 100%. Windmill Lakes
is located in a South Florida county that has seen a significant housing
boom, both in newly constructed multifamily projects as well as single
family development. Two other properties moved towards stabilized
occupancy during 1996 after completing construction. Mill Pond II reached
-8-
95% by year-end, and Norumbega Point continued achieving steady increases
in the initial lease-up of the assisted living community, reaching 85% by
year-end. Two other recently completed properties, the Fountains
Apartments and Rivergreens II Apartments, are facing more challenging
lease-ups due to over saturated markets. Rental rate increases were
achieved at more than half of the properties due to stable or improving
markets or the unique character of the specific property.
During the three years ended December 31, 1996, the Trust experienced
increased participation income interest each year from its FNMA PIMIs. The
Trust received participation income interest in 1996 of approximately
$125,000, $103,000, $201,000, $179,000 and $75,000 from the Crossings
Village, Martin's Landing, St. Germain, The Lakes and Windsor Lakes PIMIs,
respectively, as compared to participation interest income of approximately
$150,000, $59,000 and $131,000 from the Crossings Village, Martin's Landing
and St. Germain Apartments PIMIs, respectively in 1995. Management expects
the strong operating performances of Crossings Village, Martin's Landing,
St. Germain, The Lakes and Windsor Lakes will continue and the Trust will
continue to receive participation income interest. The Seasons, which was
completely renovated in 1994 and 1995, performed very well during 1996 and,
as a result, will pay participation income to the Trust in 1997.
Trust expenses, exclusive of losses from the sale of MBS, decreased
insignificantly in 1996 versus 1995 as a result of decreases in expenses
reimbursements, lower asset management fees resulting from a declining
asset base and reduced general and administrative expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as to the Trustees and Executive Officers of Krupp
Government Income Trust II is as follows:
<TABLE>
<CAPTION>
Position with Krupp
Name and Age Government Income Trust II
<S> <C>
Douglas Krupp (50) Chairman of Board of Trustees and
Trustee
Laurence Gerber (40) President and Trustee
Charles N. Goldberg (55) Trustee
E. Robert Roskind (51) Trustee
J. Paul Finnegan (71) Trustee
Robert A. Barrows (39) Treasurer and Chief Accounting Officer
Scott D. Spelfogel (36) Clerk
K. Scott Griggs (34) Assistant Clerk
</TABLE>
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*Independent Trustee
Douglas Krupp is Co-Chairman and Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies, this real estate-based firm
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking,
healthcare facility ownership and the management of the Company. Today,
The Berkshire Group is an integrated real estate, mortgage and healthcare
company which is headquartered in Boston with regional offices throughout
the country. A staff of 3,400 are responsible for the more than $3 billion
under management for institutional and individual clients. Mr. Krupp is a
graduate of Bryant College. In 1989 he received an honorary Doctor of
Science in Business Administration from this institution and was elected
trustee in 1990. Mr. Krupp serves as Chairman of the Board and a director
of Berkshire Realty Company, Inc. (BRI-NYSE). Mr. Krupp also serves as
Chairman of the Board and a Trustee of Krupp Government Income Trust.
Laurence Gerber is the President and Chief Executive Officer of The
Berkshire Group. Prior to becoming President and Chief Executive Officer
in 1991, Mr. Gerber held various positions with The Berkshire Group which
included overall responsibility at various times for: strategic planning
and product development, real estate acquisitions, corporate finance,
mortgage banking, syndication and marketing. Before joining The Berkshire
Group in 1984, he was a management
consultant with Bain & Company, a national consulting firm headquartered in
Boston. Prior to that, he was a senior tax accountant with Arthur Andersen
& Co., an international accounting and consulting firm. Mr. Gerber has a
B.S. degree in Economics from the University of Pennsylvania, Wharton
School and an M.B.A. degree with high distinction from Harvard Business
School. He is a Certified Public Accountant. Mr. Gerber serves as
President and a Director of Berkshire Realty Company, Inc. (NYSE-BRI) and
President and a Trustee of Krupp Government Income Trust.
Charles N. Goldberg has been the Managing Partner of Goldberg Brown,
Attorneys at Law in Houston, Texas since 1980. He is a member of the State
Bar of Texas and is admitted to practice before the U.S. Court of Appeals,
Fifth Circuit and U.S. District Court, Southern District of Texas.
Goldberg Brown specializes in the representation of lenders and developers
in their acquisition, refinancing and disposition of property. He received
a B.B.A. degree and J.D. degree from the University of Texas. Mr. Goldberg
also serves as a Trustee of Krupp Government Income Trust and as a Director
of Berkshire Realty Company, Inc. (NYSE-BRI).
E. Robert Roskind is the Chairman and Co-Chief Executive Officer of
Lexington Corporate Properties, a self administered REIT which owns 23
properties, each net leased to a single corporate tenant, and whose Shares
are listed on the New York Stock Exchange. Mr. Roskind is also the
Managing Partner of The LCP Group, a real estate investment firm based in
New York, which has acquired on behalf of the partnerships sponsored by the
firm over 400 properties throughout the United States. Most of such
properties have been net leased to major U.S. corporations. The LCP Group
is the successor to Lepercq Capital Partners and Lepercq Capital
Corporation. Mr. Roskind in 1974 co-founded Lepercq Capital Corporation
and served as its Chairman. Mr. Roskind is also Chairman of Net Lease
Partners Realty Advisors, a registered pension fund advisor, which advises
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pension funds with respect to the acquisition and subsequent management of
properties net leased to major corporations. He is a graduate of the
University of Pennsylvania and Columbia Law School and has been a member of
the New York Bar since 1970. Mr. Roskind also serves as a Trustee of Krupp
Government Income Trust and as a Director of Berkshire Realty Company, Inc.
(NYSE-BRI).
J. Paul Finnegan is a retired partner of Coopers & Lybrand where he
specialized in tax matters. He retired in September 1987 and since then
has been engaged in business as a consultant, a director and an arbitrator
for the American Arbitration Association and the National Association of
Securities Dealers, Inc. Mr. Finnegan is a graduate of Harvard College and
Boston College Law School and is a Certified Public Accountant. Mr.
Finnegan also serves as a Trustee of Krupp Government Income Trust and as a
Director of Berkshire Realty Company, Inc. (NYSE-BRI). He is also a
director at Scituate Federal Savings Bank.
Robert A. Barrows is Senior Vice President and Chief Financial
Officer of Berkshire Mortgage Finance and The Berkshire Group. Mr. Barrows
has held several positions within The Berkshire Group since joining the
company in 1983 and is currently responsible for accounting and financial
reporting, treasury, tax, payroll and office administrative activities.
Prior to joining The Berkshire Group, he was an audit supervisor for
Coopers & Lybrand L.L.P. in Boston. He received a B.S. degree from Boston
College and is a Certified Public Accountant.
Scott D. Spelfogel is Senior Vice President and General Counsel to
The Berkshire Group. He previously served as Vice President and Assistant
General Counsel. Before joining the firm in November 1988, he was a
litigator in private practice in Boston. He received a Bachelor of Science
degree in Business Administration from Boston University, a Juris Doctor
Degree from Syracuse University's College of Law, and a Master of Laws
degree in Taxation from Boston University Law School. He is admitted to
practice law in Massachusetts and New York, is a member of the American,
Boston, Massachusetts and New York State bar
associations, the American Corporate Counsel Association and the American
Society of Corporate Secretaries and is a licensed real estate broker in
Massachusetts.
K. Scott Griggs is the Assistant Clerk of the Trust and the
Assistant General Counsel of The Berkshire Group. Before joining The
Berkshire Group in March 1991, he served as counsel to The Fafard
Companies, a construction and real estate firm in Greater Boston. He
received a B.A. degree from Columbia University in 1984 and a J.D. degree
from the Boston University School of Law in 1989. He is a member of the
American Bar Association, Massachusetts Bar Association and the Boston Bar
Association.
In addition, the following are deemed to be Executive Officers of
the registrant:
George Krupp (age 52) is the Co-Chairman and Co-Founder of The
Berkshire Group. Established in 1969 as the Krupp Companies, this real
estate-based firm expanded over the years within its areas of expertise
including investment program sponsorship, property and asset management,
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mortgage banking and healthcare facility ownership. Today, The Berkshire
Group is an integrated real estate, mortgage and healthcare company which
is headquartered in Boston with regional offices throughout the country. A
staff of 3,400 are responsible for more than $3 billion under management
for institutional and individual clients. Mr. Krupp attended the
University of Pennsylvania and Harvard University. Douglas Krupp is George
Krupp's brother.
Peter F. Donovan (age 43) is President of Berkshire Mortgage Finance
and directs the underwriting, servicing and asset management of a $3.9
billion multi-family loan portfolio. Previously, he was Senior Vice
President of Berkshire Mortgage Finance and was responsible for all
participating mortgage originations. Before joining the firm in 1984, he
was Second Vice President, Real Estate Finance for Continental Illinois
National Bank & Trust, where he managed a $300 million construction loan
portfolio of commercial properties. Mr. Donovan received a B.A. from
Trinity College and an M.B.A. degree from Northwestern University.
ITEM 11. EXECUTIVE COMPENSATION
Except for the Independent Trustees as described below, the Trustees
and Officers of the Trust have not been and will not be compensated by the
Trust for their services. However, the Officers will be compensated by the
Advisor or an affiliate of the Advisor.
Compensation of Trustees
The Trust paid each of the Independent Trustees a fee of $25,000 in
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 5, 1997, no person owned of record or was known by
the Advisor to own beneficially more than 5% of the Trust's 18,371,477
outstanding Shares. The only Shares held by the Advisor or any of its
affiliates consist of the original 10,000 Shares held by the Advisor.
<TABLE>
<CAPTION>
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
<S> <C> <C> <C>
Shares of Laurence Gerber
Beneficial 470 Atlantic Avenue
Interest Boston, Ma. 02210 10,000 Shares* ***
Shares of Douglas Krupp
Beneficial 470 Atlantic Avenue
Interest Boston, Ma. 02210 10,000 Shares** ***
Shares of
Beneficial
Interest All Directors and 10,000 Shares ***
Officers
</TABLE>
Mr. Gerber is a beneficial owner of 10,000 shares held by Berkshire
Mortgage Advisors Limited Partnership, the Advisor to the Company, by
virtue of being the President of Berkshire Funding Corporation, the general
-12-
partner of Berkshire Mortgage Advisors Limited Partnership. In each case
where Mr. Gerber is a beneficial owner of shares he has shared voting and
investment powers and such shares are also beneficially owned by Mr. Krupp.
Mr. Krupp is a beneficial owner of the 10,000 shares held by
Berkshire Mortgage Advisors Limited Partnership, the Advisor to the
Company, by virtue of being a director of Berkshire Funding Corporation,
the general partner of Berkshire Mortgage Advisors Limited Partnership. In
each case where Mr. Krupp is a beneficial owner of shares he has shared
voting and investment powers and such shares are also beneficially owned by
Mr. Gerber.
The amount owned does not exceed one percent of the shares of
beneficial interest of the Trust outstanding as of February 5, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note G to Financial Statements included in Appendix A of this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements - see Index to Financial Statements and
Supplementary Data included under Item 8, Appendix A, on page F-2 of
this report.
2. Financial Statement Schedules - see Index to Financial
Statements and Supplementary Data included under Item 8,
Appendix A, on page F-2 of this report. All schedules are
omitted as they are not applicable, not required or the
information is provided in the Financial Statements or the
Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
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) Fourth Amended and Restated Declaration of Trust
filed with The Massachusetts Secretary of State on
September 25, 1991 [Included as Exhibit 4.8 to
Post-effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11 dated
September 26, 1991 (File No. 33-39033)].*
(4.2) Subscription Agreement Specimen [Included as
Exhibit C to Prospectus included in Post-effective
Amendment No. 1 to Registrant's Registration
-13-
Statement on Form S-11 dated September 26, 1991
(File No. 33-39033)].*
(10) Material Contracts
(10.1) Advisory Services Agreement dated September 11,
1991 between Krupp Government Income Trust II and
Berkshire Realty Advisors Limited Partnership
(formerly known as Krupp Realty Advisors Limited
Partnership)[Exhibit 10.1 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.2) Assignment and Assumption Agreement between
Berkshire Realty Advisors Limited Partnership and
Berkshire Mortgage Advisors Limited Partnership
[Exhibit 10.2 to Registrant's report on Form 10-K
for the year ended December 31, 1994 (File No. 0-
20164)].*
Mequon Trails
(10.3) Supplement to Prospectus dated January 1, 1993 for
Federal National Mortgage Association pool number
MX-073025 [Exhibit 19.1. to Registrant's Report
on Form 10-Q for the quarter ended March 31, 1993
(File No. 0-20164)].*
(10.4) Subordinated promissory note dated December 21,
1992 by and between Mequon Trails Townhomes
Limited Partnership and Krupp Government Income
Trust II [Exhibit 19.2 to Registrant's Report on
Form 10-Q for the quarter ended March 31, 1993
(File No. 0-20164)].*
(10.5) Subordinate Multifamily Mortgage dated December
21, 1992 between Mequon Trails Townhomes Limited
Partnership and Krupp Government Income Trust
II.[Exhibit 10.5 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.6) Subordination Agreement dated December 21, 1992
between Krupp Mortgage Company L.P., Krupp
Government Income Trust II and Mequon Trails
Townhomes Limited Partnership.[Exhibit 10.6 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
The Estates
(10.7) Deed of Trust Note dated May 14, 1993 for The
Estates [Exhibit 19.1 to Registrant's Report on
Form 10-Q for the quarter ended June 30,
-14-
1993.[Exhibit 10.7 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.8) Deed of Trust dated May 14, 1993 for The Estates
Limited Partnership and Maryland National Mortgage
Corporation.[Exhibit 10.8 to Registrant s report
on Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.9) Multifamily Deed of Trust, Assignment of Rents and
Security Agreement dated May 14, 1993 between The
Estates Limited Partnership and Krupp Government
Income Trust.[Exhibit 10.9 to Registrant s report
on Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.10) Subordinated Promissory Note, dated May 14, 1993,
between Maryland National Mortgage Corporation and
Krupp Government Income Trust.[Exhibit 10.10 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.11) Agreement re Subordinated Note dated September 16,
1993 between Krupp Mortgage Corporation and Krupp
Government Income Trust II.[Exhibit 10.11 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.12) Participation Certificate dated May 14, 1993 by
and between Maryland National Mortgage Corporation
and Krupp Government Income Trust.[Exhibit 10.12
to Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.13) Participation and Servicing Agreement dated May
14, 1993 by and between Maryland National Mortgage
Corporation and Krupp Government Income Trust II
[Exhibit 19.2 to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1993 (File No. 0-
20164)].*
The Seasons
(10.14) Subordinated Promissory Note, dated September 16,
1993, between Maryland Associates Limited
Partnership and Krupp Government Income Trust
[Exhibit 10.1 to Registrant's Report on Form 10-Q
for the quarter ended September 30, 1993 (File No.
0-20164)].*
(10.15) Additional Loan Agreement dated September 16, 1993
between the Krupp Company Limited Partnership-IV
and Krupp Government Income Trust II [Exhibit 10.2
to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1993 (file No. 0-
20164)].*
-15-
(10.16) Additional Loan Note dated September 16, 1993,
between the Krupp Company Limited Partnership-IV
and Krupp Government Income Trust II [Exhibit 10.3
to Registrant's Report on form 10-Q for the
quarter ended September 30, 1993 (File No. 0-
20164)].*
(10.17) Participation and Servicing Agreement dated
September 16, 1993 by and between Krupp Mortgage
Corporation and Krupp Government Income Trust-II
[Exhibit 10.4 to Registrant's Report on Form 10-Q
for the quarter ended September 30, 1993
(File No.0-20164)].*
(10.18) Deed of Trust Note dated September 16, 1993 for
Maryland Associates Limited Partnership and Krupp
Mortgage Corporation [Exhibit 10.11 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
(10.19) Assignment and Assumption Agreement dated
September 16, 1993 between Krupp Government Income
Trust II and Krupp Government Income Trust
[Exhibit 10.12 to Registrant's report on Form 10-K
for the year ended December 31, 1994 (File No. 0-
20164)].*
(10.20) Agreement re Subordinated Note dated September 16,
1993 between Krupp Mortgage Corporation and Krupp
Government Income Trust II [Exhibit 10.13 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
Martin's Landing
(10.21) Subordinated Loan Agreement, dated November 9,
1993, between TRC Realty Incorporated - ML, ML
Associates Limited Partnership ("Borrower") and
Krupp Government Income Trust II ("Holder")
[Exhibit 10.9 to Registrant's annual report on
Form 10-K for fiscal year ended December 31, 1993
(File No. 0-20164)].*
(10.22) Subordination Agreement dated November 9, 1993
between ML Associates, L.P., and Krupp Government
Income Trust II.[Exhibit 10.22 to Registrant s
report on Form 10-K for the year ended December
31, 1995 (File No. 0-20164)].*
(10.23) Assignment of Subordination Agreement dated
November 9, 1993 from Berkshire Mortgage Finance
Limited Partnership to the Federal National
Mortgage Association by and between ML Associates,
L.P., Berkshire Mortgage Finance Limited
Partnership and Krupp Government Income Trust
II.[Exhibit 10.23 to Registrant s report on Form
-16-
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.24) Supplement to Prospectus dated December 1, 1993
for Federal National Mortgage Association pool
number MX - 073029.[Exhibit 10.24 to Registrant s
report on Form 10-K for the year ended December
31, 1995 (File No. 0-20164)].*
Crossings Village
(10.25) Subordinated Loan Agreement, dated September 28,
1993 between Crossings Village Westlake Associates
("Borrower") and Krupp Government Income Trust II
("Holder")[Exhibit 10.10 to Registrant's annual
report on Form 10-K for fiscal year ended December
31, 1993 (File No. 0-20164)].*
(10.26) Subordinated Note dated September 28, 1993 between
Crossings Village Westlake Associates and Krupp
Government Income Trust II [Exhibit 10.16 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
(10.27) Subordination Agreement dated September 28, 1993
between Washington Capital DUS Inc., Crossings
Village Westlake Associates and Krupp Government
Income Trust II.[Exhibit 10.27 to Registrant s
report on Form 10-K for the year ended December
31, 1995 (File No. 0-20164)].*
Norumbega Point
(10.28) Subordinated Promissory Note, dated December 14,
1993 between Longa Vita Corporation ("Maker or
Mortgagor") and Krupp Government Income Trust II
("Holder")[Exhibit 10.11 to Registrant's annual
report on Form 10-K for fiscal year ended December
31, 1993 (File No. 0-20164)].*
(10.29) Additional Loan Note dated December 14, 1993
between Evelyn Insoft, Sidney Insoft, Richard
Slifka, and Alfred A. Slifka ("Borrowers") and
Krupp Government Income Trust II ("Holder")
[Exhibit 10.12 to Registrant's annual report on
Form 10-K for fiscal year ended December 31, 1993
(File No. 0-20164)].*
(10.30) Participation and Servicing Agreement dated
December 14, 1993 by and between Cambridge
Healthcare Funding, Inc. and Krupp Government
Income Trust II.[Exhibit 10.30 to Registrant s
report on Form 10-K for the year ended December
31, 1995 (File No. 0-20164)].*
(10.31) Subordinated Multifamily Mortgage Assignment of
Rents and Security Agreement dated December 14,
-17-
1993 between Longa Vita Corp. and Krupp Government
Income Trust II.[Exhibit 10.31 to Registrant s
report on Form 10-K for the year ended December
31, 1995 (File No. 0-20164)].*
(10.32) Additional Loan Agreement dated December 14, 1993
between the Evelyn Insoft, Sidney Insoft, Richard
Slifka and Alfred A. Silfka, Longa Vita Corp. and
Krupp Government Income Trust II.[Exhibit 10.32 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.33) Mortgage Note dated December 14, 1993 between
Longa Vita Corp. and Cambridge Healthcare Funding,
Inc.[Exhibit 10.33 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.34) Agreement re Subordinated Note dated December 14,
1993 between Cambridge Healthcare Funding, Inc.
and Krupp Government Income Trust II.[Exhibit
10.34 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
Sunset Summit
(10.35) Subordinated Loan Agreement dated November 24,
1993 between Sunset Summit Limited Partnership and
Krupp Government Income Trust II [Exhibit 10.21 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
(10.36) Subordinated Note dated November 24, 1993 between
Sunset Summit Limited Partnership and Krupp
Government Income Trust II [Exhibit 10.22 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
(10.37) Subordination Agreement dated November 24, 1993
between BMFLP, Sunset Summit Limited Partnership
and Krupp Government Income Trust II [Exhibit
10.23 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.38) Assignment of Subordination Agreement dated
November 24, 1993 from Berkshire Mortgage Finance
Limited Partnership to the Federal National
Mortgage Association by and between Sunset Summit
Limited Partnership, Berkshire Mortgage Finance
Limited Partnership and Krupp Government Income
Trust II [Exhibit 10.24 to Registrant's report on
Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.39) Subordinate Multifamily Mortgage Agreement dated
November 24, 1993 between Sunset Summit Limited
Partnership and Krupp Government Income Trust II
-18-
[Exhibit 10.25 to Registrant's report on Form 10-K
for the year ended December 31, 1994 (File No. 0-
20164)].*
(10.40) Supplement to Prospectus dated January 1, 1994 for
Federal National Mortgage Association pool number
MX - 073030 [Exhibit 10.26 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
Windsor Lake
(10.41) Subordinated Loan Agreement dated June 16, 1994
between Cedar Lake L. P. and Krupp Government
Income Trust II [Exhibit 10.27 to Registrant's
report on Form 10-K for the year ended December
31, 1994 (File No. 0-20164)].*
(10.42) Subordinate Note dated June 16, 1994 between Cedar
Lake L. P. and Krupp Government Income Trust II
[Exhibit 10.28 to Registrant's report on Form
10-K for the year ended December 31, 1994 (File
No. 0-20164)].*
(10.43) Subordination Agreement dated June 16, 1994
between Berkshire Mortgage Finance Limited
Partnership, Cedar Lake L. P. and Krupp Government
Income Trust II [Exhibit 10.29 to Registrant's
report on Form 10-K for the year ended December
31, 1994 (File No. 0-20164)].*
(10.44) Assignment of Subordination Agreement dated June
16, 1994 from Berkshire Mortgage Finance Limited
Partnership to the Federal National Mortgage
Association by and between, Cedar Lake L.P. and
Berkshire Mortgage Finance Limited Partnership and
Krupp Government Income Trust II [Exhibit 10.30 to
Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-20164)].*
(10.45) Subordinate Multifamily Deed to Secure Debt
Agreement dated June 16, 1994 between Cedar Lake
L.P. and Krupp Government Income Trust II [Exhibit
10.31 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.46) Supplement to Prospectus dated October 1, 1994 for
Federal National Mortgage Association pool number
MX - 073039 [Exhibit 10.32 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
Oasis at Springtree
(10.47) Subordinate Note dated June 16, 1994 between Oasis
at Springtree, Inc. and Krupp Government Income
Trust II [Exhibit 10.33 to Registrant's report on
-19-
Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.48) Subordinated Loan Agreement dated August 11, 1994
between Joseph Kodsi and Albert Kodsi, Oasis at
Springtree, Inc., and Krupp Government Income
Trust II.[Exhibit 10.48 to Registrant s report on
Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.49) Subordination Agreement dated August 11, 1994
between Berkshire Mortgage Finance Limited
Partnership, Oasis at Springtree, Inc. and Krupp
Government Income Trust II.[Exhibit 10.49 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File. No 0-20164)].*
(10.50) Assignment of Subordination Agreement dated August
11, 1994 for Berkshire Mortgage Finance Limited
Partnership with Federal National Mortgage
Association by and between Oasis at Springtree,
Inc., Berkshire Mortgage Finance Limited
Partnership and Krupp Government Income Trust
II.[Exhibit 10.50 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.51) Subordinated Multifamily Mortgage Assignment of
Rents and Security Agreement dated August 11, 1994
between Oasis at Springtree, Inc. and Krupp
Government Income Trust II.[Exhibit 10.51 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.52) Supplement to Prospectus dated January 1, 1994 for
Federal National Mortgage Association pool number
MX - 073043.[Exhibit 10.52 to Registrant s report
on Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
St Germain
(10.53) Supplement to Prospectus dated April 1, 1994 for
Federal National Mortgage Association pool number
MX - 073031 [Exhibit 10.34 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.54) Subordinated Loan Agreement dated November 24,
1993 between Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II [Exhibit
10.35 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.55) Subordinate Note dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
-20-
Government Income Trust II.[Exhibit 10.55 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.56) Multifamily Mortgage Assignment of Rents and
Security Agreement dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.56 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.57) Subordination Agreement dated December 17, 1993
between Berkshire Mortgage Finance Limited
Partnership, Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II.[Exhibit
10.57 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
(10.58) Supplement to Prospectus dated April 1, 1994 for
Federal National Mortgage Association pool number
MX - 073032 [Exhibit 10.36 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.59) Subordinated Loan Agreement dated November 24,
1993 between Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II [Exhibit
10.37 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.60) Subordinated Note dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.60 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.61) Multifamily Mortgage Assignment of Rents and
Security Agreement dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.61 to
Registrant s report form 10-K for the year ended
December 31, 1995 (File No. 0-20164)].*
(10.62) Subordination Agreement dated December 17, 1993
between Berkshire Mortgage Finance Limited
Partnership, Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II.[Exhibit
10.62 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
(10.63) Supplement to Prospectus dated April 1, 1994 for
Federal National Mortgage Association pool number
MX - 073033 [Exhibit 10.38 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
-21-
(10.64) Subordinated Loan Agreement dated November 24,
1993 between Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II [Exhibit
10.39 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.65) Subordinated Note dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.65 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.66) Multifamily Mortgage Assignment of Rents and
Security Agreement dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.66 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.67) Subordination Agreement dated December 17, 1993
between Berkshire Mortgage Finance Limited
Partnership, Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II.[Exhibit
10.67 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
(10.68) Supplement to Prospectus dated April 1, 1994 for
Federal National Mortgage Association pool number
MX - 073034 [Exhibit 10.40 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.69) Subordinated Loan Agreement dated November 24,
1993 between Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II [Exhibit
10.41 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-20164)].*
(10.70) Subordinated Note dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.70 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.71) Multifamily Mortgage Assignment of Rents and
Security Agreement dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
Government Income Trust II.[Exhibit 10.71 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.72) Subordination Agreement dated December 17, 1993
between Berkshire Mortgage Finance Limited
Partnership, Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II.[Exhibit
-22-
10.72 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
The Willows
(10.73) Subordinated Loan Agreement dated November 9, 1994
between Mark Odell, Phyllis Odell, CPM Realty, CPM
Properties Limited Partnership, and CPM Willows,
L.P. and Krupp Government Income Trust II.[Exhibit
10.73 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
(10.74) Subordinate Note dated November 9, 1994 between
CPM Willows, L.P. and Krupp Government Income
Trust II.[Exhibit 10.74 to Registrant s report on
Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.75) Subordinated Multifamily Deed of Trust, Assignment
of Rents and Security Agreement dated November 9,
1994 between CPM Willows, L.P. and Krupp
Government Income Trust II.[Exhibit 10.75 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.76) Subordination Agreement dated November 9, 1994
between Berkshire Mortgage Finance Limited
Partnership, CPM Willows, L.P. and Krupp
Government Income Trust II.[Exhibit 10.76 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.77) Assignment of Subordination Agreement dated
November 9, 1994 from Berkshire Mortgage Finance
Limited Partnership to the Federal National
Mortgage Association by and between CPM Willows,
L.P., Berkshire Mortgage Finance Limited
Partnership and Krupp Government Income Trust
II.[Exhibit 10.77 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.78) Supplement to Prospectus dated January 1, 1994 for
Federal National Mortgage Association pool number
MX - 073057 [Exhibit 10.42 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
Windmill Lakes
(10.79) Subordinated Loan Agreement dated February 3,
1995 between Robert B. Kramer and Rose Berger,
Windmill Lakes, Inc., and Krupp Government Income
Trust II [Exhibit 10.1 to Registrant's report on
-23-
Form 10-Q for the quarter ended September 30, 1995
(File No. 0-20164)].*
(10.80) Subordinate Note dated February 3, 1995 between
Windmill Lakes, Inc., and Krupp Government Income
Trust II [Exhibit 10.2 to Registrant's report on
Form 10-Q for the quarter ended September 30, 1995
(File No. 0-20164)].*
(10.81) Subordinate Multifamily Mortgage Agreement dated
February 3, 1995 between Windmill Lakes, Inc., and
Krupp Government Income Trust II [Exhibit 10.3 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20164)].*
(10.82) Subordination Agreement dated February 3, 1995 by
and among Green Park Financial Limited
Partnership, Krupp Government Income Trust II and
Windmill Lakes, Inc. [Exhibit 10.4 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-20164)].*
The Lakes
(10.83) Subordinated Loan Agreement dated June 29, 1995,
between Lake Associates, L. P. and Krupp
Government Income Trust II [Exhibit 10.5 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20164)].*
(10.84) Subordinate Note dated June 29, 1995, between Lake
Associates, L. P. and Krupp Government Income
Trust II [Exhibit 10.6 to Registrant's report on
Form 10-Q for the quarter ended September 30, 1995
(File No. 0-20164)].*
(10.85) Subordinate Multifamily Mortgage to Secure Debt
Agreement dated June 29, 1995, between Lake
Associates, L. P. and Krupp Government Income
Trust II [Exhibit 10.7 to Registrant's report on
Form 10-Q for the quarter ended September 30, 1995
(File No. 0-20164)].*
(10.86) Subordination Agreement dated June 29, 1995,
between Berkshire Mortgage Finance Limited
Partnership, Lake Associates, L. P. and Krupp
Government Income Trust II [Exhibit 10.8 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20164)].*
(10.87) Assignment of Subordination Agreement dated June
29, 1995, from Berkshire Mortgage Finance Limited
Partnership to the Federal National Mortgage
Association by and between, Lake Associates, L.P.
-24-
and Berkshire Mortgage Finance Limited Partnership
and Krupp Government Income Trust II [Exhibit 10.9
to Registrant's report on Form 10-Q for the
quarter ended September 30, 1995 (File No. 0-
20164)].*
(10.88) Supplement to Prospectus dated November 1, 1994
for Federal National Mortgage Association pool
number MX - 073149 [Exhibit 10.10 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-20164)].*
The Fountains
(10.89) Subordinated Promissory Note dated April 24, 1995
between CSM Fountains Limited Partnership and
Krupp Government Income Trust II [Exhibit 10.11 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20164)].*
(10.90) Agreement Re: Subordinated Note dated April 24,
1995 between Berkshire Mortgage Finance
Corporation and Krupp Government Income Trust II
[Exhibit 10.12 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1995 (File No.
0-20164)].*
(10.91) Subordinated Multifamily Mortgage Assignment of
Rents and Security Agreement dated April 24, 1995
between CSM Fountains Limited Partnership and
Krupp Government Income Trust II [Exhibit 10.13 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20164)].*
Falls at Hunter Pointe
(10.92) Additional Loan Note dated August 5, 1993 between
Goulding L. Stoddard ("Borrower") and Krupp
Government Income Trust ("Holder").[Exhibit 10.92
to Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.93) Additional Loan Agreement dated August 5, 1993
between Goulding L. Stoddard ("Borrower") and
Krupp Government Income Trust("Holder").[Exhibit
10.93 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
(10.94) Subordinated Promissory Note, dated August 4, 1993
between Hunters Pointe Associates, Ltd. ("Maker"
or "Mortgagor") and Krupp Government Income Trust
("Holder").[Exhibit 10.94 to Registrant s report
on Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
-25-
(10.95) Agreement re Subordinated Note dated August 5,
1993 between TRI Capital Corporation and Krupp
Government Income Trust.[Exhibit 10.95 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.96) Subordinated Multifamily Deed of Trust, Assignment
of Rents and Security Agreement dated August 5,
1993 between Hunters Pointe Associates, Ltd. and
Krupp Government Income Trust.[Exhibit 10.96 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.97) Participation and Servicing Agreement dated August
5, 1993 by and between TRI Capital Corporation and
Krupp Government Income Trust.[Exhibit 10.97 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
Rivergreens Apartments
(10.98) Mortgage Note dated August 19, 1993 between
Rivergreens Associates II Limited Partnership and
Krupp Mortgage Company Limited
Partnership.[Exhibit 10.98 to Registrant s report
on Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.99) Subordinated Promissory Note, dated August 19,
1993, between Rivergreens Associates II Limited
Partnership and Krupp Government Income
Trust.[Exhibit 10.99 to Registrant s report on
Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
(10.100) Subordinated Multifamily Deed of Trust, Assignment
of Rents and Security Agreement dated August 19,
1993 between Rivergreens Associates II Limited
Partnership and Krupp Government Income Trust
II.[Exhibit 10.100 to Registrant s report on Form
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
Mill Pond II Apartments
(10.101) Mortgage Note dated July 26, 1994 for Mill Pond II
Limited Partnership and Krupp Mortgage Company
Limited Partnership.[Exhibit 10.101 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.102) Multifamily Subordinated Mortgage, Assignment of
Rents and Security Agreement dated July 26, 1994
between Mill Pond II Limited Partnership and
-26-
Krupp Government Income Trust II.[Exhibit 10.102
to Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.103) Subordinated Promissory Note, dated July 26, 1994,
between Mill Pond II Limited Partnership and Krupp
Government Income Trust.[Exhibit 10.103 to
Registrant s report on Form 10-K for the year
ended December 31, 1995 (File No. 0-20164)].*
(10.104) Agreement re Subordinated Note dated July 26,
1994, between Berkshire Mortgage Finance
Corporation and Krupp Government Income
Trust.[Exhibit 10.104 to Registrant s report on
Form 10-K for the year ended December 31, 1995
(File No. 0-20164)].*
* Incorporated by reference
(c) Reports on Form 8-K
The Trust did not file any reports on Form 8-K during the
quarter ended December 31, 1996.
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 11th day of March, 1997.
KRUPP GOVERNMENT INCOME TRUST II
By: /s/ Douglas Krupp
Doorge Krupp, Chairman of Board
of Trustees and a Trustee of
Krupp Government Income Trust II
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on the 11th day of March, 1997.
Signatures Title(s)
/s/ Douglas Krupp Chairman of Board of Trustees and a
Douglas Krupp Trustee of Krupp Government Income Trust II
/s/ Laurence Gerber President and a Trustee of Krupp
Laurence Gerber Government Income Trust II
/s/ Robert A. Barrows Vice President and Treasurer of Krupp
Robert A. Barrows Government Income Trust II
/s/ Charles N. Goldberg Trustee of Krupp Government Income Trust II
Charles N. Goldberg
/s/ E. Robert Roskind Trustee of Krupp Government Income Trust II
E. Robert Roskind
/s/ J. Paul Finnegan Trustee of Krupp Government Income Trust II
J. Paul Finnegan
-28-
APPENDIX A
KRUPP GOVERNMENT INCOME TRUST II
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 1996
F-1
KRUPP GOVERNMENT INCOME TRUST II
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 1996 and 1995 F-4
Statements of Income for the Years Ended December 31, 1996, 1995
and 1994 F-5
Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the Years Ended December 31, 1996,
1995 and 1994 F-7
Notes to Financial Statements F-8 - F-19
Supplementary Data - Selected Quarterly Financial Data (Unaudited) F-20
All schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes
thereto.
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Krupp Government Income Trust II:
We have audited the financial statements of Krupp Government Income
Trust II (the "Trust") listed in the index on page F-2 of this Form 10-K.
These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Krupp
Government Income Trust II as of December 31, 1996 and 1995 and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Boston, Massachusetts
February 27, 1997
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
<TABLE>
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<CAPTION>
1996 1995
<S> <C> <C>
Participating Insured Mortgage Investments
("PIMIs")(Notes B, C and I):
Insured mortgages $150,454,030 $150,448,995
Additional loans 29,952,351 29,952,351
Participating Insured Mortgages ("PIMs")
(Notes B, D and I) 49,622,337 45,436,663
Mortgage-Backed Securities ("MBS")
(Notes B, E and I) 40,581,650 48,851,858
Total mortgage investments 270,610,368 274,689,867
Cash and cash equivalents (Notes B and I) 9,214,592 11,675,494
Prepaid acquisition fees and expenses, net of
accumulated amortization of $4,510,838 and
$2,922,496 (Note B) 11,972,804 13,561,146
Prepaid participation servicing fees, net of
accumulated amortization of $1,260,283 and
$761,220 (Note B) 4,234,264 4,733,327
Interest receivable and other assets 2,264,687 2,305,349
Total assets $298,296,715 $306,965,183
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 1,582,054 $ 1,026,622
Other liabilities 27,085 20,576
Total liabilities 1,609,139 1,047,198
Commitments (Notes C, D and I)
Shareholders' equity (Notes A and F):
Common stock, no par value; 25,000,000
Shares authorized; 18,371,477 Shares
issued and outstanding 296,565,241 304,530,460
Unrealized gain on MBS (Note B) 122,335 1,387,525
T o t a l
Shareholders' equity 296,687,576 305,917,985
Total liabilities and Shareholders'
equity $298,296,715 $306,965,183
</TABLE>
F-4
The accompanying notes are an integral
part of the financial statements.
F-5
KRUPP GOVERNMENT INCOME TRUST II
<TABLE>
STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Interest income - PIMs and PIMIs:
Base interest $13,952,237 $12,371,386 $ 8,224,581
Additional Loan interest 1,521,980 1,473,597 800,128
Participation interest 767,747 422,195 129,815
Interest income - MBS 3,122,508 4,615,991 6,731,862
Interest income - other 512,459 1,149,519 2,313,327
Total revenues 19,876,931 20,032,688 18,199,713
Expenses:
Asset management fee to an
affiliate (Note G) 2,056,861 2,121,271 1,967,149
Expense reimbursements to
affiliates (Note G) 391,260 484,718 535,024
Amortization of prepaid expenses,
fees and organization costs 2,094,905 1,909,898 1,423,235
General and administrative 334,723 391,013 392,536
Loss on sale of MBS - 1,379,074 -
Total expenses 4,877,749 6,285,974 4,317,944
Net income (Notes B and H) $14,999,182 $13,746,714 $13,881,769
Earnings per share $ .82 $ .75 $ .76
Weighted average shares
outstanding 18,371,477 18,371,477 18,371,477
</TABLE>
F-6
The accompanying notes are an integral
part of the financial statements.
F-7
KRUPP GOVERNMENT INCOME TRUST II
<TABLE>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
Total
Retained Unrealized Shareholders'
Common Stock Earnings Gain on MBS Equity
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $322,830,753 $ - $ - $322,830,753
Dividends (9,082,603) (13,881,769) - (22,964,372)
Net income - 13,881,769 - 13,881,769
Balance at December 31, 1994 313,748,150 - - 313,748,150
Dividends (9,217,690) (13,746,714) - (22,964,404)
Net income - 13,746,714 - 13,746,714
Change in unrealized gain on MBS - - 1,387,525 1,387,525
Balance at December 31, 1995 304,530,460 - 1,387,525 305,917,985
Dividends (Notes F and H) (7,965,219) (14,999,182) - (22,964,401)
Net income (Note H) - 14,999,182 - 14,999,182
Change in unrealized gain on MBS - - (1,265,190) (1,265,190)
Balance at December 31, 1996 $296,565,241 $ - $ 122,335 $296,687,576
Shared issued and outstanding for each of the three years ended December 31, 1996 are
18,371,477
</TABLE>
F-8
The accompanying notes are an integral
part of the financial statements.
F-9
KRUPP GOVERNMENT INCOME TRUST II
<TABLE>
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Net income $ 14,999,182 $ 13,746,714 $ 13,881,769
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of MBS - 1,379,074 -
Premium amortization 169,589 232,104 1,239,959
Amortization of prepaid expenses,
fees and organization costs 2,094,905 1,909,898 1,423,235
Changes in assets and liabilities:
Decrease (increase) in interest
receivable and other assets 33,162 253,750 (489,633)
Increase(decrease) in other
liabilities 6,509 (967) (2,914)
Net cash provided by
operating activities 17,303,347 17,520,573 16,052,416
Investing activities:
Investment in PIMs (5,824,611) (46,065,971) (70,099,423)
Investment in Additional Loans - (6,600,000) (5,090,000)
Decrease in other investments - - 29,912,892
Proceeds from sale of MBS - 39,885,582 -
Principal collections on MBS 7,427,029 8,404,511 35,403,776
Principal collections on PIMs 1,633,902 1,299,930 781,047
Acquisition of MBS (591,600) - -
Increase in deferred income on
Additional Loans 555,432 546,081 480,541
Increase in prepaid expenses - - (445,678)
Net cash provided by (used
for) investing activities 3,200,152 ( 2,529,867) (9,056,845)
Financing activity:
Dividends (22,964,401) (22,964,404) (22,964,372)
Net decrease in cash and cash
equivalents (2,460,902) (7,973,698) (15,968,801)
Cash and cash equivalents, beginning
of period 11,675,494 19,649,192 35,617,993
Cash and cash equivalents, end of
period $ 9,214,592 $ 11,675,494 $ 19,649,192
</TABLE>
F-10
The accompanying notes are an integral
part of the financial statements.
F-11
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Government Income Trust II (the "Trust") was formed on February
8, 1991 by filing a Declaration of Trust in The Commonwealth of
Massachusetts. The Trust is authorized to sell and issue not more than
25,000,000 shares of beneficial interest (the "Shares"). Berkshire
Realty Advisors Limited Partnership acquired 10,000 of such Shares for
$200,000 and 18,315,158 Shares were sold for $365,686,058 net of
purchase volume discounts of $617,102 under a public offering which
commenced on September 11, 1991 and was completed on February 12, 1993.
Under the Dividend Reinvestment Plan ("DRP"), 46,319 Shares were sold
for $880,061. The Trust shall terminate on December 31, 2030, unless
earlier terminated by the affirmative vote of holders of a majority of
the outstanding Shares entitled to vote thereon. On December 29, 1994,
Berkshire Mortgage Advisors Limited Partnership acquired Berkshire
Realty Advisors Limited Partnership's 10,000 Shares and assumed the
role of the Advisor to the Trust.
The Trustees of the Trust desire that the Trust qualify as a real
estate investment trust ("REIT"), under the REIT Provisions of the
Internal Revenue Code of 1986 (the "Code") as amended. To continue to
qualify as a REIT for federal income tax purposes, the Trust must
continually satisfy a range of complex requirements which require the
Trust to meet certain criteria concerning, among other things, its
share of ownership, the nature of its assets, the source of its income
and the amount of its distributions to shareholders. An election
continues in effect until voluntarily revoked or automatically
terminated by the Trust's failure to qualify as a REIT for a taxable
year. The Trust was organized and intends to conduct its operations to
enable it to qualify as a REIT under the Code. However, should the
Trust not qualify as a REIT in any taxable year, it would be taxed as a
corporation and the distributions to shareholders would be taxed as
dividends to the shareholders of the corporation.
B. Significant Accounting Policies
The Trust uses the following accounting policies for financial
reporting purposes:
MBS
At December 31, 1995, the Trust in accordance with the Financial
Accounting Standards Board's Special Report on Statement 115,
"Accounting for Certain Investments in Debt and Equity Securities",
reclassified its MBS portfolio from held-to-maturity to available-
for-sale. The Trust carries its MBS at fair market value and
reflects any unrealized gains (losses) as a separate component of
Shareholders' Equity. Prior to December 31, 1995, the Trust carried
its MBS portfolio at amortized cost. The Trust amortizes purchase
premiums or discounts over the life of the underlying mortgages using
the effective interest method.
PIMs and PIMIs
F-12
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
The Trust carries its investments in PIMs and PIMIs (consisting of an
insured mortgage and Additional Loan) at amortized cost as it has the
ability and intention to hold these investments. Basic interest is
recognized based on the stated rate of the Department of Housing
and Urban Development ("HUD") insured mortgage (less the
servicer's fee) or the stated coupon rate of the Federal
National Mortgage Association ("FNMA") MBS. The Trust recognizes
interest related to the
Continued
B. Significant Accounting Policies, Continued
PIMs and PIMIs, Continued
participation features as earned and when it deems these amounts to
be collectible. The Trust defers the recognition of Additional Loan
interest payments as income to the extent these interest payments
are from escrows
established with the proceeds of the Additional Loan. When
the properties underlying the PIMIs generate sufficient cash
flow from operations to make the required interest payments
under the Additional Loans, the Trust will commence
amortizing the deferred interest payments into income over
the remaining term of the Additional Loan.
Cash Equivalents
The Trust includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The Trust invests its cash primarily in deposits and
money market funds with a commercial bank and has not experienced any
loss to date on its invested cash.
Prepaid Expenses and Fees
Prepaid expenses and fees represent prepaid acquisition fees and
expenses and prepaid participation servicing fees paid for the
acquisition and servicing of PIMs and PIMIs. The Trust amortizes
prepaid acquisition fees and expenses using a method that
approximates the effective interest method over a period of ten to
twelve years, which represents the actual maturity or anticipated
call date of the underlying mortgage. Acquisition fees and expenses
incurred on potential acquisitions which were not consummated were
charged to operations.
The prepaid participation servicing fees are amortized 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
loan and at closing if a FNMA loan.
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
F-13
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
income taxes on amounts distributed to shareholders provided it
distributes annually at least 95% of its REIT taxable income and
meets certain other requirements for qualifying as a REIT. Therefore,
no provision for federal income taxes has been recorded in the
financial statements.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, contingent assets and liabilities and revenues and
expenses during the period. Actual results could differ from those
estimates.
Continued
C. PIMIs
The Trust has investments in twelve PIMIs that provide financing
primarily for multi-family housing. Each PIMI consists of a FNMA MBS
or a sole participation interest in a HUD-insured first mortgage loan
originated under the FHA lending program (collectively, the "insured
mortgages") and an "Additional Loan" made to the borrower or the owners
of the borrower to provide additional funds for the construction or
permanent financing of the property. The FHA first mortgage loan and
the first mortgage underlying the FNMA MBS provide the borrower
(usually a limited partnership) with a below market interest rate loan,
and in return, the Trust receives a percentage of the cash generated
from the property operations ( Participating Income Interest ) and a
percentage of any appreciation of the underlying property to a
preferred return, then a percentage of any appreciation thereafter
( Participating Appreciation Interest ) (collectively the
Participation Interest ). The borrower conveys the participation
features to the Trust through a subordinated promissory note and
mortgage or a subordinate loan agreement (collectively the
"Agreements"). The Trust makes the Additional Loan under the FNMA
PIMIs directly to the borrower of the first mortgage loan underlying
the FNMA MBS, and the borrower collateralizes the Additional Loan with
a subordinated mortgage on the property. The owners' of the borrower
also pledge their ownership interests in the borrower as additional
collateral. The Trust made the Additional Loans of the FHA PIMIs to
the owners of the entity having the FHA first mortgage loan, and the
owners collateralize the Additional Loan by pledging their ownership
interests in the borrowing entity, their share of any distributions
received, and the proceeds realized upon the refinancing of the
property, sale of the property or sale of the partnership interests.
Unlike the insured mortgages, the Additional Loans are neither
guaranteed nor insured.
F-14
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
The Trust receives monthly payments of principal and interest from the
insured mortgages and is also entitled to receive Participation
Interest and semi-annual interest payments ("Base Interest") and
preferred interest under the Additional Loans and Agreements. While
principal and interest payments on the insured mortgages are insured or
guaranteed, there are limitations to the amount and obligation to pay
interest under the Additional Loan and Agreements.
The Additional Loan and Agreements for FNMA PIMIs entitles the Trust to
receive (i) semi-annual payments of Base Interest on the Additional
Loan, (ii) Participating Income Interest, (iii) Participating
Appreciation Interest and (iv) Preferred Interest. Base Interest
accrues at the stated interest rate of the Additional Loan and
Participating Income Interest represents the Trust's share of the net
revenue generated by the property at a stated percentage generally
ranging from 25% to 35%. Base Interest and Participating Income
Interest are payable only to the extent there is net revenue available
to pay these amounts. However, should the borrower be unable to make
the full Base Interest payment, the borrower must notify the Trust of
the amount of the shortfall. The Trust can require the partners of the
borrower to make a capital call contribution to the borrower to fund
50% of this shortfall, and the Trust will fund the remainder with an
Operating Loan. Also, the Trust is generally limited to receiving no
more than 50% of net revenue on any semi-annual payment date.
Participating Appreciation Interest provides the Trust with a stated
percentage ranging
Continued
C. PIMIs, Continued
from 25% to 30% of the excess value of the property over amounts due
under the first mortgage, Additional Loan and any Operating Loans, the
repayment of capital call contributions, and a return of original
equity to the partners of the borrower. Participating Appreciation
Interest is due upon the sale, refinancing, maturity or accelerated
maturity, or permitted prepayment of all amounts due under the insured
mortgage and Additional Loan. Generally, the Trust will not receive
more than 50% of the excess of Value over the outstanding indebtedness,
the payment of Preferred Interest, and the return of equity and capital
call contributions to the partners' of the borrower.
Preferred interest refers to a non-compounded cumulative return from
the closing date of the loan to the date of calculation at a stated
interest rate generally on the original outstanding balance of the
insured mortgage plus the Additional Loan and any other funds advanced
to the borrower (reduced by principal payments received) less: (i)
interest payments on the insured mortgage, (ii) Base Interest payments
on the Additional Loan, (iii) Participating Income Interest, and (iv)
Participating Appreciation Interest. Generally, the amount of
F-15
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Preferred Interest owed cannot exceed the excess of value over the
outstanding indebtedness. Amounts due under the Additional Loan and
Agreements are neither insured nor guaranteed.
The Agreements for FHA PIMIs entitle the Trust to receive (i)
Participating Income Interest at a stated percentage usually ranging
from 25% to 50% of (a) all distributable Surplus Cash generated by the
property as defined in the regulatory agreement of the HUD-insured
first mortgage loan, (b) unrestricted cash generated by property
operations, and (c) unexpended reserves and escrows; and (ii)
Participating Appreciation Interest at a stated percentage usually
ranging from 20% to 50% of the proceeds or value of the property less
the outstanding indebtedness upon the sale, refinancing, maturity or
accelerated maturity, or permitted prepayment of all amounts due under
the insured mortgage and Additional Loan. Amounts received by the
Trust pursuant to this Agreement reduce amounts payable as Base
Interest and Preferred Interest under the FHA PIMI Additional Loan.
The FHA PIMI Additional Loan Base Interest is payable from the
following sources: (i) any Surplus Cash received as Participating
Income Interest, (ii) amounts conveyed to the Trust by the owners of
the borrower representing distributions of Surplus Cash, and (iii)
amounts in reserve accounts established with Additional Loan proceeds,
if available, and any interest earned on these amounts. As with the
FNMA PIMIs, the borrower must notify the Trust of the amount of any
Base Interest shortfall. At its option the Trust can require the
owners of the borrower to make a capital call for 50% of the shortfall
and the Trust would forego the remainder.
The FHA PIMIs also require the payment of Preferred Interest at a
stated interest rate from the date of final endorsement to the date of
calculation on the original outstanding balance of the insured mortgage
plus the Additional Loan and any other funds advanced by the Trust to
the borrower or owners of the borrowing entity (reduced by principal
payments received) less: (i) interest payments paid to the Trust under
the insured mortgage, (ii) Participating Income Interest, and (iii)
Base Interest payments made under the Additional Loan including amounts
foregone by the Trust.
Continued
C. PIMIs, Continued
The insured mortgage and Agreements generally have maturities of 15 to
40 years, however, under the Agreements the Trust can accelerate the
maturity dates at any time after the ninth or tenth anniversary of
final endorsement for the FHA PIMIs or the closing date of the FNMA
PIMIs, upon giving twelve
F-16
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
months written notice for the payment. The Trust can accelerate the
maturity date for payment of all amounts due under
the Additional Loan and Agreements through the accelerated maturity
date for the payment of amounts due under the Agreement and the HUD-
insured first mortgage loan (providing the contract of insurance with
the Secretary of HUD is canceled prior to the accelerated maturity
date) or prepayment of the first mortgage loan underlying the FNMA MBS.
FHA PIMIs generally cannot be prepaid for a term of five years from the
construction completion date or final endorsement. After the fifth
anniversary of construction completion or final endorsement, the FHA
PIMI
may be prepaid without penalty providing that all amounts due under the
Agreements, Additional Loan and FHA insured mortgage are paid. FNMA
PIMIs generally cannot be prepaid during the five years following the
closing date of the underlying first mortgage loan. Thereafter, the
FNMA first mortgage loan may be prepaid subject to a prepayment penalty
that declines each year for the next five years with no prepayment
penalty after the fifth year. Any prepayment of a FNMA PIMI generally
requires prepayment of the first mortgage loan underlying the FNMA MBS
and payment of amounts due under the Agreements and Additional Loan.
The FNMA first mortgage loan would not need to be prepaid if there is a
permitted assumption of the first mortgage loan, however, amounts due
under the Agreement and Additional Loan would need to be prepaid. Any
prepayment usually requires not less than 90 nor more than 180 days
prior written notice.
The Trust's investments in PIMIs consists of the following at December
31, 1996 and 1995:
<TABLE>
<CAPTION>
Insured Loan Interest Maturity Balance Outstanding
Mortgages Amount Rate Date at December 31,
1996 1995
FHA
<S> <C> <C> <C> <C> <C>
The Seasons (a) $ 23,224,649 7.875% 10/1/28 $ 22,788,436 $ 22,938,257
Hunters Pointe 12,789,100 6.875% 1/1/35 12,669,542 12,733,913
Norumbega Point 15,598,500 7.375% 2/1/36 15,539,949 14,295,065
(b) (c)
FNMA (d)
Crossings Village 12,907,334 6.75% 10/1/08 12,542,615 12,670,857
Martin's Landing 11,200,000 6.5% 12/1/08 10,880,778 10,995,503
Sunset Summit 10,192,801 6.5% 10/1/08 9,909,281 10,013,762
Oasis 12,401,673 6.75% 9/1/09 12,164,562 12,279,096
Windsor Lake 9,680,344 6.75% 7/1/09 9,492,533 9,583,253
F-17
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
C.PIMIs, Continued
St. Germain 11,772,494 6.75% 1/1/09 11,322,292 11,502,426
The Willows 3,600,000 7.075% 12/1/09 3,540,322 3,571,370
Windmill Lakes 11,600,000 6.825% 3/1/10 11,425,179 11,528,052
The Lakes 18,387,653 6.825% 7/1/10 18,178,541 18,337,441
$153,354,548 $150,454,030
(g) $150,448,995
</TABLE>
<TABLE>
<CAPTION>
Additional Loan Loan Base Preferred
Amount Interest Interest
Rate Rate
<S> <C> <C> <C>
The Seasons (a) $ 4,925,351 9%(e) 10%
Hunters Pointe 650,000 7% 9%
Norumbega Pointe 3,063,000 7% 10%
Crossings Village 2,584,000 7% 9%
Martin's Landing 2,280,000 7% 12%
Sunset Summit 1,900,000 7%(f) 9%
St. Germain 2,860,000 7% 8.75%
Oasis 2,290,000 7% 9.25%
Windsor Lake 2,000,000 8% 13%
The Willows 800,000 7% 9.5%
Windmill Lakes 2,000,000 7.5% 9.5%
The Lakes 4,600,000 7% 9%
$29,952,351
</TABLE>
(a) The total PIM and Additional Loan on this property are
$32,300,000 and $6,850,000, respectively, of which 28% is
held by Krupp Government Income Trust, an affiliate of the
Advisor of the Trust.
(b) The FHA approved, an increase of the total loan commitment to
$15,598,500.
F-18
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
(c) The Trust received interest during the construction phase at
a rate of 8.125% per annum.
Continued
C. PIMIs, Continued
(d) Monthly principal and interest payments are based on a 30-
year amortization with the exception of St. Germain which is
based on a 25-year amortization. The unpaid principal
balances due at maturity are as follows:
Crossings Village $ 9,917,000
Martin's Landing $ 8,524,000
Sunset Summit $ 7,763,000
Oasis $ 9,550,000
Windsor Lake $ 7,517,000
St. Germain $ 7,489,000
The Willows $ 2,788,000
Windmill Lakes $ 8,907,000
The Lakes $14,118,000
(e) The base interest rate was 6% per annum for the first three
years and beginning September 1, 1996 increased to 9% per
annum.
(f) The Trust will receive its Base Interest Rate and its GIT
Contingent Interest on Investment (as defined in the
Subordinate Loan Agreement) from net revenue up to the 9%
Preferred Interest Rate and, thereafter is entitled to 25% of
net revenue.
(g) The aggregate cost for federal income tax purposes is
$150,454,030.
Reconciliations of activity for 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of period $150,448,995 $116,047,812 $ 53,191,658
Acquisitions 1,303,436 35,427,771 63,411,366
Principal collections (1,298,401) (1,026,588) (555,212)
Balance at end of period $150,454,030 $150,448,995 $116,047,812
</TABLE>
Property Descriptions:
The Seasons is a 1,088-unit apartment complex located in Laurel, Maryland.
F-19
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
The Falls at Hunter's Pointe ("Hunter's Pointe") is a 276-unit apartment
complex located in Sandy City, Utah, a suburb of Salt Lake City.
Norumbega Point is a 93-unit assisted living facility in Weston,
Massachusetts.
Crossings Village Apartments ("Crossings Village") is a 286-unit apartment
complex located in Westlake, Ohio.
Martin's Landing Apartments ("Martin's Landing") is a 300-unit apartment
complex in Roswell, Georgia.
Sunset Summit Apartments ("Sunset Summit") is a 261-unit apartment complex
located in Portland, Oregon.
Oasis at Springtree ("Oasis") is a 276-unit apartment complex located in
Sunrise, Florida.
Windsor Lake Apartments ("Windsor Lake") is a 416-unit apartment complex in
Smyrna, Georgia.
St. Germain Apartments ("St. Germain") is a 207-unit apartment complex in
Boston, Massachusetts.
The Willows Apartments ("The Willows") is a 100-unit apartment complex in
Redmond, Washington.
Continued
C. PIMIs, Continued
Windmill Lakes Apartments ("Windmill Lakes") is a 264-unit garden style
apartment complex in Pembroke Pines, Broward County, Florida.
The Lakes at Vinings Apartments ("The Lakes") is a 464-unit
garden and townhouse style apartment complex in Vinings,
Georgia.
D. PIMs
The Trust has investments in five PIMs. Currently four
PIMs are for existing properties and one is funding the
construction of multi-family housing .The Trust's PIMs consist of a
FNMA MBS which represents the securitized first mortgage loan on the
underlying property or a sole
F-20
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
participation interest in the 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 property above specified levels. The borrower
conveys these participation features to the Trust generally through a
subordinated promissory note and mortgage (the "Agreement"). The Trust
receives monthly principal and interest payments on the FNMA MBS
guaranteed by FNMA, and HUD insures payment of principal and interest on
the FHA first mortgage loan.
Construction-phase PIMs provide interest only payments on
the amount invested during construction, and upon final
endorsement (final draw and completion of construction)
these construction-phase PIMs convert to permanent PIMs.
The borrower generally cannot prepay the first mortgage
loan during the first five years and may prepay the first
mortgage loan thereafter subject to a 9% prepayment penalty
in years six through nine, a 1% prepayment penalty in year
ten and no prepayment penalty thereafter. The Trust may
receive interest related to its participation interests in
the underlying property, however, these amounts are neither
insured nor guaranteed.
Generally, the participation features consist of the
following: (i) "Minimum Additional Interest" at rates
ranging from .5% to .75% per annum calculated on the unpaid
principal balance of the first mortgage on the underlying
property , (ii) "Shared Income Interest" ranging from 25%
to 30% of the monthly gross rental income generated by the
underlying property in excess of a specified base, but only
to the extent that it exceeds the amount of Minimum
Additional Interest received during such month, (iii)
"Shared Appreciation Interest" ranging from 25% to 30% of
any increase in Value of the underlying property in excess
of a specified base. Payment of participation interest
from the operations of the property is limited to 50% of
net revenue or surplus cash as defined by FNMA or HUD,
respectively. The total amount of participation interest
payable by the underlying borrower generally cannot exceed
50% of any increase in Value of the property, however,
generally any net proceeds from a sale or refinancing will
be available to satisfy any accrued but unpaid minimum
additional or shared income interest.
Shared Appreciation Interest is payable when one of the
following occurs: (1) the sale of the underlying property
to an unrelated third party on a date which is later than
F-21
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
five years from the date of the Agreement, (2) the maturity
date of the Agreement, or (3) prepayment of the Agreement.
Continued
D. PIMs, Continued
Under the Agreement, the Trust, upon giving twelve monthswritten
notice, can accelerate the maturity date of the Agreement and insured
mortgage 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 31,1996 and 1995, the Trust had outstandingcommitments
on its closed construction-phase PIMs of $1,006,000 and
$5,524,000, respectively. The remaining commitment which will be
funded from cash and cash equivalents and MBS principal collections.
The Trust's PIMs consisted of the following at December 31,1996 and 1995:
<TABLE>
<CAPTION>
Interest Maturity
PIM Amount Rate Date Balance at December 31,
1996 1995
FNMA
<S> <C> <C> <C> <C> <C>
Mequon Trails $14,937,726 6.50% 1/01/08 $14,355,629 $14,527,140
(a)
FHA
The Estates 12,000,000 6.875% 6/01/28 11,692,400 11,790,139
Rivergreens II 6,137,199 7.375% 1/1/35 6,087,163 6,114,162
(b)
Mill Ponds II 8,245,300 7.125% 12/1/35 8,208,979 7,434,486
(c)
The Fountains 10,336,000 7.875% 11/1/36 9,278,166 5,570,736
(d)
Total $51,656,225 $49,622,337 $45,436,663
(e)
</TABLE>
F-22
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
(a) Principal and interest payments are based on 30-yearamortiza
tion.Unpaid principal of approximately $11,267,000 is due at maturity.
(b) Construction-phase interest rate was 8.875% per annum.
Received Final Endorsement in August 1995.
(c) Construction-phase interest rate was 7.125% also.
Received Final Endorsement in May 1996.(d)Construction-phase interest
rate is 7.875%.
(e) The aggregate cost for federal income tax purposes is
$49,622,337.
Reconciliations of activity for 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning ofperiod $45,436,663 $35,071,805 $28,609,583
Acquisitions 4,521,175 10,638,200 6,688,057
Principal collections (335,501) (273,342) (225,835)
Balance at end of period $49,622,337 $45,436,663 $35,071,805
</TABLE>
Continued
D. PIMs, Continued
Property descriptions:
Mequon Trails Townhomes ("Mequon Trails") is a 246-unit
apartment complex located in Mequon, Wisconsin.
The Estates Apartments is a 208-unit apartment complex
located in Pikesville, Maryland.
Rivergreens II Apartments ("Rivergreens II") is a 126-unit
apartment complex in Gladstone, Oregon.
Mill Ponds II Apartments ("Mill Ponds II")is a 150-unit
apartment complex in Bellbrook, Ohio.
The Fountains Apartments ("The Fountains") will be a 204-
unit apartment complex in West Des Moines, Iowa.
E. Mortgage Backed Securities
At December 31, 1996, the Trust's MBS portfolio has an
amortized cost of $40,459,315 and gross unrealized gains of
approximately $122,335. At December 31, 1995, the Trust's
MBS portfolio has an amortized cost of approximately
$47,464,333 and gross unrealized gains and losses of
approximately $1,441,407 and $53,882, respectively. The
MBS have maturities ranging from 2008 to 2023.
F-23
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
F. Shareholders' Equity
Under the Declaration of Trust, and commencing with the
initial closing of the public offering of Shares, the Trust
has declared and paid dividends on a quarterly basis.
During the period in which the Trust qualifies as a REIT,
the Trust has and will pay quarterly dividends aggregating
at least 95% of taxable income on an annual basis to be
allocated to the shareholders, in proportion to their
respective number of shares.
In order for the Trust to maintain its REIT status with
respect to the requirements of Share ownership, the
Declaration of Trust prohibits any investor from owning,
directly or indirectly more than 9.80% 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 expenses 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 1994 the Trust paid $445,678 of acquisition expenses
to affiliates.
The Trust received $295,522, $295,522 and $281,294 of base
interest from The Seasons in 1996, 1995 and 1994,
respectively (see Note C).
Continued
H. Federal Income Taxes
The reconciliation of the income reported in the
accompanying statement of income with the income reported
in the Trust's 1996 federal income tax return follows:
Net income per statement of income $ 14,999,182
Add: Book to tax difference for amortization
of prepaid fees and expenses 958,739
F-24
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Additional Loan interest deferred for book
purposes 555,432
Net income for federal income tax purposes $ 16,513,353
The Trust paid dividends of $1.25 per share during 1996
which represents approximately $.90 from ordinary income
and $.35 represents a non-taxable distribution for
federal income tax purposes.
I. Fair Value Disclosures of Financial Instruments
The Trust uses the following methods and assumptions to
estimatethe fairvalue ofeach classof financialinstrument:
Cash and Cash Equivalents
The carrying amount approximates fair value because
of the short maturity of those instruments.
MBS
The Trust estimates the fair value of MBS based on
quoted market prices.
PIMs and PIMIs
There is no established trading market for these
investments. Management estimates the fair value of
the PIMs and PIMIs using quoted market prices of MBS
having the same stated coupon rate as the insured
mortgages and Additional Loans based on the estimated
fair value of the underlying properties. Management
does not include any participation income in the
Trust s estimated fair values, because Management
does not believe it can predict the time of
realization of the feature with any certainty.
Based on the estimated fair value determined using
these methods and assumptions, the Trust's
investments in PIMs and PIMIs had gross unrealized
losses and gains of approximately $8,932,000 and
$119,000, respectively, at December 31, 1996 and
gross unrealized losses and gains of approximately
$2,377,000 and $412,000 at December 31, 1995.
Commitments to Fund Construction Loans and PIMIs
For the years ended December 31, 1996 and 1995 the
Trust approximates the fair values of its commitments
on closed PIMs and PIMIs to be equal to the
commitment amounts of approximately $1,006,000 and
$5,524,000, respectively.
F-25
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
I. Fair Value Disclosures of Financial Instruments, Continued
At December 31, 1996 and 1995, the estimated fair
values of the Trust's financial instruments are as
follows:
<TABLE>
<CAPTION>
(rounded to thousands)
1996 1995
<S> <C> <C>
Cash and cash equivalents $ 9,215 $ 11,675
MBS 40,582 48,852
PIMs and PIMIs:
PIMs 48,132 45,183
Insured mortgages 145,768 150,074
Additional loans 27,315 28,616
$271,012 $284,400
</TABLE>
F-26
KRUPP GOVERNMENT INCOME TRUST II
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
<TABLE>
<CAPTION>
For the Quarter Ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
<S> <C> <C> <C> <C>
Total revenues $5,234,390 $4,884,080 $4,935,430 $4,823,031
Net income $3,975,003 $3,665,234 $3,706,177 $3,652,768
Earnings per Share $ .22 $ .20 $ .20
$ .20
For the Quarter Ended
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
Total revenues $5,259,518 $4,833,144 $5,106,339 $4,833,687
Net income $2,679,079 $3,623,063 $3,825,954 $3,618,618
Earnings per Share$ .15 $ .19 $ .21 $ .20
F-27
<PAGE>
</TABLE>
<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> 0000872467
<NAME> KRUPP GOVERNMENT INCOME TRUST-II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,214,592
<SECURITIES> 270,610,368<F1>
<RECEIVABLES> 2,264,687
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,207,068<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 298,296,715
<CURRENT-LIABILITIES> 1,609,139<F3>
<BONDS> 0
0
0
<COMMON> 296,565,241
<OTHER-SE> 122,235<F4>
<TOTAL-LIABILITY-AND-EQUITY> 298,296,715
<SALES> 0
<TOTAL-REVENUES> 19,876,931<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,877,749<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,999,182
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,999,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,999,182
<EPS-PRIMARY> .82
<EPS-DILUTED> .82
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMSIs") (insured
mortgages of $150,454,030 and Additional Loans of $29,952,351), Participating
Insured Mortgages ("PIMs") of $49,622,337 and Mortgage-Backed Securities
("MBS") of $40,581,650.
<F2>Includes prepaid acquisition fees and expenses of $16,483,642 net of
accumulated amortization of $4,510,838 and prepaid participating servicing of
$5,494,547 net of accumulated amortization of $1,260,283.
<F3>Includes deferred income on Additional Loans of $1,582,054.
<F4>Unrealized loss on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $2,094,905 of amortization for prepaid fees and expenses.
</FN>
</TABLE>
