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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-20164
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) (ZipCode)
(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 10-19.
<PAGE>
PART I
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
ITEM 1. BUSINESS
Krupp Government Income Trust 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 in excess of mortgage amounts insured under GNMA, FNMA or FHA
programs 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 receives 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 participating 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, the
value of the PIMIs and PIMs may be realized by the Trust through repayment
or sale as early as ten years from the dates of the closings of the
permanent loans, and the Trust may realize the value of all of its other
investments within that time frame thereby resulting in a dissolution of
the Trust significantly prior to December 31, 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.
<PAGE>
Additionally, if the Trust does not qualify as a REIT for any taxable
year, it will be subject to federal income tax as if it were a corporation
and the shareholders will be taxed as shareholders of a corporation. If
the Trust were taxed as a corporation, the payment of such tax by the Trust
would substantially reduce the funds available for distribution to
shareholders or for reinvestment. To the extent that distributions had been
made in anticipation of the Trust's qualification as a REIT, the Trust
might be required to borrow additional funds or to liquidate certain of its
investments in order to pay the applicable tax. Moreover, should the
Trust's election to be taxed as a REIT be terminated or voluntarily
revoked, the Trust may not be able to elect to be treated as a REIT for the
following five-year period.
As of December 31, 1997, 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, 1997 was
approximately 15,500.
The Trust has and intends to continue to declaring and paying dividends
on a quarterly basis. The Trustees established a dividend rate per Share
per quarter of $.3125 for 1997 and 1996.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding
the Trust's financial position and operating results. This information
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Financial Statements
and Supplementary Data, which are included in Item 7 and Item 8, Appendix A
of this report, respectively.
<TABLE>
<CAPTION>
(Amounts in thousands, except for per Share amounts)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total revenues $ 21,291 $ 19,877 $ 20,033 $ 18,200 $ 15,867
Net income $ 16,263 $ 14,999 $ 13,747 $ 13,882 $ 13,853
Net income per Share $ .89 $ .82 $ .75 $ .76 $ .75
Weighted average Shares
outstanding 18,371 18,371 18,371 18,371 18,364
Total assets at December 31 $293,158 $298,297 $306,965 $314,250 $322,855
Average dividends per Share $ 1.25 $ 1.25 $ 1.25 $ 1.25 $ 1.60
</TABLE>
The Trust completed its public offering in 1993, therefore the Selected
Financial Data for 1993 is not indicative of the Trust's future results and
is not comparable with 1997, 1996, 1995 and 1994.
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, 1997, the Trust has liquidity consisting of cash and
cash equivalents, of approximately $13.5 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 $23.0 million per year ($5.75
million per quarter). For 1997, the Trust declared an annual dividend of
$1.25 per share, paid in quarterly installments of $.3125 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.
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.
During the second quarter of 1997, the Trust funded an additional
$465,000 to the owner of the Willows Apartments increasing the Additional
Loan amount to $1,265,000. Subsequent to the funding, the owner notified
the Trust of its intention to sell the property to a third party during the
third quarter. During the third quarter of 1997, the Trust received the
prepayment of the Additional Loan of $1,265,000 and the payment of $789,336
which represents all of the Preferred Interest due on the Trust s
investment through the date of sale. In addition the Trust allowed the
purchaser to assume the first mortgage. The Trust converted the Willows
Apartment PIMI to an insured mortgage.
Many of the properties had stable or improving performances in 1997.
All but one of the underlying properties with stabilized operations had
high average 1997 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. Windmill Lakes operating performance during the
third quarter continued to be adversely affected by the highly competitive
housing market in Pembroke Pines, Florida. New construction in all housing
sectors is being fueled by strong job and population growth in the area.
Builders marketing concessions to fill new properties lowers the cost of
renting a new apartment and makes it more difficult for older properties
like Windmill Lakes to attract residents. The borrower has informed the
Advisor that the property is being marketed for sale. Should the borrower
be unable to obtain a purchase offer adequate to cover the property s
outstanding liabilities, the Advisor anticipates that some measure of debt
service relief will be necessary until the market stabilizes. The Advisor
continues to monitor this property closely.
Two other properties moved towards stabilized occupancy during 1997 after
completing construction. Mill Pond II reached 95% by year-end, and
Norumbega Point completed the initial lease-up of the assisted living
community by reaching 100% occupancy by year-end. Two other recently
completed properties, the Fountains Apartments and Rivergreens II
Apartments, faced more challenging lease-ups due to over saturated markets
but achieved occupancy in the mid 90% range by year end. 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 third quarter the borrower on the Estates PIM informed the
Advisor that a sale to one of the Trust s affiliated entities of the
property was pending. To facilitate the sale transaction, the borrower
asked and the Advisor agreed to release the participation features of the
PIM and allow the purchaser to assume the obligations of the first mortgage
loan. In exchange for this modification, the Advisor required the borrower
to pay a settlement of $232,000 to provide the Trust with a financial
return that will be comparable to what the Trust would have expected to
receive had the borrower continued to own the property. The PIM was
converted to an insured mortgage when the transaction was completed during
the fourth quarter of 1997.
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.
For the first five years of the PIMs and PIMIs the borrowers are
prohibited from prepaying of loans. For the second five years, the
borrowers can prepay the loans by 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.
<PAGE>
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
higher risk debt instruments, 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 $10
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>
<CAPTION>
Operations
(amounts in thousands, except per Shareamounts)
Year Ended December 31,
1997 1996 1995
Per Per Per
Amount Share Amount Share Amount Share
<S>
Interest on PIMs:
<S> <C> <C> <C> <C> <C> <C>
Base interest $13,828 $ .75 $13,952 $.76 $12,371 $.67
Additional loan interest 2,147 .12 1,522 .08 1,474 .08
Participation interest 1,770 .10 768 .04 422 .02
Interest income on MBS 2,847 .16 3,123 .17 4,616 .25
Interest income - other 698 .04 512 .03 1,150 .06
Trust Expenses (2,840) (.16) (2,783) (.15) (2,997) (.15)
Loss on sale of MBS - - - - (1,379) (.08)
Amortization of prepaid fees and
expenses and organization costs (2,187) (.12) (2,095) (.11) (1,910) (.10)
Net
income $16,263 $ .89 $14,999 $.82 $13,747 $.75
Weight Average Shares Outstanding 18,371,477 18,371,477 18,371,477
</TABLE>
<PAGE>
The net income of the Trust for 1997 increased as compared to 1996 and
1995. During the three years ended December 31, 1997 the Trust's operations
underwent significant changes in the mix of interest income as the Trust
continued to invest in PIMs and PIMIs during 1996 and 1995. Interest
income from PIMs and PIMIs increased by approximately $1,503,000 in 1997 as
compared to 1996 and approximately $1,975,000 in 1996 as compared to 1995
due to the investments in PIMs and PIMIs made during 1995.
The Trust s total interest income for 1997 as compared to 1996 increased by
approximately $1,413,000 due to higher Additional Loan interest,
Participation interest and interest income other, which was partially
offset by decreases in interest income on MBS and base interest on PIMs and
PIMIs. The increases in Additional Loan interest and Participation
interest was primarily due to the Trust receiving participation
appreciation interest of approximately $789,000 from the preferred return
payment related to the Willows Additional Loan payoff and Participation
income interest of approximately $980,000 from 10 of its PIMs and PIMIs, as
compared to $768,000 from seven of its PIMs and PIMIs in 1996. 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 1997. As a result of this in 1997, the Trust began recognizing
additional loan income and Participation interest income from The Seasons
and management expects it to continue to do so in 1998. This was offset by
a decrease in interest income on MBS and base interest on PIMs and PIMIs.
Interest income on MBS and base interest on PIMs and PIMIs will continue
to decline as principal collections reduce the outstanding balance of the
MBS, PIM and PIMI portfolios.
The Trust s expenses increased by approximately $57,000 or 2% in 1997 as
compared to 1996 primarily due to an increase in expense reimbursements and
general and administrative expense. This was offset by lower asset
management fees resulting from a declining asset base when comparing 1997
to 1996.
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.
Trust expenses, exclusive of losses from the sale of MBS, decreased by
$214,000 in 1996 versus 1995 as a result of decreases in expenses
reimbursements, lower asset management fees 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:
Position with Krupp
-10-
<PAGE>
Name and Age Government Income Trust II
Douglas Krupp (51) Chairman of Board of
Trustees and Trustee
* Charles N. Goldberg (56) Trustee
* E. Robert Roskind (52) Trustee
* J. Paul Finnegan (72) Trustee
Robert A. Barrows (40) Treasurer
Scott D. Spelfogel (37) Clerk
K. Scott Griggs (35) Assistant Clerk
* Independent Trustee
Douglas Krupp is Co-Founder and Chairman of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston, the
Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments. Mr. Krupp
is a graduate of Bryant College. In 1989 he received an honorary Doctor of
Science in Business Administration from this institution and was elected
trustee in 1990. Mr. Krupp is Chairman of the Board and a Director of both
Berkshire Realty Company, Inc. and Harborside Healthcare. Mr. Krupp also
serves as Chairman of the Board and Trustee of Krupp Government Income
Trust.
Charles N. Goldberg is of counsel to the law firm of Broocks, Baker
& Lange, L.L.P. Prior to joining Broocks, Baker & Lange, L.L.P., Mr.
Goldberg was a partner in the law firm of Hirsch & Westheimer from March of
1996 to December of 1997. Prior to Hirsch & Westheimer, he was the
Managing Partner of Goldberg Brown, Attorneys at Law from 1980 to March of
1996. He currently serves as a Trustee of Krupp Government Income Trust.
He is also currently a director of Berkshire Realty Company, Inc. (NYSE-
BRI). He received a B.B.A. degree and a J.D. degree from the University of
Texas. He is a member of the State Bar of Texas and is admitted to
practice before the U.S. Court of Appeals, Fifth Circuit and U.S. District
Court, Southern District of Texas.
E. Robert Roskind is the Chairman and Co-Chief Executive Officer of
Lexington Corporate Properties, a self-administered REIT, the shares of
which are listed on the NYSE. Mr. Roskind is also the Managing Partner of
The LCP Group, a real estate investment firm based in New York, the
predecessor of which he co-founded in 1974. He currently serves as a
Trustee of Krupp Government Income Trust. He is also currently a director
of Berkshire Realty Company, Inc. (NYSE-BRI). Mr. Roskind holds a B.A.
degree from the University of Pennsylvania and a J.D. degree from Columbia
Law School. He has been a member of the New York Bar since 1970.
J. Paul Finnegan retired as a partner of Coopers & Lybrand in 1987.
Since then, he has been engaged in business as a consultant, a director and
arbitrator. Mr. Finnegan holds a B.A. degree from Harvard College, a J.D.
degree from Boston College Law School and an ASA from Bentley College. Mr.
Finnegan currently serves as a Trustee of Krupp Government Income Trust.
He is also currently a director at Scituate Federal Savings Bank and a
director of Berkshire Realty Company, Inc. (NYSE-BRI). Mr. Finnegan is a
Certified Public Accountant and an attorney.
Robert A. Barrows is the Treasurer of the Trust and is Senior Vice
President and Chief Financial Officer of Berkshire Mortgage Finance. Mr.
Barrows has held several positions within The Berkshire Group since joining
the company in 1983 and is currently responsible for accounting, financial
reporting, treasury, management information systems and loan closing and
servicing for Berkshire Mortgage Finance. Prior to joining The Berkshire
Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in Boston.
He received a B.S. degree from Boston College and is a Certified Public
Accountant.
Scott D. Spelfogel is the Clerk of the Trust and 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 Vice
President and Assistant General Counsel of The Berkshire Group. Before
joining The Berkshire Group in March 1991, he served as counsel to The
Fafard Companies, a construction and real estate firm in Greater Boston.
He received a B.A. degree from Columbia University in 1984 and a J.D.
degree from the Boston University School of Law in 1989. He is a member of
the American 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 53) is the Co-Founder of The Berkshire Group.
Established in 1969 as the Krupp Companies and headquartered in Boston, the
Berkshire Group is a privately held real estate-based firm that has
expanded over the years within its areas of expertise including investment
program sponsorship, property and asset management, mortgage banking and
healthcare facility management. The Berkshire Group s interests include
ownership of a mortgage company specializing in commercial mortgage
financing with a portfolio of approximately $4.5 billion. In addition, The
Berkshire Group has a majority ownership interest in Harborside Healthcare
(NYSE-HBR), a long-term and subacute care company and a significant
ownership interest in Berkshire Realty Company, Inc. (NYSE-BRI), a real
estate investment trust specializing in apartment investments. Mr. Krupp
received his undergraduate education from the University of Pennsylvania
and Harvard University Extension School and holds a Master s Degree in
History from Brown University.
-12-
<PAGE>
Peter F. Donovan (age 44) is Chief Executive Officer of Berkshire
Mortgage Finance and overseas the strategic growth plans of this mortgage
banking firm which is the 12th largest in the United States based on
servicing and asset management of a $4.5 billion loan portfolio.
Previously he served as President of Berkshire Mortgage Finance and
directed the production underwriting and servicing and asset management
activities of the firm. Prior to that, he was Senior Vice President of
Berkshire Mortgage Finance and was responsible for all participating
mortgage originations. Before joining the firm in 1984, he was Second Vice
President, Real Estate Finance for Continental Illinois National Bank &
Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College
and an M.B.A. degree from Northwestern University.
ITEM 11. EXECUTIVE COMPENSATION
Except for the Independent Trustees as described below, the Trustees
and Officers of the Trust have not been and will not be compensated by the
Trust for their services. However, the Officers will be compensated by the
Advisor or an affiliate of the Advisor.
Compensation of Trustees
The Trust paid each of the Independent Trustees a fee of $25,000 in
1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 5, 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.
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
Shares of Douglas Krupp
Beneficial 470 Atlantic Avenue
Interest Boston, Ma. 02210 10,000 Shares** ***
Shares of
Beneficial
Interest All Directors and 10,000 Shares ***
Officers
** 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.
-13-
<PAGE>
*** The amount owned does not exceed one percent of the shares of
beneficial interest of the Trust outstanding as of February 5, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note G to Financial Statements included in Appendix A of this
report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements - see Index to Financial Statements and
Supplementary Data included under Item 8, Appendix A, on page F-2 of
this report.
2. Financial Statement Schedules - see Index to Financial
Statements and Supplementary Data included under Item 8,
Appendix A, on page F-2 of this report. All schedules are
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
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,
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) 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
(10.12) 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)].*
(10.13) 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)].*
(10.14) 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)].*
(10.15) 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)].*
(10.16) 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)].*
(10.17) 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)].*
(10.18) 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
(10.19) 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)].*
(10.20) 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)].*
(10.21) 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
10-K for the year ended December 31, 1995 (File
No. 0-20164)].*
(10.22) 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
(10.23) 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)].*
(10.24) 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)].*
-17-
<PAGE>
(10.25) 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
(10.26) 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)].*
(10.27) 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)].*
(10.28) 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)].*
(10.29) Subordinated Multifamily Mortgage Assignment of
Rents and Security Agreement dated December 14,
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)].*
(10.30) 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)].*
(10.31) 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)].*
(10.32) 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)].*
-18-
<PAGE>
Sunset Summit
(10.33) 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)].*
(10.34) 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)].*
(10.35) 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)].*
(10.36) 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)].*
(10.37) Subordinate Multifamily Mortgage Agreement dated
November 24, 1993 between Sunset Summit Limited
Partnership and Krupp Government Income Trust II
[Exhibit 10.25 to Registrant's report on Form 10-K
for the year ended December 31, 1994 (File No. 0-
20164)].*
(10.38) 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
(10.39) 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)].*
(10.40) 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)].*
(10.41) 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)].*
(10.42) 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)].*
(10.43) 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)].*
(10.44) 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
(10.45) 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
Form 10-K for the year ended December 31, 1994
(File No. 0-20164)].*
(10.46) 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)].*
(10.47) 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)].*
(10.48) 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)].*
(10.49) 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)].*
(10.50) 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
(10.51) 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)].*
(10.52) 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)].*
(10.53) Subordinate Note dated December 17, 1993 between
Abbey St. Germain Limited Partnership and Krupp
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)].*
(10.54) 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)].*
(10.55) 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)].*
(10.56) 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)].*
-21-
<PAGE>
(10.57) 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)].*
(10.58) 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)].*
(10.59) 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)].*
(10.60) 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)].*
(10.61) 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)].*
(10.62) 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)].*
(10.63) 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)].*
(10.64) 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)].*
(10.65) 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)].*
(10.66) 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)].*
(10.67) 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)].*
(10.68) 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)].*
(10.69) 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)].*
(10.70) Subordination Agreement dated December 17, 1993
between Berkshire Mortgage Finance Limited
Partnership, Abbey St. Germain Limited Partnership
and Krupp Government Income Trust II.[Exhibit
10.72 to Registrant s report on Form 10-K for the
year ended December 31, 1995 (File No. 0-20164)].*
The Willows
(10.71) 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
(10.72) 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
Form 10-Q for the quarter ended September 30, 1995
(File No. 0-20164)].*
(10.73) 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)].*
(10.74) 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)].*
(10.75) 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
(10.76) 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)].*
(10.77) 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)].*
(10.78) 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)].*
(10.79) 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)].*
(10.80) 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.
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)].*
(10.81) 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
(10.82) 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)].*
(10.83) 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)].*
(10.84) 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
(10.85) 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)].*
(10.86) 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)].*
(10.87) 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)].*
(10.88) 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)].*
(10.89) 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)].*
(10.90) 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
(10.91) 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)].*
(10.92) 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)].*
(10.93) 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
(10.94) 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)].*
(10.95) Multifamily Subordinated Mortgage, Assignment of
Rents and Security Agreement dated July 26, 1994
between Mill Pond II Limited Partnership and 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)].*
(10.96) 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)].*
-26-
<PAGE>
(10.97) 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, 1997.
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized,
on the 12th day of March, 1998.
KRUPP GOVERNMENT INCOME TRUST II
By: /s/ Douglas Krupp
Douglas 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 12th day of March, 1998.
Signatures Title(s)
/s/ Douglas Krupp Chairman of Board of Trustees and a
Douglas Krupp Trustee of Krupp Government Income Trust II
/s/ Robert A. Barrows Treasurer of Krupp Government Income
Robert A. Barrows 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-
<PAGE>
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, 1997
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended December 31, 1997, 1996
and 1995 F-5
Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995 F-6
Statements of Cash Flows for the Years Ended December 31, 1997,
1996 and 1995 F-7
Notes to Financial Statements F-8 - F-19
Supplementary Data - Selected Quarterly Financial Data (Unaudited) F-20
All schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes
thereto.
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 these financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, these financial statements referred to above present
fairly, in all material respects, the financial position of Krupp
Government Income Trust II as of December 31, 1997 and 1996 and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 9, 1998
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
<S>
Participating Insured Mortgage Investments
("PIMIs")(Notes B, C and I):
<S> <C> <C>
Insured mortgages $145,537,234 $150,454,030
Additional loans 29,152,351 29,952,351
Participating Insured Mortgages ("PIMs")
(Notes B, D and I) 37,645,082 49,622,337
Mortgage-Backed Securities ("MBS")
(Notes B, E and I) 51,171,301 40,581,650
Total mortgage investments 263,505,968 270,610,368
Cash and cash equivalents (Notes B and I) 13,520,091 9,214,592
Prepaid acquisition fees and expenses, net of
accumulated amortization of $6,099,180 and
$4,510,838 (Note B) 10,384,462 11,972,804
Prepaid participation servicing fees, net of
accumulated amortization of $1,858,497 and
$1,260,283 (Note B) 3,636,050 4,234,264
Interest receivable and other assets 2,111,153 2,264,687
Total assets $293,157,724 $298,296,715
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 2,755,705 $ 1,582,054
Other liabilities 30,949 27,085
Total liabilities 2,786,654 1,609,139
Commitments (Notes 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 289,864,327 296,565,241
Unrealized gain on MBS (Notes B and E) 506,743 122,335
Total
Shareholders' equity 290,371,070 296,687,576
Total liabilities and Shareholders'
equity $293,157,724 $298,296,715
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S>
Revenues:
Interest income - PIMs and PIMIs:
<S> <C> <C> <C>
Base interest $13,828,125 $13,952,237 $12,371,386
Additional Loan interest 2,147,468 1,521,980 1,473,597
Participation interest 1,769,701 767,747 422,195
Interest income - MBS 2,847,442 3,122,508 4,615,991
Interest income - other 697,819 512,459 1,149,519
Total revenues 21,290,555 19,876,931 20,032,688
Expenses:
Asset management fee to an
affiliate (Note G) 2,002,992 2,056,861 2,121,271
Expense reimbursements to
affiliates (Note G) 446,357 391,260 484,718
Amortization of prepaid expenses,
fees and organization costs 2,186,556 2,094,905 1,909,898
General and administrative 391,165 334,723 391,013
Loss on sale of MBS - - 1,379,074
Total expenses 5,027,070 4,877,749 6,285,974
Net income (Notes B and H) $16,263,485 $14,999,182 $13,746,714
Earnings per share $ .89 $ .82 $ .75
Weighted average shares
outstanding 18,371,477 18,371,477 18,371,477
The accompanying notes are an integral
part of the financial statements.
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
Total
Retained Unrealized Shareholders'
Common Stock Earnings Gain on MBS Equity
<S> <C> <C> <S> <C> <S> <C>
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 (7,965,219) (14,999,182) - (22,964,401)
Net income - 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
Dividends (Notes F and H) (6,700,914) (16,263,485) - (22,964,399)
Net income (Note H) - 16,263,485 - 16,263,485
Change in unrealized gain on MBS - - 384,408 384,408
Balance at December 31, 1997 $289,864,327 $ - $ 506,743 $290,371,070
Shared issued and outstanding for each of the three years ended December 31, 1997 are
18,371,477
The accompanying notes are an integral
part of the financial statements.
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1997, 1996 and 1995
1997 1996 1995
<S>
Operating activities:
<S> <C> <C> <C>
Net income $16,263,485 $ 14,999,182 $ 13,746,714
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss on sale of MBS - - 1,379,074
Premium amortization 113,094 169,589 232,104
Amortization of prepaid expenses,
fees and organization costs 2,186,556 2,094,905 1,909,898
Changes in assets and liabilities:
Decrease in interest receivable
and other assets 153,534 33,162 253,750
Increase(decrease) in other
liabilities 3,864 6,509 (967)
Net cash provided by
operating activities 18,720,533 17,303,347 17,520,573
Investing activities:
Investment in PIMs - (5,824,611) (46,065,971)
Investment in Additional Loans (465,000) - (6,600,000)
Prepayment on Additional Loan 1,265,000 - -
Proceeds from sale of MBS - - 39,885,582
Principal collections on MBS 4,775,477 7,427,029 8,404,511
Principal collections on PIMs 1,800,237 1,633,902 1,299,930
Acquisition of MBS - (591,600) -
Increase in deferred income on
Additional Loans 1,173,651 555,432 546,081
Net cash provided by (used
for) investing activities 8,549,365 3,200,152 ( 2,529,867)
Financing activity:
Dividends (22,964,399) (22,964,401) (22,964,404)
Net increase (decrease) in cash and
cash equivalents 4,305,499 (2,460,902) (7,973,698)
Cash and cash equivalents, beginning
of period 9,214,592 11,675,494 19,649,192
Cash and cash equivalents, end of
period $13,520,091 $ 9,214,592 $ 11,675,494
Supplemental disclosure of noncash
investing activities:
Reclassification of investments in a
PIM and PIMI to an MBS $15,093,814 $ - $ -
The accompanying notes are an integral
part of the financial statements.
</TABLE>
F-11
<PAGE>
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
Mortgage Advisors Limited Partnership (the Advisor ) 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.
B. Significant Accounting Policies
The Trust uses the following accounting policies for financial
reporting purposes:
MBS
The Trust accounts for its MBS in accordance with the Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ( FAS 115"), under the classification of
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. The Trust amortizes purchase premiums or
discounts over the life of the underlying mortgages using the
effective interest method.
PIMs and PIMIs
The Trust accounts for its MBS portion of a PIM or PIMI
investments in accordance with FAS 115, under the
classification of held to maturity. The Trust carriesthese MBS at
amortized cost.
The Federal Housing Administration Participating Insured Mortgages
and all Additional Loans are carried at amortized cost unless the
Advisor of the Trust believes there is an impairment in value, in
which case a valuation allowance is established in accordance with
Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan, and Financial AccountingStandard
No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures.
Base interest is recognized based on the stated rate of the
Department of Housing and Urban Development ("HUD") insured mortgage
(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 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 estimated term of the Additional Loan.
F-12
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
B. Significant Accounting Policies, Continued
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 commercial
paper 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
payoff date of the underlying mortgage.
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
income taxes on amounts distributed to shareholders provided it
distributes annually at least 95% of its REIT taxable income and
meets certain other requirements for qualifying as a REIT. Therefore,
no provision for federal income taxes has been recorded in the
financial statements.
Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, contingent assets and liabilities and revenues and
expenses during the period. Significant estimates include the net
carrying value of Additional Loans and the unrealized gain on MBS
investments. Actual results could differ from those estimates.
C. PIMIs
The Trust has investments in eleven 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 with a
below market interest rate loan, and in return, the Trust receives a
percentage of the cash generated from
Continued
C. PIMIs, Continued
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.
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
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.
<PAGE>
Continued
C. PIMIs, Continued
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
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.
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 months written notice for the payment. If the Trust accelerates
the maturity date, the Trust can require 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.
Continued
C. PIMIs, Continued
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.
During the second quarter of 1997, the Trust advanced an additional
$465,000 to the owner of the Willows Apartments, increasing the
Additional Loan to $1,265,000. During the third quarter of 1997, as a
result of a sale of the property to a third party, the Trust accepted a
full repayment of the $1,265,000 Additional Loan and received all of
its Preferred Interest of $789,336 that was earned as of the date of
the sale. In conjunction with the repayment of the Additional Loan,
the Trust converted the investment from a PIMI to an insured mortgage.
At December 31, 1997 and 1996 there are no insured mortgage loans
within the Trust s portfolio that are delinquent of principal or
interest.
The Trust's investments in PIMIs consists of the following at December
31, 1997 and 1996:
F-17
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
Continued
C. PIMIs, Continued
Insured Loan Interest Maturity Balance Outstanding
Mortgages Amount Rate Date at December 31,
1997 1996
<S>
FHA
<S> <C> <C> <C> <C> <C>
The Seasons (a) $ 23,224,649 7.875% 10/1/28 $ 22,626,180 $ 22,788,436
Hunters Pointe 12,789,100 6.875% 1/1/35 12,600,517 12,669,542
Norumbega Point 15,598,500 7.375% 2/1/36 15,471,328 15,539,949
(b) (c)
FNMA (d)
Crossings Village 12,907,334 6.75% 10/1/08 12,403,728 12,542,615
Martin's Landing 11,200,000 6.5% 12/1/08 10,756,840 10,880,778
Sunset Summit 10,192,801 6.5% 10/1/08 9,796,408 9,909,281
Oasis 12,401,673 6.75% 9/1/09 12,040,522 12,164,562
Windsor Lake 9,680,344 6.75% 7/1/09 9,394,283 9,492,533
St. Germain 11,772,494 6.75% 1/1/09 11,127,209 11,322,292
The Willows 3,600,000 7.075% 12/1/09 - 3,540,322
Windmill Lakes 11,600,000 6.825% 3/1/10 11,313,766 11,425,179
The Lakes 18,387,653 6.825% 7/1/10 18,006,453 18,178,541
$153,354,548 $145,537,234
(h) $150,454,030
</TABLE>
<TABLE>
<CAPTION>
Base Preferred
Interest Interest
Additional Loan 1997 1996 Rate Rate
<S> <C> <C> <C> <C>
The Seasons (a) $4,925,351 $ 4,925,351 9%(e) 10%
Hunters Pointe 650,000 650,000 7% 9%
Norumbega Pointe 3,063,000 3,063,000 7% 10%
Crossings Village 2,584,000 2,584,000 7% 9%
Martin s Landing 2,280,000 2,280,000 7% 12%
Sunset Summit 1,900,000 1,900,000 7% 9%(f)
St. Germain 2,860,000 2,860,000 7%
Oasis 2,290,000 2,290,000 7% 9.25%
Windsor Lake 2,000,000 2,000,000 8% 13%
The Willows - 800,000 7% 9.5%
Windmill Lakes(g) 2,000,000 2,000,000 7.5% 9.5%
The Lakes 4,600,000 4,600,000 7% 9%
$29,152,351 $29,952,351
</TABLE>
Continued
C. PIMIs, Continued
(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.
(c) The Trust received interest during the construction phase at
a rate of 8.125% per annum.
(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
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) As of December 31, 1997 Windmill Lakes was in technical
default on its Additional Loan for not making the full
required base interest payment due on the Additional Loan.
The Advisor is reviewing the property s operating results to
determine whether an operating loan may be required.
(h) The aggregate cost for federal income tax purposes is
$145,537,234.
F-19
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
Reconciliations of activity for 1997, 1996 and 1995 are as follows:
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $150,454,030 $150,448,995 $116,047,812
Acquisitions - 1,303,436 35,427,771
Reclassification (3,515,288) - -
Principal collections (1,401,508) (1,298,401) (1,026,588)
Balance at end of period $145,537,234 $150,454,030 $150,448,995
</TABLE>
Property Descriptions:
The Seasons is a 1,088-unit apartment complex located in Laurel,
Maryland.
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.
Continued
F-20
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
C.PIMIs, Continued
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.
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
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 five years from the date of the
Agreement, (2) the maturity date of the Agreement, or (3) prepayment of
the Agreement.
Under the Agreement, the Trust, upon giving twelve months written
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.
During the fourth quarter, the borrower on the Estates PIM sold the
property to one of the Trust s affiliated entities. To facilitate the
sale transaction, the borrower asked and the Advisor agreed to release
the participation features of the PIM and allow the purchaser to assume
the obligations of the first mortgage loan. In exchange for this
modification, the Advisor required the borrower to pay a settlement of
$232,000 to provide the Trust with a financial return comparable to
what the Trust would have expected to receive had the borrower
continued to own the property. In conjunction with this tranaction,
the Trust converted the investment from a PIM to an insured mortgage.
At December 31, 1997 and 1996, the Trust had outstanding commitments on
its closed construction-phase PIMs of $1,006,000. The remaining
commitment will be funded from cash and cash equivalents and MBS
principal collections.
At December 31, 1997 and 1996 there are no insured mortgage loans
within the Trust s portfolio that are delinquent of principal or
interest.
The Trust's PIMs consisted of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
Interest Maturity
PIM Amount Rate Date Balance at December31,
1997 1996
<S>
FNMA
<S> <C> <C> <C> <C> <C>
Mequon Trails $14,937,726 6.50% 1/01/08 $14,170,803 $14,355,629
(a)
FHA
The Estates 12,000,000 6.875% 6/01/28 - 11,692,400
Rivergreens II 6,137,199 7.375% 1/1/35 6,058,069 6,087,163
Mill Ponds II 8,245,300 7.125% 12/1/35 8,169,935 8,208,979
(c)
The Fountains 10,336,000 7.875% 11/1/36 9,246,275 9,278,166
(d)
Total $51,656,225 $37,645,082 $49,622,337
(e)
</TABLE>
F-24
<PAGE>
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
D.PIMs, Continued
(a) Principal and interest payments are based on a 30-year amortization.
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%. Received Final
Endorsement in May 1996.
(d) Construction-phase interest rate is 7.875%.
(e) The aggregate cost for federal income tax purposes is $37,645,082.
Reconciliations of activity for 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of period $49,622,337 $45,436,663 $35,071,805
Acquisitions - 4,521,175 10,638,200
Reclassification (11,578,526) - -
Principal collections (398,729) (335,501) (273,342)
Balance at end of period $37,645,082 $49,622,337 $45,436,663
</TABLE>
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, 1997, the Trust's MBS portfolio has an amortized cost
of approximately $50,664,558 and gross unrealized gains and losses of
approximately $547,435 and $40,692, respectively. 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. The MBS have
maturities ranging from 2008 to 2023.
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.
F-26
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
F. Shareholders' Equity, continued
In order for the Trust to maintain its REIT status with respect to the
requirements of Share ownership, the Declaration of Trust prohibits
any investor from owning, directly or indirectly more than 9.80% 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.
The Trust earned or received $1,024,097, $295,522 and $295,522 of base
interest from The Seasons in 1997, 1996 and 1995, respectively (see
Note C). In addition, the Trust received $83,360 in 1997 related to
participating interest income.
H. Federal Income Taxes
The reconciliation of the income reported in the accompanying
statement of income with the income reported in the Trust's 1997
federal income tax return follows:
Net income per statement of income $16,263,485
Add: Book to tax difference for amortization 966,743
of prepaid fees and expenses
Additional Loan interest deferred for book
purposes 1,073,578
Net income for federal income tax purposes $18,303,806
The Trust paid dividends of $1.25 per share during 1997 which
represents approximately $1.00 from ordinary income and $.25
represents a non-taxable distribution for federal income tax
purposes.
The basis of the Trust s assets for financial reporting purposes is
less than its tax basis by approximately $4,728,000 and $4,157,000 at
December 31, 1997 and 1996, respectively. The basis of the Trust s
liabilities for financial reporting purposes exceeded its tax basis
by approximately $2,545,000 and $1,582,000 at December 31, 1997 and
1996, respectively
<PAGE>
I. Fair Value Disclosures of Financial Instruments
The Trust uses the following methods and assumptions to estimate the
fair value of each class of financial instrument:
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 the insured
mortgage portion of the PIMIs using quoted market prices of MBS
having the same stated coupon rate as the insured mortgages and
Additional Loans based on the estimated fair value of the
underlying properties. Management does not include any
participation income in the Trust s estimated fairvalues,
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 of approximately $3,804,000 at December
31, 1997 and gross unrealized losses and gains of approximately
$8,932,000 and $119,000 at December 31, 1996.
Commitments to Fund Construction Loans and PIMIs
For the years ended December 31, 1997 and 1996 the Trust
approximates the fair values of its commitments on closed PIMs
to be equal to the commitment amount of approximately
$1,006,000.
At December 31, 1997 and 1996, the estimated fair values of the
Trust's financial instruments are as follows:
<TABLE>
<CAPTION>
(rounded to thousands)
1997 1996
<S> <C> <C>
Cash and cash equivalents $ 13,520 $ 9,215
MBS 51,171 40,582
PIMs and PIMIs:
PIMs 37,534 48,132
Insured mortgages 144,599 145,768
Additional loans 26,397 27,315
$273,221 $271,012
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
KRUPP GOVERNMENT INCOME TRUST II
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)
For the Quarter Ended
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
<S> <C> <C> <C> <C>
Total revenues $5,306,978 $5,057,310 $6,072,765 $4,853,502
Net income $4,012,616 $3,822,465 $4,788,267 $3,640,137
Earnings per Share $ .22 $ .21 $ .26 $ .20
For the Quarter Ended
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
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
</TABLE>
F-32
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the balance
sheet and statement of income and is qualified in its entirety be reference to
such financial statements.
</LEGEND>
<CIK> 0000872467
<NAME> KRUPP GOVERNMENT INCOME TRUST-II
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,520,091
<SECURITIES> 263,505,968<F1>
<RECEIVABLES> 2,111,153
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,020,512<F2>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 293,157,724
<CURRENT-LIABILITIES> 2,786,654<F3>
<BONDS> 0
0
0
<COMMON> 289,864,327
<OTHER-SE> 506,743<F4>
<TOTAL-LIABILITY-AND-EQUITY> 293,157,724
<SALES> 0
<TOTAL-REVENUES> 21,290,555<F5>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,027,070<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 16,263,485
<INCOME-TAX> 0
<INCOME-CONTINUING> 16,263,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,263,485
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes Participating Insured Mortgage Investments ("PIMIs") (insured
mortgages of $145,537,234 and Additional Loans of $29,152,351), Participating
Insured Mortgages ("PIMs") if $37,645,082 and Mortgage-backed Securities
("MBS") of $51,171,301.
<F2>Includes prepaid acquisition fees and expenses of $16,483,642 net of
accumulated amortization of $6,099,180 and prepaid participation servicing fees
of $5,494,547 net of accumulated amortization of $1,858,497.
<F3>Includes deferred income on Additional Loans of $2,755,705.
<F4>Unrealized gain on MBS.
<F5>Represents interest income on investments in mortgages and cash.
<F6>Includes $2,186,556 of amortization of prepaid fees and expenses.
</FN>
</TABLE>
