UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-19244
Krupp Government Income Trust
(Exact name of registrant as specified in its charter)
Massachusetts 04-3089272
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
Aggregate market value of voting securities held by non-affiliates: Not
applicable.
Documents incorporated by reference: see Part IV, Item 14
The exhibit index is located on pages 12-18
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
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Krupp Government Income Trust (the "Trust") was formed on November 1, 1989 by
filing a Declaration of Trust in the Commonwealth of Massachusetts. The Trust is
authorized to sell and issue not more than 17,510,000 shares of beneficial
interest ("the Shares"). The Trust raised approximately $300 million through a
public offering of Shares of beneficial interest and used the proceeds available
for investment primarily to acquire participating insured mortgages ("PIMs"),
participating insured mortgage investments ("PIMIs") and mortgage-backed
securities ("MBS"). The Trust considers itself to be engaged in only one
industry segment, investment in mortgages.
The Trust has elected to be treated as a real estate investment trust ("REIT"),
under the Internal Revenue Code of 1986, as amended. The Trust shall terminate
on December 31, 2029 unless earlier terminated by the affirmative vote of
holders of a majority of the outstanding Shares entitled to vote thereon. 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 (1) a MBS or an insured mortgage loan (collectively, the "insured mortgage")
guaranteed or insured as to principal and basic interest, and (2) a
participating mortgage. The insured mortgages were issued or originated under or
in connection with the housing programs of Fannie Mae, the Government National
Mortgage Association ("GNMA"), or the Federal Housing Administration ("FHA")
under the authority of the Department of Housing and Urban Development ("HUD").
PIMs provide the Trust with monthly payments of principal and basic interest and
may also provide for Trust participation in the current revenue stream and in
residual value, if any, from a sale or other realization of the underlying
property. The borrower conveys the participation rights to the Trust through a
subordinated promissory note and mortgage. The participation features are
neither insured nor guaranteed.
The PIMIs consist of (1) an insured mortgage issued by GNMA or originated under
the lending program of the FHA, (2) an additional loan ("Additional Loan") to
the borrower or owners of the borrower in excess of mortgage amounts insured or
guaranteed under GNMA or FHA programs that increases the Trust's total financing
with respect to that property and (3) a participating mortgage. Additional Loans
associated with insured mortgages issued or originated in connection with HUD
insured programs cannot, under government regulations, be collateralized by a
mortgage on the underlying property. These Additional Loans are typically
collateralized by a security interest satisfactory to Berkshire Mortgage
Advisors Limited Partnership ("the Advisor"). The Additional Loans are neither
insured nor guaranteed. In addition, the participation features related to the
participating mortgage are neither insured nor guaranteed. Additional Loans
provide the Trust with semi-annual interest payments and may provide additional
interest in the future while the participating mortgage provides for Trust
participation in the net income and residual value, if any, of the underlying
property.
The Trust also acquired MBS collateralized by single-family and multi-family
mortgage loans issued or originated by GNMA, Fannie Mae, the Federal Home Loan
Mortgage Corporation ("FHLMC"). Fannie Mae and FHLMC guarantee the principal and
basic interest of the Fannie Mae and FHLMC MBS, respectively. GNMA guarantees
the timely payment of principal and interest on its MBS, and HUD insures the
pooled mortgage loans underlying the GNMA MBS and FHA mortgage loans.
The Trust will distribute all proceeds from prepayments or other realizations of
mortgage assets to investors either through quarterly dividends or special
dividends.
Although the Trust will terminate no later than December 31, 2029, the value of
the PIMs and PIMIs may be realized by the Trust through repayment or sale as
early as ten years from the dates of the closings of the permanent loans, and
the Trust may realize the value of all of its other investments within that time
frame thereby resulting in a dissolution of the Trust significantly prior to
December 31, 2029.
The Trust's investments are not expected to be subject to seasonal fluctuations,
although net income may vary somewhat from quarter to quarter based upon the
participation features of its investments. The requirements for compliance with
federal, state and local regulations to date have not adversely affected the
Trust's operations, and the Trust anticipates no adverse effect in the future.
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 dividends to
shareholders. The Trust intends to qualify as a REIT in each year of operation,
however, certain factors may have an adverse effect on the Trust's REIT status.
If for any taxable year, the Trustees and the Advisor determine that any of the
asset, income, or dividend tests are not likely to be satisfied, the Trust may
be required to borrow money, dispose of mortgages or take other action to avoid
loss of REIT status.
Additionally, if the Trust does not qualify as a REIT for any taxable year, it
will be subject to federal income tax as if it were a corporation and the
shareholders will be taxed as shareholders of a corporation. If the Trust were
taxed as a corporation, the payment of such tax by the Trust would substantially
reduce the funds available for dividends to shareholders. To the extent that
dividends had been made in anticipation of the Trust's qualification as a REIT,
the Trust might be required to borrow additional funds or to liquidate certain
investments in order to pay the applicable tax. Moreover, should the Trust's
election to be taxed as a REIT be terminated or voluntarily revoked, the Trust
may not be able to elect to be treated as a REIT for the following five-year
period.
As of December 31, 2000, there were no personnel directly employed by the Trust.
ITEM 2. PROPERTIES
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None.
ITEM 3. LEGAL PROCEEDINGS
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There are no material pending legal proceedings to which the Trust is a party or
to which any of its investments are subject to.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
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There currently is no established public trading market for the Shares.
The number of investors holding Shares as of December 31, 2000 is approximately
11,600.
The Trust has and intends to continue declaring and paying dividends on a
quarterly basis. The Trustees established a dividend rate per Share per quarter
of $.325 for 1999 and $.17 per Share per quarter for 2000 and 2001.
ITEM 6. SELECTED FINANCIAL DATA
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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.
(Amounts in thousands, except for per Share amounts)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total revenues $ 11,076 $ 15,632 $ 21,922 $ 17,618 $ 16,358
Net income $ 8,429 $ 12,317 $ 14,836 $ 12,899 $ 12,481
Net income per Share $ .56 $ .82 $ .99 $ .86 $ .83
Weighted average Shares
outstanding 15,053 15,053 15,053 15,053 15,053
Total assets at
December 31 $ 140,131 $142,096 $171,422 $221,779 $241,634
Average dividends
per Share $ .68 $ 2.60 $ 4.16 $ 2.22 $ 1.30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
At December 31, 2000 the Trust had liquidity consisting of cash and cash
equivalents, of approximately $5.4 million as well as the cash inflows provided
by PIMs, PIMIs, MBS, cash and cash equivalents. The Trust may also receive
additional cash flow from the participation features of its PIMs and PIMIs. The
Trust anticipates that these sources will be adequate to provide the Trust with
sufficient liquidity to meet its obligations, including providing dividends to
its investors.
The most significant demand on the Trust's liquidity is quarterly dividends,
paid to investors of approximately $2.6 million, and special dividends. Funds
for dividends come from interest income received on PIMs, PIMIs, MBS, cash and
cash equivalents net of operating expenses and the principal collections
received on PIMs, PIMIs and MBS. The portion of dividends funded from principal
collections reduces the capital resources of the Trust. As the capital resources
of the Trust decrease, the total cash flows to the Trust will also decrease
which may result in periodic adjustments to the dividends paid to the investors.
The Advisor periodically reviews the dividend rate to determine whether an
adjustment is necessary based on projected future cash flows. The current
dividend rate is $.17 per Share per quarter. The Trustees, based on the
Advisor's recommendations, generally set a dividend rate that provides for level
quarterly dividends. To the extent quarterly dividends do not fully utilize the
cash available for distribution and cash balances increase, the Trustees may
adjust the dividend rate or distribute such funds through a special dividend.
The Trust's PIMIs funded the construction or significant rehabilitation of
multifamily housing, which requires time to achieve stabilized operations
following the completion of the work. With this in mind, the Trust required
those borrowers to escrow a portion of the Additional Loan proceeds in reserves
so funds would be available for the PIMI Additional Loan payments during the
construction and lease-up periods. As these reserves become depleted, full
payment of the Additional Loan interest becomes primarily dependent on whether
the underlying property generates sufficient operating cash flow to make such
payments.
In addition to providing guaranteed or insured monthly principal and interest
payments, the Trust's investments in PIMs and PIMIs also may provide additional
income through the interest on the Additional Loan portion of the PIMIs as well
as participation income based on operating cash flow and an increase in the
value realized upon the sale or refinance of the underlying properties. However,
these payments are neither guaranteed nor insured and depend upon the successful
operations of the underlying properties.
The Trust received both installments of Additional Loan interest from two of its
PIMI investments, Red Run and The Seasons during 2000. The Trust's three other
PIMI investments, Lifestyles, Mountain View and Windward Lakes operate under
workout agreements with the Trust that require Additional Loan interest payments
only if Surplus Cash, as defined by HUD, is generated through property
operations. None of these three properties generated Surplus Cash for the year
ended December 31, 1999 or the six months ended June 30, 2000; consequently, the
Trust did not receive any Additional Loan interest.
The Trust received participation interest from five of its investments during
the twelve months ended December 31, 2000. Waterford Townhomes, a PIM
investment, paid $42,731 of participation interest. Red Run, a PIMI investment,
paid $39,673 of participation interest. The Seasons, a PIMI investment, paid
$174,505 of participation interest. Lincoln Green, a PIM investment, paid
$188,726 and Rivergreens I, a PIM investment, paid $58,370. Two other
properties, Mill Pond I and Riverview, are occupied in the low 90% range and
generate sufficient revenue to meet all cash requirements for operations and
maintenance, but do not generate Surplus Cash under HUD's definition for payment
of participation interest to the Trust.
As mentioned above, three properties operate under workout agreements with the
Trust. Windward Lakes' operating results deteriorated during 1995 and 1996, and
in early 1997 the independent Trustees approved a workout with the borrower of
the Windward Lakes PIMI, an affiliate of the Advisor of the Trust. In the
workout, the Trust agreed to reduce the effective basic interest rate on the
insured first mortgage by 2% per annum for 1997 and 1% per annum for 1998, 1999
and 2000. The borrower made an equity contribution of $133,036 to the property
and agreed to cap the annual management fee paid to an affiliate at 3% of
revenues. The Trust's participation in current operations is 50% of any Surplus
Cash as determined under HUD guidelines, and the Additional Loan interest is
payable out of its share of Surplus Cash. Any unpaid Additional Loan interest
accrues at 7.5% per annum. When the property is sold or refinanced, the Trust
will receive 50% of any net proceeds remaining after repayment of the insured
mortgage, the Additional Loan, the interest rate relief, accrued and unpaid
Additional Loan interest and the Borrower's equity up to the point that the
Trust has received a cumulative, non-compounded 10% preferred return on its
investment in the PIMI.
Lifestyles operating results deteriorated during 1995, and the Trust approved a
two-year workout that effectively reduced the interest rate on the insured
mortgage by 1%. When that workout ended in 1997, the property was not able to
generate sufficient revenues to maintain the property and service the original
interest rate. Consequently, the borrower on the Lifestyles PIMI defaulted on
its May 1, 1998 debt service payment on the insured first mortgage. The Trust
agreed to a new workout that runs through 2007. Under its terms, the Trust
agreed to reduce the effective interest rate on the insured first mortgage by
1.75% retroactively for 1998 to clear the default, by 1.75% for 1999, and by
1.5% each year thereafter until the property is sold or refinanced. An affiliate
of the Advisor refunds approximately .25% per annum to the Trust related to the
interest reduction. The borrower made a $550,000 equity contribution, which has
been escrowed, for the exclusive purpose of correcting deferred maintenance and
making capital improvements to the property. Any Surplus Cash that is generated
by property operations will be split evenly between the Trust and the borrower.
When the property is sold or refinanced, the first $1,100,000 of any proceeds
remaining after the insured mortgage is paid off will be split 50% / 50%; the
next $1,690,220 of proceeds will be split 75% to the Trust and 25% to the
borrower; and any remaining proceeds will be split 50% / 50%. The borrower's new
equity and the reduction in the effective interest rate on the insured first
mortgage will provide funds for repairs and improvements that should help
reposition Lifestyles so it can compete more effectively for new residents and
rental rates. As a result of the factors described above, the Trust determined
that the Additional Loan collateralized by the Lifestyles asset was impaired,
and recorded a valuation allowance of $1,130,346 in the fourth quarter of 1998
and continues to maintain that allowance.
Mountain View is similar to Lifestyles with respect to competitive market
conditions. In June 1999, the Trust approved a second workout that runs through
2004. Under its terms, the Trust agreed to reduce the effective interest rate on
the insured first mortgage by 1.25% retroactively for 1999 and each year
thereafter until the property is sold or refinanced, and to change the
participation terms. The workout eliminated the preferred return feature,
forgave $288,580 of previous accruals of Additional Loan interest related to the
first workout, and changed the Trust's participation in Surplus Cash generated
by the property. The Trust will receive 75% of the first $130,667 of Surplus
Cash and 50% of any remaining Surplus Cash on an annual basis to pay Additional
Loan interest. Unpaid Additional Loan interest related to the second workout
will accrue and be payable if there are sufficient proceeds from a sale or
refinancing of the property. In addition, the borrower repaid $153,600 of the
Additional Loan and funded approximately $54,000 to a reserve for property
improvements. As a result of the factors described above, the Advisor determined
that the Additional Loan collateralized by the Mountain View asset was impaired
and has recorded a valuation allowance of $1,032,272 and continues to maintain
that allowance.
Whether the operating performance at any of the properties mentioned above
provide sufficient cash flow from operations to pay either the Additional Loan
interest or participation income will depend on factors that the Trust has
little or no control over. Should the properties be unable to generate
sufficient cash flow to pay the Additional Loan interest, it would reduce the
Trust's distributable cash flow and could affect the value of the Additional
Loan collateral.
There are contractual restrictions on the repayment of the PIMs and PIMIs.
During the first five years of the investment, borrowers are prohibited from
repayment. During the second five years, the PIM borrowers can prepay the
insured first mortgage by paying the greater of a prepayment premium or the
participation due at the time of the prepayment. Similarly, the PIMI borrowers
can prepay the insured first mortgage and the Additional Loan by satisfying the
Preferred Return obligation. The participation features and Additional Loans are
neither insured nor guaranteed. If the prepayment of the PIM or PIMI results
from the foreclosure on the underlying property or an insurance claim, the Trust
would probably not receive any participation income or any amounts due under the
Additional Loan.
During the third quarter of 1999, the Trust received a prepayment of the Audubon
Villas PIMI when the property was refinanced. The Trust received the prepayment
of the principal balance of the insured mortgage of $14,861,957, the principal
balance of the Additional Loan of $2,691,000, and participation income of
$1,966,901. Also, $1,962,261 was recognized as Additional Loan interest income
which was previously recorded as deferred income. On August 18, 1999, the
Advisor declared a special dividend of $1.30 per share that was paid on
September 17, 1999 from the payoff of the Audubon Villas PIMI.
During the third quarter 1998, the Trust received a prepayment of the Park
Highlands PIMI when the property was sold. This prepayment occurred prior to the
expiration of the five-year prohibition. However, the Advisor agreed to allow
the transaction to be completed while market conditions were favorable in return
for an additional prepayment penalty. The Trust received the prepayment of the
principal balance of the insured first mortgage of $16,752,295, the principal
balance of the Additional Loan of $3,000,000, the Additional Loan interest due
at the time of the prepayment of $57,945 and the prepayment penalty for the
early payoff of $479,476. In addition, the Trust received participation interest
comprised of the outstanding Preferred Return on the Trust investment of
$1,481,865 and the Trust's share in the increase in the value of the underlying
property of $1,206,719.
Also during the third quarter of 1998, the Trust received a prepayment of the
Coconut Palm Club PIMI. This transaction was the result of a sale of the
underlying property as well, although the Trust received less than its full
Preferred Return. The Advisor agreed to allow the transaction because the
purchase price was judged to be favorable in light of the highly competitive
rental market in Broward County, Florida. In addition, without the sale it was
likely that the Advisor would have agreed to a loan restructure with the
borrower rather than expose the Trust to the uncertainty of a probable default.
The Trust received the prepayment of the principal balance of the insured first
mortgage of $15,851,211, the principal balance of the Additional Loan of
$2,850,900 and the Additional Loan interest due at the time of the repayment of
$89,090. In addition, the Trust received participation interest of $1,419,116
towards the Preferred Return.
The Trust paid a special dividend on September 9, 1998 of $2.86 per Share from
the prepayment proceeds of the Park Highlands and Coconut Palm Club PIMIs.
The Trust has the option to call certain PIMs and all the PIMIs by accelerating
their maturity if the loans are not prepaid by the tenth year after permanent
funding. The Advisor will determine the merits of exercising the call option for
each PIM and PIMI as economic conditions warrant. Such factors as the condition
of the asset, local market conditions, the interest rate environment and
available financing will have an impact on these decisions.
Assessment of Credit Risk
The Trust's investments in insured mortgages and MBS are guaranteed or insured
by Fannie Mae, FHLMC, GNMA and HUD and therefore the certainty of their cash
flows and the risk of material loss of the amounts invested depends on the
creditworthiness of these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs and is
wholly-owned by the twelve Federal Home Loan Banks. These obligations are not
guaranteed by the U.S. Government or the Federal Home Loan Bank Board. GNMA
guarantees the full and timely payment of principal and basic interest on the
securities it issues, which represents interest in pooled mortgages insured by
HUD. Obligations insured by HUD, an agency of the U.S. Government, are backed by
the full faith and credit of the U.S. Government.
The Trust's Additional Loans have similar risks as those associated with higher
risk debt instruments, including: reliance on the owner's operating skills,
ability to maintain occupancy levels, control operating expenses, ability to
maintain the properties and obtain adequate insurance coverage. Operations also
may be effected by 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's investments also include cash and cash equivalents of approximately
$4.7 million of Agency paper, which is issued by Government Sponsored
Enterprises with a credit rating equal to the top rating category of a
nationally recognized statistical rating organization.
Interest Rate Risk
The Trust's primary market risk exposure is to interest rate risk, which can be
defined as the exposure of the Trust's net income, comprehensive income or
financial condition to adverse movements in interest rates. At December 31,
2000, the Trust's PIMs, PIMIs and MBS comprise the majority of the Trust's
assets. As such, decreases in interest rates may accelerate the prepayment of
the Trust's investments. The Trust does not utilize any derivatives or other
instruments to manage this risk as the Trust plans to hold all of its
investments to expected maturity.
The Trust monitors prepayments and considers prepayment trends, as well as
dividend requirements of the Trust, when setting regular dividend policy. For
MBS, the fund forecasts prepayments based on trends in similar securities as
reported by statistical reporting entities such as Bloomberg. For PIMs and
PIMIs, the Trust incorporates prepayment assumptions into planning as individual
properties notify the Trust of the intent to prepay or as they mature.
The table on the following page provides information about the Trust's financial
instruments that are sensitive to changes in interest rates. For mortgage
investments, the table presents principal cash flows and related weighted
average interest rates ("WAIR") by expected maturity dates. The expected
maturity date is contractual maturity adjusted for expectations of prepayments.
Expected maturity dates ($ in thousands)
2001 2002 2003 2004 2005 Thereafter Total Fair Value
Face Value
Interest-sensitive assets:
MBS $ 1,537 $ 1,332 $ 1,156 $ 1,005 $ 877 $ 10,383 $ 16,290 $ 16,737
WAIR 8.27% 8.27% 8.27% 8.27% 8.27% 8.27% 8.27%
PIMS 471 14,053 257 278 301 31,532 46,892 46,594
WAIR 7.67% 8.06 % 8.06% 8.06% 8.06% 8.06% 7.67%
PIMIS 409 444 482 522 567 57,328 59,752 58,655
WAIR 7.74% 7.74% 7.74% 7.74% 7.93% 7.93% 7.47%
Additional Loans - 2,471 1,400 2,900 - 3,743 10,514 8,351
WAIR 6.27% 5.90% 5.60% 4.63% 4.63% 4.63% 6.27%
-------- -------- --------- --------- --------- ---------- ----------- ----------
Total Interest-
Sensitive Assets $ 2,417 $ 18,300 $ 3,295 $ 4,705 $ 1,745 $ 102,986 $ 133,448 $ 130,337
======== ======== ========= ========= ========= =========== =========== ==========
Operations
The following discussion relates to the operations of the Trust during the years
ended December 31, 2000, 1999 and 1998. Dollars are stated in thousands, except
for per Share amounts.
Years Ended December 31,
2000 1999 1998
Per Per Per
Amount Share Amount Share Amount Share
Interest income on PIMs
and PIMIs:
Basic interest $ 8,087 $ .54 $8,789 $ .58 $10,636 $ .71
Additional Loan interest 744 .05 2,535 .18 3,081 .20
Participation interest 505 .03 2,269 .15 5,094 .34
Interest income on MBS 1,376 .09 1,531 .10 1,930 .13
Interest income on cash
and cash equivalents 365 .02 508 .03 1,181 .08
Trust expenses (1,618) (.10) (1,595) (.11) (1,973) (.13)
Amortization of prepaid
fees and expenses (1,030) (.07) (1,672) (.11) (2,999) (.20)
Provision for impaired
mortgage loans - - (48) - (2,114) (.14)
------- ------ -------- ----- ------- ----- -
Net income $ 8,429 $ .56 $ 12,317 $ .82 $14,836 $ .99
======== ====== ======== ===== ======= =====
Weighted average
Shares outstanding 15,053,135 15,053,135 15,053,135
========== ========== ==========
The Trust's net income decreased by approximately $3.9 million for 2000 when
compared to 1999 due primarily to decreases in interest income net of decreases
in amortization expense and asset management fees due to an affiliate. Basic
interest on PIMs and PIMIs, Additional Loan Interest, and participation interest
decreased by $4.3 million in 2000 primarily due to the payoff of the Audubon
Villas PIMI in the third quarter of 1999. Interest income on MBS will continue
to decline as principal collections reduce the MBS investment balance. Interest
income on cash and cash equivalents decreased due to lower average cash
balances. Amortization expense decreased due to the payoff of the Audubon Villas
PIMI. The decrease in asset management fees is due to the Trust's asset base
declining.
The Trust's net income decreased by approximately $2.5 million for 1999 when
compared to 1998 due primarily to decreases in interest income net of decreases
in asset management fees due to an affiliate, the provision for impaired
mortgage loans and amortization expense. The prepayment of Park Highland and
Coconut Palm in 1998, and Audubon Villas in 1999 caused a decrease in basic
interest income on PIM and PIMIs. Participation income was higher in 1998 by
$2.8 million as compared to 1999 resulting from the participation income
received when the Park Highlands and Coconut Palm PIMIs prepaid, exceeding the
income received when the Audubon Villas PIMI prepaid in 1999. Interest income on
MBS will continue to decline as principal collections reduce the MBS investment
balance. Interest income on cash and cash equivalents decreased due to lower
average cash balances. Amortization expense decreased due to the payoffs of the
Audubon Villas, Park Highland and Coconut Palm PIMIs. The decrease in asset
management fees is due to the Trust's asset base declining. The provision for
impaired mortgage loans decreased from 1998 to 1999. In 1998, the Trust recorded
a provision for impaired mortgage loans in connection with the Lifestyles and
Mountain View Additional Loans. In 1999, the trust recorded an additional
$48,000 to adjust the carrying value of the Mountain View Additional Loan to the
estimated fair value of the collateral.
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
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Information as to the Trustees and Executive Officers of Krupp Government
Income Trust is as follows:
Position with Krupp
Name and Age Government Income Trust
Douglas Krupp (54) Chairman of Board of
Trustees and Trustee
* Charles N. Goldberg (59) Trustee
* J. Paul Finnegan (76) Trustee
* Stephen Puleo (66) Trustee
Robert A. Barrows (43) Treasurer
Scott D. Spelfogel (40) Clerk
MaryBeth Bloom (27) Assistant Clerk
* Independent Trustee
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive Officer
of The Berkshire Group, an integrated real estate financial services firm
engaged in real estate acquisition and property management, investment
sponsorship, venture capital investing, mortgage banking, financial management,
and ownership of three operating companies through private equity investments.
Mr. Krupp has held the position of Co-Chairman since The Berkshire Group was
established as The Krupp Companies in 1969 and he has served as the Chief
Executive Officer since 1992. He is a graduate of Bryant College where he
received an honorary Doctor of Science in Business Administration in 1989 .
Charles N. Goldberg is currently a partner of Oppel, Goldberg and Saenz, LLC.
Prior to that, he was of counsel to the law firm of Broocks, Baker & Lange,
L.L.P., which position he held from December of 1997 to May of 2000. Prior to
joining Broocks, Baker & Lange, L.L.P., Mr. Goldberg was a partner in the law
firm of Hirsch & Westheimer from March of 1996 to December of 1997. Prior to
Hirsch & Westheimer, he was the Managing Partner of Goldberg Brown, Attorneys at
Law from 1980 to March of 1996. He received a B.B.A. degree and a J.D. degree
from the University of Texas. He is a member of the State Bar of Texas and is
admitted to practice before the U.S. Court of Appeals, Fifth Circuit and U.S.
District Court, Southern District of Texas. He currently serves as a Trustee of
Krupp Government Income Trust and Krupp Government Income Trust II.
J. Paul Finnegan retired as a partner of Coopers & Lybrand in 1987. Since then,
he has been engaged in business as a consultant, director, and arbitrator. Mr.
Finnegan holds a B.A. degree from Harvard College, a J.D. degree from Boston
College Law School and an ASA degree from Bentley College. Mr. Finnegan is a
Certified Public Accountant and an attorney. Mr. Finnegan currently serves as a
Trustee of Krupp Government Income Trust and Krupp Government Income Trust II
and a director at Scituate Federal Savings Bank.
Stephen Puleo is currently engaged in business as a consultant and director. He
retired as a director of Coopers & Lybrand, an international accounting and
consulting firm where he worked from 1995 to 1997 primarily servicing real
estate industry clients. From 1993 to 1994, Mr. Puleo was a tax director for
Deloitte & Touche. From 1984 to 1993, Mr. Puleo held the positions of Executive
Vice President and Chief Financial Officer of a predecessor to The Berkshire
Group. Prior to that, Mr. Puleo was the Chairman of the National Real Estate
Industry Group of Coopers & Lybrand where he provided various real estate
services and was a senior tax partner in charge of the Northeast Region. He is a
graduate of McNeese State University and attended the Executive Development
Program at the Tuck School of Business at Dartmouth College. He is a Certified
Public Accountant and currently serves as director of Simpson Housing Limited
Partnership of Denver, Colorado. He currently serves as a Trustee of Krupp
Government Income Trust and Krupp Government Income Trust II.
Robert A. Barrows is the Treasurer of the Trust, Senior Vice President and Chief
Financial Officer of Berkshire Mortgage Finance. Mr. Barrows has held several
positions within The Berkshire Group since joining the company in 1983 and is
currently responsible for accounting, financial reporting, treasury and
management information systems for Berkshire Mortgage Finance. Prior to joining
The Berkshire Group, he was an audit supervisor for Coopers & Lybrand L.L.P. in
Boston. He received a B.S. degree from Boston College and is a Certified Public
Accountant.
Scott D. Spelfogel is the Clerk of the Trust, Senior Vice President and General
Counsel to The Berkshire Group. Prior to 1997, he served as Vice President and
Assistant General Counsel. Before joining the firm in November 1988, he was a
litigator in private practice in Boston. He received a Bachelor of Science
degree in Business Administration from Boston University, a Juris Doctor Degree
from Syracuse University's College of Law, and a Master of Laws degree in
Taxation from Boston University Law School. He is admitted to practice law in
Massachusetts and New York, is a member of the American, Boston, Massachusetts
and New York State bar associations and is a licensed real estate broker in
Massachusetts.
MaryBeth Bloom is the Assistant Clerk of the Trust and is Assistant General
Counsel to The Berkshire Group. Prior to joining the company in August, 2000,
she was an attorney with John Hancock Financial Services. She received a B.A.
degree from the College of the Holy Cross in 1995 and a J.D. degree from New
England School of Law in 1998. She is admitted to practice law in Massachusetts
and New York and is a member of the American Bar Association.
In addition, the following are deemed to be Executive Officers of the
registrant:
George Krupp (age 56) is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisition and property management, investment sponsorship, venture capital
investing, mortgage banking, financial management, and ownership of three
operating companies through private equity investments. Mr. Krupp has held the
position of Co-Chairman since The Berkshire Group was established as The Krupp
Companies in 1969. Mr. Krupp has been an instructor of history at the New Jewish
High School in Waltham, Massachusetts since September of 1997. Mr. Krupp
attended the University of Pennsylvania and Harvard University and holds a
Master's Degree in History from Brown University. Douglas and George Krupp are
brothers.
Peter F. Donovan (age 47) is Chief Executive Officer of Berkshire Mortgage
Finance which position he has held since January of 1998 and in this capacity,
he oversees the strategic growth plans of this mortgage banking firm. Berkshire
Mortgage Finance is the 11th largest in the United States based on servicing and
asset management of an $11.5 billion loan portfolio. Previously he served as
President of Berkshire Mortgage Finance from January of 1993 to January of 1998
and in that capacity he directed the production, underwriting, servicing and
asset management activities of the firm. Prior to that, he was Senior Vice
President of Berkshire Mortgage Finance and was responsible for all
participating mortgage originations. Before joining the firm in 1984, he was
Second Vice President, Real Estate Finance for Continental Illinois National
Bank & Trust, where he managed a $300 million construction loan portfolio of
commercial properties. Mr. Donovan received a B.A. from Trinity College and an
M.B.A. degree from Northwestern University. Mr. Donovan is currently a member of
the Advisory Council for Fannie Mae.
Ronald Halpern (age 59) is President and Chief Operating Officer of Berkshire
Mortgage Finance. He has served in these positions since January of 1998 and in
this capacity, he is responsible for the overall operations of the Company.
Prior to January of 1998, he was Executive Vice President, managing the
underwriting, closing, portfolio management and servicing departments for
Berkshire Mortgage Finance. Before joining the firm in 1987, he held senior
management positions with the Department of Housing and Urban Development in
Washington D.C. and several HUD regional offices. Mr. Halpern has over 30 years
of experience in real estate finance which includes his experience as prior
Chairman of the MBA Multifamily Housing Committee. He holds a B.A. degree from
the University of the City of New York and a J.D. degree from Brooklyn Law
School.
Carol J.C. Mills (age 51) is Senior Vice President for Loan Management of
Berkshire Mortgage Finance and in this capacity, she is responsible for the Loan
Servicing and Asset Management functions of Berkshire Mortgage Finance. She
manages the estimated $11.5 billion portfolio of loans. Ms. Mills joined
Berkshire in December 1997 as Vice President and was promoted to Senior Vice
President in January 1999. From January 1989 through November 1997, Ms. Mills
was Vice President of First Winthrop Corporation and Winthrop Financial
Associates, in Cambridge, MA. Ms. Mills earned a B.A. degree from Mount Holyoke
College and a Master of Architecture degree from Harvard University. Ms. Mills
is a member of the Real Estate Finance Association, New England Women in Real
Estate and the Mortgage Bankers Association.
ITEM 11. EXECUTIVE COMPENSATION
- -------
Except for the Independent Trustees as described below, the Trustees and
Officers of the Trust have not been and will not be compensated by the Trust for
their services. However, the Officers will be compensated by the Advisor or an
affiliate of the Advisor.
Compensation of Trustees
The Trust paid each of the Independent Trustees (Charles N. Goldberg, J. Paul
Finnegan and E. Robert Roskind) a fee of $25,000 in 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------
As of February 5, 2001, no person owned of record or was known by the Advisor to
own beneficially more than 5% of the Trust's 15,053,135 outstanding Shares. The
only shares held by the Advisor or any of its affiliates consist of the original
10,000 Shares.
Class of Name of Beneficial Amount and Nature of Percent
Stock Owner Beneficial Interest of Class
Shares of Douglas Krupp
Beneficial One Beacon Street
Interest Boston, Mass. 02108 10,000 Shares** ***
Shares of
Beneficial All Directors and
Interest Officers 10,000 Shares ***
** Mr. Krupp is a beneficial owner of the 10,000 shares held by
Berkshire Mortgage Advisors Limited Partnership, the Advisor to the Company, by
virtue of being a director of Berkshire Funding Corporation, the general partner
of Berkshire Mortgage Advisors Limited Partnership. In each case where Mr. Krupp
is a beneficial owner of shares he has shared voting and investment powers.
*** The amount owned does not exceed one percent of the shares of
beneficial interest of the Trust outstanding as of February 5, 2001.
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,
Schedule and Supplementary Data included under Item 8, Appendix
A, on page F-2 of this report.
2. Financial Statement Schedule - see Index to Financial Statements,
Schedule and Supplementary Data included under Item 8, Appendix
A, on page F-2 of this report. All other schedules are omitted as
they are not applicable, not required or the information is
provided in the Financial Statements or the Notes thereto.
(b) Exhibits:
Number and Description
Under Regulation S-K
The following reflects all applicable Exhibits required under Item 601
of Regulation S-K:
(4) Instruments defining the rights of security holders including indentures:
(4.1)Second Amended and Restated Declaration of Trust filed with The
Massachusetts Secretary of State on April 12, 1990 [Included as Exhibit 4.4
to Prospectus included in Pre-effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11 dated April 16, 1990 (File No.
33-31942)].*
(4.2)Subscription Agreement Specimen [Included as Exhibit C to Prospectus
included in Pre-effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11 dated March 23, 1990 (File No. 33-31942)].*
(10) Material Contracts:
(10.1) Advisory Services Agreement dated October 22, 1990 between the Trustee
and Krupp Mortgage Advisors Limited Partnership. [Exhibit 10.1 to
Registrant's report on Form 10-K for the year ended December 31, 1994 (File
No. 0-19244)].*
(10.2) Assignment and Assumption Agreement dated December 29, 1994 by and
between Berkshire Realty Advisors Limited Partnership (formerly known as
Krupp Realty Advisors Limited Partnership ("Assignor") and Berkshire
Mortgage Advisors Limited Partnership ("Assignee") [Exhibit 10.2 to
Registrant's report on Form 10-K for the year ended December 31, 1994 (File
No. 0-19244)].*
Lifestyles Apartments
(10.3) Subordinated Promissory Note dated December 11,
1990 between Lifestyles At Boot Ranch (the
"Mortgagor") and Krupp Government Income Trust (the
"Holder") [Exhibit 10.1 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.4) Agreement RE Subordinated Note dated December 11,
1990 between Krupp Government Income Trust and
Krupp Mortgage Corporation [Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990 (File No.
33-31942)].*
(10.5) Subordinated Multifamily Mortgage dated December
11, 1990 between Lifestyles at Boot Ranch (the
"Mortgagor") and Krupp Government Income Trust (the
"Mortgagee") [Exhibit 10.3 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.6) Additional Loan Agreement dated December 11, 1990
between FL-Tampa, Inc. and M & D Palm Harbor, Inc
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder") [Exhibit
10.4 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No.
33-31942)].*
(10.7) Additional Loan Note dated December 11, 1990
between FL-Tampa, Inc and M & D Palm Harbor, Inc.
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder") [Exhibit
10.5 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No.
33-31942)].*
(10.8) Mortgage Note dated December 11, 1991 between
Lifestyles at Boot Ranch (the "Borrower") and Krupp
Mortgage Corporation (the "Holder"). [Exhibit 10.6
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File No.
0-19244)].*
(10.9) GNMA Purchase Agreement dated December 11, 1991
between Krupp Government Income Trust and Krupp
Mortgage Corporation. [Exhibit 10.7 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.10) Modification Agreement by and between Krupp
Government Income Trust and Lifestyles at Boot
Ranch and M&D Palm Harbor, and FL-Tampa Inc.
[Exhibit 10.1 to Registrant's report on Form 10-Q
for the quarter ended
September 30, 1996 (File No. 0-19244)].*
(10.11) Escrow Deposit Agreement by and between Krupp
Government Income Trust and M&D Palm Harbor, and
FL-Tampa Inc. the general partners of Lifestyles
at Boot Ranch. [Exhibit 10.2 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1996 (File No. 0-19244)].*
(10.12) Second Modification Agreement by and between Krupp
Government Income Trust and Lifestyles at Boot
Ranch and M&D Palm Harbor Partnership and FL-Tampa,
Inc. [Exhibit 10.1 to Registrant's report on Form
10-K for the fiscal year ended December 31, 1999
(File No. 0-19244)].*
Windward Lakes Apartments
(10.13) Subordinated Promissory Note dated December 28,
1990 between the McNab-K C 3 Limited Partnership
(the "Mortgagor") and Krupp Government Income Trust
(the "Holder") [Exhibit 10.6 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1990 (File No. 33-31942)].*
(10.14) Additional Loan Agreement dated December 28, 1990
between George Krupp, Douglas Krupp and Krupp GP,
Inc. (collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder") [Exhibit
10.7 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No.
33-31942)].*
(10.15) Additional Loan Note dated December 28, 1990
between Krupp GP, Inc., George Krupp and Douglas
Krupp (collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder") [Exhibit
10.8 to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 (File No.
33-31942)].*
(10.16) Agreement RE Subordinated Note dated December 28,
1990 between Krupp Government Income Trust and Love
Funding Corporation. [Exhibit 10.11 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No. 0-19244)].*
(10.17) Subordinated Multi-family Mortgage dated December
28, 1991 between McNab-KC3 Limited Partnership (the
"Borrower") and Krupp Government Income Trust (the
"Lender"). [Exhibit 10.12 to Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1991 (File No. 0-19244)].*
(10.18) GNMA Purchase Agreement dated December 28, 1991
between Krupp Government Income Trust and Love
Funding Corporation. [Exhibit 10.13 to Registrant's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 (File No.
0-19244)].*
(10.19) Modification Agreement between Krupp Government
Income Trust, Love Funding Corporation, McNab-KC3
Limited Partnership, and Krupp GP, Inc.
[Exhibit 10.19 to Registrant's report on Form
10-K for the fiscal year ended December 31, 1999
(File No. 0-19244)].*
River View Apartments
(10.20) Subordinated Promissory Note dated April 2, 1991
between Sterling Partners III Limited Partnership
(the "Mortgagor") and Krupp Government Income Trust
(the "Holder") [Exhibit 19.1 to Registrant's report
on Form 10-Q for the quarter ended June 30, 1991
(File No. 0-19244)].*
(10.21) Agreement RE Subordinated Promissory Note dated
April 2, 1991 between Krupp Government Income Trust
and Love Funding Corporation [Exhibit 19.2 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.22) Subordinated Multifamily Mortgage dated April 2,
1991 between Sterling Partners III Limited
Partnership (the "Mortgagor") and Krupp Government
Income Trust (the "Mortgagee") [Exhibit 19.3 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.23) Supplement to Prospectus dated May 1, 1991 for
Government National Mortgage Association Pool
Number 280840 [Exhibit 19.4 to Registrant's report
on Form 10-Q for the quarter ended June 30, 1991
(File No.
0-19244)].*
Mill Pond Apartments
(10.24) Subordinated Promissory Note dated May 28, 1991
between Mill Pond Limited Partnership (the
"Mortgagor") and Krupp Government Income Trust (the
"Holder") [Exhibit 19.5 to Registrant's report on
Form 10-Q for the quarter ended June 30, 1991 (File
No. 0-19244)].*
(10.25) Agreement RE Subordinated Promissory Note dated May
28, 1991 between Krupp Government Income Trust and
Krupp Mortgage Corporation [Exhibit 19.6 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.26) Subordinated Multifamily Mortgage dated May 28,
1991 between Mill Pond Limited Partnership (the
"Mortgagor") and Krupp Government Income Trust (the
"Mortgagee") [Exhibit 19.7 to Registrant's report
on Form 10-Q for the quarter ended June 30, 1991
(File No. 0-19244)].*
(10.27) Mortgage Note dated May 28, 1991 between Krupp
Mortgage Corporation (the "Holder") and Mill Pond
Apartments (the "Borrower") [Exhibit 19.8 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.28) Participation Agreement dated May 28, 1991 between
Krupp Mortgage Corporation (the "Mortgagee") and
Krupp Government Income Trust [Exhibit 19.9 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.29) Assignment of Open End Mortgage Deed and Security
Agreement dated May 28, 1991 between Krupp Mortgage
Corporation (the "Assignor") and Krupp Government
Income Trust (the "Assignee") [Exhibit 19.1 to
Registrants report on Form 10-Q for the quarter
ended September 30, 1991 (File No. 0-19244)].*
Waterford Townhome Apartments
(10.30) Subordinated Promissory Note dated June 12, 1991
between Waterford Apartment Corp.
(the "Mortgagor") and Krupp Government Income Trust
(the "Holder") [Exhibit 19.10 to Registrant's
report on Form 10-Q for the quarter ended
June 30, 1991 (File No. 0-19244)].*
(10.31) Agreement RE Subordinated Promissory Note dated
June 12, 1991 between Krupp Government Income Trust
and Nichols/Conlan Financial Company [Exhibit 19.11
to Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.32) Subordinated Multifamily Mortgage dated
June 12, 1991 between Waterford Apartments
Corp. (the "Mortgagor") and Krupp Government Income
Trust (the "Mortgagee") [Exhibit 19.12 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
(10.33) Mortgage Note dated June 12, 1991 between
Nichols/Conlan Financial Company (the "Holder")
and Waterford Apartment Corp. (the "Borrower")
[Exhibit 19.13 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1991
(File No. 0-19244)].*
(10.34) Assignment of Loan Documents dated June 12, 1991 by
Nichols/Conlan Financial Company to Krupp Mortgage
Corp [Exhibit 19.14 to Registrant's report on Form
10-Q for the quarter ended June 30, 1991 (File No.
0-19244)].*
(10.35) Participation Agreement dated June 12, 1991 between
Nichols/Conlan Financial Company (the "Mortgagee")
and Krupp Government Income Trust [Exhibit 19.15 to
Registrant's report on Form 10-Q for the quarter
ended June 30, 1991 (File No. 0-19244)].*
Rivergreens Apartments
(10.36) Subordinated Promissory Note dated November 14,
1991 between Rivergreens Associates Limited
Partnership (the "Mortgagor") and Krupp Government
Income Trust (the "Holder"). [Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File No.
0-19244)].*
(10.37) Agreement Re-Subordinated Promissory Note dated
November 14, 1991 between Krupp Government Income
Trust and Krupp Mortgage Corporation. [Exhibit
10.34 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.38) Subordinated Multifamily Deed of Trust dated
November 14, 1991 between Rivergreens Associates
Limited Partnership (the "Borrower"), Oregon Title
Insurance Company (the "Trustee") and Krupp
Government Income Trust (the "Lender"). [Exhibit
10.35 to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 (File
No. 0-19244)].*
(10.39) Mortgage Note dated November 14, 1991 between
Krupp Mortgage Corporation and Rivergreens
Associates Limited Partnership. [Exhibit 10.36
to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991
(File No. 0-19244)].*
(10.40) Participation Agreement dated November 14, 1991
between Krupp Mortgage Corporation and Krupp
Government Income Trust. [Exhibit 10.37 to
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991
(File No. 0-19244)].*
Mountain View Apartments
(10.41) Subordinated Promissory Note dated April 21, 1992
between Mountain View Ltd. (the "Mortgagor") and
Krupp Government Income Trust (the "Holder").
[Exhibit 19.1 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992
(File No. 0-19244)].*
(10.42) Agreement RE Subordinated Promissory Note dated
April 21, 1992 between Krupp Government Income
Trust and Krupp Mortgage Corporation.
[Exhibit 19.2 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992
of (File No. 0-19244)].*
(10.43) Subordinated Multifamily Mortgage dated
April 21, 1992 between Mountain View Ltd.
(the "Mortgagor") and Krupp Government Income Trust
(the "Mortgagee"). [Exhibit 19.3 to Registrant's
report on Form 10-Q for the quarter ended
June 30, 1992 (File No. 0-19244)].*
(10.44) Additional Loan Agreement dated April 21, 1992
between Philip P. Mulkey, Henry V. Bragg and
Gregory V. Bragg (collectively, the "Borrowers")
and Krupp Government Income Trust (the "Holder").
[Exhibit 19.4 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992
(File No. 0-19244)].*
(10.45) Additional Loan Note dated April 21, 1992 between
Philip P. Mulkey, Henry V. Bragg and Gregory V.
Bragg (collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder").
[Exhibit 19.5 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992
(File No. 0-19244)].*
(10.46) Mortgage Note dated April 21, 1992 between
Mountain View Ltd. (the "Borrower") and Krupp
Mortgage Corporation (the "Holder").
[Exhibit 19.6 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992
(File No. 0-19244)].*
(10.47) Modification Agreement by and between Krupp
Government Income Trust and Mountain View Ltd.
[Exhibit 10.1 to Registrant's report Form 10-Q
for the quarter ended September 30, 1995
(File No. 0-19244)].*
(10.48) Second Modification Agreement by and between Krupp
Government Trust and Mountain View LTD. [Exhibit
10.1 to Registrant's report Form 10-Q for the
quarter ended June 30, 1999 (File No. 0-19244)]*
Red Run Apartments
(10.49) Subordinated Promissory Note dated May 5, 1992
between Red Run Limited Partnership (the
"Mortgagor") and Krupp Government Income Trust (the
"Holder"). [Exhibit 19.7 to Registrant's report on
Form 10-Q for the quarter ended June 30, 1992 (File
No. 0-19244)].*
(10.50) Agreement RE Subordinated Promissory Note dated May
5, 1992 between Krupp Government Income Trust and
Maryland National Mortgage Corporation
(the"Mortgagee"). [Exhibit 19.8 to Registrant's
report on Form 10-Q for the quarter ended June 30,
1992 (File No. 0-19244)].*
(10.51) Subordinated Multifamily Mortgage dated May 5, 1992
between Red Run Limited Partnership (the "Trustor")
and Krupp Government Income Trust (the "Lender").
[Exhibit 19.9 to Registrant's report on Form 10-Q
for the quarter ended June 30, 1992 (File No.
0-19244)].*
(10.52) Additional Loan Agreement dated May 5, 1992 between
Red Run Corporation and Summit Towers Company
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder"). [Exhibit
19.10 to Registrant's report on Form 10-Q for the
quarter ended June 30, 1992 (File No. 0-19244)].*
(10.53) Additional Loan Note dated May 5, 1992 between Red
Run Corporation and Summit Towers Company
(collectively, the "Borrowers") and Krupp
Government Income Trust (the "Holder"). [Exhibit
19.11 to Registrant's report on Form 10-Q for the
quarter ended June 30, 1992 (File No. 0-19244)].*
(10.54) Deed of Trust Note dated May 5, 1992 between Red
Run Limited Partnership and Maryland National
Mortgage Corporation. [Exhibit 19.3 to Registrant's
report on Form 10-Q for the quarter ended
September 30, 1992 (File No. 0-19244)].*
(10.55) Participation and Servicing Agreement by and
between Maryland National Mortgage Corporation and
Krupp Government Income Trust. [Exhibit 19.4 to
Registrant's report on Form 10-Q for the quarter
ended September 30, 1992 (File No. 0-19244)].*
Lincoln Green Apartments
(10.56) Supplement to prospectus dated August 1, 1992 for
Federal National Mortgage Association pool number
MX-073023. [Exhibit 19.8 to Registrant's report on
Form 10-Q for the quarter ended September 30, 1992
(File No. 0-19244)].*
(10.57) Subordinated promissory note dated September 15,
1992 by and between Lincoln Green Associates
Limited Partnership (the "Mortgagor") and Krupp
Government Income Trust (the "Holder"). [Exhibit
19.9 to Registrant's report on Form 10-Q for the
quarter ended September 30, 1992 (File No.
0-19244)].*
(10.58) Subordinated Multi-family Deed of Trust dated
September 16, 1992 by and between Lincoln Green
Associates Limited Partnership (the "Borrower") and
Krupp Government Income Trust (the "Lender").
[Exhibit 19.10 to Registrant's report on Form 10-Q
for the quarter ended September 30, 1992 (File No.
0-19244)].*
The Seasons
(10.59) Additional Loan Agreement dated September 16, 1993
between The Krupp Company Limited Partnership-IV
(the "Borrower") and Krupp Government Income Trust
II (the "Holder") [Exhibit 10.80 to Registrant's
report on Form 10-K for the year ended December 31,
1994 (File No. 0-19244)].*
(10.60) Additional Loan Note dated September 16, 1993
between The Krupp Company Limited Partnership-IV
(the "Borrower") and Krupp Government Income Trust
II (the "Holder") [Exhibit 10.81 to Registrant's
report on Form 10-K for the year ended December 31,
1994 (File No. 0-19244)].*
(10.61) Subordinated Promissory Note dated September 16,
1993 between Maryland Associates Limited
Partnership (the "Maker") and Krupp Government
Income Trust II (the "Holder") [Exhibit 10.82 to
Registrant's report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
(10.62) Pledge and Security Agreement dated September 16,
1993 by and between The Krupp Company Limited
Partnership-IV (the "Debtor") and Krupp Government
Income Trust II (the "Secured Party") [Exhibit
10.83 to Registrant's report on Form 10-K for the
year ended December 31, 1994 (File No. 0-19244)].*
(10.63) The Deed of Trust dated September 16, 1993 by and
between Maryland Associates Limited Partnership and
Krupp Mortgage Corporation [Exhibit 10.84 to
Registrant's report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
(10.64) Participation and Servicing Agreement made as of
September 16, 1993 by and between Krupp Mortgage
Corporation (the "Servicer") and Krupp Government
Income Trust II (the "Participant") [Exhibit 10.85
to Registrant's report on Form 10-K for the year
ended December 31, 1994 (File No. 0-19244)].*
(10.65) Assignment and Assumption Agreement dated September
16, 1993 between Krupp Government Income Trust II
(the "Assignor") and Krupp Government Income Trust
(the "Assignee") [Exhibit 10.86 to Registrant's
report on Form 10-K for the year ended December 31,
1994 (File No. 0-19244)].*
Rosemont Apartments
(10.66) Participation and Servicing Agreement dated July
14, 1994, by and between Rockport Mortgage
Corporation (the "Servicer") and Krupp Government
Income Trust (the "Participant") [Exhibit 10.87 to
Registrant's report on Form 10-K for the year ended
December 31, 1994 (File No. 0-19244)].*
(10.67) Deed of Trust Note dated July 1, 1994 between
Rosemont Ltd. and Rockport Mortgage Corporation.
[Exhibit 10.88 to Registrant's report on Form 10-K
for the year ended December 31, 1994
(File No. 0-19244)].*
(10.68) Allonge to Deed of Trust Note dated July 1, 1994
between Rosemont Ltd. and Rockport Mortgage
Corporation [Exhibit 10.89 to Registrant's report
on Form 10-K for the year ended December 31, 1994
(File No.
0-19244)].*
(10.69) Participation Certificate with Krupp Government
Income Trust as registered owner. [Exhibit 10.96
to Registrant's report on Form 10-K for the year
ended December 31, 1995 (File No. 0-19244)].*
* Incorporated by reference
(c) Reports on Form 8-K
During the last quarter of the year ended December 31, 2000, the
Trust did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 9th day of March,
2001.
KRUPP GOVERNMENT INCOME TRUST
By: /s/ Douglas Krupp
Douglas Krupp, Chairman of Board of Trustees and a Trustee of
Krupp Government Income Trust
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 9th day of March 2001.
Signatures Title(s)
/s/ Douglas Krupp Chairman of Board of Trustees and a
- ---------------------------- Trustee of Krupp Government Income Trust
Douglas Krupp
/s/ Robert A. Barrows Treasurer of Krupp Government Income Trust
- ----------------------------
Robert A. Barrows
/s/ Charles N. Goldberg Trustee of Krupp Government Income Trust
- ----------------------------
Charles N. Goldberg
/s/ J. Paul Finnegan Trustee of Krupp Government Income Trust
- ----------------------------
J. Paul Finnegan
APPENDIX A
KRUPP GOVERNMENT INCOME TRUST
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8 of FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the Year Ended December 31, 2000
KRUPP GOVERNMENT INCOME TRUST
INDEX TO FINANCIAL STATEMENTS, SCHEDULE AND SUPPLEMENTARY DATA
Report of Independent Accountants F-3
Balance Sheets at December 31, 2000 and 1999 F-4
Statements of Income and Comprehensive Income for the Years Ended
December 31, 2000, 1999 and 1998 F-5
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2000, 1999 and 1998 F-6
Statements of Cash Flows for the Years Ended December 31, 2000, 1999
and 1998 F-7
Notes to Financial Statements F-8 - F-19
Schedule II - Valuation and Qualifying Accounts F-20
Supplementary Data - Selected Quarterly Financial Data (Unaudited) F-21
All other schedules are omitted as they are not applicable or not required, or
the information is provided in the financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and the Shareholders of
Krupp Government Income Trust:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Krupp
Government Income Trust (the "Trust") at December 31, 2000 and 1999, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedule are the responsibility of the Trust's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 9, 2001
KRUPP GOVERNMENT INCOME TRUST
BALANCE SHEETS
December 31, 2000 and 1999
ASSETS
2000 1999
---- ----
Participating Insured Mortgage Investments ("PIMIs") (Notes B, C and J):
Insured Mortgages $ 59,752,085 $60,129,492
Additional Loans, net of impairment provision of $2,162,618 8,350,990 8,350,990
Participating Insured Mortgages ("PIMs")
(Notes B, D and J) 46,892,234 47,331,673
Mortgage-Backed Securities and insured
mortgage loan ("MBS") (Notes B, E and J) 16,536,498 17,495,423
------------- ------------
Total mortgage investments 131,531,807 133,307,578
Cash and cash equivalents (Notes B and J) 5,359,041 4,627,499
Interest receivable and other assets 1,082,412 973,491
Prepaid acquisition fees and expenses, net
of accumulated amortization of $6,841,714
and $6,089,755, respectively (Note B) 1,491,747 2,243,706
Prepaid participation servicing fees, net of
accumulated amortization of $2,112,209
and $1,834,434, respectively (Note B) 665,540 943,315
------------- -------------
Total assets $ 140,130,547 $142,095,589
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note B) $ 3,550,485 $ 3,918,021
Other liabilities 20,980 25,025
------------- -------------
Total liabilities 3,571,465 3,943,046
------------- -------------
Commitments (Note H)
Shareholders' equity (Notes A, F, H and I):
Common stock, no par value; 17,510,000
Shares authorized; 15,053,135 Shares
issued and outstanding 136,114,206 137,921,227
Accumulated comprehensive income (Note B) 444,876 231,316
------------- -------------
Total Shareholders' equity 136,559,082 138,152,543
------------- -------------
Total liabilities and Shareholders'
equity $140,130,547 $ 142,095,589
============= ==============
The accompanying notes are an integral
part of the financial statements.
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Revenues:
Interest income - PIMs and PIMIs:
Basic interest $ 8,086,930 $ 8,789,439 $10,635,959
Additional Loan Interest 744,080 2,534,790 3,080,944
Participation interest 504,612 2,268,505 5,094,353
Interest income - MBS 1,375,643 1,531,351 1,930,383
Interest income - cash and cash
equivalents 364,803 508,144 1,180,647
-------------- ------------- -------------
Total revenues 11,076,068 15,632,229 21,922,286
-------------- ------------- ------------
Expenses:
Asset management fee
to an affiliate (Note G) 1,007,651 1,104,431 1,331,745
Expense reimbursements
to affiliates (Note G) 256,564 220,657 207,165
Amortization of prepaid fees
and expenses 1,029,734 1,672,143 2,998,705
General and administrative (Note G) 353,007 269,345 433,860
Provision for impaired mortgage
loans (Notes B and C) - 48,272 2,114,346
-------------- ------------- ------------
Total expenses 2,646,956 3,314,848 7,085,821
-------------- ------------- ------------
Net income (Note I) 8,429,112 12,317,381 14,836,465
Other comprehensive income:
Net change in unrealized gain
on MBS 213,560 (641,460) (512,826)
-------------- ------------- ------------
Total comprehensive income $ 8,642,672 $ 11,675,921 $14,323,639
============== ============= ============
Basic earnings per Share $ .56 $ .82 $ .99
============== ============= ===========
Weighted average Shares outstanding 15,053,135 15,053,135 15,053,135
============== ============= ============
The accompanying notes are an
integral part of the financial
statements.
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
Accumulated Total
Common Retained Comprehensive Shareholders'
Stock Earnings Income Equity
------------------ ---------------- -------------- ------------------
Balance at December 31, 1997 $ 212,496,510 $ - $ 1,385,602 $ 213,882,112
Dividends (47,754,496) (14,836,465) - (62,590,961)
Net income - 14,836,465 - 14,836,465
Change in unrealized gain
on MBS - - (512,826) (512,826)
------------- ------------- ------------ --------------
Balance at December 31, 1998 164,742,014 - 872,776 165,614,790
Dividends (26,820,787) (12,317,381) - (39,138,168)
Net income - 12,317,381 - 12,317,381
Change in unrealized gain
on MBS - - (641,460) (641,460)
------------- ------------- ------------ --------------
Balance at December 31, 1999 137,921,227 - 231,316 138,152,543
Dividends (1,807,021) (8,429,112) - (10,236,133)
Net income - 8,429,112 - 8,429,112
Change in unrealized gain
on MBS - - 213,560 213,560
------------- ------------- ------------ --------------
Balance at December 31, 2000 $ 136,114,206 $ - $ 444,876 $ 136,559,082
============= ============= ============ ==============
Shares issued and outstanding for each of the three years ended
December 31, are 15,053,135
The accompanying notes are an integral part
of the financial statements.
KRUPP GOVERNMENT INCOME TRUST
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Operating activities:
Net income $ 8,429,112 $ 12,317,381 $ 14,836,465
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premiums and (discounts) (2,202) 3,044 (7,646)
Provision for impaired mortgage loans - 48,272 2,114,346
Amortization of prepaid fees and expenses 1,029,734 1,672,143 2,998,705
Changes in assets and liabilities:
Decrease (increase) in interest receivable
and other assets (108,921) 83,874 236,875
Decrease in deferred income
on Additional Loans (367,536) (1,855,648) (2,097,937)
(Decrease) increase in other
liabilities (4,045) (8,205) 7,816
-------------- ------------- -------------
Net cash provided by operating activities 8,976,142 12,260,861 18,088,624
-------------- ------------- -------------
Investing activities:
Principal collections on PIMs and Insured Mortgages 816,846 800,921 855,221
Principal collections on MBS 1,174,687 3,992,931 4,447,303
Insured Mortgage prepayments - 14,861,957 32,603,506
Additional Loan prepayments - 2,844,600 5,850,900
-------------- ------------- -------------
Net cash provided by investing activities 1,991,533 22,500,409 43,756,930
-------------- ------------- -------------
Financing activity:
Dividends (10,236,133) (39,138,168) (62,590,961)
-------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 731,542 (4,376,898) (745,407)
Cash and cash equivalents, beginning
of year 4,627,499 9,004,397 9,749,804
-------------- ------------- -------------
Cash and cash equivalents, end of year $ 5,359,041 $ 4,627,499 $ 9,004,397
============== ============= =============
Non cash activities:
Decrease in Fair Value of MBS $ 213,560 $ (641,460) $ (512,826)
============== ============== =============
The accompanying notes are an integral
part of the financial statements.
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
A. Organization
Krupp Government Income Trust (the "Trust") was formed on November 1, 1989
by filing a Declaration of Trust in The Commonwealth of Massachusetts. The
Trust is authorized to sell and issue not more than 17,510,000 shares of
beneficial interest (the "Shares"). The Trust was organized for the
purpose of investing in commercial and multi-family loans and mortgage
backed securities. Berkshire Mortgage Advisors Limited Partnership
("BMALP")(the "Advisor"), acquired 10,000 of such Shares for $200,000 and
14,999,999 Shares were sold for $299,480,263 net of purchase volume
discounts of $519,717 under a public offering which commenced on April 19,
1990 and ended on July 15, 1991. Under the Dividend Reinvestment Plan
("DRP"), 43,136 Shares were sold for $819,356 during its public offering.
The Trust shall terminate on December 31, 2029, unless earlier terminated
by the affirmative vote of holders of a majority of the outstanding Shares
entitled to vote thereon.
B. Significant Accounting Policies
The Trust uses the following accounting policies for financial reporting
purposes:
Basis of Presentation
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
MBS
The Trust, in accordance with the Financial Accounting Standards Board's
Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"), classifies its MBS portfolio as
available-for-sale. As such, the Trust carries its MBS at fair market
value and reflects any unrealized gains (losses) as a separate component
of Shareholders' Equity. The Trust amortizes purchase premiums or
discounts over the life of the underlying mortgages using the effective
interest method.
The Federal Housing Administration ("FHA") insured mortgage is carried at
amortized cost. The Trust holds this loan at amortized cost since it is
fully insured by FHA.
PIMs and PIMIs
The Trust accounts for its MBS portion of a PIM or PIMI in accordance with
FAS 115 under the classification of held to maturity. The Trust carries
those MBS at amortized cost.
The insured mortgage portion of the FHA PIM or FHA PIMI is carried at
amortized cost. The Trust holds these mortgages at amortized cost since
they are fully insured by FHA.
The Additional Loans are carried at amortized cost unless the Advisor of
the Trust believes there is an impairment in value, in which case a
valuation allowance is established in accordance with FAS 114 and FAS 118.
Basic interest is recognized based on the stated rate of the Department of
Housing and Urban Development ("HUD") Insured Mortgage loan (less the
servicer's fee) or the coupon rate of the Government National Mortgage
Association ("GNMA") or Fannie Mae MBS. The Trust recognizes interest
related to the participation features when it deems these amounts
estimable and collectible. The Trust defers the recognition of Additional
Loan interest payments as income to the extent these interest payments are
from escrows established with the proceeds of the Additional Loan. When
the properties underlying the PIMI's generate sufficient operating cash
flow to make the required Additional Loan interest payments, the Trust
recognizes income as earned and commences amortization of the deferred
interest amounts into income over the remaining estimated term of the
Additional Loan. During periods where mortgage loans are impaired the
Trust suspends amortizing deferred interest.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
B. Significant Accounting Policies, continued
PIMs and PIMIs, continued
The Trust also fully reserves the portion of any Additional Loan interest
payment satisfied through the issuance of an operating loan and any
associated interest due on such operating loan. The Trust will recognize
the income related to the operating loan when the borrower repays amounts
due under the operating loan.
Impaired Mortgage Loans
Impaired loans are those loans which the Advisor believes that the
collection of all amounts due in accordance with the contractual terms of
the loan agreement are not likely. Impaired loans are measured based on
the fair value of the underlying collateral. Interest received on the
impaired loans is generally applied against the loan principal or as
interest income if deemed collectable by the Advisor.
Cash Equivalents
The Trust includes all short-term investments with maturities of three
months or less from the date of acquisition in cash and cash equivalents.
The Trust invests its cash primarily in agency paper and money market
funds with a commercial bank and has not experienced any loss to date on
its invested cash.
Prepaid Fees and Expenses
Prepaid fees and expenses represent prepaid acquisition fees and expenses
and prepaid participation servicing fees paid for the acquisition and
servicing of PIMs and PIMIs. The Trust amortizes prepaid acquisition fees
and expenses using a method that approximates the effective interest
method over a period of ten to twelve years, which represents the actual
maturity or anticipated call payoff of the underlying mortgage.
The Trust amortizes prepaid participation servicing fees using a method
that approximates the effective interest method over a ten year period
beginning at final endorsement of the loan if a HUD-insured mortgage loan
or a GNMA MBS and at closing if a Fannie Mae MBS.
Upon the repayment of a PIM or PIMI any unamortized acquisition fees and
and expenses and unamortized participation servicing fees related to such
loan are expensed.
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.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs
The Trust had investments in five PIMIs on December 31, 2000 and on
December 31, 1999 that provide the permanent financing of multi-family
housing. One component of a PIMI is either a securitized HUD-insured first
mortgage loan issued and guaranteed by GNMA or a sole participation
interest in a first mortgage loan originated under the Federal Housing
Administration ("FHA") lending program and insured by HUD (collectively
the "Insured Mortgages"). The FHA first mortgage or the first mortgage
underlying the GNMA security provided the borrower (generally a limited
partnership) with a below market interest rate loan in exchange for
providing the Trust with participation in a percentage of the cash
generated from property operations and in a percentage of any appreciation
of the underlying property to a preferred return, then a percentage of any
appreciation thereafter. The borrower conveys these rights to the Trust
through a subordinated promissory note and mortgage. In addition, the
Trust made an Additional Loan to the owners of the borrower to provide
additional funds for the construction and permanent financing of the
property. The owners generally collateralize the Additional Loan through a
pledge and security agreement that pledges their ownership interests in
the borrower, and their share of any distributions made from surplus cash
generated by the property and the proceeds realized upon the refinancing
of the property, sale of the property or sale of the partnership
interests. Amounts payable under the Additional Loan are neither
guaranteed nor insured.
The Trust receives level monthly principal and interest ("Basic Interest")
payments amortizing over thirty to forty years, on the Insured Mortgage
and is entitled to receive participation income under the subordinated
promissory note and mortgage, and semi-annual interest payments
("Additional Loan Interest") and preferred interest under the Additional
Loan ("Preferred Interest"). The Trust receives principal and interest
payments on the Insured Mortgages currently, because these payments are
insured or guaranteed; however, there are limitations to the amount and
obligation to pay participation income, Additional Loan Interest and
Preferred Interest.
The subordinated promissory note and mortgage entitles the Trust to
receive (i) Participating Income Interest generally equal to 50% of (a)
all distributable Surplus Cash (as defined in the regulatory agreement of
the HUD-insured first mortgage) generated by the property (b) any
unrestricted cash generated from property operations and (c) to the extent
available unexpended reserves and escrows, and (ii) Participating
Appreciation Interest generally equal to 50% of the net proceeds or value
of the property upon the sale, refinancing, maturity or accelerated
maturity, or permitted prepayment of all amounts due under the Insured
Mortgage and Additional Loan less the Outstanding Indebtedness, as
defined. Amounts received by the Trust pursuant to the subordinated
promissory note as Participating Income Interest reduce amounts payable as
Preferred Interest and may reduce amounts payable as Base Interest under
the Additional Loan.
The Insured Mortgage and subordinated promissory note generally have
maturities of 30 to 40 years, however, under the subordinated promissory
note the Trust can generally accelerate these maturity dates at any time
after the tenth anniversary of final endorsement for coinsurance or
insurance, but in certain cases for construction loans after the eleventh
or twelfth anniversary of initial endorsement (commencement of
construction) for coinsurance or insurance, upon giving twelve months
written notice for the payment of all accrued participation interest
through the accelerated maturity date. The Trust can accelerate the
maturity date for payment of amounts due under the subordinated promissory
note and the insured mortgage providing the contract of insurance or
coinsurance with the Secretary of HUD on the insured mortgage is canceled
prior to the accelerated maturity date.
Additional Loan Interest is payable from the following sources: (i) any
Surplus Cash received pursuant to the subordinated promissory note as
Participating Income Interest, (ii) amounts conveyed to the Trust by the
owners of the borrowing entity representing distributions of Surplus Cash
and (iii) amounts in reserve accounts established with the Additional Loan
proceeds, if available, and any interest earned on these amounts. If these
sources are not sufficient to make Additional Loan Interest payments the
owners of the borrowing entity must notify the Trust of the amount of the
shortfall and at its option the Trust could require a capital call from
the owners of the borrowing entity. The capital call would be equal to 50%
of the Additional Loan Interest shortfall and the Trust in certain
situations could convert the remaining 50% into an operating loan.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
In addition to the Additional Loan Interest payments, the Additional Loan
requires the payment of Preferred Interest representing a cumulative,
non-compounded preferred return from the date of final endorsement to the
date of calculation at interest rates ranging from 9.5% to 11% per annum
on the outstanding balance of the Insured Mortgage plus the Additional
Loan and any other funds advanced by the Trust to the borrowing entity or
the owners of the borrowing entity less: (i) interest payments paid to the
Trust under the Insured Mortgage, (ii) Participating Income Interest and
(iii) Additional Loan Interest payments made under the Additional Loan.
The Insured Mortgage and subordinated promissory note generally cannot be
prepaid for a term of five years from the construction completion date or
final endorsement and thereafter may be prepaid in whole without penalty
provided all participation interest and amounts under the Insured Mortgage
are paid. Any prepayment requires not less than ninety nor more than 180
days prior written notice.
The Additional Loan generally may not be prepaid before the fifth
anniversary of the Agreement or the construction completion date and
thereafter may be prepaid in full without penalty provided Preferred
Interest and any amounts due under the Insured Mortgage and subordinated
promissory note are paid in full.
During the third quarter of 1999, the Trust received a prepayment of the
Audubon Villas PIMI including the Insured Mortgage with a remaining
principal balance of $14,861,957, the Additional Loan of $2,691,000 and
participation interest of $1,966,901. Also, $1,962,261 was recognized as
Additional Loan interest income which was previously recorded as deferred
income. On August 18, 1999, the Advisor declared a special dividend of
$1.30 per share that was paid on September 17, 1999 from the payoff of the
mortgage on the Audubon Villas PIMI.
In June 1999, the Trust entered into a second modification agreement (the
"Agreement") with the borrowers of the Mountain View Apartments PIMI
reducing the interest rate on the Insured Mortgage by 1.25% per annum
beginning January 1, 1999 and continuing through December 31, 2004 and
changing the participation feature. The Agreement eliminated the Preferred
Interest required under the Additional Loan and changed the Trust's
participation in the Surplus Cash generated by the property. Under the
Agreement, the Trust will receive 75% of the first $130,667 of Surplus
Cash and 50% of any remaining Surplus Cash on an annual basis to pay the
Additional Loan Interest. Unpaid Additional Loan Interest will accrue and
be payable if there are sufficient proceeds from a sale or refinancing of
the property except that $288,580 of existing accruals related to the
Additional Loan had been forgiven. In addition, the borrower repaid
$153,600 of the Additional Loan and funded approximately $54,000 to a
reserve for property improvements.
On July 15, 1998, the Trust received a prepayment of the Coconut Palm Club
PIMI. This transaction was the result of a sale of the underlying
property, although the Trust received less than its full Preferred
Interest. The Advisor agreed to allow the transaction because the purchase
price was judged to be favorable in light of the highly competitive rental
market in Broward County, Florida. In addition, without the sale it was
likely that the Advisor would have agreed to a loan restructure with the
borrower rather than expose the Trust to the uncertainty of a probable
default. The Trust received the prepayment of the principal balance of the
Insured Mortgage, $15,851,211, the principal balance of the Additional
Loan, $2,850,900, and the Additional Loan interest due at the time of
repayment, $89,091. In addition, the Trust received participation interest
of $1,419,116 towards the Preferred Interest.
During June of 1998, the Trust received a prepayment of the Park Highlands
PIMI when the property was sold. This prepayment occurred prior to the
expiration of the five-year prohibition. However, the Advisor agreed to
allow the transaction to be completed while market conditions were
favorable in return for an additional prepayment penalty. The Trust
received the prepayment of the principal balance of the Insured Mortgage,
$16,752,295, the principal balance of the Additional Loan, $3,000,000, the
Additional Loan Interest due at the time of the prepayment, $57,945, and
the prepayment premium for the early payoff, $479,476. In addition, the
Trust received participation interest comprised of the outstanding
Preferred Interest on the Trust investment of $1,481,865, the Trust's
share in the increase in the value of the underlying property of
$1,206,719 and Participating Income Interest of $211,316.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, continued
Due to the prepayments of the Park Highlands and Coconut Palm Club
Additional Loans, the Trust also recognized Additional Loan interest of
$1,290,000 and $1,295,354 respectively, that had been previously
classified as deferred income on these Additional Loans.
On August 6, 1998, the Advisor of the Trust declared a special dividend of
$2.86 per Share that was paid on September 9, 1998 from prepayment
proceeds of the Park Highlands and Coconut Palm Club PIMIs.
On May 1, 1998, the borrowers on the Lifestyles PIMI defaulted on its May
1998 debt service payment. The Trust continued to receive its monthly
principal and interest payments guaranteed by GNMA. In December 1998, the
Trust entered into a second modification agreement with the borrowers of
the Lifestyles PIMI reducing the interest paid monthly on the Insured
Mortgage by 1.75% per annum for 1998 and 1999 and 1.5% per annum for 2000
through 2007. An affiliate of the Advisor refunds approximately .25% per
annum to the Trust related to the interest reduction. In addition, the
borrowers made a $550,000 equity contribution, which has been escrowed,
for the exclusive purpose of correcting deferred maintenance. Under the
Modification any future Surplus Cash generated by property operations will
be split evenly between the Trust and the borrowers as Participating
Income Interest. When the property is sold or refinanced, the first
$1,100,000 of any proceeds remaining after the Insured Mortgage is paid
off will be split 50% / 50%; the next $1,690,220 of proceeds will be split
75% to the Trust and 25% to the borrower (the repayment of the Additional
Loan); and any remaining proceeds will be split 50% / 50% between the
Trust and the borrower. The Trust will not earn any Preferred Interest or
Additional Loan Interest.
At December 31, 2000 and 1999 there are no Insured Mortgage loans within
the Trust's portfolio that are delinquent as to principal or interest.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
The Trust's investments in PIMIs consist of the following at
December 31, 2000 and 1999:
Original Approximate
Loan Monthly Interest Maturity Balance Outstanding
Insured Mortgage Amount Payments Rate Date at December 31,
---------------- ------------- -------------- ---- ---- -----------------------------------------
2000 1999
---------------- -------------------
Lifestyles (GNMA) $ 10,292,394 $ 63,000 7.000%(a) 05/01/2032 $ 9,904,652 $ 9,966,008
Windward (GNMA) 14,000,778 91,000 8.500%(b) 06/01/2032 13,518,840 13,596,232
Mountain View (FHA) 9,547,700 58,000 6.875%(c) 01/01/2034 9,264,428 9,315,978
Red Run (FHA) 19,019,600 130,000 7.875% 05/01/2034 18,446,243 18,552,815
The Seasons (FHA) (d) 9,075,351 64,000 7.875% 10/01/2028 8,617,922 8,698,459
------------- -------------- ------------ -------------
$ 61,935,823 $ 406,000 $ 59,752,085 $ 60,129,492
============= ============== ============ =============
(f)
Base Preferred
Outstanding Balance Maturity Interest Interest
Additional Loan 2000 1999 Date Rate Rate
--------------- ---------------- ---------------- ------------ -------- ---------
Lifestyles (a) $ 1,817,665 $ 1,817,665 05/14/2007 - -
Windward (b) 2,471,294 2,471,294 07/07/2002 7.5% 10%
Mountain View (c) 1,400,000 1,400,000 09/16/2003 7.0% -
Red Run 2,900,000 2,900,000 06/23/2004 7.0% 10%
The Seasons (d)(e) 1,924,649 1,924,649 10/01/2028 9.0% 10%
------------- ------------
$ 10,513,608 $ 10,513,608
============ ===========
(a) The Trust entered into an Agreement which reduced the interest
rate on the Insured Mortgage by 1.75% per annum effective January
1, 1998 for a period of twenty-four months and by 1.5% per annum
for 2000 though 2007. An affiliate of the Advisor refunds
approximately .25% per annum to the Trust related to the interest
reduction. The Trust will not receive any Additional Loan interest
or Preferred Return due to the workout.
(b) The Trust entered into an agreement which reduced the interest
rate on the Insured Mortgage by 2.0% per annum for 1997 and by
1.0% for 1998 through 2000. In addition, the Preferred Interest
was reduced by 1% and Additional Loan Interest is payable from
surplus cash.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
(c) The Trust entered into a second modification agreement which
reduced the interest rate on the Insured Mortgage by 1.25% per
annum effective January 1, 1999 and continuing through December
31, 2004. The Agreement eliminated the Preferred Interest required
under the Additional Loan and changed the Trust's participation in
the surplus cash generated by the property. Furthermore, debt
service relief provided by the first modification was forgiven.
(d) The total PIM and Additional Loan on this property were
$32,300,000 and $6,850,000, respectively, of which 72% is held by
Krupp Government Income Trust II, an affiliate of the Trust. The
Seasons is affiliated with the Advisor of the Trust.
(e) The Additional Loan interest rate was 6% per annum for the first
three years and beginning in September 1996 increased
to 9% per annum.
(f) The aggregate cost for federal income tax purposes is $59,752,085.
Impaired Mortgage Loans
The Advisor of the Trust has determined that the Lifestyles Additional Loan is
impaired. As a result, during 1998, a valuation allowance of $1.1 million was
established to adjust the carrying amount of the loan to the estimated fair
market value of the collateral less anticipated costs of sale. The Trust will
recognize interest income to the extent cash is received and supported by
operating cash flow generated by the collateral. The Trust did not recognize
interest income on the Lifestyles Additional Loan during 2000, 1999 or 1998.
The Advisor of the Trust has determined that the Mountain View Additional Loan
is impaired. As a result, during 1998, a valuation allowance of $984,000 was
established to adjust the carrying amount of the loan to the then estimated fair
market value of the collateral less anticipated costs of sale. During 1999, the
Trust increased the valuation allowance of Mountain View by $48,000. The Trust
will recognize interest income to the extent cash is received and supported by
operating cash flow generated by the collateral. The Trust did not recognize
interest income on the Mountain View Additional Loan during 2000, 1999 or 1998.
The activity in the valuation allowance together with the related recorded and
carrying value of the mortgage loans is as follows:
Recorded Valuation Carrying
Value Allowance Value
-------------- --------- -----------
Lifestyles $1,817,665 $1,130,346 $ 687,319
Mountain View 1,400,000 1,032,272 367,728
----------- ----------- -----------
Balance at
December 31, 2000 $3,217,665 $2,162,618 $1,055,047
========== ========== ==========
The recorded value of the impaired mortgage loans did not differ materially from
the balances reported at the end of each quarter with the exception of the
impairment recorded in the fourth quarter of 1998 for the Lifestyles and
Mountain View Additional Loans. The Trust has also deferred income related to
Lifestyles and Mountain View of $687,319 and $367,383, respectively.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
C. PIMIs, Continued
A reconciliation of activity for each of the three years in the
period ended December 31, is as follows:
Insured Mortgages
2000 1999 1998
---- ---- ----
Balance at beginning of period $ 60,129,492 $ 75,386,460 $ 108,470,247
Insured Mortgage prepayments - (14,861,957) (32,603,506)
Principal collections (377,407) (395,011) (480,281)
-------------- -------------- -------------
Balance at end of period $ 59,752,085 $ 60,129,492 $ 75,386,460
============== ============== ==============
Additional Loans
Balance at beginning of period $ 8,350,990 $ 11,243,862 $ 19,209,108
Additional Loan prepayments - (2,844,600) (5,850,900)
Valuation allowance - (48,272) (2,114,346)
-------------- -------------- --------------
Balance at end of period $ 8,350,990 $ 8,350,990 $ 11,243,862
============== ============== ==============
Property descriptions:
- ---------------------
Lifestyles Apartments ("Lifestyles") is a 236-unit garden style apartment
complex located in Palm Harbor, Florida.
Windward Lakes Apartments ("Windward") is a 276-unit garden style apartment
complex located in Pompano Beach, Florida.
Mountain View Apartments ("Mountain View") is a 256-unit apartment complex
located in Madison, Alabama.
Red Run Apartments ("Red Run") is a 304-unit apartment complex located in
Owings Mills, Maryland.
The Seasons is a 1,088-unit apartment complex located in Laurel, Maryland.
D. PIMs
The Trust had investments in five PIMs at December 31, 2000 and 1999. The
Trust's PIMs consist of a GNMA or Fannie Mae MBS or a sole participation
interest in a HUD-insured first mortgage loan originated under the FHA
lending program (collectively the "Insured Mortgages"), and participation
interests in the revenue stream and appreciation of the underlying
property above specified base levels. The borrower conveys these
participation features to the Trust generally through a subordinated
promissory note and mortgage (the "Agreement").
The Trust receives guaranteed level monthly payments of principal and
interest, amortized over thirty to forty years. The GNMA and Fannie Mae
MBS are guaranteed by GNMA and Fannie Mae and HUD insures the mortgage
loan underlying the GNMA MBS and the FHA mortgage loan. The borrower
usually cannot prepay the insured mortgage during the first five years but
may prepay it thereafter subject to a 9% prepayment penalty in years six
through nine, a 1% prepayment penalty in year ten and no prepayment
penalty thereafter. The Trust may receive income related to its
participation interests in the underlying property, however, these amounts
are neither insured nor guaranteed.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, continued
Generally, the participation features consist of the following: (i)
"Minimum Additional Interest" at rates ranging from .5% to .75% per annum
calculated on the unpaid principal balance of the Insured Mortgage on the
underlying property, (ii) "Shared Income Interest" ranging from 25% to 30%
of the monthly gross rental income generated by the underlying property in
excess of a specified base, but only to the extent that it exceeds the
amount of Minimum Additional Interest received during such month, and
(iii) "Shared Appreciation Interest" ranging from 25% to 30% of any
increase in value of the underlying property in excess of a specified
threshold.
Payment of participation interest from the operations of the property is
limited to 50% of net revenue or Surplus Cash as defined by Fannie Mae or
HUD, respectively. Payment of participation interest at the time of the
prepayment of the PIM or upon its maturity generally cannot exceed 50% of
any increase in value of the underlying property.
Shared Appreciation interest is payable when one of the following occurs:
(1) the sale of the underlying property to an unrelated third party on a
date which is later than five years from the date of the Agreement, (2)
the maturity date or accelerated maturity date of the Agreement, or (3)
prepayment of amounts due under the Agreement and the Insured Mortgage.
Under the Agreement, the Trust, upon giving twelve months written notice,
can accelerate the maturity date of the Agreement to a date not earlier
than ten years from the date of the Agreement for (a) the payment of all
participation interest due under the Agreement as of the accelerated
maturity date, or (b) the payment of all participation interest due under
the Agreement plus all amounts due on the first mortgage note on the
property.
At December 31, 2000 and 1999 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, 2000 and 1999:
Original Approximate
Loan Monthly Interest Maturity
PIM Amount Payments Rate Date Balance Outstanding at December 31,
- --- ---------------- -------------- ---------- ----------- --------------------------------------
2000 1999
---------------- ----------------
River View (GNMA) $ 9,284,877 $ 64,500 8.000% 01/15/2033 $ 8,964,717 $ 9,019,623
Mill Pond (FHA) 7,812,100 55,200 8.150% 01/01/2033 7,534,451 7,580,257
Waterford (FHA) 6,935,900 48,800 8.125% 08/01/2032 6,671,434 6,713,520
Rivergreens (FHA) 10,003,000 69,500 8.005% 04/01/2033 9,652,263 9,711,260
Lincoln Green (FNMA) 15,565,000 99,800 6.750% 10/01/2002 14,069,369 14,307,013
------------- -------------- ----------------- --------------
(a)
Total $ 49,600,877 $ 337,800 $ 46,892,234 $ 47,331,673
============= ============== ============ ============
(b)
(a) Normal monthly benefit is based on a 30-year amortization.
All unpaid principal of approximately $13,583,000 and accrued interest
is due at the maturity date.
(b) The aggregate cost for federal income tax purposes is $46,892,234.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
D. PIMs, continued
A reconciliation of activity for each of the three years in the period
ended December 31, is as follows:
2000 1999 1998
------------------ ------------------ --------------
Balance at beginning of period $ 47,331,673 $ 47,737,583 $ 48,112,523
Principal collections (439,439) (405,910) (374,940)
------------- ------------- -------------
Balance at end of period $ 46,892,234 $ 47,331,673 $ 47,737,583
Property descriptions:
- ---------------------
River View Apartments ("River View") is a 220-unit apartment complex located
in Columbia, South Carolina.
Mill Pond Apartments ("Mill Pond") is a 146-unit
apartment complex in Bellbrook, Ohio.
Waterford Townhomes Apartments ("Waterford") is a 122-unit apartment complex
in Eagen, Minnesota.
Rivergreens Apartments ("Rivergreens") is a 208-unit apartment complex in
Gladstone, Oregon.
Lincoln Green Apartments ("Lincoln Green") is a 616-unit apartment complex in
Greensboro, North Carolina.
E. MBS
---
At December 31, 2000, the Trust's MBS portfolio had an amortized cost of
$11,224,277 and gross unrealized gains and losses of $445,617 and $741,
respectively. At December 31, 2000, the Trust had a FHA insured mortgage
loan with an amortized cost of $4,867,345 and gross unrealized gains of
$200,271. At December 31, 1999, the Trust's MBS portfolio had an amortized
cost of $12,377,145 and gross unrealized gains and losses of $258,056 and
$26,740, respectively. At December 31, 1999, the Trust's FHA insured
mortgage loan had an amortized cost of $4,886,962 and gross unrealized
losses of $424. The Trust's MBS have maturities ranging from 2008 to 2035.
Unrealized
Maturity Date Fair Value Gain/(Loss)
------------- ---------------- --------------
2001 - 2005 $ - $ -
2006 - 2010 135,592 (204)
2011 - 2035 16,601,177 645,350
------------- -------------
Total $ 16,736,769 $ 645,146
============= ==============
F. Shareholders' Equity
Under the Declaration of Trust and commencing with the initial closing of
the public offering of shares, the Trust has declared and paid dividends on
a quarterly basis. During the period in which the Trust qualifies as a
REIT, the Trust has and will pay quarterly dividends aggregating at least
95% of taxable income on an annual basis to be allocated to the
shareholders in proportion to their respective number of shares.
In order for the Trust to maintain its REIT status with respect to the
requirements of Share ownership, the Declaration of Trust prohibits any
investor from owning, directly or indirectly, more than 9.8% of the
outstanding Shares and empowers the Trustees to refuse to permit any
transfer of Shares which, in their opinion, would jeopardize the status of
the Trust as a REIT.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
G. Related Party Transactions
Under the terms of the Advisory Service Agreement, the Advisor receives an
Asset Management Fee equal to .75% per annum of the value of the Trust's
actual and committed invested assets payable quarterly.
The Trust also reimburses affiliates of the Advisor for certain costs
incurred in connection with maintaining the books and records of the Trust,
the preparation and mailing of financial reports, tax information and other
communications to investors and legal fees and expenses. Included in the
general and administrative expenses are legal fees and expenses paid by the
Trust to an affiliate of $3,305, $1,285 and $4,416, for the years ended
December 31, 2000, 1999 and 1998, respectively.
During the three years ended December 31, 2000, 1999 and 1998, the Trust
received interest collections on Additional Loans with affiliates of the
Advisor of the Trust of $173,544, $225,156 and $218,841, respectively. In
addition, the Trust received $174,505 in 2000, $153,499 in 1999 and $93,457
in 1998 related to Participating Interest Income.
H. Original Shares
Upon termination of the Trust, an affiliate of the Advisor is committed to
pay to holders of Original Shares the amount (if any) by which (a) the
Shareholders' Original Investments exceed (b) all Dividends (as defined in
the prospectus) paid by the Trust with respect to such Original Shares.
Original Shares are those Shares purchased during the Trust's initial
public offering either through purchase or through the dividend
reinvestment program and held until the last mortgage held by the Trust is
repaid or disposed of.
I. Federal Income Taxes
Net income per statement of income $ 8,429,112
Less: Book to tax difference for Additional Loan
interest income (492,942)
Plus: Book to tax difference for amortization
of prepaid fees and expenses 626,804
--------------
Net income for federal income tax purposes $ 8,562,974
==============
The Trust paid dividends of $.68 per share during 2000 which represents
approximately $.56 from ordinary income and $.12 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 $8,209,000 and $7,921,000 at December
31, 2000 and 1999, respectively. The basis of the Trust's liabilities for
financial reporting purposes exceeded its tax basis by approximately
$3,550,000 and $3,918,000 at December 31, 2000 and 1999, respectively.
J. Fair Value Disclosures of Financial Instruments
The Trust uses the following methods and assumptions to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of those instruments.
Continued
KRUPP GOVERNMENT INCOME TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
J. Fair Value Disclosures of Financial Instruments, continued
-----------------------------------------------
MBS
The Trust estimates the fair value of MBS based on quoted market prices
while it estimates the fair value of insured mortgages based on quoted
prices of MBS with similar interest rates. Based on the estimated fair
value determined using these methods and assumptions the Trust's
investments in MBS had gross unrealized gains and losses of approximately
$646,000 and $1,000 at December 31, 2000 and $258,000 and $27,000 at
December 31, 1999.
PIMs and PIMIs
There is no active trading market for these investments. Accordingly,
management estimates the fair value of the PIMs and the insured mortgage
portion of the PIMIs using quoted market prices of MBS having the same
stated coupon rate as the Insured Mortgages. Additional Loans are based on
the estimated fair value of the underlying properties as an estimate of
the fair value of the loan is not practicable. Management does not include
any participation income in the Trust's estimated fair values, as
Management does not believe it can predict the time of realization of the
feature with any certainty. Based on the estimated fair value determined
using these methods and assumptions, the Trust's investments in PIMs and
PIMIs had gross unrealized gains and losses of approximately $343,000 and
$1,738,000, respectively at December 31, 2000 and gross unrealized gains
and losses of approximately $419,000 and $1,804,000, respectively at
December 31, 1999.
At December 31, 2000 and 1999, the Trust estimated the fair value of its
financial instruments as follows:
(amounts in thousands)
2000 1999
--------------------------- --------------------------
Fair Carrying Fair Carrying
Value Value Value Value
----------- ----------- ----------- ------------
Cash and cash equivalents $ 5,359 $ 5,359 $ 4,627 $ 4,627
MBS 16,737 16,536 17,495 17,495
PIMs and PIMIs:
PIMs 46,594 46,892 46,995 47,332
Insured mortgages 58,655 59,752 59,081 60,129
Additional Loans 8,351 8,351 8,351 8,351
---------- --------- ---------- ----------
$ 135,696 $ 136,890 $ 136,549 $ 137,934
========== ========= ========== ==========
KRUPP GOVERNMENT INCOME TRUST
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
beginning costs and end of
Description of period expenses Revenues period
- ----------- ------------- ---------- --------- ----------------
Additional Loan
impairment provision $2,162,618 $ - $ - $ 2,162,618
========== =========== ========== ===========
(1)
(1) The Trust recognized a valuation allowance related to the Lifestyles and
Mountain View Additional Loans.
KRUPP GOVERNMENT INCOME TRUST
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA
For the Quarter Ended
--------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 2000 2000 2000
-------------------- ----------------- ----------------- -----------------------
Total revenues $ 2,657,314 $ 2,660,457 $ 2,697,284 $ 3,061,013
================== ================ ================= =======================
Net income $ 2,027,459 $ 1,964,868 $ 1,986,007 $ 2,450,778
================== ================ ================= =======================
Earnings per Share $ .13 $ .14 $ .13 $ .16
================== ================ ================= =======================
For the Quarter Ended
----------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 1999 1999 1999
-------------------- ------------------ ------------------- ---------------------
Total revenues $ 2,972,169 $ 2,930,082 $ 7,000,373 $ 2,729,605
==================== ================== =================== =====================
Net income $ 2,305,965 $ 2,128,720 $ 5,800,454 $ 2,082,242
==================== ================== =================== =====================
Earnings per Share $ .15 $ .14 $ .39 $ .14
==================== ================== =================== =====================
(Unaudited)
(Amounts in thousands, except per Share amounts)
Year Inception
Ended Through
12/31/00 12/31/00
----------- ---------------
Distributable Cash Flow (a):
---------------------------
Net income $ 8,429 $ 133,217
Items not requiring or providing the
use of operating funds:
Provision for impaired mortgage loan - 2,163
Amortization of prepaid fees and
expenses and organization costs 1,030 15,858
Additional Loan Interest Deferred (367) 3,551
----------- ------------
Total Distributable Cash Flow ("DCF") 9,092 154,789
------------ ------------
DCF per Share based on Shares
outstanding at December 31, 2000 $ 0.60 $ 10.28 (d)
============ ===========
Dividends:
Total dividends to Shareholders $ 10,236 (b) $ 279,730 (c)
============ ============
Average dividend per Share based
on Shares outstanding at
December 31, 2000 $ 0.68 (b) $ 18.58 (c)(d)
============ ============
(a) Distributable Cash Flow consists of income before provision for
impaired mortgage loans, amortization of prepaid fees and
expenses and organization costs and includes deferred interest
on Additional Loans. The Trust believes Distributable Cash Flow
is an appropriate supplemental measure of operating performance,
however, it should not be considered as a substitute for net
income as an indication of operating performance or cash flows
as a measure of liquidity.
(b) Represents all dividends paid in 2000 except the February 2000
dividend and includes an estimate of the February 2001 dividend.
(c) Includes an estimate of the February 2001 dividend.
(d) Shareholders average per Share return of capital on a cash basis
as of February 2001 is $8.30 [$18.58 - $10.28]. Return of
capital represents that portion of the dividends which is not
funded from DCF such as principal collections received from MBS
and PIMs.