UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-20164
Krupp Government Income Trust II
Massachusetts 04-3073045
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
One Beacon Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(617) 523-0066
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
This Form 10-Q 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. When used in this Form 10-Q, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the
negative of such words) and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties, including but not limited to the following: federal, state or
local regulations; adverse changes in general economic or local conditions;
prepayments of mortgages; failure of borrowers to pay participation interests
due to poor operating results of properties underlying the mortgages; uninsured
losses and potential conflicts of interest between the Trust and its Affiliates,
including the Trustees. The Company's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the year ended December
31, 2001, contain additional information concerning such risk factors. Actual
results in the future could differ materially from those described in any
forward-looking statements as a result of the risk factors set forth above, and
the risk factors described in the Annual Report.
-2-
KRUPP GOVERNMENT INCOME TRUST II
BALANCE SHEETS
-------
ASSETS
September 30, December 31,
2002 2001
------------ ------------
Participating Insured Mortgage Investments
("PIMIs")(Note 2)
Insured mortgages $ 58,978,257 $ 85,625,185
Additional loans, net of impairment provision
of $0 and $500,000, respectively 13,654,000 17,654,500
Participating Insured Mortgages ("PIMs")(Note 2) 36,926,457 37,239,922
Mortgage-Backed Securities ("MBS")(Note 3) 12,464,001 15,600,964
------------ ------------
Total mortgage investments 122,022,715 156,120,571
Cash and cash equivalents 5,515,006 6,453,663
Interest receivable and other assets 1,057,232 1,174,106
Prepaid acquisition fees and expenses, net of
accumulated amortization of $7,033,686 and
$7,964,938, respectively 1,581,223 2,913,250
Prepaid participation servicing fees, net of
accumulated amortization of $2,176,762 and
$2,420,697, respectively 591,981 1,102,473
------------ ------------
Total assets $130,768,157 $167,764,063
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deferred income on Additional Loans (Note 2) $ -- $ 1,242,282
Other liabilities 19,676 25,985
------------ ------------
Total liabilities 19,676 1,268,267
------------ ------------
Shareholders' equity (Note 4)
Common stock, no par value; 25,000,000
Shares authorized; 18,371,477 Shares
issued and outstanding 130,272,260 166,214,677
Accumulated comprehensive income 476,221 281,119
------------ ------------
Total Shareholders' equity 130,748,481 166,495,796
------------ ------------
Total liabilities and Shareholders' equity $130,768,157 $167,764,063
============ ============
The accompanying notes are an integral
part of the financial statements.
-3-
KRUPP GOVERNMENT INCOME TRUST II
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
--------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- ----------------------------
2002 2001 2002 2001
----------- ------------ ------------ ------------
Revenues:
Interest income - PIMs and PIMIs:
Basic interest $ 1,649,343 $ 2,242,454 $ 5,279,308 $ 7,543,463
Additional Loan interest 185,511 907,038 2,684,116 1,968,997
Participation interest 611,856 9,248,722 3,285,429 11,873,054
Interest income - MBS 213,122 272,019 662,263 920,710
Interest income - cash and cash equivalents 20,919 138,024 96,557 338,914
----------- ------------ ------------ ------------
Total revenues 2,680,751 12,808,257 12,007,673 22,645,138
----------- ------------ ------------ ------------
Expenses:
Asset management fee to an affiliate 230,305 299,650 723,605 1,012,248
Expense reimbursements to affiliates 62,406 75,192 156,787 192,367
Amortization of prepaid fees and expenses 278,555 923,775 1,842,519 2,259,584
General and administrative 149,567 160,639 349,630 389,619
Reduction of provision for impaired
additional loan (Note 2) -- (562,500) (500,000) (562,500)
----------- ------------ ------------ ------------
Total expenses 720,833 896,756 2,572,541 3,291,318
----------- ------------ ------------ ------------
Net income 1,959,918 11,911,501 9,435,132 19,353,820
Other comprehensive income:
Net change in unrealized gain on MBS 87,736 323,641 195,102 372,825
----------- ------------ ------------ ------------
Total comprehensive income $ 2,047,654 $ 12,235,142 $ 9,630,234 $ 19,726,645
=========== ============ ============ ============
Basic earnings per share $ .10 $ .64 $ .51 $ 1.05
=========== ============ ============ ============
Weighted average Shares outstanding 18,371,477 18,371,477
=========== ============
The accompanying notes are an integral
part of the financial statements.
-4-
KRUPP GOVERNMENT INCOME TRUST II
STATEMENTS OF CASH FLOWS
--------
For the Nine Months
Ended September 30,
----------------------------
2002 2001
------------ ------------
Operating activities:
Net income $ 9,435,132 $ 19,353,820
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of net premium 59,824 61,243
Amortization of prepaid fees and expenses 1,842,519 2,259,584
Reduction of provision for impaired additional loan (500,000) (562,500)
Changes in assets and liabilities:
Decrease in interest receivable and other assets 116,874 531,302
Decrease in deferred income on Additional Loans (1,242,282) (1,261,322)
Increase (decrease) in other liabilities (6,309) 250,136
------------ ------------
Net cash provided by operating activities 9,705,758 20,632,263
------------ ------------
Investing activities:
Principal collections on MBS 3,272,036 2,774,005
Principal collections on Additional Loans 4,500,500 6,137,851
Principal collections on PIMs and Insured Mortgages 26,960,598 35,573,502
------------ ------------
Net cash provided by investing activities 34,733,134 44,485,358
------------ ------------
Financing activity:
Dividends (45,377,549) (64,300,170)
------------ ------------
Net increase (decrease) in cash and cash equivalents (938,657) 817,451
Cash and cash equivalents, beginning of period 6,453,663 7,089,453
------------ ------------
Cash and cash equivalents, end of period $ 5,515,006 $ 7,906,904
============ ============
Non cash activities:
Increase in Fair Value of MBS $ 195,102 $ 372,825
============ ============
The accompanying notes are an integral
part of the financial statements.
-5-
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS
--------
1. Accounting Policies
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted in this report on Form 10-Q pursuant to the Rules and Regulations
of the Securities and Exchange Commission. However, in the opinion of
Berkshire Mortgage Advisors Limited Partnership (the "Advisor"), which is
the advisor to Krupp Government Income Trust II (the "Trust"), the
disclosures contained in this report are adequate to make the information
presented not misleading. See Notes to Financial Statements in the Trust's
Form 10-K for the year ended December 31, 2001 for additional information
relevant to significant accounting policies followed by the Trust.
In the opinion of the Advisor of the Trust, the accompanying unaudited
financial statements reflect all adjustments (consisting primarily of
normal recurring accruals) necessary to present fairly the Trust's
financial position as of September 30, 2002, the results of its operations
for the three and nine months ended September 30, 2002 and 2001 and its
cash flows for the nine months ended September 30, 2002 and 2001.
The results of operations for the three and nine months ended September
30, 2002 are not necessarily indicative of the results which may be
expected for the full year. See Management's Discussion and Analysis of
Financial Condition and Results of Operations included in this report.
2. PIMs and PIMIs
At September 30, 2002, the Trust's PIMs and PIMIs, including Additional
Loans, had a fair value of $113,675,528 and gross unrealized gains of
$4,116,814. Fair value assumes that the insured first mortgage and the
Fannie Mae MBS portion of the PIMs and PIMIs could be sold at prices equal
to the amounts being realized by MBS with similar interest rates. Fair
value includes the current carrying value of the Additional Loans. Fair
value does not include any value for the participation features. The PIMs
and PIMIs have maturities ranging from 2008 to 2036. At September 30,
2002, there were no insured mortgage loans within the Trust's portfolio
that were delinquent of principal or interest.
On March 28, 2002, the Trust received a prepayment of the Windmill Lakes
Subordinated Promissory Note and the Windmill Lakes Additional Loan. The
Trust received $2,000,000 of Additional Loan principal and $162,500 of
Additional Loan interest. The Trust recognized $562,500 of the Additional
Loan principal as Additional Loan interest. Due to the payoff, the
remaining impairment provision of $500,000 was reversed. On April 25,
2002, the Trust received $10,727,382 representing the principal proceeds
on the first mortgage note from Windmill Lakes. The Trust paid a special
dividend of $.71 per share from the proceeds of the Windmill Lakes
prepayment on May 1, 2002.
On February 13, 2002, the Trust received a prepayment of the Norumbega
Pointe Subordinated Promissory Note and the Norumbega Pointe Additional
Loan. The Trust received $3,063,000 of Additional Loan principal, $302,877
of Shared Appreciation Interest and $2,280,362 of Preferred Interest. On
February 25, 2002, the Trust received $15,123,167 representing the
principal proceeds on the first mortgage note. In addition, the Trust
recognized $1,242,282 of Additional Loan interest that had been previously
received and recorded as deferred income on the additional loan. The Trust
paid a special dividend of $1.14 per share from the proceeds of the
Norumbega Pointe prepayment on March 12, 2002.
3. MBS
At September 30, 2002, the Trust's MBS portfolio had an amortized cost of
approximately $11,987,780 and gross unrealized gains of $476,221. The MBS
portfolio has maturities ranging from 2008 to 2031.
Continued
-6-
KRUPP GOVERNMENT INCOME TRUST II
NOTES TO FINANCIAL STATEMENTS, Continued
--------
4. Changes in Shareholder's Equity
A summary of changes in Shareholders' equity for the nine months ended
September 30, 2002 is as follows:
Accumulated Total
Common Retained Comprehensive Shareholders'
Stock Earnings Income Equity
------------- ----------- -------- -------------
Balance at December 31, 2001 $ 166,214,677 $ -- $281,119 $ 166,495,796
Net income -- 9,541,999 -- 9,541,999
Dividends (35,942,417) (9,541,999) -- (45,377,549)
Change in unrealized gain on MBS -- -- 195,102 195,102
------------- ----------- -------- -------------
Balance at September 30, 2002 $ 130,272,260 $ -- $476,221 $ 130,855,348
============= =========== ======== =============
5. Related Party Transactions
The Trust received $176,908 of Additional Loan Interest during the three
months ended September 30, 2001 from an affiliate of the Advisor. The
Trust also received participation interest of $8,650,706 from an affiliate
of the Advisor during the three months ended September 30, 2001.
The Trust received $398,549 of Additional Loan Interest from an affiliate
of the Advisor during the nine months ended September 30, 2001. The Trust
also received participation interest of $8,780,579 from an affiliate of
the Advisor during the nine months ended September 30, 2001.
-7-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and accompanying notes contained in the Trust's 2001 Annual
Report on Form 10-K and in this Form 10-Q.
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this Form 10-Q constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995. These forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the Trust's actual results, performance or achievements to be materially
different from any future results, performance or achievements expressed or
implied by these forward-looking statements. These factors include, among other
things, federal, state or local regulations; adverse changes in general economic
or local conditions; the inability of the borrower to meet financial obligations
on additional loans; pre-payments of mortgages; failure of borrowers to pay
participation interests due to poor operating results at properties underlying
the mortgages; uninsured losses and potential conflicts of interest between the
Trust and its Affiliates, including the Advisor.
Liquidity and Capital Resources
At September 30, 2002, the Trust had liquidity consisting of cash and cash
equivalents of approximately $5.5 million, as well as the cash inflows provided
by PIMs, PIMIs, MBS and 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 demands on the Trust's liquidity are 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 and cash and
cash equivalents net of operating expenses, the principal collections received
on PIMs, PIMIs and MBS and cash reserves. 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 $.14 per Share per quarter. The Trustees, based on the
Advisor's recommendations, generally set a dividend rate that provides for level
quarterly distributions. To the extent quarterly dividends do not fully utilize
the cash available for distribution and cash balances increase, the Trustees may
adjust the dividend rate or distribute such funds through a special dividend.
In addition to providing guaranteed or insured monthly principal and interest
payments from the insured first mortgage or Fannie Mae MBS portion of a PIM or
PIMI, the Trust's investments in the PIMs and PIMIs also may provide additional
income through the interest on the Additional Loan portion of the PIMIs as well
as participation interest based on operating cash flow and increase in the value
realized upon the sale or refinance of the underlying properties. However, these
payments and collection of the Additional Loan principal are neither guaranteed
nor insured and depend on the successful operations of the underlying
properties.
Through the nine months ended September 30, 2002, the Trust had received both
installments of Additional Loan interest due in 2002 from two of the PIMI
investments, but only the first installment on the three remaining PIMIs.
However, the second installment for the other three PIMIs were accrued in
Additional Loan interest and were received in October.
The Trust received participation interest based on cash flow generated by
property operations from three of its investments during the nine months ended
September 30, 2002. Mequon Trails paid $90,334, Martins Landing paid $195,465
and the Lakes paid $416,391. In addition, the Trust received and recognized
participation interest related to the Norumbega Pointe payoff (see below).
On March 28, 2002, the Trust received a prepayment of the Windmill Lakes
Subordinated Promissory Note and the Windmill Lakes Additional Loan. The Trust
received $2,000,000 of Additional Loan principal and $162,500 of Additional Loan
interest. The Trust recognized $562,500 of the Additional Loan principal as
Additional Loan interest.
-8-
Due to the payoff, the remaining impairment provision of $500,000 was reversed.
On April 25, 2002, the Trust received $10,727,382 representing the principal
proceeds on the first mortgage note from Windmill Lakes. The Trust paid a
special dividend of $.71 per share from the proceeds of the Windmill Lakes
prepayment on May 1, 2002.
On February 13, 2002, the Trust received a prepayment of the Norumbega Pointe
Subordinated Promissory Note and the Norumbega Pointe Additional Loan. The Trust
received $3,063,000 of Additional Loan principal, $302,877 of Shared
Appreciation Interest and $2,280,362 of Preferred Interest. On February 25,
2002, the Trust received $15,123,167 representing the principal proceeds on the
first mortgage note. In addition, the Trust recognized $1,242,282 of Additional
Loan interest that had been previously received and recorded as deferred income
on the additional loan. The Trust paid a special dividend of $1.14 per share
from the proceeds of the Norumbega Pointe prepayment on March 12, 2002.
During the third quarter of 2002, the borrower on the Mequon Trails PIM notified
the Advisor of its intention to refinance the property. This transaction would
require a payoff of the insured mortgage as well as all other amounts due to the
Trust under the PIM loan documents. An independent appraisal firm has been
contracted to appraise the property's value to determine whether there has been
a sufficient increase in value for the Trust to earn any participation interest.
Currently, the borrower's expectation is that the transaction will occur prior
to December 31, 2002.
The Advisor was also notified during the third quarter that the borrower on the
Sunset Summit PIMI intends to payoff both the insured mortgage and the
Additional Loan in the fourth quarter. In addition, the Advisor was notified
that the borrower on the Oasis at Springtree PIMI intends to payoff the
Additional Loan in the first quarter 2003.
There are contractual restrictions on the prepayment of the PIMs and PIMIs.
During the first five years of the investment, borrowers are generally
prohibited from repayment. During the second five years, the PIM borrowers can
prepay the insured mortgage by paying the greater of a prepayment premium or the
participation interest due at the time of the prepayment. Similarly, the PIMI
borrowers can prepay the insured mortgage and the Additional Loan by satisfying
the Preferred Return obligation. The participation features and the 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 generally would not receive any participation interest or any amounts
due under the Additional Loan.
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. If the call feature is exercised, then the insurance feature of the
loan would be cancelled. Therefore, 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.
Critical Accounting Policies
The Trust's critical accounting policies relate primarily to revenue recognition
related to the participation features of the Trust's PIM and PIMI investments as
well as the recognition of deferred interest income on Additional Loans. The
Trust's policies are as follows:
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 Fannie Mae MBS. The Trust recognizes interest
related to the participation features when the amount becomes fixed and the
transaction that gives rise to such amount is consummated. Consummation of a
transaction could be the sale or refinancing of the underlying real estate which
results in a cash payment to the Trust or a cash payment made to the Trust from
Surplus Cash relative to the participation feature.
The Trust defers the recognition of Additional Loan interest payments as income
to the extent these interest payments were from escrows established with the
proceeds of the Additional Loan. When the properties underlying the PIMI's
generate sufficient cash flow to make the required Additional Loan interest
payments and the Additional Loan value is deemed collectible, 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.
-9-
Results of Operations
The Trust's net income decreased in the three months ended September 30, 2002 as
compared to September 30, 2001 primarily due to decreases in basic interest on
PIMs and PIMIs, Additional Loan interest, participation interest, cash and cash
equivalents and an increase in the provision for impaired mortgage loans. These
were partially offset by a decrease in amortization expense. Basic interest on
PIMs and PIMIs and Additional Loan interest decreased due to the Norumbega
Pointe and Windmill Lakes payoffs in 2002 and the payoff of the Seasons PIMI in
July 2001. Participation interest decreased in the three months ended September
30, 2002 as compared to the same period last year primarily due to the payoff of
the Seasons PIMI in July 2001. Interest from cash and cash equivalents decreased
due to lower average balances available for short-term investing and lower
interest rates earned on those balances. The provision for impaired mortgage
increased due to a reduction of the impairment provision for the Windmill Lakes
PIMI recorded in the third quarter of 2001. Amortization expense was greater
during the three months ended September 30, 2001 as compared to September 30,
2002 as a result of the full amortization of the remaining prepaid fees and
expenses on the PIMI prepayments in 2001.
The Trust's net income decreased during the nine months ended September 30, 2002
as compared to September 30, 2001 primarily due to decreases in basic interest
on PIMs and PIMIs and participation interest. These decreases were partially
offset by an increase in Additional Loan interest. Basic interest on PIMs and
PIMIs decreased due to the Norumbega Pointe and Windmill Lakes payoffs in 2002
and the payoff of the Hunters Pointe PIMI in March 2001 and the Seasons PIMI in
July 2001. Participation interest decreased in the nine months ended September
30, 2002 as compared to the same period last year primarily due to the
participation interest collected from the Seasons and Hunters Pointe payoffs in
2001 being greater than the participation interest collected from the Norumbega
payoff in 2002. Additional Loan interest increased primarily due to the
recognition of deferred income from the Norumbega Pointe payoff and base
interest recognized from the Windmill Lakes payoff.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Assessment of Credit Risk
The Trust's investments in insured mortgages and MBS are guaranteed and/or
insured by Fannie Mae, the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ("GNMA") or HUD, and therefore, the
certainty of their cash flows and the risk of a material loss of the amounts
invested depends upon the creditworthiness of these entities.
Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. However, obligations of Fannie Mae
are not backed by the U.S. Government. FHLMC is a federally chartered
corporation that guarantees obligations originated under its programs. These
obligations are not guaranteed by the U.S. Government or the Federal Home Loan
Bank Board. However, Fannie Mae and FHLMC are two of the largest corporations in
the United States with significant experience in mortgage securitizations. In
addition, their MBS instruments carry the highest credit rating given to
financial instruments. Also, the Secretary of the Treasury of the United States
has discretionary authority to lend up the $2.25 billion to Fannie Mae at any
time. GNMA guarantees the full and timely payment of principal and basic
interest on the securities it issues, which represent interests 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.
Collection of the principal and interest of the Additional Loans and interest on
the participation features 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 affected by adverse changes in general economic conditions, local
conditions and changes in governmental regulations, real estate zoning laws, or
tax laws; and other circumstances over which the Trust may have little or no
control.
The Trust includes in cash and cash equivalents approximately $4.6 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.
-10-
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 September 30,
2002, the Trust's PIMs, PIMIs and MBS comprise the majority of the Trust's
assets. 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 PIM and PIMI investments
to expected maturity while it is expected that substantially all of the MBS will
prepay over the same time period thereby mitigating any potential interest rate
risk to the disposition value of any remaining MBS.
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 are scheduled to
mature.
Item 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Within the 90 days prior to the date of this Quarterly Report on Form 10-Q, the
Chairman of the Board and Chief Accounting Officer carried out an evaluation of
the effectiveness of the design and operation of the Trust's disclosure controls
and procedures. Based upon that evaluation, the Chairman of the Board and the
Chief Accounting Officer concluded that the Trust's disclosure controls and
procedures were effective as of the date of their evaluation in timely alerting
them to material information relating to the Trust required to be included in
this Quarterly Report on Form 10-Q.
(b) Changes in Internal Controls
There were no significant changes in the Trust's internal controls or in other
factors that could significantly affect such internal controls subsequent to the
date of the evaluation described in paragraph (a) above.
-11-
KRUPP GOVERNMENT INCOME TRUST II
PART II - OTHER INFORMATION
-------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(99.1) Chairman of the Board Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(99.2) Chief Accounting Officer Certification pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
-12-
SIGNATURE
Pursuant to the requirements 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.
Krupp Government Income Trust II
(Registrant)
BY: /s/ Robert A. Barrows
-------------------------------------
Robert A. Barrows
Treasurer and Chief Accounting Officer of
Krupp Government Income Trust II.
DATE: November 11, 2002
-13-
Certifications
I, Douglas Krupp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp
Government Income Trust II;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/ Douglas Krupp
-----------------
Douglas Krupp
Chairman of the Board
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Certifications
I, Robert A. Barrows, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Krupp
Government Income Trust II;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 11, 2002
/s/ Robert A. Barrows
---------------------
Robert A. Barrows
Chief Accounting Officer
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