-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RvFoZX/YGZtOsWNN6ZjRvJSx7ngO9Ele4suTwf7o0Co/j1lstm4uUwj7i5yCG3T5 VqEmDsiD+eR2l02oDVvjog== 0000805297-97-000010.txt : 19970513 0000805297-97-000010.hdr.sgml : 19970513 ACCESSION NUMBER: 0000805297-97-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP GOVERNMENT INCOME TRUST-II CENTRAL INDEX KEY: 0000872467 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043073045 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20164 FILM NUMBER: 97600998 BUSINESS ADDRESS: STREET 1: 470 ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6174232233 MAIL ADDRESS: STREET 1: 470 STREET 2: ATLANTIC AVE CITY: BOSTON STATE: MA ZIP: 02210 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THEx SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 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.) 470 Atlantic Avenue, Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) (617) 423-2233 (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 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. 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. KRUPP GOVERNMENT INCOME TRUST II BALANCE SHEETS
ASSETS March 31, December 31, 1997 1996 Participating Insured Mortgage Investments ("PIMIs")(Note 2): Insured mortgages $150,117,411 $150,454,030 Additional loan 29,952,351 29,952,351 Participating Insured Mortgages ("PIMs") (Note 2) 49,529,348 49,622,337 Mortgage-Backed Securities ("MBS") (Note 3) 38,227,100 40,581,650 Total mortgage investments 267,826,210 270,610,368 Cash and cash equivalents 10,365,473 9,214,592 Prepaid acquisition fees and expenses, net of accumulated amortization of $4,912,429 and $4,510,838, respectively 11,571,213 11,972,804 Prepaid participation servicing fees, net of accumulated amortization of $1,393,439 and $1,260,283, respectively 4,101,108 4,234,264 Interest receivable and other assets 1,644,180 2,264,687 Total assets $295,508,184 $298,296,715 LIABILITIES AND SHAREHOLDERS' EQUITY Deferred income on Additional Loans (Note 5) $ 1,656,546 $ 1,582,054 Other liabilities 6,287 27,085 Total liabilities 1,662,833 1,609,139 Commitments (Note 2) Shareholders' equity (Note 4): Common stock, no par value; 25,000,000 Shares authorized; 18,371,477 Shares issued and outstanding 294,836,757 296,565,241 Unrealized (loss) gain on MBS (991,406) 122,335 Total Shareholders' equity 293,845,351 296,687,576 Total liabilities and Shareholders' equity $295,508,184 $298,296,715
The accompanying notes are an integral part of the financial statements. KRUPP GOVERNMENT INCOME TRUST II STATEMENTS OF INCOME
For the Three Months Ended March 31, 1997 1996 Revenue: Interest income - PIMs and PIMIs: Base interest $3,354,091 $3,494,617 Additional loan interest 611,468 380,495 Participation interest 491,525 379,237 Interest income - MBS 729,182 833,100 Interest income - other 120,712 146,941 Total revenue 5,306,978 5,234,390 Expenses: Asset management fee to an affiliate 504,443 517,116 Expense reimbursements to affiliates 120,910 122,478 Amortization of prepaid fees and expenses, and organization costs 534,747 515,944 General and administrative 134,262 103,849 Total expenses 1,294,362 1,259,387 Net income $4,012,616 $3,975,003 Earnings per Share $ .22 $ .22 Weighted average Shares outstanding 18,371,477 18,371,477
The accompanying notes are an integral part of the financial statements. KRUPP GOVERNMENT INCOME TRUST II STATEMENTS OF CASH FLOWS
For The Three Months Ended March 31, 1997 1996 Operating activities: Net income $4,012,616 $ 3,975,003 Adjustments to reconcile net income to net cash provided by operating activities: Premium amortization 23,329 41,866 Amortization of prepaid fees and expenses and organization costs 534,747 515,944 Changes in assets and liabilities: Decrease in interest receivable and other assets 620,507 236,465 Decrease in other liabilities (20,798) (12,192) Net cash provided by operating activities 5,170,401 4,757,086 Investing activities: Investment in PIMs and insured mortgages - (1,850,779) Principal collections on MBS 1,217,480 1,875,266 Principal collections on PIMs 429,608 381,744 Increase in deferred income on Additional Loans 74,492 277,716 Net cash provided by investing activities 1,721,580 683,947 Financing activity: Dividends (5,741,100) (5,741,101) Net increase(decrease) in cash and cash equivalents 1,150,881 (300,068) Cash and cash equivalents, beginning of period 9,214,592 11,675,494 Cash and cash equivalents, end of period $10,365,473 $11,375,426
The accompanying notes are an integral part of the financial statements. 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 generally accepted accounting principles 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"), 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, 1996 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 March 31, 1997 and the results of its operations and its cash flows for the three months ended March 31, 1997 and 1996. The results of operations for the three months ended March 31, 1997 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 March 31, 1997, the Trust has commitments to fund approximately $1,006,000 on its closed PIMs and PIMIs. These commitments will be funded by cash on hand and future principal collections from the MBS, PIMs and PIMIs. At March 31, 1997, the Partnership s PIMs and PIMIs have a fair value of approximately $219,287,576 and gross unrealized losses of approximately $10,311,534. The PIMs and PIMIs have maturities ranging from 2008 to 2036. 3. MBS At March 31, 1997, the Trust's MBS portfolio has an amortized cost of approximately $39,218,506 and gross unrealized gains and losses of approximately $92,576 and $1,083,982. The MBS portfolio has maturities ranging from 2008 to 2023. Continued 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 three months ended March 31, 1997 is as follows:
Total Common Retained Unrealized Shareholders' Stock Earnings Gain(Loss) Equity Balance at December 31, 1996 $296,565,241 $ - $ 122,335 $296,687,576 Net income - 4,012,616 - 4,012,616 Dividends (1,728,484) (4,012,616) - (5,741,100) Decrease in unrealized gain on MBS - - (1,113,741) (1,113,741) Balance at March 31, 1997 $294,836,757 $ - $ (991,406) $293,845,351
5. Related Party Transactions During the three months ended March 31, 1997 and 1996, the Trust received $198,261 and $147,761, respectively, of interest on an Additional Loan with affiliates of the Advisor. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning Management s expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources At March 31, 1997 the Trust has significant liquidity consisting of cash and cash equivalents, of approximately $10 million as well as the cash inflows provided by PIMs, PIMIs, MBS, cash and cash equivalents. The Trust may also receive additional cash flow from the participation features of its PIMs and PIMIs. The Trust anticipates that these sources will be adequate to provide the Trust with sufficient liquidity to meet its obligations, including providing dividends to its investors. The most significant demand on the Trust's liquidity are quarterly dividends paid to investors of approximately $5.7 million. Funds for dividends come from interest income received on PIMs, PIMIs, MBS and cash and cash equivalents net of operating expenses, and the principal collections received on PIMs, PIMIs and MBS. The portion of dividends funded from principal collections reduces the capital resources of the Trust. As the capital resources of the Trust decrease, the total cash flows to the Trust will also decrease which may result in periodic adjustments to the dividends paid to the investors. In addition to funding its quarterly dividends paid to investors the Trust has a remaining commitment of approximately $1.0 million on a PIM in the construction phase. The Trust has sufficient cash reserves to fund this commitment. The Advisor of the Trust periodically reviews the dividend rate to determine whether an adjustment to the dividend rate is necessary based on projected future cash flows. Based on current projections, the Advisor believes the Trust can maintain the current dividend rate for the foreseeable future. In general, the Advisor tries to set a dividend rate that provides for level quarterly distributions. To the extent quarterly dividends do not fully utilize the cash available for distribution and cash balances increase, the Advisor may reinvest the available proceeds, adjust the dividend rate or distribute such funds through a special distribution. For the first five years of the PIMs and PIMIs the borrowers are prohibited from prepaying. For the second five years, the borrowers can prepay the loans incurring a prepayment penalty for PIMs or paying all amounts due under the PIMIs and satisfying the required preferred return. The Trust has the option of calling certain PIMs and all the PIMIs by accelerating their maturity if the loans are not prepaid by the tenth year after permanent funding. The Trust will determine the merits of exercising the call option for each PIM or PIMI as economic conditions warrant. Such factors as the condition of the asset, local market conditions, interest rates and available financing will have an impact on this decision. Assessment of Credit Risk The Trust's investments in mortgages are guaranteed or insured by the Federal National Mortgage Association ( FNMA ), the Federal Home Loan Mortgage Corporation ( FHLMC ) and the United States Department of Housing and Urban Development ( HUD ) and therefore the certainty of their cash flows and the risk of material loss of the amounts invested depends on the creditworthiness of these entities. FNMA is a federally chartered private corporation that guarantees obligations originated under its programs. FNMA is one of the largest corporations in the United States and the Secretary of the Treasury of the United States has discretionary authority to lend up to $2.25 billion to FNMA at any time. However, obligations of FNMA are not backed by the U.S. Government. FHLMC is a federally chartered corporation that guarantees obligations originated under its programs and is wholly-owned by the twelve Federal Home Loan Banks. These obligations are not guaranteed by the U.S. Government or the Federal Home Loan Bank Board. HUD, an agency of the U.S. Government, insures the obligations originated under its programs which are backed by the full faith and credit of the U.S. Government. The Trust's Additional Loans have similar risks as those associated with conventional real estate lending, including: reliance on the owner's operating skills and ability to maintain occupancy levels, control operating expenses, maintain properties and obtain adequate insurance coverage;adverse changes in general economic conditions, adverse local conditions,and changes in governmental regulations, real estate zoning laws, or tax laws; and other circumstances over which the Trust may have little or no control. The Trust includes in cash and cash equivalents approximately $2 million of commercial paper, which is issued by entities with a credit rating equal to one of the top two rating categories of a nationally recognized statistical rating organization. Operations The following discussion relates to the operations of the Trust during the three ended March 31, 1997 and 1996. (Amounts in thousands, except per Share amounts):
Three Months Ended March 31, 1997 1996 Per Per Amount Share Amount Share Interest income on PIMs and PIMIs: $3,354 $.18 $3,495 $.19 Base interest Additional loan interest received including amounts deferred 611 .03 380 .02 Participation interest 492 .03 379 .02 Interest income on MBS 729 .04 833 .05 Interest income - other 121 .01 147 .01 Trust expenses (759) (.05) (743) (.04) Amortization of prepaid fees and expenses and organization costs (535) (.02) (516) (.03) Net income $4,013 $.22 $3,975 $.22 Weight Average Shares Outstanding 18,371,477 18,371,477
The Trust s net income increased slightly during the first quarter of 1997 as compared to the first quarter of 1996 due to increases in additional loan interest and participation interest of $232,000 and $113,000, respectively. This was offset by decreases in base interest , MBS interest and other interest of $141,000, $104,000 and $26,000 respectively. As principal collections reduce the Trust s investments in MBS, PIMS and PIMI s, interest income on MBS and base interest income on PIMS and PIMI s will decline. The Trust funds a portion of dividends with principal collections which will continue to reduce the asset base generating income for the Trust in the future. KRUPP GOVERNMENT INCOME TRUST II PART II - OTHER INFORMATION Item 1. Legal Proceedings Response: None Item 2. Changes in Securities Response: None Item 3. Defaults upon Senior Securities Response: None Item 4. Submission of Matters to a Vote of Security Holders Response: None Item 5. Other Information Response: None Item 6. Exhibits and Reports on Form 8-K Response: None 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: April 23, 1997 EX-27 2
5 The schedule contains summary financial information extracted from the balance sheet and statement of income and is qualified in its entirety by reference to such financial statements. 0000872467 KRUPP GOVERNMENT INCOME TRUST-II 3-MOS DEC-31-1997 MAR-31-1997 10,365,473 267,826,210 1,644,180 0 0 15,672,321 0 0 295,508,184 1,662,833 0 0 0 294,836,757 (991,406) 295,508,184 0 5,306,978 0 0 1,294,362 0 0 4,012,616 0 4,012,616 0 0 0 3,084,916 .22 .22 Includes Participating Insured Mortgage Investments ("PIMIs") (insured mortgages of $150,117,411 and Additional Loans of $29,952,351), Partcipating Insured Mortgages ("PIM's") of $49,529,348 and Mortgage-Backed Securities ("MBS") of $38,227,100. Includes prepaid acquisition fees and expenses of $16,483,642 net of accumulated amortization of $4,912,429 and prepaid participating servicing of $5,494,547 net of accumulated amortization of $1,393,439. Includes deferred income on Additional Loans of $1,656,456. Unrealized loss on MBS. Represents interest income on investments in mortgages and cash. Includes $534,747 of amortization for prepaid fees and expenses.
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