10-K 1 git2.htm KRUPP GOVERNMENT INCOME TRUST 2 GIT 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2001

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
(State or other jurisdiction of incorporation or organization)

04-3073045
(IRS employer identification no.)

One Beacon Street, Boston, Massachusetts
(Address of principal executive offices)

02108
(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
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 13-17



                                     PART I

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.

ITEM 1.  BUSINESS
------

Krupp Government Income Trust II (the "Trust") is a Massachusetts business trust
which was formed on February 8, 1991 and is authorized to sell up to 25,000,000
shares of beneficial interest (the "Shares"). Berkshire Realty Advisors Limited
Partnership acquired 10,000 of such Shares and 18,315,158 Shares were sold under
the Trust's public offering for $365,686,058 net of purchase volume discounts of
$617,102. On December 29, 1994, Berkshire Mortgage Advisors Limited Partnership
acquired Berkshire Realty Advisors Limited Partnership's 10,000 shares and
assumed the role of the Advisor to the Trust. Under the Dividend Reinvestment
Plan ("DRP"), 46,319 Shares were sold for $880,061 (the remaining 6,628,523
Shares are available for general Trust purposes). The Trust has utilized the net
proceeds from the public offering to acquire participating insured mortgages
("PIMs"), participating insured mortgage investments ("PIMIs") and
mortgage-backed securities ("MBS"). The Trust considers itself to be engaged in
only one industry segment, investment in mortgages.

The Trust has elected to be treated as a real estate investment trust ("REIT"),
under the Internal Revenue Code of 1986, as amended. The Trust shall terminate
on December 31, 2030, unless earlier terminated by the affirmative vote of
holders of a majority of the outstanding shares entitled to vote thereon. See
Note A of Notes to Financial Statements included in Appendix A of this report
for additional information.

The Trust's investments in PIMs on multi-family residential properties consist
of (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 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 the 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 Fannie Mae 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 Fannie Mae 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 under or
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"), but are neither insured
nor guaranteed. Additional Loans associated with Fannie Mae insured mortgages
are collateralized by a subordinated mortgage on the underlying property but are
neither insured nor guaranteed. In addition, the participation features related
to the participating mortgage are neither insured nor guaranteed. Under the
Additional Loans, the Trust receives semi-annual interest payments and may
provide additional interest in the future while the participating mortgage
provides the Trust participation in the net income and residual value, if any,
of the underlying property.

The Trust also has investments in MBS collateralized by single-family and
multi-family mortgage loans issued or originated by Fannie Mae, the Government
National Mortgage Association ("GNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). Fannie Mae, GNMA and FHLMC guarantee the principal and
interest of the Fannie Mae, GNMA and FHLMC MBS, respectively.

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, 2030, the value of
the PIMIs and PIMs may be realized by the Trust through repayment or sale as
early as ten years from the dates of the closings of the permanent loans, and
the Trust may realize the value of all of its other investments within that time
frame thereby resulting in a dissolution of the Trust significantly prior to
December 31, 2030.



The 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
of its investments in order to pay the applicable tax. Moreover, should the
Trust's election to be taxed as a REIT be terminated or voluntarily revoked, the
Trust may not be able to elect to be treated as a REIT for the following
five-year period.

As of December 31, 2001, there were no personnel directly employed by the Trust.

ITEM 2.  PROPERTIES
------

None.

ITEM 3.  LEGAL PROCEEDINGS
------

There are no material pending legal proceedings to which the Trust, any
director, officer or affiliate of the Trust is a party or to which would have a
material effect on the Trust and there are no material pending legal proceedings
which any of its investments are subject to.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------

None.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
------

Currently there is no established public trading market for the Shares.

The number of investors holding Shares as of December 31, 2001 was approximately
13,200.

The Trust has and intends to continue to declare and pay dividends on a
quarterly basis. The Trustees established a dividend rate per Share per quarter
of $.24 for 2000 and 2001. The Trustees expect to maintain that rate through May
2002.







ITEM 6.  SELECTED FINANCIAL DATA
------

The following table sets forth selected financial information regarding the
Trust's financial position and operating results. This information should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and
Supplementary Data, which are included in Item 7 and Item 8, Appendix A of this
report, respectively.

                                   (Amounts in thousands, except for per Share amounts)

                                      2001        2000        1999       1998         1997
                                      ----        ----        ----       ----         ----

Total revenues                    $    25,330  $  16,978   $  19,613  $  21,630    $  21,291

Net income                        $    22,141  $  13,625   $  14,974  $  13,183    $  16,263

Net income per Share              $      1.21  $     .74   $     .82  $     .72    $     .89

Weighted average Shares
 outstanding                           18,371     18,371      18,371     18,371       18,371

Total assets at December 31       $   167,764  $ 215,521   $ 231,209  $ 267,410    $ 293,158

Average dividends per Share       $      3.74  $    1.62   $    2.73  $    2.12    $    1.25


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
------

Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report on Form 10-K
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 December 31, 2001 the Trust had liquidity consisting of cash and cash
equivalents, of approximately $6.5 million as well as the cash inflows provided
by PIMs, PIMIs, MBS, cash and cash equivalents. The Trust may also receive
additional cash flow from the participation features of its PIMs and PIMIs. The
Trust anticipates that these sources will be adequate to provide the Trust with
sufficient liquidity to meet its obligations, including providing dividends to
its investors.

The most significant demand on the Trust's liquidity is quarterly dividends,
paid to investors of approximately $4.4 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, 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 $.24 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, 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 are neither guaranteed nor insured and
depend on the successful operations of the underlying properties.

The Trust received participation interest based on cash flow generated by
property operations from four of its investments during the twelve months ended
December 31, 2001. Sunset Summit paid $113,253, Martin's Landing paid $217,585,
the Lakes paid $380,431 and the Seasons paid $129,872. In addition, the Trust
received and recognized participation interest related to the payoffs of the
Seasons and Hunters Pointe PIMIs. During 2000, property operations at Oasis
improved enough that the Trust was able to reverse its allowance for loan loss
of $994,000 on this property.

Windmill Lakes is a twelve-year old, basic apartment community that has not been
able to compete against the influx of new apartment communities that have
extensive amenity packages. Builders use deep marketing concessions to fill the
new properties, lowering the cost of renting a new apartment and making it more
difficult for older properties like Windmill Lakes to attract residents. During
the fourth quarter of 2000, occupancy was in the 70% range. The property's curb
appeal, a critical element in a competitive market, has suffered as well because
there has not been enough cash flow for adequate maintenance. The borrower on
the Windmill Lakes PIMI has been unable to secure a purchaser for the property
at a price high enough to cover all of the ownership entity's outstanding
liabilities and has decided to sell the apartments off as condominiums.
Converting a multifamily property to condominium ownership is often a long
process that requires resources and expertise in marketing, financing, legal
matters and construction. Local and state agencies regulate the conversion of
existing housing into condominium ownership, and there are various compliance
regulations governing the process as well. On July 25, 2001, the borrower
finalized an agreement with the Trust which will allow for the release of the
participation features on the PIMI in the event that the first mortgage, the
additional loan and any accrued but unpaid base interest on the Additional Loan
are paid in full by September 1, 2002. In addition, the Trust required the owner
to pay current and outstanding Additional Loan base interest as of March 1, 2001
of $512,500. In the event that the required payments are not received, the
participation features will remain in force. As a result of the performance of
the property, the Trust had initially established a valuation allowance of
$2,000,000 on the Additional Loan in 1998. The Trust has reflected the $512,500
received plus $50,000 previously received as a reduction in the principal
balance of the Additional Loan and related impairment provision. Additionally,
based upon improved market conditions and property operations, the Trust has
further reduced the impairment provision by $937,500 to $500,000 in the fourth
quarter of 2001.

Whether the operating performance of 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
minimal 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 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 income or any amounts
due under the Additional Loan.

On February 13, 2002, the Trust received a prepayment of the Norumbega
Subordinated Promissory Note and the Norumbega Pointe Additional Loan note. The
Trust received $3,063,000 of Additional Loan principal, $302,877 of Shared
Appreciation Interest and $2,280,362 of preferred interest. The Trust received
$15,123,167 representing the principal proceeds on the first mortgage note on
February 25, 2002. The Trust intends to pay a special dividend of $1.14 per
share from the proceeds of the Norumbega Pointe prepayment in the first quarter
of 2002.

On July 23, 2001, the Trust received a prepayment of the Seasons Subordinated
Promissory Note and the Seasons Additional Loan. The Trust received $4,925,351
of the Additional Loan principal, $462,983 of surplus cash, $2,168,701 of
preferred interest, $2,693,326 of contingent interest, $176,908 of unpaid Base
Interest on Additional Loan and $3,325,696 which represents the Trust's portion
of the residual split. The Trust received $21,926,006 representing the principal
proceeds on the first mortgage note on July 26, 2001. In addition, the Trust
recognized $624,023 of Additional Loan interest that had been previously
received and recorded in deferred income on additional loans. The Advisor paid a
special dividend of $1.95 per share on August 17, 2001 from the proceeds of the
Seasons PIMI prepayment.



The payoff of the Seasons PIMI was a result of the sale of the underlying
property by the borrower, Maryland Associates Limited Partnership ("MALP"),
which is an affiliate of the Adviser, to an affiliate of MALP's general partner.
Because the sale of the underlying property was to an affiliate, the Independent
Trustees of the Trust were required to approve the transaction, which they did
based upon a number of factors, including an appraisal of the underlying
property prepared by an independent third party MAI appraiser. The purchase
price paid by the affiliate for the underlying property was $1.6 million greater
than the value indicated by such appraisal.

In November 1999, the Trust notified the borrower on the Falls at Hunters Pointe
PIMI that he was in default for non-payment of participating interest due to the
Trust based on 1997 and 1998 operating results. The borrower failed to cure the
default. Consequently, the Trust elected to use a portion of the borrower's
funds held in escrow to cure the 1997 portion of the default. The Borrower
remained in default for 1998 and 1999 operating results. The Trust filed a
complaint against the partners of the borrowing entity to collect the delinquent
participation interest related to 1998 and 1999 operations along with late
payment penalties and legal fees. In response to this action, the borrower on
the PIMI put the property up for sale. During the first quarter of 2001, the
Trust received a payoff of the Falls at Hunters Pointe PIMI as a result of the
sale of the property. The Trust received the outstanding balance on the insured
mortgage of $12,347,267, the outstanding balance on the Additional Loan of
$650,000, Participating Income Interest on the Additional Loan of $496,207
(including all of the delinquent amounts), Preferred Interest on the Additional
Loan of $492,543, Participating Appreciation Interest under the subordinate loan
agreement of $1,070,304 and late fees on the delinquent Participating Income
Interest of $11,021. In addition, the Trust recognized $196,710 of additional
loan interest and $311,132 of Participating Income Interest that had been
previously received and recorded in deferred income on additional loans. On
March 20, 2001, the Trust paid a special dividend of $.83 per share from the
proceeds of the Falls at Hunters Pointe PIMI payoff.

In addition to the amounts received from the payoffs of the Seasons and Hunters
Pointe PIMIs, the Trust received both installments of Additional Loan interest
due in 2001 from five of the PIMI investments. During 1999, the Advisor
determined that the borrower on the Norumbega PIMI had paid Additional Loan
interest from funds other than surplus cash, which resulted in overpayments
during the previous three years. The overpayment was credited to the borrower
when the loan was prepaid.

On December 16, 1999, the Trust received $2,832,907 from Windsor Lake;
consisting of $2,000,000 from the payoff of the Additional Loan, $40,000 of
Additional Loan interest, and $792,907 of participation interest. The payoff of
the balance on the insured mortgage, $9,172,642 was received on January 26,
2000. The Trust paid a special dividend of $.66 per Share from the prepayment
proceeds.

On October 18, 1999, the Trust received a payoff of $12,399,164 from the Estates
MBS consisting of an insured mortgage of $11,375,380 and a prepayment premium of
$1,023,784. During October 1999, the Trust paid a special dividend of $.68 per
Share from the proceeds received from the Estates MBS payoff.

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.

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 the 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. The Trust defers the
recognition of Additional Loan interest payments as income to the extent these
interest payments are from escrows established with the proceeds of the
Additional Loan. When the properties underlying the PIMIs generate sufficient
cash flow to make the required Additional Loan interest payments and the
Additional Loan value is deemed collectible, the Trust recognizes income as
earned and commences amortizing 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.

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.







ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------

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. However, obligations of Fannie Mae
are not guaranteed by the U.S. Government. Fannie Mae 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 Fannie
Mae at any time. FHLMC is a federally chartered corporation that guarantees
obligations originated under its programs and is wholly-owned by the twelve
Federal Home Loan Banks. These obligations are not guaranteed by the U.S.
Government or the Federal Home Loan Bank Board. 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. Goverment.

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 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's investments also include cash and cash equivalents of approximately
$6.2 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,
2001, 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 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 below 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)


                    2002       2003       2004       2005        2006      Thereafter    Total       Fair Value
                                                                                          Face
                                                                                         Value


Interest-sensitive assets:

MBS              $   1,821   $    1,557  $   1,334  $   1,146  $    989   $    8,254   $  15,101     $   15,601
WAIR                  7.60%       7.60%      7.60%      7.60%     7.60%        7.60%       7.60%

PIMS                    422         455        491        529       570       34,823       37,290        37,978
WAIR                  7.05%       7.05%      7.05%      7.06%     7.06%        7.06%        7.06%

PIMIS
Insured Mortgages    16,301      1,257      1,361      1,472       1,593      63,641       85,625
86,664
WAIR                  6.71%       6.71%      6.71%      6.71%     6.71%        6.71%        6.83%

Additional Loans      6,963       4,864      2,290      4,600     -            -           18,717        17,655
WAIR                  7.00%       7.00%      7.00%      7.00%     0.00%        0.00%        7.04%
                 ----------  ----------  ---------  ---------  --------   ----------   ----------    ----------

Total Interest-
Sensitive Assets $   25,507  $    8,133  $   5,476  $   7,747  $  3,152   $  106,718   $  156,733    $  157,898
                 ==========  ==========  =========  =========  ========   ==========   ==========    ==========
Operations

The following relates to the operations of the Trust during the years ended
December 31, 2001, 2000, and 1999.

                                                     (amounts in thousands, except per Share amounts)
                                                                 Years Ended December 31,
                                                                 -------------------------
                                                              2001           2000             1999
                                                              ----           ----             ----
                                                          Per                       Per                        Per
                                            Amount       Share        Amount       Share        Amount         Share
                                            ------       -----        ------       -----        ------          -----
Interest on PIMs and PIMIs:
   Basic interest                         $  9,674     $   .52     $  11,260      $  .61       $  11,998       $   .66
   Additional Loan interest                  2,208         .12         1,784         .10           1,712           .09
   Participation interest                   11,873         .64         1,915         .11           1,592           .08
Interest income on MBS                       1,197         .07         1,455         .08           3,251           .18
Interest income - cash and cash equivalents    378         .02           564         .03           1,060           .06
Trust expenses                              (2,081)       (.11)       (2,215)       (.12)         (2,274)         (.12)
Amortization of prepaid fees and
    expenses                                (2,608)       (.14)       (2,132)       (.12)         (2,365)         (.13)
Reduction of provision for
    impaired Additional Loans                1,500         .09           994         .05           -              -
                                          --------     -------     ---------      ------       --------        -------
 Net Income                               $ 22,141     $  1.21     $  13,625      $  .74       $  14,974       $   .82
                                          ========     =======     =========      ======       =========       =======

Weighted Average
     Shares Outstanding                         18,371,477           18,371,477         18,371,477
                                               ===========           ==========         ==========


The Trust's net income increased in 2001 when compared to 2000 primarily due to
increases in Additional Loan and participation interest on PIMs and PIMIs and
decreases in asset management fees and the provision for impaired mortgage loan.
This was partially offset by a decrease in basic interest from PIMs and PIMIs
and increases in amortization expense and general and administrative expenses.
Additional Loan and participation interest increased primarily due to the
Seasons payoff in July 2001 and the Falls at Hunters Pointe payoff in March
2001. Asset management fees decreased due to the decrease in the Trust's
investments as a result of the payoffs mentioned above. The provision for
impaired mortgage decreased due to the reduction of the impairment provision for
the Windmill Lakes Additional Loan. The payoffs also caused basic interest from
PIMs and PIMIs to decrease and amortization expense to increase as the prepaid
fees and expenses associated with these PIMIs were fully amortized. General and
administrative expenses increased due to an increase in legal fees associated
with the research related to the classification of income for REIT purposes.




The Trust's net income decreased $1.3 million for 2000 when compared to 1999 due
primarily to lower interest income. Basic interest on PIMs and PIMIs decreased
due to the payoff of the Windsor Lake PIMI in January of 2000. MBS interest
decreased due to the payoff of the Estates MBS in 1999 and the receipt of a $1.0
million prepayment premium at payoff. Amortization expense in 2000 decreased
because the Trust fully amortized the remaining prepaid acquisition costs and
participating servicing fees related to the Windsor Lake PIMI payoff. The Trust
reversed its provision for impaired mortgage loans, associated with the Oasis
additional loan, by $994,000 as a result of improved property operations.

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------

             See Appendix A to this report.

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE
------

             None.





                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-------

Information as to the Trustees and Executive Officers of Krupp Government Income
Trust II is as follows:


                                Position with Krupp                        Date of             Term
   Name and Age                 Government Income Trust II                 Election            Expires
   ------------                 --------------------------                 --------            -------

   Douglas Krupp (55)           Chairman of Board of Trustees and Trustee  May, 1996           May, 2002
*  Charles N. Goldberg (60)     Trustee                                    April, 1991         May, 2002
*  J. Paul Finnegan (77)        Trustee                                    April, 1991         May, 2002
*  Stephen Puleo (67)           Trustee                                    February, 2001      May, 2002
   Robert A. Barrows (44)       Treasurer                                  August, 1995        N/A
   Scott D. Spelfogel (41)      Clerk                                      November, 1991      N/A
   MaryBeth Bloom (28)          Assistant Clerk                            November, 2000      N/A

* 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   acquisitions,   property   management,   investment
sponsorship,  venture capital investing, mortgage banking, financial management,
and ownership of two 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 and Lange,
L.L.P.,  a position he held from December of 1997 to May, 2000. Prior to joining
Broocks,  Baker and Lange,  L.L.P.,  Mr. Goldberg was a partner in the law firm of
Hirsch and  Westheimer  from March of 1996 to December of 1997.  Prior to Hirsch and
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 and 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 from  Bentley  College.  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 and 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 and 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 and 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 and is Senior Vice President and
Chief  Financial  Officer of Berkshire  Mortgage  Finance.  Mr. Barrows has held
several  positions  within The Berkshire Group since joining the company in 1983
and is currently  responsible for accounting,  financial  reporting and treasury
functions for Berkshire Mortgage Finance.  Prior to joining The Berkshire Group,
he was an audit supervisor for Coopers and Lybrand L.L.P. in Boston. He received a
B.S. degree from Boston College and is a Certified Public Accountant.



Scott D.  Spelfogel is the Clerk of the Trust and is Senior Vice  President  and
General  Counsel  to The  Berkshire  Group.  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 57) is the Co-Founder and Co-Chairman of The Berkshire Group,
an integrated real estate financial services firm engaged in real estate
acquisitions, property management, investment sponsorship, venture capital
investing, mortgage banking, financial management, and ownership of two
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 48) 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 10th largest in the United States based on servicing and
asset management of a $14.1 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 and 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 60) 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 J.D. degree from Brooklyn Law School.

Carol J.C.  Mills  (age 52) 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  $14.1  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, the Mortgage Bankers  Association and the Servicing Advisory Council for
Freddie Mac.

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 Stephen Puleo) a fee of $25,000 in 2001.





ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-------

As of January 8, 2002, no person owned of record or was known by the Advisor to
own beneficially more than 5% of the Trust's 18,371,477 outstanding Shares. The
only Shares held by the Advisor or any of its affiliates consist of the original
10,000 Shares held by the Advisor.

Class of               Name of Beneficial               Amount and Nature of                 Percent
 Stock                        Owner                     Beneficial Interest                  of Class

Shares of              Douglas Krupp
Beneficial             One Beacon Street
Interest               Boston, MA  02108                10,000 Shares**                       ***

Shares of
Beneficial
Interest               All Directors and 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 January 8, 2002.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------


See Note G to Financial Statements included in Appendix A of this report.




                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------

(a)  1.     Financial Statements - see Index to Financial Statements and
            Supplementary Data included under Item 8, Appendix A, on page F-2
            of this report.

     2.     Financial Statement Schedules - see Index to Financial Statements
            and Supplementary Data included under Item 8, Appendix A, on page
            F-2 of this report. All schedules are omitted as they are not
            applicable, not required or the information is provided in the
            Financial Statements or the Notes thereto.

(b)  Reports on Form 8-K

     The Trust did not file any reports on Form 8-K during the quarter ended
December 31, 2001.


(c)  Exhibits:

     Number and Description
     Under Regulation S-K

     The following reflects all applicable Exhibits required under Item 601 of
Regulation S-K:

      (4)               Instruments defining the rights of security holders including indentures:
                        ------------------------------------------------------------------------

         (4.1)          Fourth Amended and Restated  Declaration of Trust filed
                        with The Massachusetts  Secretary of State on September
                        25, 1991 [Included as Exhibit 4.8 to Post-effective
                        Amendment No. 1 to Registrant's  Registration Statement
                        on Form S-11 dated September 26, 1991
                        (File No. 33-39033)].*

         (4.2)          Subscription  Agreement Specimen [Included as Exhibit C
                        to Prospectus included in Post-effective  Amendment No.
                        1 to Registrant's Registration Statement on Form S-11
                        dated September 26, 1991 (File No. 33-39033)].*

      (10)              Material Contracts

         (10.1)         Advisory Services Agreement dated September 11, 1991
                        between Krupp Government Income Trust II and Berkshire
                        Realty Advisors Limited Partnership (formerly known as
                        Krupp Realty Advisors Limited Partnership)[Exhibit 10.1
                        to Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*

         (10.2)         Assignment and Assumption Agreement between Berkshire
                        Realty Advisors Limited Partnership and Berkshire
                        Mortgage Advisors Limited Partnership [Exhibit 10.2 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*

                        Mequon Trails

         (10.3)         Supplement to Prospectus dated January 1, 1993 for
                        Federal National Mortgage  Association pool number
                        MX-073025 [Exhibit  19.1. to Registrant's Report on
                        Form 10-Q for the quarter ended March 31, 1993
                        (File No. 0-20164)].*

         (10.4)         Subordinated promissory note dated December 21, 1992 by
                        and between Mequon Trails Townhomes Limited Partnership
                        and Krupp Government Income Trust II [Exhibit 19.2 to
                        Registrant's Report on Form 10-Q for the quarter ended
                        March 31, 1993 (File No. 0-20164)].*

         (10.5)         Subordinate  Multifamily  Mortgage dated December 21,
                        1992 between Mequon Trails Townhomes Limited
                        Partnership and Krupp  Government  Income Trust II.
                        [Exhibit 10.5 to  Registrant's  report on Form 10-K for
                        the year ended  December 31, 1995 (File No. 0-20164)].*




         (10.6)         Subordination  Agreement dated December 21, 1992 between
                        Krupp Mortgage Company L.P.,  Krupp Government  Income
                        Trust II and Mequon Trails Townhomes  Limited
                        Partnership.  [Exhibit 10.6 to Registrant's  report on
                        Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

                        Martin's Landing

         (10.7)         Subordinated Loan Agreement, dated November 9, 1993,
                        between TRC Realty Incorporated - ML, ML Associates
                        Limited Partnership ("Borrower") and Krupp Government
                        Income Trust II ("Holder") [Exhibit 10.9 to Registrant's
                        annual report on Form 10-K for fiscal year ended
                        December 31, 1993 (File No. 0-20164)].*

         (10.8)         Subordination  Agreement dated November 9, 1993 between
                        ML Associates,  L.P., and Krupp Government Income Trust
                        II.  [Exhibit  10.22 to  Registrant's  report on Form
                        10-K for the year  ended  December  31,  1995  (File No.
                        0-20164)].*

         (10.9)         Assignment of Subordination Agreement dated November 9,
                        1993 from Berkshire Mortgage Finance Limited Partnership
                        to the Federal National Mortgage Association by and
                        between ML Associates, L.P., Berkshire Mortgage Finance
                        Limited Partnership and Krupp Government Income Trust
                        II. [Exhibit 10.23 to Registrant's report on Form 10-K
                        for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.10)        Supplement to Prospectus dated December 1, 1993 for
                        Federal National Mortgage Association pool number MX -
                        073029. [Exhibit 10.24 to Registrant's report on Form
                        10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

                        Crossings Village

         (10.11)        Subordinated Loan Agreement, dated September 28, 1993
                        between Crossings Village Westlake Associates
                        ("Borrower") and Krupp Government Income Trust II
                        ("Holder")[Exhibit 10.10 to Registrant's annual report
                        on Form 10-K for fiscal year ended December 31, 1993
                        (File No. 0-20164)].*

         (10.12)        Subordinated Note dated September 28, 1993 between
                        Crossings Village Westlake Associates and Krupp
                        Government Income Trust II [Exhibit 10.16 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*

         (10.13)        Subordination  Agreement  dated  September  28, 1993
                        between Washington Capital DUS Inc., Crossings  Village
                        Westlake  Associates and Krupp Government  Income Trust
                        II. [Exhibit 10.27 to Registrant's  report on Form 10-K
                        for the year ended December 31, 1995
                        (File No. 0-20164)].*

                        Sunset Summit

         (10.14)        Subordinated Loan Agreement dated November 24, 1993
                        between Sunset Summit Limited Partnership and Krupp
                        Government Income Trust II [Exhibit 10.21 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*

         (10.15)        Subordinated Note dated November 24, 1993 between Sunset
                        Summit Limited Partnership and Krupp Government Income
                        Trust II [Exhibit 10.22 to Registrant's report on Form
                        10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

         (10.16)        Subordination Agreement dated November 24, 1993 between
                        BMFLP, Sunset Summit Limited Partnership and Krupp
                        Government Income Trust II [Exhibit 10.23 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*

         (10.17)        Assignment of Subordination Agreement dated November 24,
                        1993 from Berkshire Mortgage Finance Limited Partnership
                        to the Federal National Mortgage Association by and
                        between Sunset Summit Limited Partnership, Berkshire
                        Mortgage Finance Limited Partnership and Krupp
                        Government Income Trust II [Exhibit 10.24 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1994 (File No. 0-20164)].*




         (10.18)        Subordinate Multifamily Mortgage Agreement dated
                        November 24, 1993 between Sunset Summit Limited
                        Partnership and Krupp Government Income Trust II
                        [Exhibit 10.25 to Registrant's report on Form 10-K for
                        the year ended December 31, 1994 (File No. 0-20164)].*

         (10.19)        Supplement to Prospectus dated January 1, 1994 for
                        Federal National Mortgage Association pool number MX -
                        073030 [Exhibit 10.26 to Registrant's report on Form
                        10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

                        Oasis at Springtree

         (10.20)        Subordinate  Note dated June 16, 1994 between Oasis at
                        Springtree,  Inc. and Krupp  Government  Income Trust II
                        [Exhibit 10.33 to Registrant's report on Form 10-K for
                        the year ended December 31, 1994 (File No. 0-20164)].*

         (10.21)        Subordinated  Loan Agreement dated August 11, 1994
                        between Joseph Kodsi and Albert Kodsi,  Oasis at
                        Springtree, Inc., and Krupp Government Income Trust II.
                        [Exhibit 10.48 to  Registrant's  report on Form 10-K for
                        the year ended December 31, 1995 (File No. 0-20164)].*

         (10.22)        Subordination Agreement dated August 11, 1994 between
                        Berkshire Mortgage Finance Limited Partnership, Oasis at
                        Springtree,  Inc. and Krupp Government Income Trust II.
                        [Exhibit 10.49 to Registrant's  report on Form 10-K for
                        the year ended December 31, 1995 (File. No 0-20164)].*

         (10.23)        Assignment of Subordination Agreement dated August 11,
                        1994 for Berkshire Mortgage Finance Limited Partnership
                        with Federal National Mortgage Association by and
                        between Oasis at Springtree, Inc., Berkshire Mortgage
                        Finance Limited Partnership and Krupp Government Income
                        Trust II. [Exhibit 10.50 to Registrant's report on Form
                        10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.24)        Subordinated  Multifamily  Mortgage  Assignment of Rents
                        and Security  Agreement  dated August 11, 1994 between
                        Oasis at Springtree,  Inc. and Krupp Government Income
                        Trust II. [Exhibit 10.51 to Registrant's  report on Form
                        10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

         (10.25)        Supplement to Prospectus dated January 1, 1994 for
                        Federal National Mortgage Association pool number MX -
                        073043. [Exhibit 10.52 to Registrant's report on Form
                        10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

                        The Willows

         (10.26)        Supplement to Prospectus dated January 1, 1994 for
                        Federal National Mortgage Association pool number MX -
                        073057 [Exhibit 10.42 to Registrant's report on Form
                        10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

                        Windmill Lakes

         (10.27)        Subordinated  Loan Agreement  dated February 3, 1995
                        between Robert B. Kramer and Rose Berger, Windmill Lakes,
                        Inc., and Krupp  Government  Income Trust II
                        [Exhibit 10.1 to Registrant's  report on Form 10-Q for
                        the quarter ended September 30, 1995
                        (File No. 0-20164)].*

         (10.28)        Subordinate Note dated February 3, 1995 between Windmill
                        Lakes, Inc., and Krupp Government Income Trust II
                        [Exhibit 10.2 to Registrant's report on Form 10-Q for
                        the quarter ended September 30, 1995 (File No.
                        0-20164)].*

         (10.29)        Subordinate  Multifamily  Mortgage  Agreement dated
                        February 3, 1995 between  Windmill  Lakes,  Inc., and
                        Krupp Government  Income Trust II [Exhibit 10.3 to
                        Registrant's  report on Form 10-Q for the quarter ended
                        September 30, 1995 (File No. 0-20164)].*

         (10.30)        Subordination Agreement dated February 3, 1995 by and
                        among Green Park Financial Limited Partnership, Krupp
                        Government Income Trust II and Windmill Lakes, Inc.
                        [Exhibit 10.4 to Registrant's report on Form 10-Q for
                        the quarter ended September 30, 1995 (File No.
                        0-20164)].*




                        The Lakes

         (10.31)        Subordinated  Loan Agreement dated June 29, 1995,
                        between Lake Associates,  L. P. and Krupp Government
                        Income Trust II [Exhibit 10.5 to  Registrant's  report
                        on Form 10-Q for the quarter ended September 30, 1995
                        (File No. 0-20164)].*

         (10.32)        Subordinate  Note dated June 29, 1995,  between Lake
                        Associates,  L. P. and Krupp Government Income Trust II
                        [Exhibit  10.6 to  Registrant's  report  on Form  10-Q
                        for the  quarter  ended  September  30,  1995
                        (File No. 0-20164)].*

         (10.33)        Subordinate  Multifamily Mortgage to Secure Debt
                        Agreement dated June 29, 1995, between Lake Associates,
                        L. P. and Krupp  Government  Income Trust II [Exhibit
                        10.7 to Registrant's  report on Form 10-Q for the
                        quarter ended September 30, 1995 (File No. 0-20164)].*

         (10.34)        Subordination  Agreement dated June 29, 1995,  between
                        Berkshire Mortgage Finance Limited  Partnership,  Lake
                        Associates,  L. P. and Krupp Government Income Trust II
                        [Exhibit 10.8 to Registrant's  report on Form 10-Q for
                        the quarter ended September 30, 1995
                       (File No. 0-20164)].*

         (10.35)        Assignment of Subordination Agreement dated June 29,
                        1995, from Berkshire Mortgage Finance Limited
                        Partnership to the Federal National Mortgage Association
                        by and between, Lake Associates, L.P. and Berkshire
                        Mortgage Finance Limited Partnership and Krupp
                        Government Income Trust II [Exhibit 10.9 to Registrant's
                        report on Form 10-Q for the quarter ended September 30,
                        1995 (File No. 0-20164)].*

         (10.36)        Supplement to Prospectus dated November 1, 1994 for
                        Federal National Mortgage Association pool number MX -
                        073149 [Exhibit 10.10 to Registrant's report on Form
                        10-Q for the quarter ended September 30, 1995 (File No.
                        0-20164)].*
                        The Fountains

         (10.37)        Subordinated Promissory Note dated April 24, 1995
                        between CSM Fountains Limited Partnership and Krupp
                        Government Income Trust II [Exhibit 10.11 to
                        Registrant's report on Form 10-Q for the quarter ended
                        September 30, 1995 (File No. 0-20164)].*

         (10.38)        Agreement Re:  Subordinated Note dated April 24, 1995
                        between Berkshire Mortgage Finance  Corporation and Krupp
                        Government  Income Trust II [Exhibit 10.12 to Registrant's
                        report on Form 10-Q for the quarter ended September
                        30, 1995 (File No. 0-20164)].*

         (10.39)        Subordinated Multifamily Mortgage Assignment of Rents
                        and Security Agreement dated April 24, 1995 between CSM
                        Fountains Limited Partnership and Krupp Government
                        Income Trust II [Exhibit 10.13 to Registrant's report on
                        Form 10-Q for the quarter ended September 30, 1995 (File
                        No. 0-20164)].*

                        Rivergreens Apartments

         (10.40)        Mortgage Note dated August 19, 1993 between Rivergreens
                        Associates II Limited  Partnership and Krupp Mortgage
                        Company Limited  Partnership.  [Exhibit 10.98 to
                        Registrant's  report on Form 10-K for the year ended
                        December 31, 1995 (File No. 0-20164)].*

         (10.41)        Subordinated  Promissory Note, dated August 19, 1993,
                        between Rivergreens Associates II Limited Partnership
                        and Krupp Government Income Trust.
                        [Exhibit 10.99 to Registrant's  report on Form 10-K for
                        the year ended December 31, 1995 (File No. 0-20164)].*

         (10.42)        Subordinated Multifamily Deed of Trust, Assignment of
                        Rents and Security Agreement dated August 19, 1993
                        between Rivergreens Associates II Limited Partnership
                        and Krupp Government Income Trust II. [Exhibit 10.100 to
                        Registrant's report on Form 10-K for the year ended
                        December 31, 1995 (File No. 0-20164)].*





                        Mill Pond II Apartments

         (10.43)        Mortgage  Note dated July 26, 1994 for Mill Pond II
                        Limited Partnership and Krupp Mortgage Company Limited
                        Partnership.  [Exhibit  10.101 to  Registrant's  report
                        on Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

         (10.44)        Multifamily Subordinated Mortgage, Assignment of Rents
                        and Security Agreement dated July 26, 1994 between Mill
                        Pond II Limited Partnership and Krupp Government Income
                        Trust II. [Exhibit 10.102 to Registrant's report on Form
                        10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.45)        Subordinated  Promissory  Note,  dated  July 26,  1994,
                        between  Mill Pond II  Limited  Partnership  and Krupp
                        Government  Income Trust. [Exhibit 10.103 to Registrant's
                        report on Form 10-K for the year ended December 31,
                        1995 (File No. 0-20164)].*

         (10.46)        Agreement re Subordinated Note dated July 26, 1994,
                        between Berkshire  Mortgage Finance  Corporation and
                        Krupp Government  Income Trust.
                        [Exhibit 10.104 to Registrant's  report on Form 10-K for
                        the year ended December 31, 1995 (File No. 0-20164)].*

         * Incorporated by reference







                                   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 14th day of March,
2002.

                        KRUPP GOVERNMENT INCOME TRUST II




                                                  By:  / s /  Douglas Krupp
                                                     -----------------------------------------
                                                      Douglas Krupp, Chairman of Board of Trustees and a Trustee of Krupp Government
                                                      Income Trust II


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated, on the 14th day of March, 2002.

Signatures                                        Title(s)


 /s/ Douglas Krupp                                Chairman of Board of Trustees and a
----------------------------
Douglas Krupp                                     Trustee of Krupp Government Income Trust II




 /s/ Robert A. Barrows                            Treasurer of Krupp Government Income Trust II
----------------------------
Robert A. Barrows




 /s/ Charles N. Goldberg                          Trustee of Krupp Government Income Trust II
----------------------------
Charles N. Goldberg




 /s/ J. Paul Finnegan                             Trustee of Krupp Government Income Trust II
--------------------------------
J. Paul Finnegan




 /s/ Stephen Puleo                                Trustee of Krupp Government Income Trust II
--------------------------------
Stephen Puleo






                                                     APPENDIX A

                                          KRUPP GOVERNMENT INCOME TRUST II











                                     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                                                 ITEM 8 of FORM 10-K

                               ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
                                        For the Year Ended December 31, 2001









                                          KRUPP GOVERNMENT INCOME TRUST II

                                INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






Report of Independent Accountants                                                                               F-3


Balance Sheets at December 31, 2001 and 2000                                                                    F-4


Statements of Income and Comprehensive Income for the Years Ended December 31, 2001, 2000
 and 1999                                                                                                       F-5


Statements of Changes in Shareholders' Equity for the Years
 Ended December 31, 2001, 2000 and 1999                                                                         F-6


Statements of Cash Flows for the Years Ended December 31, 2001,
 2000 and 1999                                                                                                  F-7


Notes to Financial Statements                                                                            F-8 - F-20

Schedule II - Valuation and Qualifying Accounts                                                                F-21

Supplementary Data - Selected Quarterly Financial Data (Unaudited)                                             F-22



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 Shareholders of
Krupp Government Income Trust II:

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 II (the "Trust") at December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001 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 14, 2002






                                          KRUPP GOVERNMENT INCOME TRUST II

                                                   BALANCE SHEETS

                                             December 31, 2001 and 2000


                                                       ASSETS

                                                                           2001                   2000
                                                                           ----                   ----

Participating Insured Mortgage Investments
 ("PIMIs")(Notes B, C and I)
    Insured mortgages                                                   $ 85,625,185           $121,208,064
    Additional loans, net of impairment provision of $500,000
     and $2,000,000, respectively                                         17,654,500             22,292,351
Participating Insured Mortgages ("PIMs")
    (Notes B, D and I)                                                    37,239,922             37,631,330
Mortgage-Backed Securities ("MBS")
    (Notes B, E and I)                                                    15,600,964             19,124,031
                                                                       -------------          -------------

           Total mortgage investments                                    156,120,571            200,255,776

Cash and cash equivalents (Notes B and I)                                  6,453,663              7,089,453
Interest receivable and other assets                                       1,174,106              1,552,568
Prepaid acquisition fees and expenses, net of
 accumulated amortization of $7,964,938 and
 $8,957,065, respectively (Note B)                                         2,913,250              4,838,771
Prepaid participation servicing fees, net of
 accumulated amortization of $2,420,697 and
 $2,711,086, respectively (Note B)                                         1,102,473              1,784,633
                                                                     ---------------         --------------

           Total assets                                                $ 167,764,063           $215,521,201
                                                                       =============           =============

                                        LIABILITIES AND SHAREHOLDERS' EQUITY

Deferred income on Additional Loans (Note B)                          $    1,242,282         $    2,503,604
Other liabilities                                                             25,985                 53,273
                                                                   -----------------        ---------------

           Total liabilities                                               1,268,267              2,656,877
                                                                      --------------          -------------

Shareholders' equity (Notes A, F and J)
    Common stock, no par value; 25,000,000
      Shares authorized; 18,371,477 Shares
      issued and outstanding                                             166,214,677            212,783,023

    Accumulated comprehensive income
      (Notes B and E)                                                        281,119                 81,301
                                                                     ---------------        --------------- -

                   Total Shareholders' equity                            166,495,796            212,864,324
                                                                       -------------           ------------

             Total liabilities and Shareholders' equity                 $167,764,063           $215,521,201
                                                                        ============           =============



                     The accompanying notes are an integral
                        part of the financial statements.




                                          KRUPP GOVERNMENT INCOME TRUST II

                                    STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                                For the Years Ended December 31, 2001, 2000 and 1999


                                                                 2001                 2000              1999
                                                           ----------------     ----------------  -----------------
Revenues:
    Interest income - PIMs and PIMIs:
      Basic interest                                       $  9,673,656         $ 11,259,617      $ 11,998,012
      Additional Loan interest                                2,207,942            1,783,933         1,712,260
      Participation interest                                 11,873,054            1,915,557         1,591,932
    Interest income - MBS                                     1,197,120            1,455,367         3,251,078
    Interest income - cash and cash equivalents                 378,045              563,723         1,059,900
                                                           ------------         ------------      ------------

         Total revenues                                      25,329,817           16,978,197        19,613,182
                                                           ------------         ------------      -------------

Expenses:
    Asset management fee to an affiliate (Note G)             1,309,430            1,529,418         1,718,942
    Expense reimbursements to affiliates (Note G)               267,554              300,348           276,901
    Amortization of prepaid fees and expenses (Note B)        2,607,681            2,131,748         2,365,254
    General and administrative (Note G)                         504,174              385,879           277,747
    Reduction of provision for impaired additional
      loan (Notes B and C)                                   (1,500,000)            (994,000)           -
                                                           ------------         ------------      ------------

         Total expenses                                       3,188,839            3,353,393         4,638,844
                                                           ------------         ------------      ------------  -

Net income (Notes B and H)                                   22,140,978           13,624,804        14,974,338

Other comprehensive income:

    Net change in unrealized
       gain (loss) on MBS                                       199,818              635,251        (1,101,186)
                                                           ------------         ------------      ------------

Total comprehensive income                                 $ 22,340,796         $ 14,260,055      $ 13,873,152
                                                           ============         ============      ============

Basic earnings per Share                                   $       1.21         $        .74      $        .82
                                                           ============         ============      ============

Weighted average Shares
    outstanding                                              18,371,477           18,371,477        18,371,477
                                                           ============         ============      ============






                                       The accompanying notes are an integral
                                          part of the financial statements.




                                               KRUPP GOVERNMENT INCOME TRUST II

                                         STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                                     For the Years Ended December 31, 2001, 2000 and 1999



                                                                                Accumulated              Total
                                                                 Retained     Comprehensive          Shareholders'
                                        Common Stock             Earnings      Income (Loss)             Equity
                                        ------------          -------------   ----------------     --------------------

Balance at December 31, 1998            $  264,099,856        $    -            $    547,236         $ 264,647,092

Dividends                                  (35,179,844)        (14,974,338)           -                (50,154,182)

Net income                                    -                 14,974,338             -                14,974,338

Change in unrealized loss on MBS              -                     -               (1,101,186)         (1,101,186)
                                        --------------        -------------   -----------------    ----------------

Balance at December 31, 1999               228,920,012               -                (553,950)        228,366,062

Dividends                                  (16,136,989)        (13,624,804)             -              (29,761,793)

Net income                                    -                 13,624,804              -               13,624,804

Change in unrealized gain on MBS               -                    -                  635,251             635,251
                                        --------------        -------------   ----------------     ---------------

Balance at December 31, 2000               212,783,023              -                   81,301         212,864,324

Dividends                                  (46,568,346)        (22,140,978)             -              (68,709,324)


Net income                                      -               22,140,978              -               22,140,978

Change in unrealized gain on MBS                -                    -                 199,818             199,818
                                        --------------        --------------  ----------------     ----------------

Balance at December 31, 2001            $  166,214,677        $      -        $        281,119     $   166,495,796
                                        ==============        =============   ================     ===============

Shares issued and outstanding for each of the three years in the period ended December 31, are 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 Years Ended December 31, 2001, 2000 and 1999


                                                                      2001                  2000                   1999
                                                                      ----                  ----                   ----

Operating activities:
  Net income                                                    $   22,140,978         $   13,624,804         $    14,974,338
  Adjustments to reconcile net income
    to net cash provided by operating activities:
      Amortization of net premium                                       75,585                 58,017                 173,055
      Amortization of prepaid fees and expenses                      2,607,681              2,131,748               2,365,254
      Reduction of provision for impaired additional loans          (1,500,000)              (994,000)                 -
      Changes in assets and liabilities:
         Decrease in interest receivable and other assets              378,462                 76,981                  53,333
              Decrease in deferred income on Additional Loans       (1,261,322)              (189,372)                (26,367)
         (Decrease) increase in other liabilities                     (127,288)                 3,248                 106,462
                                                                --------------         --------------         ---------------

   Net cash provided by operating activities                        22,314,096             14,711,426              17,646,075
                                                                --------------         --------------         ----------------

Investing activities:
  Principal collections on MBS                                       3,647,045              2,580,441              19,432,484
  Principal collections on Additional Loans                          6,137,851                  -                   2,000,000
  Principal collections on PIMs and Insured Mortgages               35,974,542             10,905,706               1,718,718
                                                                --------------         --------------         ----------------

   Net cash provided by investing activities                        45,759,438             13,486,147              23,151,202
                                                                --------------         --------------         ----------------

Financing activity:
  Dividends                                                        (68,709,324)           (29,761,793)            (50,154,182)
                                                                --------------         --------------         --------------- -

Net decrease in cash and cash equivalents                             (635,790)            (1,564,220)             (9,356,905)

Cash and cash equivalents, beginning of period                       7,089,453              8,653,673              18,010,578
                                                                --------------         --------------         ----------------

Cash and cash equivalents, end of period                        $    6,453,663         $    7,089,453         $     8,653,673
                                                                ==============         ==============         ================

Non cash activities:
 Increase (decrease) in Fair Value of MBS                       $      199,818         $      635,251         $    (1,101,186)
                                                                ==============         ==============         =============== =







                   The accompanying notes are an integral part
                          of the financial statements.






                        KRUPP GOVERNMENT INCOME TRUST II

                          NOTES TO FINANCIAL STATEMENTS
                                  -------------

A.      Organization

        Krupp Government Income Trust II (the "Trust") was formed on February 8,
        1991 by filing a Declaration of Trust in The Commonwealth of
        Massachusetts. The Trust is authorized to sell and issue not more than
        25,000,000 shares of beneficial interest (the "Shares"). The Trust was
        organized for the purpose of investing in commercial and multi-family
        loans and mortgage backed securities. Berkshire Mortgage Advisors
        Limited Partnership (the "Advisor") acquired 10,000 of such Shares for
        $200,000 and 18,315,158 Shares were sold for $365,686,058 net of
        purchase volume discounts of $617,102 under a public offering which
        commenced on September 11, 1991 and was completed on February 12, 1993.
        Under the Dividend Reinvestment Plan ("DRP"), 46,319 Shares were sold
        for $880,061. The Trust shall terminate on December 31, 2030, unless
        earlier terminated by the affirmative vote of holders of a majority of
        the outstanding Shares entitled to vote thereon.

B.      Significant Accounting Policies

        The Trust uses the following accounting policies for financial reporting
        purposes:

        Basis of Presentation

        The accompanying financial statements have been prepared on the accrual
        basis of accounting in accordance with accounting principles generally
        accepted in the United States of America ("GAAP").

        MBS

        The Trust, in accordance with the Financial Accounting Standards Board's
        Statement No. 115, "Accounting for Certain Investments in Debt and
        Equity Securities" ("FAS 115"), classifies its MBS portfolio as
        available-for-sale. The Trust carries its MBS at fair market value and
        reflects any unrealized gains (losses) as a separate component of
        Shareholders' Equity. The Trust amortizes purchase premiums or discounts
        over the life of the underlying mortgages using the effective interest
        method.

        PIMs and PIMIs

        The Trust accounts for its MBS portion of a PIM or PIMI investment in
        accordance with FAS 115, under the classification of held to maturity.
        The Trust carries these MBS at amortized cost.

        The insured mortgage portion of the Federal Housing Administration
        ("FHA") PIM or 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
        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 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. The Trust defers the recognition of Additional Loan
        interest payments as income to the extent these interest payments are
        from escrows established with the proceeds of the Additional Loan. When
        the properties underlying the PIMIs generate sufficient cash flow to
        make the required Additional Loan interest payments and the Additional
        Loan value is deemed collectible, the Trust recognizes income as earned
        and commences amortizing 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 II

                    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
        impaired loans is generally applied against the loan principal.

        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 estimated life of the underlying mortgage. The prepaid
        participation servicing fees are amortized using a method that
        approximates the effective interest method over a ten-year period
        beginning at final endorsement of the loan if a HUD-insured loan and at
        closing if a Fannie Mae loan.

        Upon the repayment of a PIM or PIMI, any unamortized acquisition fees
        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 GAAP 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 II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------

C.      PIMIs

        The Trust had investments in seven PIMIs at December 31, 2001 and nine
        at December 31, 2000 that provide the permanent financing for
        multi-family housing. Each PIMI consists of either a 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 an "Additional Loan" made to the borrower or the owners
        of the borrower to provide additional funds for the construction or
        permanent financing of the property. The FHA first mortgage loan and the
        first mortgage underlying the Fannie Mae MBS provide the borrower with a
        below market interest rate loan, and in return, the Trust receives a
        percentage of the cash generated from the property operations
        ("Participating Income Interest") and a percentage of any appreciation
        thereafter ("Participating Appreciation Interest") (collectively the
        "participation interest").

        The borrower conveys the participation features to the Trust through a
        subordinated promissory note and mortgage or a subordinate loan
        agreement (collectively the "Agreements"). The Trust makes the
        Additional Loan under the Fannie Mae PIMIs directly to the borrower of
        the first mortgage loan underlying the Fannie Mae MBS, and the borrower
        collateralizes the Additional Loan with a subordinated mortgage on the
        property. The owners of the borrower also pledge their ownership
        interests in the borrower as additional collateral.

        The Trust made the Additional Loans on the FHA PIMIs to the owners of
        the entity having the FHA first mortgage loan, and the owners
        collateralize the Additional Loan by pledging their ownership interests
        in the borrowing entity, their share of any distributions received, and
        the proceeds realized upon the refinancing of the property, sale of the
        property or sale of the partnership interests. Unlike the insured
        mortgages, the Additional Loans are neither guaranteed nor insured.

        The Trust receives level monthly payments of principal and interest
        payments, amortizing over thirty to forty years on the insured mortgages
        and is also entitled to receive participation interest and semi-annual
        interest payments ("Additional Loan interest") and preferred interest
        under the Additional Loans and Agreements. While principal and interest
        payments on the insured mortgages are insured or guaranteed, there are
        limitations to the amount and obligation to pay interest under the
        Additional Loan and Agreements.

        The Agreements for Fannie Mae PIMIs entitles the Trust to receive (i)
        semi-annual interest payments on the Additional Loan, (ii) Participating
        Income Interest, (iii) Participating Appreciation Interest and (iv)
        Preferred Interest. Additional Loan interest accrues at the stated
        interest rate of the Additional Loan and Participating Income Interest
        represents the Trust's share of the net revenue generated by the
        property at a stated percentage generally ranging from 25% to 35%.
        Additional Loan interest and Participating Income Interest are payable
        only to the extent there is net revenue available to pay these amounts.
        However, should the borrower be unable to make the full Additional Loan
        interest payment, the borrower must notify the Trust of the amount of
        the shortfall.

        The Trust can require the partners of the borrower to make a capital
        call contribution to the borrower to fund 50% of this shortfall, and the
        Trust will fund the remainder with an Operating Loan. Also, the Trust is
        generally limited to receiving no more than 50% of net revenue on any
        semi-annual payment date. Participating Appreciation Interest provides
        the Trust with a stated percentage, ranging from 25% to 30%, of the
        excess value of the property over amounts due under the first mortgage,
        Additional Loan and any Operating Loans, the repayment of capital call
        contributions, and a return of original equity to the partners of the
        borrower.

        Participating Appreciation Interest is due upon the sale, refinancing,
        maturity or accelerated maturity, or permitted prepayment of all amounts
        due under the insured mortgage and Additional Loan. Generally, the Trust
        will not receive more than 50% of the excess of value over the
        outstanding indebtedness, the payment of Preferred Interest, and the
        return of equity and capital call contributions to the partners of the
        borrower.

                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------
C.      PIMIs, Continued

        Preferred Interest refers to a non-compounded cumulative return from the
        closing date of the loan to the date of calculation, at a stated
        interest rate generally on the original outstanding balance of the
        insured mortgage plus the Additional Loan and any other funds advanced
        to the borrower (reduced by principal payments received) less: (i)
        interest payments on the insured mortgage, (ii) Additional Loan
        interest, (iii) Participating Income Interest, and (iv) Participating
        Appreciation Interest. Generally, the amount of Preferred Interest owed
        cannot exceed the excess of value over the outstanding indebtedness.
        Amounts due under the Additional Loan and Agreements are neither insured
        nor guaranteed.

        The Agreements for FHA PIMIs entitle the Trust to receive (i)
        Participating Income Interest at a stated percentage usually ranging
        from 25% to 50% of (a) all distributable Surplus Cash generated by the
        property as defined in the regulatory agreement of the HUD-insured first
        mortgage loan, (b) unrestricted cash generated by property operations,
        and (c) unexpended reserves and escrows; and (ii) Participating
        Appreciation Interest at a stated percentage usually ranging from 20% to
        50% of the proceeds or value of the property less the outstanding
        indebtedness upon the sale, refinancing, maturity or accelerated
        maturity, or permitted prepayment of all amounts due under the insured
        mortgage and Additional Loan. Amounts received by the Trust pursuant to
        this Agreement reduce amounts payable as Base Interest and Preferred
        Interest under the FHA PIMI Additional Loan.

        The FHA PIMI Additional Loan interest is payable from the following
        sources: (i) any Surplus Cash received as Participating Income Interest,
        (ii) amounts conveyed to the Trust by the owners of the borrower
        representing distributions of Surplus Cash, and (iii) amounts in reserve
        accounts established with Additional Loan proceeds, if available, and
        any interest earned on these amounts. As with the Fannie Mae PIMIs, the
        borrower must notify the Trust of the amount of any Additional Loan
        interest shortfall. At its option the Trust can require the owners of
        the borrower to make a capital call for 50% of the shortfall and the
        Trust in certain situations could convert the remaining 50% into an
        operating loan or would forego the remainder.


        The FHA PIMIs also require the payment of Preferred Interest at a stated
        interest rate from the date of final endorsement to the date of
        calculation on the original outstanding balance of the insured mortgage
        plus the Additional Loan and any other funds advanced by the Trust to
        the borrower or owners of the borrowing entity (reduced by principal
        payments received) less: (i) interest payments paid to the Trust under
        the insured mortgage, (ii) Participating Income Interest, and (iii)
        Additional Loan interest payments made under the Additional Loan
        including amounts foregone by the Trust.

        The insured mortgage and Agreements generally have maturities of 15 to
        40 years, however, under the Agreements the Trust can accelerate the
        maturity dates at any time after the ninth or tenth anniversary of final
        endorsement for the FHA PIMIs or the closing date of the Fannie Mae
        PIMIs, upon giving twelve months written notice for the payment.

        If the Trust accelerates the maturity date, the Trust can require
        payment of all amounts due under the Additional Loan and Agreements
        through the accelerated maturity date for the payment of amounts due
        under the Agreement and the HUD-insured first mortgage loan (providing
        the contract of insurance with the Secretary of HUD is canceled prior to
        the accelerated maturity date) or prepayment of the first mortgage loan
        underlying the Fannie Mae MBS.




                                    Continued




                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------

C.      PIMIs, Continued

        FHA PIMIs generally cannot be prepaid for a term of five years from the
        construction completion date or final endorsement. After the fifth
        anniversary of construction completion or final endorsement, the FHA
        PIMI may be prepaid without penalty providing that all amounts due under
        the Agreements, Additional Loan and FHA insured mortgage are paid.
        Fannie Mae PIMIs generally cannot be prepaid during the five years
        following the closing date of the underlying first mortgage loan.
        Thereafter, the Fannie Mae first mortgage loan may be prepaid subject to
        a prepayment penalty that declines each year for the next five years
        with no prepayment penalty after the tenth year. Any prepayment of a
        Fannie Mae PIMI generally requires prepayment of the first mortgage loan
        underlying the Fannie Mae MBS and payment of amounts due under the
        Agreements and Additional Loan. The Fannie Mae first mortgage loan would
        not need to be prepaid if there is a permitted assumption of the first
        mortgage loan, however, amounts due under the Agreement and Additional
        Loan would need to be prepaid. Any prepayment usually requires not less
        than 90 nor more than 180 days prior written notice.

        On July 25, 2001, the Trust finalized an agreement with the owner of the
        Windmill Lakes property which will allow for the release of the
        participation features on the PIMI in the event that the first mortgage,
        the Additional Loan and any accrued but unpaid base interest on the
        Additional Loan are repaid by September 1, 2002. In addition, the Trust
        required the owner to pay current and outstanding Additional Loan base
        interest as of March 1, 2001 of $512,500. In the event that the required
        payments are not received by September 1, 2002, the participation
        features will remain in force. As a result of the performance of the
        property, the Trust had initially established a valuation allowance of
        $2,000,000 on the Additional Loan in 1998. The Trust has reflected the
        $512,500 received plus $50,000 previously received as a reduction in the
        principal balance of the Additional Loan and related impairment
        provision. Additionally, based upon improved market conditions and
        property operations, the Trust has further reduced the impairment
        provision by $937,500 to $500,000 at December 31, 2001.

        On July 23, 2001, the Trust received a prepayment of the Seasons
        Subordinated Promissory Note and the Seasons Additional Loan. The Trust
        received $4,925,351 of the Additional Loan principal, $462,983 of
        surplus cash, $2,168,701 of Preferred Interest, $2,693,326 of contingent
        interest, $176,908 of Base Interest on Additional Loan and $3,325,696
        which represents the Trust's portion of the residual split. The Trust
        received $21,926,006 representing the principal proceeds on the first
        mortgage note on July 26, 2001. In addition, the Trust recognized
        $624,023 of Additional Loan interest that had been previously received
        and recorded in deferred income on additional loans. The Advisor paid a
        special dividend of $1.95 per share on August 17, 2001 from the proceeds
        of the Seasons PIMI prepayment.

        The payoff of the Seasons PIMI was a result of the sale of the
        underlying property by the borrower, Maryland Associates Limited
        Partnership ("MALP"), which is an affiliate of the Adviser, to an
        affiliate of MALP's general partner. Because the sale of the underlying
        property was to an affiliate, the Independent Trustees of the Trust were
        required to approve the transaction, which they did based upon a number
        of factors, including an appraisal of the underlying property prepared
        by an independent third party MAI appraiser. The purchase price paid by
        the affiliate for the underlying property was $1.6 million greater than
        the value indicated by such appraisal.

        During the first quarter of 2001, the Trust received a payoff of the
        Hunters Pointe PIMI. The Trust received the outstanding balance on the
        insured mortgage of $12,347,267, the outstanding balance on the
        Additional Loan of $650,000, Participating Income Interest of $496,207
        (including all of the delinquent amounts), Preferred Interest of
        $492,543, Participating Appreciation Interest of $1,070,304 and late
        fees on the delinquent Participating Income Interest of $11,021. In
        addition, the Trust recognized $196,710 of additional loan interest and
        $311,132 of Participating Income Interest that had been previously
        received and recorded in deferred income on additional loans. On March
        20, 2001, the Trust paid a special dividend of $.83 per share from the
        proceeds of the Hunters Pointe PIMI payoff.

                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------


C.      PIMIs, Continued

        On December 16, 1999, the Trust received $2,832,907 from Windsor Lake
        consisting of $2,000,000 from the payoff of the Additional Loan, $40,000
        of Additional Loan interest and $792,907 of participation interest. The
        payoff of the balance on the insured mortgage, $9,172,642 was received
        on January 26, 2000. The Trust paid a special dividend of $.66 per Share
        from the prepayment proceeds on February 18, 2000.

        At December 31, 2001 and 2000 there are no insured mortgage loans within
        the Trust's portfolio that are delinquent as to principal or interest.

        The Trust's investments in PIMIs consists of the following at December 31, 2001 and 2000:

                                                Approximate
   Insured                        Loan            Monthly      Interest    Maturity     Balance Outstanding at December 31,
  Mortgages                      Amount           Payments       Rate        Date             2001             2000
  ---------                      ------       --------------   --------   -----------         ----              ----

FHA
The Seasons                   $ 23,224,649    $       -             -           -          $     -        $ 22,054,045

Hunters Pointe                  12,789,100            -             -           -                -          12,362,037

Norumbega Point                 15,598,500           101,100      7.375%     02/01/36         15,139,275    15,231,817

FNMA (a)
----
Crossings Village               12,907,334            82,500       6.75%     10/01/08         11,722,936   11,913,997

Martin's Landing                11,200,000            69,600       6.50%     12/01/08         10,153,225   10,322,038

Sunset Summit                   10,192,801            63,400       6.50%     10/01/08          9,246,686    9,400,427

Oasis                           12,401,673            79,100       6.75%     07/01/09         11,432,503   11,603,141

Windmill Lakes                  11,600,000            74,600       6.825%    03/01/10         10,767,647   10,920,913

The Lakes                       18,387,653           118,000       6.825%    07/01/10         17,162,913   17,399,649
                          ----------------    --------------                               -------------   -----------

                          $    128,301,710    $      588,300                                  85,625,185  $21,208,064
                          ================    ==============                               =============  ============
                                                                                                  (d)




                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued

                               ------------------


C.         PIMIs, Continued
                                                                                             Base       Preferred
                                                                              Maturity      Interest     Interest
        Additional Loans                         2001              2000          Date        Rate         Rate
        ----------------                         ----              ----          ----        ----         ----
        The Seasons                        $     -            $   4,925,351      -            -             -
        Hunters Pointe                           -                  650,000      -            -             -
        Norumbega Pointe                       3,063,000         3,063,000      07/02/06      7%           10%
        Crossings Village                      2,584,000         2,584,000      10/01/08      7%            9%
        Martin's Landing                       2,280,000          2,280,000     12/01/08      7%           12%
        Sunset Summit                          1,900,000          1,900,000     12/01/08      7%            9%(b)
        Oasis                                  2,290,000          2,290,000     09/01/09      7%         9.25%
        Windmill Lakes (c):
            Due Contractually                  2,000,000         2,000,000      03/01/10     7.5%         9.5%
            Interest applied                    (562,500)           -
                                           -------------      -------------
            Carrying Value                     1,437,500          2,000,000
        The Lakes                              4,600,000          4,600,000     07/01/10      7%            9%
                                           -------------      -------------

                                           $  18,154,500      $  24,292,351
                                           =============      =============
                                                 (e)
        (a)    Monthly principal and interest payments are based on a 30-year  amortization.  The unpaid principal balances
               due at maturity are as follows:

                    Crossings Village                            $    9,917,000
                    Martin's Landing                             $    8,524,000
                    Sunset Summit                                $    7,763,000
                    Oasis                                        $    9,550,000
                    Windmill Lakes                               $    8,907,000
                    The Lakes                                    $  14,118,000

        (b)    The Trust will receive its Additional Loan Interest and its GIT
               Contingent Interest on Investment (as defined in the Subordinate
               Loan Agreement) from net revenue up to the 9% Preferred Interest
               Rate and, thereafter is entitled to 25% of net revenue.

        (c)    The Trust finalized an agreement on July 25, 2001 with the owner
               which will allow for the release of the participation features in
               the event that the first mortgage, the Additional Loan and any
               accrued but unpaid interest on the Additional Loan are all paid
               off by September 1, 2002. In the event that the required payments
               are not received, the participation features will remain in
               force.

        (d)    The aggregate cost for federal income tax purposes is $85,625,185.

        (e)    The aggregate cost for federal income tax purposes is $18,717,000.







                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------

C.      PIMIs, Continued

        Impaired Additional Loans

        On December 31, 1998, as a result of continued deterioration in property
        operations, the Advisor of the Trust determined that the Windmill Lakes
        Additional Loan was impaired. As a result, a valuation allowance of
        $2,000,000 was established to adjust the carrying amount of the loan to
        the estimated fair market value of the collateral less anticipated costs
        of sale. On July 25, 2001, the Trust received $512,500 in accrued but
        unpaid base interest. The Trust reflected the $512,500 received plus
        $50,000 previously received as a reduction in the principal balance of
        the Additional Loan and related impairment provision. During the fourth
        quarter of 2001, based on improved market conditions and property
        operations, the Trust reduced the impairment provision by an additional
        $937,500 to $500,000. The Trust did not receive interest income on the
        Windmill Lakes Additional Loan during 2000 or 1999 and has not
        recognized any interest income during 2001, 2000 or 1999.

        On December 31, 1998, as a result of continued deterioration in property
        operations, the Advisor of the Trust determined that the Oasis
        Additional Loan was impaired. As a result, a valuation allowance of
        $994,000 was established to adjust the carrying amount of the loan to
        the estimated fair market value of the collateral less anticipated costs
        of sale. During 2000, property operations improved and, as a result, the
        Advisor determined that the Oasis Additional Loan was no longer
        impaired. Therefore, the valuation allowance was reversed.

        The activity in the valuation allowance together with the related
        recorded and carrying value of the mortgage loans is as follows as of
        December 31, 2001:

                                        Recorded               Valuation                Carrying
                                           Value               Allowance                   Value
                                       --------------          ---------               -----------

        Windmill Lakes                  $1,437,500             $   500,000              $  937,500
                                        ==========             ===========              ============


        Reconciliations of activity for 2001, 2000 and 1999 are as follows:

Insured Mortgages
                                                  2001               2000           1999
                                                  ----               ----           ----

Balance at beginning of period                  $121,208,064    $  131,750,452   $133,132,325

Principal collections                            (35,582,879)      (10,542,388)    (1,381,873)
                                               -------------     -------------   ------------

Balance at end of period                        $ 85,625,185    $  121,208,064   $131,750,452
                                                ============    ==============   ============




                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued

                               ------------------

C.     PIMIs, Continued

Additional Loans
                                                  2001               2000               1999
                                                  ----               ----               ----

Balance at beginning of period               $    22,292,351    $   21,298,351      $   23,298,351

Interest received and recognized
    as Additional Loan prepayment                   (562,500)            -                   -

Additional Loan prepayments                       (5,575,351)            -              (2,000,000)

Adjustment to valuation allowance                  1,500,000           994,000               -
                                             ---------------    --------------      --------------

Balance at end of period                     $    17,654,500    $   22,292,351      $   21,298,351
                                             ===============    ==============      ============== =

Property Descriptions:
---------------------

Norumbega Point is a 93-unit assisted living facility in Weston, Massachusetts.

Crossings Village Apartments ("Crossings Village") is a 286-unit apartment
complex located in Westlake, Ohio.

Martin's Landing Apartments ("Martin's Landing") is a 300-unit apartment complex in Roswell, Georgia.

Sunset Summit Apartments ("Sunset Summit") is a 261-unit apartment complex located in
Portland, Oregon.

Oasis at Springtree ("Oasis") is a 276-unit apartment complex located in Sunrise, Florida.

Windmill Lakes Apartments ("Windmill Lakes") is a 264-unit garden style apartment complex in Pembroke Pines,
Broward County, Florida.

The Lakes at Vinings Apartments ("The Lakes") is a 464-unit garden and townhouse style apartment complex in Vinings, Georgia.

D.       PIMS
         ----

       The Trust has investments in four PIMs. The Trust's PIMs consist of
       either a 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 property above specified levels.
       The borrower conveys these participation features to the Trust generally
       through a subordinated promissory note and mortgage (the "Agreement").
       The Trust receives level monthly principal and interest payments,
       amortized over thirty to forty years. The Fannie Mae MBS is guaranteed by
       Fannie Mae, and HUD insures payment of principal and interest on the FHA
       first mortgage loan.

       The borrower generally cannot prepay the insured mortgage during the
       first five years but may prepay it thereafter subject to a 9% prepayment
       premium in years six through nine, a 1% prepayment premium in year ten
       and no prepayment premium thereafter. The Trust may receive interest
       related to its participation interests in the underlying property,
       however, these amounts are neither insured nor guaranteed.

       Generally, the participation features consist of the following: (i)
       "Minimum Additional Interest" at rates ranging from .5% to .75% per annum
       calculated on the unpaid principal balance of the first mortgage on the
       underlying property, (ii) "Shared Income Interest" ranging from 25% to
       30% of the monthly gross rental income generated by the underlying
       property in excess of a specified base, but only to the extent that it
       exceeds the amount of Minimum Additional Interest received during such
       month, (iii) "Shared Appreciation Interest" ranging from 25% to 30% of
       any increase in value of the underlying property in excess of a specified
       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. The total amount of participation
       interest payable by the borrower generally cannot exceed 50% of any
       increase in value of the property.

                                    Continued




                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued

                               ------------------

D.     PIMs, Continued

       Shared Appreciation Interest is payable when one of the following occurs:
       (1) the sale of the underlying property to an unrelated third party on a
       date which is later than five years from the date of the Agreement, (2)
       the maturity date of the Agreement, or (3) prepayment of the Agreement.

       Under the Agreement, the Trust, upon giving twelve months written notice,
       can accelerate the maturity date of the Agreement and insured mortgage to
       a date not earlier than ten years from the date of the Agreement for (a)
       the payment of all participation interest due under the Agreement as of
       the accelerated maturity date or (b) the payment of all participation
       interest due under the Agreement plus all amounts due on the first
       mortgage note on the property.

       At December 31, 2001 and 2000 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, 2001 and
2000:

                                        Approximate
                          Original        Monthly    Interest    Maturity
     PIM                  Amount         Payments     Rate         Date       Balance Outstanding at December 31,
     ---                  ------        ---------     ----         ----      --------------------------------------
                                                                                    2001                2000
                                                                                    ----                ----
FNMA
Mequon Trails            $14,937,726    $   93,500    6.50%     01/01/08     $    13,276,440     $   13,525,695
                                                                  (a)
FHA
Rivergreens II             6,137,199        39,800    7.375%    01/01/35           5,917,280          5,956,517

Mill Ponds II              8,245,300        51,900    7.125%    12/01/35           7,982,225          8,034,349

The Fountains             10,336,000        70,800    7.50%      11/01/36         10,063,977         10,114,769
                        ------------    ----------                           ---------------     ---------------
                                                        (b)
   Total                $ 39,656,225    $  256,000                           $    37,239,922     $    37,631,330
                        ============    ==========                           ===============     ===============
                                                                                    (c)



(a)    Principal and interest payments are based on a 30-year amortization.  Unpaid principal of approximately
       $11,267,000 is due at maturity.
(b)    Construction-phase interest rate was 7.875%.  Received Final Endorsement in April 1998.
(c)    The aggregate cost for federal income tax purposes is $37,239,922.





                                    Continued



                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued

                               ------------------

D.       PIMs, Continued

       Reconciliations of activity for 2001, 2000 and 1999 are as follows:

                                                           2001                 2000                 1999
                                                           ----                 ----                 ----

       Balance at beginning of period                $   37,631,330        $   37,994,412         $  38,331,257

       Discount amortization                                    255                   236                   217

       Principal collections                               (391,663)             (363,318)             (337,062)
                                                     --------------        --------------         ------------- -

       Balance at end of period                      $   37,239,922        $   37,631,330         $  37,994,412
                                                     ==============        ==============         ==============

Property descriptions:

Mequon Trails Townhomes ("Mequon Trails") is a 246-unit apartment complex
located in Mequon, Wisconsin.

Rivergreens II Apartments ("Rivergreens II") is a 126-unit apartment complex in Gladstone, Oregon.

Mill Ponds II Apartments ("Mill Ponds II") is a 150-unit apartment complex in Bellbrook, Ohio.

The Fountains Apartments ("The Fountains") is a 204-unit apartment complex in West Des Moines, Iowa.


E.     Mortgage Backed Securities

       The Trust received a payoff from The Estates MBS consisting of a first
       mortgage of $11,375,380 on October 18, 1999. In addition, the Trust
       received a prepayment premium of $1,023,784. The Trust paid a special
       dividend of $.68 per Unit from the proceeds on October 27, 1999.

       At December 31, 2001 the Trust's MBS portfolio has an amortized cost of
       $15,319,845 and gross unrealized gains of $281,119. At December 31, 2000,
       the Trust's MBS portfolio had an amortized cost of $19,042,730 and gross
       unrealized gains and losses of $134,943 and $53,642, respectively. The
       MBS have maturities ranging from 2008 to 2031.

            Maturity Date                                    Fair Value          Unrealized Gain

            2002 - 2006                                     $      -              $     -
            2007 - 2011                                        3,622,586              67,189
            2012 - 2031                                      11,978,378              213,930
                                                            -------------        --------------

               Total                                        $  15,600,964         $  281,119
                                                            =============        =============


F.     Shareholders' Equity

       Under the Declaration of Trust, and commencing with the initial closing
       of the public offering of Shares, the Trust has declared and paid
       dividends on a quarterly basis. During the period in which the Trust
       qualifies as a REIT, the Trust has and will pay quarterly dividends
       aggregating at least 95% of taxable income on an annual basis to be
       allocated to the shareholders, in proportion to their respective number
       of shares.

       In order for the Trust to maintain its REIT status with respect to the
       requirements of Share ownership, the Declaration of Trust prohibits any
       investor from owning, directly or indirectly more than 9.80% of the
       outstanding Shares and empowers the Trustees to refuse to permit any
       transfer of Shares which, in their opinion, would jeopardize the status
       of the Trust as a REIT.

                                    Continued




                        KRUPP GOVERNMENT INCOME TRUST II

                    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 expenses
       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 general and administration expenses are legal fees and
       expenses paid by the Trust to an affiliate. During the three years ended
       December 31, 2001, 2000, and 1999 these fees totaled $6,276, $1,533 and
       $778 respectively.

       The Trust earned or received $398,549 of base interest from The Seasons
       in 2001 and $443,282 in 2000 and 1999, respectively (see Note C). In
       addition, the Trust received $8,780,579 in 2001, $446,574 in 2000 and
       $392,816 in 1999 related to participating interest income.

H.   Federal Income Taxes

     The reconciliation of the income reported in the accompanying statement of
     income with the income reported in the Trust's 2001 federal income tax
     return follows:

     Net income per statement of income                                                         $  22,140,978

     Less:Book to tax difference for amortization of prepaid fees and expenses                     (1,322,819)

     Less:Book to tax difference for Additional Loan interest income                               (1,037,081)

     Less:Reduction of provision for impaired mortgage loans                                         (962,500)
                                                                                                -------------

     Net income for federal income tax purposes                                                 $  18,818,578
                                                                                                ==============


     The Trust paid dividends of $3.74 per share during 2001 which represents
     approximately $1.02 from ordinary income and $2.72 represents a non-taxable
     dividend for federal income tax purposes.

     The basis of the Trust's assets for financial reporting purposes is less
     than its tax basis by approximately $7,162,000 and $9,423,000 at December
     31, 2001 and 2000, respectively. The basis of the Trust's liabilities for
     financial reporting purposes exceeded its tax basis by approximately
     $1,242,000 and $2,504,000 at December 31, 2001 and 2000, respectively.







                                    Continued




                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, continued
                               ------------------

 I.  Fair Value Disclosures of Financial Instruments

     The Trust uses the following methods and assumptions to estimate the fair
     value of each class of financial instrument:

     Cash and Cash Equivalents

     The carrying amount approximates fair value because of the short maturity
     of those instruments.

     MBS

     The Trust estimates the fair value of MBS based on quoted market prices.
     Based on the estimated fair value determined using these methods and
     assumptions, the Trust's investments in MBS has gross unrealized gains of
     approximately $281,000 December 31, 2001 and gross unrealized gains and
     losses of approximately $135,000 and $54,000 at December 31, 2000.

     PIMs and PIMIs

     There is no established trading market for these investments. Management
     estimates the fair value of the PIMs and the insured mortgage portion of
     the PIMIs using quoted market prices of MBS having the same stated coupon
     rate as the insured mortgages. 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 of approximately $1,777,000 at December 31, 2001 and gross unrealized
     gains and losses of approximately $170,000 and $4,052,000, respectively at
     December 31, 2000.

     At December 31, 2001 and 2000, the estimated fair values of the Trust's
financial instruments are as follows:

                                                                     (rounded to thousands)
                                                               2001                         2000
                                                    ------------------------------------------------------
                                                       Fair        Carrying         Fair       Carrying
                                                       Value         Value          Value        Value
                                                    ------------  -------------  -------------------------

         Cash and cash equivalents                  $    6,454    $    6,454     $   7,089    $    7,089

         MBS                                            15,601        15,601        19,124        19,124

         PIMs and PIMIs:
             PIMs                                       37,978        37,240        36,568        37,631
             Insured mortgages                          86,664        85,625       118,389       121,208
             Additional loans                           17,655        17,655        22,292        22,292
                                                    ----------    ----------     ---------    ----------

                                                    $  164,352    $  162,575     $ 203,462    $  207,344
                                                    ==========    ==========     =========    ===========

J.   Subsequent Event

     On February 13, 2002, the Trust received a prepayment of the Norumbega
     Subordinated Promissory Note and the Norumbega Pointe Additional Loan note.
     The Trust received $3,063,000 of Additional Loan principal, $302,877 of
     Shared Appreciation Interest and $2,280,362 of preferred interest. The
     Trust received $15,123,167 representing the principal proceeds on the first
     mortgage note on February 25, 2002. The Trust intends to pay a special
     dividend of $1.14 per share from the proceeds of the Norumbega Pointe
     prepayment in the first quarter of 2002.





                        KRUPP GOVERNMENT INCOME TRUST II

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


2001

                             Balance at           Charged to                              Balance at
                             Beginning             costs and                                 end of
Description                   of period              expenses          Recoveries             period
-----------                 ---------------      --------------      -------------       ------------------

Valuation
Allowance                   $  2,000,000         $ -                 $(1,500,000)        $    500,000
                            ============         ============        ===========         ============


2000

                             Balance at           Charged to                              Balance at
                             Beginning             costs and                                 end of
Description                   of period              expenses          Recoveries             period
-----------                 ---------------      --------------      -------------       ------------------

Valuation
Allowance                   $  2,994,000         $ -                 $  (994,000)         $ 2,000,000
                            ============         ============        ===========          ===========


1999

                             Balance at           Charged to                              Balance at
                             Beginning             costs and                                 end of
Description                   of period              expenses          Recoveries             period
-----------                 ---------------      --------------      -------------       ------------------

Valuation
Allowance                   $  2,994,000         $ -                 $  -                 $ 2,994,000
                            ============         ============        ===========          ===========














                                          KRUPP GOVERNMENT INCOME TRUST II

                                                 SUPPLEMENTARY DATA
                                          SELECTED QUARTERLY FINANCIAL DATA
                                                     (Unaudited)
                              For the Quarter Ended


                              March 31,             June 30,           September 30,         December 31,
                                2001                  2001                 2001                  2001
                             ------------         ------------         ---------------       -------------

Total revenues               $  6,360,137         $  3,476,744         $ 12,808,257          $   2,684,679
                             ============         ============         ============          =============

Net income                   $  4,926,015         $  2,516,304         $  1,911,501          $   2,787,158
                             ============         =============        ============          =============

Earnings per Share           $        .27         $        .14         $        .64          $         .16
                             ============         ============         ============          =============


                                               For the Quarter Ended


                               March 31,            June 30,           September 30,         December 31,
                                 2000                 2000                 2000                  2000
                             ------------         ------------         ------------          -------------

Total revenues               $  4,908,065         $  3,954,856         $  4,031,680          $  4,083,596
                             ============         ============         ============          =============

Net income                   $  3,585,243         $  2,894,895         $  3,003,591          $  4,141,075
                             ============         ============         ============          ============

Earnings per Share           $        .20         $        .15         $        .17          $        .22
                             ============         ============         ============          ============



















                                                                                 (Unaudited)
                                                             (Amounts in thousands, except per Share amounts)

                                                                       Year                   Inception
                                                                       Ended                   Through
                                                                      12/31/01                 12/31/01
                                                                     ---------               -------------
Distributable Cash Flow (a):
---------------------------

Net income                                                             22,141                    147,591
Items providing or not requiring (not providing)
    the use of operating funds:
Additional Loan Base interest collected and reflected
   as Reduction  of provision for impaired mortgage loan                  562                        562
Provision for impaired mortgage loans                                  (1,500)                       500
Loss on sale of MBS                                                     -                          1,379
Amortization of prepaid fees and
     expenses and organization costs                                    2,608                     18,012
Additional Loan interest received
     and deferred, net                                                 (1,262)                     1,242
                                                                     --------                -----------

    Total Distributable Cash Flow ("DCF")                            $ 22,549                $  169,286
                                                                     ========                ===========

DCF per Share based on Shares
 outstanding at December 31, 2001 (18,371,477)                       $   1.23                $     9.21(d)
                                                                     ========                ==========

Dividends:

 Total dividends to Shareholders                                     $ 68,708 (b)            $   327,591(c)
                                                                     =========               ===========

 Average dividend per Share based
  on Shares outstanding at
  December 31, 2001                                                  $   3.74(b)             $      17.83(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 interest collections on Additional Loans which have not
     been recognized as income for book purposes. 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 2001 except the February 2001 quarterly
     dividend and includes an estimate of the quarterly dividend to be paid in
     February 2002.

(c)  Includes an estimate of the quarterly dividend to be paid in February 2002.

(d)  Shareholders average per Share return of capital on a cash basis as of
     February 2002 is $8.62 [$17.83-$9.21]. Return of capital represents that
     portion of dividends which is not funded from DCF, such as proceeds from
     the sale of assets and substantially all of the principal collections
     received from MBS, PIMs and PIMIs.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
