-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQPZCHWxpKP9bj5sWsirKg//XBcxB92OR8ylWwseZTOZBU/UUbj/Ka6X/wydLqgU rnd935BAbxMrsAEkMhx3tw== 0000872467-02-000005.txt : 20020814 0000872467-02-000005.hdr.sgml : 20020814 20020814154402 ACCESSION NUMBER: 0000872467-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUPP GOVERNMENT INCOME TRUST-II CENTRAL INDEX KEY: 0000872467 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043073045 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20164 FILM NUMBER: 02736113 BUSINESS ADDRESS: STREET 1: ONE BEACON ST CITY: BOSTON STATE: MA ZIP: 02108 BUSINESS PHONE: 6175230066 MAIL ADDRESS: STREET 1: ONE BEACON ST CITY: BOSTON STATE: MA ZIP: 02108 10-Q 1 git2.htm KRUPP GOVERNMENT INCOME TRUST II GIT 10Q

                                                      UNITED STATES
                                           SECURITIES AND EXCHANGE COMMISSION
                                                 Washington, D.C. 20549


                                                        FORM 10-Q

        (Mark One)

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

                  For the quarterly period ended              June 30, 2002
                                                 ------------------------------------

                                                                 OR

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

          For the transition period from                         to
                                         -----------------------    ------------------------



                               Commission file number          0-20164
                                                      ----------------------------


                                            Krupp Government Income Trust II


                      Massachusetts                                                     04-3073045
(State or other jurisdiction of incorporation or organization)              (IRS employer identification no.)


         One Beacon Street, Boston, Massachusetts                                          02108
         (Address of principal executive offices)                                        (Zip Code)


                                              (617) 523-0066
                            (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X    No
    -----     ------




                          Part I. FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS
- ------

This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. When used in this Form 10-Q, the words "believes," "anticipates,"
"expects," "plans," "intends," "estimates," "continue," "may" or "will" (or the
negative of such words) and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties, including but not limited to the following: federal, state or
local regulations; adverse changes in general economic or local conditions;
prepayments of mortgages; failure of borrowers to pay participation interests
due to poor operating results of properties underlying the mortgages; uninsured
losses and potential conflicts of interest between the Trust and its Affiliates,
including the Trustees. The Company's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the year ended December
31, 2001, contain additional information concerning such risk factors. Actual
results in the future could differ materially from those described in any
forward-looking statements as a result of the risk factors set forth above, and
the risk factors described in the Annual Report.




                                             KRUPP GOVERNMENT INCOME TRUST II

                                                     BALANCE SHEETS


                                                         ASSETS
                                                                                       June 30,       December 31,
                                                                                        2002              2001
                                                                                    -------------   ---------------
Participating Insured Mortgage Investments
 ("PIMIs")(Note 2)
     Insured mortgages                                                              $  59,229,805   $    85,625,185
     Additional Loans, net of impairment provision
      of $0 and $500,000, respectively                                                 13,654,000        17,654,500
Participating Insured Mortgages ("PIMs")(Note 2)                                       37,032,913        37,239,922
Mortgage-Backed Securities ("MBS")(Note 3)                                             13,098,425        15,600,964
                                                                                    -------------   ---------------

     Total mortgage investments                                                       123,015,143       156,120,571

Cash and cash equivalents                                                               4,867,553         6,453,663
Interest receivable and other assets                                                    1,038,766         1,174,106
Prepaid acquisition fees and expenses, net of
     accumulated amortization of $6,824,434 and
     $7,964,938, respectively                                                           1,790,474         2,913,250
Prepaid participation servicing fees, net of
     accumulated amortization of $2,107,459 and
     $2,420,697, respectively                                                             661,285         1,102,473
                                                                                   --------------   ---------------

     Total assets                                                                  $  131,373,221   $   167,764,063
                                                                                   ==============   ===============


                                          LIABILITIES AND SHAREHOLDERS' EQUITY

Deferred income on Additional Loans (Note 2)                                       $        -       $     1,242,282
Other liabilities                                                                         100,387            25,985
                                                                                   --------------   ---------------

     Total liabilities                                                                    100,387         1,268,267
                                                                                   ---------------   --------------

Shareholders' equity (Note 4)
     Common stock, no par value; 25,000,000
       Shares authorized; 18,371,477 Shares
        issued and outstanding                                                        130,884,349       166,214,677


     Accumulated comprehensive income                                                     388,485           281,119
                                                                                   --------------   ---------------

     Total Shareholders' equity                                                       131,272,834       166,495,796
                                                                                   --------------   ---------------

     Total liabilities and Shareholders' equity                                    $  131,373,221   $   167,764,063
                                                                                   ==============   ===============


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




                                            KRUPP GOVERNMENT INCOME TRUST II

                                      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME



                                                      For the Three Months               For the Six Months
                                                         Ended June 30,                    Ended June 30,
                                               --------------------------------------------------------------------
                                                    2002              2001            2002              2001
                                               --------------    ---------------   --------------    --------------

Revenues:
  Interest income - PIMs and PIMIs:
        Basic interest                         $     1,655,328   $     2,575,956   $    3,629,965    $    5,301,009
        Additional Loan interest                      292,378            394,533        2,498,605         1,061,959
        Participation interest                          -                113,253        2,673,573         2,624,332
  Interest income - MBS                               223,134            316,868          449,141           648,691
  Interest income - cash and cash equivalents          29,816             76,134           75,638           200,890
                                               --------------    ----------------  --------------    --------------

        Total revenues                              2,200,656          3,476,744        9,326,922         9,836,881
                                               --------------    ---------------   --------------    --------------

Expenses:
  Asset management fee to an affiliate                229,713            349,666          493,300           712,598
  Expense reimbursements to affiliates                 62,406             75,192           94,381           117,175
  Amortization of prepaid fees and expenses           278,556            414,521        1,563,964         1,335,809
  General and administrative                           99,253            121,061          200,063           228,980
  Reduction of provision for impaired
   additional loan (Note 2)                             -                  -             (500,000)            -
                                               --------------    ---------------   --------------    --------------

        Total expenses                                669,928            960,440        1,851,708         2,394,562
                                               --------------    ---------------   --------------    --------------

Net income                                          1,530,728          2,516,304        7,475,214         7,442,319

  Other comprehensive income:
    Net change in unrealized gain
    (loss) on MBS                                     105,937             (7,500)         107,366            49,184
                                               --------------    ---------------   --------------    --------------

 Total comprehensive income                    $    1,636,665    $      2,508,804  $    7,582,580    $    7,491,503
                                               ==============    ================  ==============    ==============

 Basic earnings per share                      $          .09    $           .14   $          .41    $         .41
                                               ==============    ===============   ==============    ==============

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





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





                                         KRUPP GOVERNMENT INCOME TRUST II

                                             STATEMENTS OF CASH FLOWS



                                                                                   For the Six Months
                                                                                      Ended June 30,
                                                                            ----------------------------------
                                                                                 2002                2001
                                                                            -------------        -------------

 Operating activities:
   Net income                                                               $   7,475,214        $   7,442,319
   Adjustments to reconcile net income to net
     cash provided by operating activities:
      Amortization of net premium                                                  46,708               28,223
      Amortization of prepaid fees and expenses                                 1,563,964            1,335,809
      Reduction of provision for impaired additional loan                        (500,000)            -
      Changes in assets and liabilities:
         Decrease in interest receivable and other assets                         135,340               64,432
         Decrease in deferred income on Additional Loans                       (1,242,282)            (572,377)
         Increase (decrease) in other liabilities                                  74,402             (101,995)
                                                                            -------------        -------------

 Net cash provided by operating activities                                      7,553,346            8,196,411
                                                                            -------------        -------------

 Investing activities:
   Principal collections on MBS                                                 2,563,062            1,385,347
   Principal collections on Additional Loans                                    4,500,500              650,000
   Principal collections on PIMs and Insured Mortgages                         26,602,524           13,235,507
                                                                            -------------        -------------

Net cash provided by investing activities                                      33,666,086           15,270,854
                                                                            -------------        -------------

 Financing activity:
   Dividends                                                                  (42,805,542)         (24,066,636)
                                                                            -------------        -------------

 Net decrease in cash and cash equivalents                                     (1,586,110)            (599,371)

 Cash and cash equivalents, beginning of period                                 6,453,663            7,089,453
                                                                            -------------        -------------

 Cash and cash equivalents, end of period                                   $   4,867,553        $   6,490,082
                                                                            =============        =============

 Non Cash Activities:
   Increase in Fair Value of MBS                                            $     107,366        $      49,184
                                                                            =============        =============






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




                                          KRUPP GOVERNMENT INCOME TRUST II

                                            NOTES TO FINANCIAL STATEMENTS


1.      Accounting Policies

        Certain information and footnote disclosures normally included in
        financial statements prepared in accordance with accounting principles
        generally accepted in the United States of America have been condensed
        or omitted in this report on Form 10-Q pursuant to the Rules and
        Regulations of the Securities and Exchange Commission. However, in the
        opinion of Berkshire Mortgage Advisors Limited Partnership (the
        "Advisor"), which is the advisor to Krupp Government Income Trust II
        (the "Trust"), the disclosures contained in this report are adequate to
        make the information presented not misleading. See Notes to Financial
        Statements in the Trust's Form 10-K for the year ended December 31, 2001
        for additional information relevant to significant accounting policies
        followed by the Trust.

        In the opinion of the Advisor of the Trust, the accompanying unaudited
        financial statements reflect all adjustments (consisting primarily of
        normal recurring accruals) necessary to present fairly the Trust's
        financial position as of June 30, 2002 and the results of its operations
        for the three and six months ended June 30, 2002 and 2001 and its cash
        flows for the six months ended June 30, 2002 and 2001.

        The results of operations for the three and six months ended June 30,
        2002 are not necessarily indicative of the results which may be expected
        for the full year. See Management's Discussion and Analysis of Financial
        Condition and Results of Operations included in this report.

 2.     PIMs and PIMIs

        At June 30, 2002, the Trust's PIMs and PIMIs, including Additional
        Loans, had a fair value of $112,673,155 and gross unrealized gains of
        $2,756,437. The PIMs and PIMIs had maturities ranging from 2008 to 2036.
        At June 30, 2002 there are no insured mortgage loans within the Trust's
        portfolio that were delinquent of principal or interest.

        On March 28, 2002, the Trust received a prepayment of the Windmill Lakes
        Subordinated Promissory Note and the Windmill Lakes Additional Loan. The
        Trust received $2,000,000 of Additional Loan principal and $162,500 of
        Additional Loan interest. The Trust recognized $562,500 of the
        Additional Loan principal as Additional Loan interest. Due to the
        payoff, the remaining impairment provision of $500,000 was reversed. On
        April 25, 2002, the Trust received $10,727,382 representing the
        principal proceeds on the first mortgage note from Windmill Lakes. The
        Trust paid a special dividend of $.71 per share from the proceeds of the
        Windmill Lakes prepayment on May 1, 2002.

        On February 13, 2002, the Trust received a prepayment of the Norumbega
        Pointe Subordinated Promissory Note and the Norumbega Pointe Additional
        Loan. The Trust received $3,063,000 of Additional Loan principal,
        $302,877 of Shared Appreciation Interest and $2,280,362 of Preferred
        Interest. On February 25, 2002, the Trust received $15,123,167
        representing the principal proceeds on the first mortgage note. In
        addition, the Trust recognized $1,242,282 of Additional Loan interest
        that had been previously received and recorded as deferred income on the
        additional loan. The Trust paid a special dividend of $1.14 per share
        from the proceeds of the Norumbega Pointe prepayment on March 12, 2002.

 3.     MBS

        At June 30, 2002, the Trust's MBS portfolio had an amortized cost of
        approximately $12,709,940 and gross unrealized gains of approximately
        $388,485. The MBS portfolio had maturities ranging from 2008 to 2031.





                                                    Continued




                                          KRUPP GOVERNMENT INCOME TRUST II

                                      NOTES TO FINANCIAL STATEMENTS, Continued



 4.     Changes in Shareholders' Equity

        A summary of changes in Shareholders' equity for the six months ended
        June 30, 2002 is as follows:


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

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

  Net income                                     -             7,475,214              -                  7,475,214

  Dividends                                (35,330,328)       (7,475,214)             -                (42,805,542)

  Change in unrealized
  gain on MBS                                    -                 -                107,366                107,366
                                        --------------      -------------       -----------       ----------------

  Balance at June 30, 2002              $  130,884,349      $      -            $   388,485       $    131,272,834
                                        ==============      =============       ===========       ================




5.       Related Party Transactions

        The Trust received $221,641 of Additional Loan interest during the six
        months ended June 30, 2001 from an affiliate of the Advisor. The Trust
        also received participation interest of $129,872 from an affiliate of
        the Advisor during the six months ended June 30, 2001.






Item 2.  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-Q
constitute "forward-looking statements" within the meaning of the Federal
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Trust's actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors include,
among other things, federal, state or local regulations; adverse changes in
general economic or local conditions; the inability of the borrower to meet
financial obligations on additional loans; pre-payments of mortgages; failure of
borrowers to pay participation interests due to poor operating results at
properties underlying the mortgages; uninsured losses and potential conflicts of
interest between the Trust and its Affiliates, including the Advisor.

Liquidity and Capital Resources

At June 30, 2002, the Trust had liquidity consisting of cash and cash
equivalents of approximately $4.9 million, as well as the cash inflows provided
by PIMs, PIMIs, MBS and cash and cash equivalents. The Trust may also receive
additional cash flow from the participation features of its PIMs and PIMIs. The
Trust anticipates that these sources will be adequate to provide the Trust with
sufficient liquidity to meet its obligations, including providing dividends to
its investors.

The most significant demands on the Trust's liquidity are quarterly dividends
paid to investors of approximately $2.6 million and special dividends. Funds for
dividends come from interest income received on PIMs, PIMIs, MBS and cash and
cash equivalents net of operating expenses, 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 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. On May 16, 2002, the Trustees declared a quarterly
dividend rate of $.14 per Share, reduced from $.24 per Share, effective with the
dividend payable on August 14, 2002.

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 the first installment of Additional Loan interest due in 2002
from all five of the PIMI investments during the six months ended June 30, 2002.

During the first quarter of 2002, the Trust received $90,334 of participation
interest from the operations of Mequon Trails. In addition, the Trust received
and recognized participation interest related to the Norumbega Pointe payoff
(see below).

On March 28, 2002, the Trust received a prepayment of the Windmill Lakes
Subordinated Promissory Note and the Windmill Lakes Additional Loan. The Trust
received $2,000,000 of Additional Loan principal and $162,500 of Additional Loan
interest. The Trust recognized $562,500 of the Additional Loan principal as
Additional Loan interest. Due to the payoff, the remaining impairment provision
of $500,000 was reversed. On April 25, 2002, the Trust received $10,727,382
representing the principal proceeds on the first mortgage note from Windmill
Lakes. The Trust paid a special dividend of $.71 per share from the proceeds of
the Windmill Lakes prepayment on May 1, 2002.

On February 13, 2002, the Trust received a prepayment of the Norumbega Pointe
Subordinated Promissory Note and the Norumbega Pointe Additional Loan. The Trust
received $3,063,000 of Additional Loan principal, $302,877 of Shared
Appreciation Interest and $2,280,362 of Preferred Interest. On February 25,
2002, the Trust received $15,123,167 representing the principal proceeds on the
first mortgage note. In addition, the Trust recognized $1,242,282 of Additional
Loan interest that had been previously received and recorded as deferred income
on the additional loan. The Trust paid a special dividend of $1.14 per share
from the proceeds of the Norumbega Pointe prepayment on March 12, 2002.

There are contractual restrictions on the prepayment of the PIMs and PIMIs.
During the first five years of the investment, borrowers are generally
prohibited from repayment. During the second five years, the PIM borrowers can
prepay the insured mortgage by paying the greater of a prepayment premium or the
participation interest due at the time of the prepayment. Similarly, the PIMI
borrowers can prepay the insured mortgage and the Additional Loan by satisfying
the Preferred Return obligation. The participation features and the Additional
Loans are neither insured nor guaranteed. If the prepayment of the PIM or PIMI
results from the foreclosure on the underlying property or an insurance claim,
the Trust generally would not receive any participation interest or any amounts
due under the Additional Loan.

The Trust has the option to call certain PIMs and all the PIMIs by accelerating
their maturity if the loans are not prepaid by the tenth year after permanent
funding. 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.

Results of Operations

The Trust's net income decreased in the three months ended June 30, 2002 as
compared to June 30, 2001 primarily due to decreases in basic interest on PIMs
and PIMIs and Additional Loan interest. This was partially offset by decreases
in amortization expense and asset management fees. Basic interest on PIMs and
PIMIs decreased due to the Norumbega Pointe and Windmill Lakes payoffs and the
payoff of the Seasons PIMI in July 2001. These prepayments also caused
Additional Loan interest to decrease. Amortization expense was greater during
the three months ended June 30, 2001 as compared to June 30, 2002 as a result of
the full amortization of the remaining prepaid fees and expenses on the PIMI
prepayments in 2001. Asset management fees decreased due to the decrease in the
Trust's investments as a result of principal collections and payoffs.

The Trust's net income increased during the six months ended June 30, 2002 as
compared to June 30, 2001 primarily due to an increase in Additional Loan
interest and decreases in asset management fees and the provision for impaired
mortgage loan. This was partially offset by an increase in amortization expense
and a decrease in basic interest from PIMs and PIMIs. Additional Loan interest
increased primarily due to the recognition of deferred income from the Norumbega
Pointe payoff and base interest recognized from the Windmill Lakes payoff. The
decrease in asset management fees is a result of the Trust's asset base
declining from PIM and PIMI prepayments in 2001 and the six months ended June
30, 2002. These prepayments also caused basic interest on PIMs and PIMIs to
decrease. Amortization expense increased primarily due to the full amortization
of the remaining prepaid fees and expenses related to the Norumbega Pointe and
Windmill Lakes payoffs. The provision for impaired mortgage decreased due to the
reversal of the impairment provision for the Windmill Lakes PIMI as a result of
the Additional Loan payoff received on March 28, 2002.


Item 3.      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, the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ("GNMA") or the Department of Housing
and Urban Development ("HUD"), and therefore, the certainty of their cash flows
and the risk of a material loss of the amounts invested depends upon the
creditworthiness of these entities.

Fannie Mae is a federally chartered private corporation that guarantees
obligations originated under its programs. However, obligations of Fannie Mae
are not backed by the U.S. Government. 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. Government.

The Trust's Additional Loans have similar risks as those associated with higher
risk debt instruments, including: reliance on the owner's operating skills,
ability to maintain occupancy levels, control operating expenses, ability to
maintain the properties and obtain adequate insurance coverage. Operations also
may be affected by adverse changes in general economic conditions, local
conditions and changes in governmental regulations, real estate zoning laws, or
tax laws; and other circumstances over which the Trust may have little or no
control.

The Trust includes in cash and cash equivalents approximately $4.6 million of
Agency paper, which is issued by Government Sponsored Enterprises with a credit
rating equal to the top rating category of a nationally recognized statistical
rating organization.

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 June 30, 2002,
the Trust's PIMs, PIMIs and MBS comprise the majority of the Trust's assets.
Decreases in interest rates may accelerate the prepayment of the Trust's
investments. The Trust does not utilize any derivatives or other instruments to
manage this risk as the Trust plans to hold all of its 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.







                                          KRUPP GOVERNMENT INCOME TRUST II

                                             PART II - OTHER INFORMATION


 Item 1.      Legal Proceedings
              None

 Item 2.      Changes in Securities
              None

 Item 3.      Defaults upon Senior Securities
              None

 Item 4.      Submission of Matters to a Vote of Security Holders
              None

 Item 5.      Other Information
              None

 Item 6.      Exhibits and Reports on Form 8-K

              (a) Exhibits
                 (99.1) Chairman of the Board Certification pursuant to 18
                        U.S.C. Section 1350, as adopted pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.

                 (99.2) Chief Accounting Officer Certification pursuant to 18
                        U.S.C. Section 1350, as adopted pursuant to Section 906
                        of the Sarbanes-Oxley Act of 2002.

              (b) Reports on Form 8-K
                                                                                Financial Statements
              Date of Report                     Event Reported                      Included
              --------------                   --------------------             -------------------
              May 16, 2002                     Reduction in the                        None
                                               quarterly dividend
                                               rate





                                             SIGNATURE



 Pursuant to the requirements of the Securities Exchange Act of 1934, the
 registrant has duly caused this report to be signed on its behalf by the
 undersigned, thereunto duly authorized.



                                                 Krupp Government Income Trust II
                                                 --------------------------------
                                                        (Registrant)



                                                 BY:    / s / Robert A. Barrows
                                                        --------------------------------------------------------

                                                        Robert A. Barrows
                                                        Treasurer and Chief Accounting Officer of
                                                        Krupp Government Income Trust II.






 DATE:   August 13, 2002





                            CERTIFICATION PURSUANT TO
                 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Krupp Government Income Trust II (the
"Trust") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Douglas
Krupp, Chairman of the Board of the Trust, certify, pursuant to U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

(1)      The Report fully complies with the requirements of section 13(a)
         or 15(d) of the Securities Exchange Act of 1934; and

(2)      The information contained in the Report fairly presents, in
         all material respects, the financial condition and results of
         operations of the Trust as of June 30, 2002 (the last date of
         the period covered by the Report).



  / s / Douglas Krupp
- ----------------------------------
Douglas Krupp,
Chairman of the Board





                            CERTIFICATION PURSUANT TO
                 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Krupp Government Income Trust II (the
"Trust") on Form 10-Q for the period ending June 30, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Robert
A. Barrows, Chief Accounting Officer of the Trust, certify, pursuant to U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:

(1)      The Report fully complies with the requirements of section 13(a)
         or 15(d) of the Securities Exchange Act of 1934; and

(2)      The information contained in the Report fairly presents, in
         all material respects, the financial condition and results of
         operations of the Trust as of June 30, 2002 (the last date of
         the period covered by the Report).



  / s / Robert A. Barrows
- -----------------------------
Robert A. Barrows,
Chief Accounting Officer




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