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


                                                      FORM 10-K
(Mark One)


  X

             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
             EXCHANGE ACT OF 1934 [FEE REQUIRED]

                For the fiscal year ended                     December 31, 1998

                                                         OR




         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

     For the transition period from                       to

     Commission file number                               0-20164

                           Krupp Government Income Trust II
                   (Exact name of registrant as specified in its charter)

Massachusetts                                                         04-3073045
(State or other jurisdiction of                                   (IRS Employer
incorporation or organization)                              Identification No.)

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

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

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 13-20.


<PAGE>



                                                       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  6,572,204  Shares are  available  for  general  Trust
purposes). See Note A of Notes to Financial Statements included in Appendix A of
this report for additional information.  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 a MBS  or an  insured  mortgage  loan  (collectively,  the  "insured
mortgage")  guaranteed  or  insured as to  principal  and basic  interest  and a
participation interest. 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 these rights to the
Trust through a subordinated  promissory  note and mortgage.  The  participation
features are neither insured nor guaranteed.

   The  PIMIs  consist  of an  insured  mortgage,  as  discussed  above,  and an
additional loan ("Additional Loan") to the borrower or owners of the borrower in
excess of mortgage amounts insured or guaranteed  under GNMA,  Fannie Mae or FHA
programs  that  increases  the  Trust's  total  financing  with  respect to that
property and  participation  in cash  generated by property  operations  and any
appreciation in the value of the property. The participation features related to
all PIMIs are neither insured nor guaranteed.  Additional  Loans associated with
insured  mortgages  issued or originated under or in connection with HUD cannot,
under government regulations,  be collateralized by a mortgage on the underlying
property.  These Additional Loans are typically  collateralized  with collateral
satisfactory to the Advisor, but are neither insured nor guaranteed.  Additional
Loans  associated  with  FNMA  insured   mortgages  are   collateralized   by  a
subordinated  mortgage on the underlying  property.  The borrower  conveys these
rights to the Trust through a subordinated loan agreement.  Under the Additional
Loans, the Trust receives  semi-annual  interest payments and a Preferred Return
representing a non-compounded cumulative return on the outstanding indebtedness,
usually the aggregate amount of the insured mortgage and Additional Loan.




   The Trust also acquired MBS  collateralized  by single-family  mortgage loans
issued or originated by Fannie Mae or the Federal Home Loan Mortgage Corporation
("FHLMC").  Fannie Mae and FHLMC  guarantee  the  principal  and interest of the
Fannie Mae and FHLMC MBS, respectively.

   The Trust will  distribute  any and all proceeds  from  prepayments  or other
realizations   of  mortgage  assets  to  investors   either  through   quarterly
distributions or possibly special distributions.

   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 requirements for compliance with federal,  state and local regulations to
date have not had an adverse  effect on 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 distributions 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 distribution 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 distribution to shareholders or for reinvestment.
To the extent that  distributions  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, 1998,  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 is a party
or to 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,  1998  was
approximately 15,500.


   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 $.3125 for 1998 and 1997.

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.

<TABLE>
<CAPTION>
                                   (Amounts in thousands, except for per Share amounts)

                                               1998     1997            1996            1995            1994

<S>                                      <C>           <C>              <C>             <C>            <C>     
Total revenues                           $ 21,630      $ 21,291         $ 19,877        $ 20,033       $ 18,200

Net income                               $ 13,183      $ 16,263         $ 14,999        $ 13,747       $ 13,882

Net income per Share                     $    .72      $    .89         $    .82        $    .75       $    .76

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

Total assets at December 31              $267,410      $293,158         $298,297        $306,965       $314,250

Average dividends per Share              $   2.12      $   1.25         $   1.25        $   1.25       $   1.25

</TABLE>

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

    Management's  Discussion and Analysis of Financial  Condition and Results of
Operations  contains  forward-looking   statements  including  those  concerning
Management's  expectations regarding the future financial performance and future
events.   These   forward-looking   statements  involve   significant  risk  and
uncertainties,  including  those  described  herein.  Actual  results may differ
materially from those anticipated by such forward-looking statements.

    The  Advisor  of the Trust  conducted  an  assessment  of the  Trust's  core
internal and external computer  information  systems and has taken the necessary
steps to  understand  the  nature and  extent of the work  required  to make its
systems  Year 2000 ready in those  situations  in which it is required to do so.
The Year 2000 readiness issue concerns the inability of computerized information
systems to  accurately  calculate,  store or use a date after  1999.  This could
result in a system failure or miscalculations causing disruptions of operations.
The Year 2000 issue affects virtually all companies and all organizations.

    In this regard,  the Advisor of the Trust,  along with  certain  affiliates,
began a computer systems project in 1997 to  significantly  upgrade its existing
hardware and software.  The Advisor  completed the testing and conversion of the
financial  accounting  operating  systems in  February  1998.  As a result,  the
Advisor  has  generated  operating   efficiencies  and  believes  its  financial
accounting  operating  systems  are Year 2000  ready.  The  Advisor of the Trust
incurred  hardware costs as well as consulting and other expenses related to the
infrastructure and facilities enhancements necessary to complete the upgrade and
prepare for the Year 2000.  There are no other  significant  internal systems or
software that the Trust is using at the present time.

    The  Advisor of the Trust is in the  process  of  evaluating  the  potential
adverse  impact  that could  result  from the  failure of  material  third-party
service providers (including but not limited to its banks and telecommunications
providers) and  significant  vendors to be Year 2000 ready.  The Trust is in the
process of surveying  these third party  providers and assessing their readiness
with year  2000.  To date,  the Trust is not aware of any  problems  that  would
materially  impact its results of  operations,  liquidity or capital  resources.
However,  the Trust has not yet  obtained  all  written  assurances  that  these
providers would be Year 2000 ready.

The  Trust  currently  does  not  have a  contingency  plan  in the  event  of a
particular  provider  or system  not being  Year 2000  ready.  Such plan will be
developed  if it  becomes  clear that a  provider  is not going to  achieve  its
scheduled  readiness  objectives by June 30, 1999. The inability of one of these
providers to complete its Year 2000  resolution  process could impact the Trust.
In addition,  the Trust is also subject to external  forces that might generally
affect industry and commerce,  such as utility and  transportation  company Year
2000 readiness  failures and related service  interruptions.  To date, The Trust
has not incurred any cost associated with being Year 2000 ready.  All costs have
been  incurred  by the  Advisor  and it is  estimated  that any future Year 2000
readiness  costs will be borne by the  Advisor.  No estimate can be made at this
time as to the impact of the readiness of such third parties.

Liquidity and Capital Resources

At December 31, 1998 the Trust had significant  liquidity consisting of cash and
cash  equivalents  of  approximately  $18  million  as well as the cash  inflows
provided by its investments in PIMs,  PIMIs and MBS. The Trust  anticipates that
these sources will be adequate to provide the Trust with sufficient liquidity to
meet its obligations as well as to provide dividends to its investors.

The most  significant  demand on the  Trust's  liquidity  is  dividends  paid to
investors,  approximately  $5.7 million per quarter.  The Trust currently has an
annual  dividend  rate of $1.25 per share,  paid in  quarterly  installments  of
$.3125 per share. Funds for the dividends distributed by the Trust come from the
principal  and  interest  payments  on the PIMs,  PIMIs and MBS,  the  principal
repayments  of the PIMs,  PIMIs and MBS, and the interest  earned on the Trust's
cash  and  cash  equivalents.  The  portion  of  dividends  attributable  to the
principal  collected  in those  payments  reduces the capital  resources  of the
Trust. As the capital  resources of the Trust decrease,  the total cash flows to
the Trust will decrease and over time will result in  periodic adjustments 
to the dividends paid to investors.

The Advisor  periodically  reviews the  dividend  rate to  determine  whether an
adjustment is necessary based on projected  future cash flows.  Based on current
projections,  the Advisor  believes the Trust can maintain the current  dividend
rate for the foreseeable future. In general, the Advisor tries to set a dividend
rate that provides for level quarterly  distributions.  To the extent  quarterly
dividends do not fully  utilize the cash  available  for  distribution  and cash
balances  increase,  the Advisor may adjust the dividend rate or distribute such
funds through a special distribution.

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 a  participation  interest  in the  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.

Most of the properties had stable operating  results during 1998. High occupancy
rates were  maintained and moderate  rental rate increases were achieved at more
than half of the  properties  due to stable or  improving  markets or the unique
character of the specific  property.  However,  six properties are being closely
monitored by the Advisor and warrant  mention.  The  borrowers on the  Norumbega
Point and Oasis PIMIs used  out-of-pocket  funds to keep those  Additional Loans
current during 1998.  Norumbega Point generated  sufficient  operating cash flow
but was  unable  to use it for  Additional  Loan  interest  due to  restrictions
imposed by HUD on cash flow distributions, and Oasis did not generate sufficient
cash flow from operations to pay the Additional  Loan interest.  The borrower on
the  Windmill  Lakes  PIMI  is in  technical  default  for  non-payment  of  his
contractual share of the Additional Loan interest.

The operating  performance  of Oasis and Windmill  Lakes declined more seriously
during 1998. Both properties are located in Broward County, Florida and continue
to be adversely  affected by the highly  competitive  market there.  As a result
both  borrowers  have  sought debt  service  relief.  The  strength of the South
Florida economy, bolstered by an expanding business environment and in-migration
coupled with low interest  rates and available  building  sites,  has encouraged
aggressive development of both single-family homes and new apartments.  Oasis is
located in the Sunrise submarket, an established market that has seen some major
rehab activity as well as new infill  construction  in the  multifamily  sector.
Occupancy at Oasis has remained  stable over the past three years in the low 90%
range,  however  occupancy has become  increasingly  more  expensive to achieve.
Because Oasis must compete with newer or rehabilitated  properties,  maintenance
costs have risen as the standards  apartment  communities are judged by continue
to rise. However,  as an older property,  Oasis has not been able to command the
commensurate  rental rate increases it needs to be able to pay for  improvements
that will  enhance  its appeal in the  market.  Consequently,  the  Advisor  has
tentatively  agreed to defer the Additional  Loan interest  payments for 1999 to
free up funds  for some  major  capital  projects.  As a result  of the  factors
described  above,  in December 1998,  management  determined that the additional
loan  collateralized  by the Oasis  asset was  impaired.  As a result  the Trust
recorded a valuation allowance of $994,000 in the fourth quarter of 1998.

Windmill  Lakes is located in the Pembroke  Pines  submarket,  a market that had
vast tracts of vacant land three years ago and has seen  explosive  construction
activity  since  then in the  single-family,  multifamily  and  retail  sectors.
Windmill  Lakes is a ten-year old, basic  apartment  community that has not been
able to compete against the influx of new apartment  communities that are loaded
with  amenities.  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.
Occupancy  at year-end  had fallen below 80%.  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. Consequently, due to lack of
cash flow, the borrower is delinquent in his  obligation to pay Additional  Loan
interest.  Although he is trying to sell the  property,  the  borrower  has been
unable to secure a purchase  price that will  cover the  property's  outstanding
liabilities.  The Advisor has agreed to defer the delinquent and 1999 Additional
Loan interest payments pending a sale of the property during 1999. If it becomes
apparent that a sale mutually acceptable to both the Trust and the borrower will
not be  possible,  the  Advisor  will  reassess  the  feasibility  of  extending
long-term debt service relief rather than risk the  consequences of a default on
the guaranteed  first mortgage.  As a result of the factors  described above, in
December 1998,  management determined that the additional loan collateralized by
the  Windmill  Lakes  asset  was  impaired.  As a result  the Trust  recorded  a
valuation allowance of $2,000,000 in the fourth quarter of 1998.

Rivergreens and Mill Pond, while  generating  sufficient  operating  revenues to
service  debt   obligations  and  adequately   maintain  the  properties,   face
increasingly   challenging  market  conditions  that  have  affected  occupancy.
Rivergreens is located in a submarket that typically lags behind the rest of the
Portland,  Oregon market,  which has been affected by the Asian financial crisis
and Boeing's downsizing.  Occupancy at year-end was in the 90% range. Mill Pond,
located in Dayton,  Ohio,  also has  experienced  the  effects of a soft  market
created by new multifamily  construction,  which creates more  competition,  and
continuing low interest rates, which shrinks the population of potential renters
as they purchase homes.  Occupancy fluctuated during the year, but reached a low
point in the low 80% range at year-end.

The  borrower  on the  Windsor  Lake PIMI  asked  the  Trust to  either  allow a
prepayment of the PIMI at a discount or to enter into a workout  agreement  that
would provide debt service relief.  There are significant repair and replacement
issues at the property  that will have a long-term  effect on its value.  During
the fourth quarter 1998, the Advisor proposed some relief on the Additional Loan
in return for an increase in the Trust's  participation in the property's value.
However, there has been no response from the borrower.

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
little  or no  control  over.  Should  the  properties  be  unable  to  generate
sufficient  cash flow to pay the Additional  Loan interest,  it would reduce the
Trust's  distributable  cash flow and could  affect the value of the  Additional
Interest collateral.

During 1998, the Trust received the full Additional Loan interest  payments from
ten  of its  eleven  PIMI  investments.  Eight  properties  made  the  scheduled
Additional  Loan interest  payments with operating  cash flow.  During 1998, the
Trust  received  participation  income  from nine of its  investments  totalling
$1,056,000.  Two of the Trust's PIM  investments  generated  operating cash flow
that  exceeded the  criteria:  Mequon paid  $73,254 and Mill Pond paid  $21,714.
Seven of the  Trust's  PIMI  investments  generated  operating  cash  flow  that
exceeded that criteria:  Crossings Village paid $150,000;  Lakes at Vinings paid
$60,534;  Martins Landing paid $50,577;  St. Germain paid $359,311;  The Seasons
paid  $239,107;  Windsor Lake paid $83,781;  and The Willows paid $17,734.  As a
result of continuing  strong operating  performance in 1998, the Advisor expects
that most of these same  properties will pay  participation  income to the Trust
again in 1999.

During  1998,  the  Trust  received  the  prepayment  of the  St.  Germain  PIMI
investment  when the property was  refinanced.  This  prepayment  occurred  four
months  prior to the  expiration  of the  five-year  prohibition.  However,  the
Advisor agreed to allow the transaction to be completed while market  conditions
were  favorable.  The Trust received the prepayment of the principal  balance of
the  guaranteed  first  mortgage,  $11,006,015,  the  principal  balance  of the
Additional Loan,  $2,860,000 and the Additional Loan interest due at the time of
the prepayment,  $83,417. In addition,  the Trust received  participation income
comprised  of the  outstanding  Preferred  Return on the Trust's  investment  of
$89,975 and the Trust's share in the increase in the value of the underlying 
property of $1,874,032. The Trust paid a special  dividend on  September  28, 
1998 of $.87 per share from the  prepayment proceeds of the St. Germain PIMI.

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 first mortgage by paying the greater of a prepayment  penalty
or the participation interest due at the time of the prepayment.  Similarly, the
PIMI borrowers can prepay the insured first mortgage and the Additional  Loan by
satisfying the Preferred Return obligation.  The participation  features and 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.

The Trust has the option to call certain PIMs and all the PIMIs by  accelerating
their  maturity if the loans are not  prepaid by the tenth year after  permanent
funding. The Advisor will determine the merits of exercising the call option for
each PIM and PIMI as economic conditions warrant.  Such factors as the condition
of the asset,  local  market  conditions,  the  interest  rate  environment  and
available financing will have an impact on these decisions.

Assessment of Credit Risk

    The Trust's  investments in mortgages,  with the exception of the Additional
Loans, are guaranteed or insured by Fannie Mae, FHLMC or HUD, and therefore, the
risk of a  material  loss of  amounts  invested  is  remote.  The  certainty  of
principal on the Trust's investments primarily 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 FNMA 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. HUD, an agency of the U.S. Government, insures the
obligations originated under its programs which are backed by the full faith and
credit of the U.S. Government.

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

    The Trust includes in cash and cash equivalents  approximately $17.7 million
of commercial  paper,  which is issued by entities with a credit rating equal to
one of the top two rating  categories  of a  nationally  recognized  statistical
rating organization.

Operations
<TABLE>
<CAPTION>
                                             (amounts in thousands, except per Share amounts)
                                                                 Year Ended December 31,
                                                              1998           1997                        1996
                                                                   Per                         Per                          Per
                                                     Amount        Share          Amount       Share           Amount      Share
Interest on PIMs:
<S>                                                  <C>           <C>              <C>        <C>             <C>         <C> 
Basic interest                                       $12,450       $ .68            $13,828    $ .75           $13,952     $.76
Additional loan interest                               1,581         .09              2,147      .12             1,522      .08
Participation income                                   3,252         .18              1,770      .10               768      .04
Interest income on MBS                                 3,265         .18              2,847      .16             3,123      .17
Interest income - other                                1,082         .06                698      .04               512      .03
Trust expenses                                        (2,553)       (.15)            (2,840)    (.16)           (2,783)    (.15)
Provision for impaired mortgage
   loans                                              (2,994)       (.16)               -         -                -         -
Amortization of prepaid fees and
   expenses and organization costs                    (2,900)       (.16)            (2,187)    (.12)           (2,095)    (.11)

Net income                                           $13,183       $ .72            $16,263     $ .89          $14,999     $.82

Weight Average Shares Outstanding                     18,371,477                    18,371,477                18,371,477

</TABLE>

The Trust's  total  interest  income for 1998 as compared to 1997  increased  by
approximately  $340,000 due to higher participation  income,  interest income on
MBS and interest income other,  which was partially offset by decreases in basic
interest  on PIMs and  PIMIs and  Additional  Loan  interest.  The  increase  in
participation income in 1998 as compared to 1997 is due primarily to the Trust's
receipt of approximately $2,323,000 from the operations and repayment of the St.
Germain PIMI and  approximately  $929,000 from its other PIMS and PIMIs in 1998,
versus $789,000 due to the repayment of the Willows Additional Loan and $981,000
of participation on the other PIMs and PIMIs. The increase in interest income on
MBS is due to reclassifying  the MBS portion of The Willows PIMI and The Estates
PIM as MBS as a result of  property  sale  transactions  in 1997 from  which the
Trust received all participation owed but will continue to receive principal and
interest on the first mortgage loan from the buyer. This transaction, along with
the St. Germain prepayment, also caused a decrease in the basic interest on PIMs
and PIMIs in 1998 as compared to 1997. The increase in other interest  income is
due to the Trust having higher short-term  investment  balances for 1998 as 
compared to 1997. 
Additional Loan interest decreased due to the repayment of St. Germain
in 1998 and  Willows in the third  quarter of 1997.  Interest  income on MBS and
basic interest on PIMs and PIMIs will generally decline as principal collections
reduce the outstanding balance of the MBS, PIM and PIMI portfolios.

Trust expenses decreased by approximately $287,000 or 10% in 1998 as compared to
1997 primarily due to decreases in expense  reimbursements  and asset management
fees. In addition, the Trust recorded a provision for impaired mortgage loans of
$2,994,000  related  to  Windmill  Lakes and  Oasis.  The  decrease  in  expense
reimbursements when comparing 1998 to 1997 is due to the Trust having received a
rebate for expense  reimbursements  related to 1997 during 1998. The decrease in
asset  management  fees when  comparing  1998 to 1997  resulted from the Trust's
asset base declining.

The Trust's  total  interest  income for 1997 as compared to 1996  increased  by
approximately  $1,413,000 due to higher Additional Loan interest,  participation
income and other  interest  income,  which was partially  offset by decreases in
interest  income on MBS and basic  interest on PIMs and PIMIs.  The  increase in
participation  income was  primarily  due to the Trust  receiving  Participating
Appreciation  Interest  of  approximately  $789,000  from the  preferred  return
payment related to the Willows  Additional Loan payoff and participation  income
of approximately $981,000 from 10 of its PIMs and PIMIs, as compared to $768,000
from  seven of its PIMs and PIMIs in 1996.  The  Seasons,  which was  completely
renovated  in 1994 and 1995,  performed  very well  during  1996 and 1997.  As a
result,  in 1997,  the Trust began  recognizing  Additional  Loan  interest  and
participation income from The Seasons.

Trust expenses  increased by approximately  $57,000 or 2% in 1997 as compared to
1996  primarily  due to an  increase in expense  reimbursements  and general and
administrative expense. This was offset by lower asset management fees resulting
from a declining asset base when comparing 1997 to 1996.


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
   Name and Age                              Government Income Trust II

   Douglas Krupp (52)                        Chairman of Board of Trustees and 
                                             Trustee
*  Charles N. Goldberg (57)                  Trustee
*  E. Robert Roskind (54)                    Trustee
*  J. Paul Finnegan (74)                     Trustee
   Robert A. Barrows (41)                    Treasurer
   Scott D. Spelfogel (38)                   Clerk
   Kristin L. Hicks (32)                     Assistant Clerk

* Independent Trustee

      Douglas Krupp  co-founded  and serves as Co-Chairman  and Chief  Executive
Officer of The Berkshire  Group,  an integrated real estate  financial  services
firm  engaged in real  estate  acquisition  and  property  management,  mortgage
banking and  financial  management.  The  Berkshire  Group's  interests  include
ownership of a mortgage company  specializing in commercial  mortgage  financing
with a portfolio of approximately $6.0 billion. In addition, The Berkshire Group
has  a  significant   ownership  interest  in  Berkshire  Realty  Company,  Inc.
(NYSE-BRI),   a  real  estate   investment   trust   specializing  in  apartment
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.  Mr. Krupp serves as Chairman of the Board
and Director of  Berkshire  Realty  Company,  Inc.  (NYSE-BRI)  and he is also a
member of the Board of Trustees at Brigham & Women's Hospital.  He is a graduate
of Bryant  College  where he received an honorary  Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. Mr. Krupp also serves as
Chairman of the Board and Trustee of Krupp Government Income Trust II.

      Charles N.  Goldberg  is of counsel  to the law firm of  Broocks,  Baker &
Lange,  L.L.P.,  which  position he has held since  December  of 1997.  Prior to
joining Broocks,  Baker & Lange,  L.L.P.,  Mr. Goldberg was a partner in the law
firm of Hirsch &  Westheimer  from March of 1996 to December  of 1997.  Prior to
Hirsch & Westheimer, he was the Managing Partner of Goldberg Brown, Attorneys at
Law from 1980 to March of 1996.  He received a B.B.A.  degree and a J.D.  degree
from the  University  of Texas.  He is a member of the State Bar of Texas and is
admitted to practice  before the U.S.  Court of Appeals,  Fifth Circuit and U.S.
District Court,  Southern District of Texas. He currently serves as a Trustee of
Krupp  Government  Income Trust II and a director of Berkshire  Realty  Company,
Inc. (NYSE-BRI).

      E.  Robert  Roskind is the  Chairman  and  Co-Chief  Executive  Officer of
Lexington Corporate  Properties,  a self-administered  REIT, the shares of which
are listed on the NYSE. Mr. Roskind has served in this capacity since October of
1993. Mr.  Roskind is also the Managing  Partner of The LCP Group, a real estate
investment  firm based in New York,  the  predecessor  of which he co-founded in
1974.  He holds a B.A.  degree from the  University of  Pennsylvania  and a J.D.
degree from Columbia Law School.  He has been a member of the New York Bar since
1970. He currently serves as a Trustee of Krupp  Government  Income Trust II. He
is also currently a director of Berkshire Realty Company,  Inc.  (NYSE-BRI),  as
well as Chairman of the Board of Trustees of Lexington Corporate Properties.

      J. Paul Finnegan  retired as a partner of Coopers & Lybrand in 1987. Since
then,  he  has  been  engaged  in  business  as a  consultant,  a  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 is
a Certified Public Accountant and an attorney.  Mr. Finnegan currently serves as
a Trustee of Krupp Government Income Trust II and a director at Scituate Federal
Savings Bank and a director of Berkshire Realty Company, Inc. (NYSE-BRI). Mr.
Finnegan is a Certified Public Accountant and an attorney.

      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,
treasury and  management  information  systems for Berkshire  Mortgage  Finance.
Prior to joining The Berkshire  Group, he was an audit  supervisor for Coopers &
Lybrand L.L.P. in Boston. He received a B.S. degree from Boston College and is a
Certified Public Accountant.

         Scott  D.  Spelfogel  is the  Clerk of the  Trust  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.

   Kristin L. Hicks is the Assistant Clerk of the Trust and is Assistant General
Counsel to The Berkshire Group.  Prior to 1999, she served as Staff Attorney for
The Berkshire Group beginning in September 1997, and prior to that position, she
was the  manager of the  transfer  department  for Krupp Funds Group from May of
1992 through  September of 1997.  She received a B.A.  degree from  Northeastern
University in 1989 and a J.D.  degree from the Suffolk  University Law School in
1995.  She is admitted to practice law in  Massachusetts  and is a member of the
American, Massachusetts and Boston bar associations.

   In  addition,  the  following  are  deemed to be  Executive  Officers  of the
registrant:

      George Krupp (age 54) is the Co-Founder  and  Co-Chairman of The Berkshire
Group, an integrated real estate financial  services firm engaged in real estate
acquisition and property management,  mortgage banking and financial management.
The  Berkshire  Group's  interests  include  ownership  of  a  mortgage  company
specializing in commercial  mortgage financing with a portfolio of approximately
$6.0  billion.  In addition,  The Berkshire  Group has a  significant  ownership
interest in Berkshire Realty Company, Inc. (NYSE-BRI),  a real estate investment
trust specializing in apartment 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  December of 1997.  Mr.  Krupp  attended  the
University of Pennsylvania and Harvard University and holds a Master's Degree in
History from Brown University.

      Peter F. Donovan (age 45) 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 16th largest in the United States based on servicing and
asset  management  of a $5.7 billion  loan  portfolio.  Previously  he served as
President of Berkshire  Mortgage Finance from January of 1993 to January of 1998
and in that  capacity he directed the  production,  underwriting,  servicing and
asset  management  activities  of the firm.  Prior to that,  he was Senior  Vice
President  of  Berkshire   Mortgage   Finance  and  was   responsible   for  all
participating  mortgage  originations.  Before  joining the firm in 1984, he was
Second Vice  President,  Real Estate Finance for Continental  Illinois  National
Bank & Trust,  where he managed a $300 million  construction  loan  portfolio of
commercial  properties.  Mr. Donovan received a B.A. from Trinity College and an
M.B.A. degree from Northwestern University.

      Ronald  Halpern  (age  57) is  President  and  COO 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. He is currently a member of the Advisory Council for Fannie
Mae and  Freddie  Mac and was  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 49) 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 the  Boston,Bethesda and
 Seattle offices of Berkshire Mortgage Finance. She manages the estimated $6 
 billion  portfolio of loans. Ms. Mills joined Berkshire in December 1997 as 
 Vice President and was promoted to Senior Vice President in January  1999.  
 From January 1989 through November 1997,  Ms. Mills was Vice President of First
 Winthrop Corporation and Winthrop Financial Associates, in Cambridge,  MA.
 Ms. Mills earned a B.A. degree from Mount Holyoke College and a Master of  
 Architecture degree from Harvard University. Ms. Mills is a member of the Real
 Estate Finance Association, New England Women in Real Estate and the Mortgage  
 Bankers Association.


<PAGE>


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 a fee of $25,000 in 1998.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   As of February 5, 1999, 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.
<TABLE>

<CAPTION>
<S>                    <C>                              <C>                                  <C>    
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                10,000 Shares                         ***
  Officers
</TABLE>

  ** Mr.  Krupp is a  beneficial  owner of the 10,000  shares held by  Berkshire
Mortgage Advisors Limited Partnership,  the Advisor to the Company, by virtue of
being a director  of  Berkshire  Funding  Corporation,  the  general  partner of
Berkshire Mortgage Advisors Limited Partnership. In each case where Mr. Krupp is
a beneficial owner of shares he has shared voting and investment powers.

  *** The amount  owned does not exceed one percent of the shares of  beneficial
interest of the Trust outstanding as of February 5, 1999.



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)  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)].*
                        The Estates

         (10.7)         Deed of Trust  Note dated May 14,  1993 for The  Estates
                        [Exhibit  19.1 to  Registrant's  Report on Form 10-Q for
                        the  quarter  ended  June  30,   1993.[Exhibit  10.7  to
                        Registrant=s  report  on Form  10-K for the  year  ended
                        December 31, 1995 (File No. 0-20164)].*

         (10.8)         Deed of Trust dated May 14, 1993 for The Estates Limited
                        Partnership    and    Maryland     National     Mortgage
                        Corporation.[Exhibit 10.8 to Registrant=s report on Form
                        10-K for the year  ended  December  31,  1995  (File No.
                        0-20164)].*

         (10.9)         Multifamily  Deed of  Trust,  Assignment  of  Rents  and
                        Security  Agreement  dated  May  14,  1993  between  The
                        Estates Limited  Partnership and Krupp Government Income
                        Trust.[Exhibit  10.9 to Registrant=s report on Form 10-K
                        for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.10)        Participation and Servicing Agreement dated May 14, 1993
                        by and between Maryland  National  Mortgage  Corporation
                        and Krupp  Government  Income Trust II [Exhibit  19.2 to
                        Registrant's  Report on Form 10-Q for the quarter  ended
                        June 30, 1993 (File No. 0-20164)].*

                        The Seasons

         (10.11)        Subordinated  Promissory Note, dated September 16, 1993,
                        between  Maryland  Associates  Limited  Partnership  and
                        Krupp   Government   Income  Trust   [Exhibit   10.1  to
                        Registrant's  Report on Form 10-Q for the quarter  ended
                        September 30, 1993 (File No. 0-20164)].*

         (10.12)        Additional  Loan  Agreement  dated  September  16,  1993
                        between the Krupp  Company  Limited  Partnership-IV  and
                        Krupp  Government  Income  Trust  II  [Exhibit  10.2  to
                        Registrant's  Report on Form 10-Q for the quarter  ended
                        September 30, 1993 (file No. 0-20164)].*

         (10.13)        Additional Loan Note dated  September 16, 1993,  between
                        the  Krupp  Company  Limited  Partnership-IV  and  Krupp
                        Government Income Trust II [Exhibit 10.3 to Registrant's
                        Report on form 10-Q for the quarter ended  September 30,
                        1993 (File No. 0-20164)].*

         (10.14)        Participation  and Servicing  Agreement  dated September
                        16, 1993 by and between Krupp Mortgage  Corporation  and
                        Krupp  Government   Income  Trust-II  [Exhibit  10.4  to
                        Registrant's  Report on Form 10-Q for the quarter  ended
                        September 30, 1993 (File No.0-20164)].*

         (10.15)        Deed of Trust Note dated September 16, 1993 for Maryland
                        Associates   Limited   Partnership  and  Krupp  Mortgage
                        Corporation  [Exhibit  10.11 to  Registrant's  report on
                        Form 10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

         (10.16)        Assignment and Assumption  Agreement dated September 16,
                        1993 between Krupp Government  Income Trust II and Krupp
                        Government  Income Trust [Exhibit 10.12 to  Registrant's
                        report on Form 10-K for the year ended December 31, 1994
                        (File No. 0-20164)].*

         (10.17)        Agreement re Subordinated  Note dated September 16, 1993
                        between Krupp Mortgage  Corporation and Krupp Government
                        Income Trust II [Exhibit 10.13 to Registrant's report on
                        Form 10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

                        Martin's Landing

         (10.18)        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)].*

         (10.19)        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)].*

         (10.20)        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)].*

         (10.21)        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

         (10.22)        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)].*

         (10.23)        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)].*

         (10.24)        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)].*

                        Norumbega Point

         (10.25)        Subordinated  Promissory  Note,  dated December 14, 1993
                        between Longa Vita  Corporation  ("Maker or  Mortgagor")
                        and Krupp Government Income Trust II  ("Holder")[Exhibit
                        10.11 to  Registrant's  annual  report  on Form 10-K for
                        fiscal year ended December 31, 1993 (File No.
                        0-20164)].*

         (10.26)        Additional  Loan Note dated  December  14, 1993  between
                        Evelyn Insoft, Sidney Insoft, Richard Slifka, and Alfred
                        A.  Slifka  ("Borrowers")  and Krupp  Government  Income
                        Trust  II  ("Holder")  [Exhibit  10.12  to  Registrant's
                        annual  report  on  Form  10-K  for  fiscal  year  ended
                        December 31, 1993 (File No. 0-20164)].*

         (10.27)        Participation and Servicing Agreement dated December 14,
                        1993 by and between Cambridge  Healthcare Funding,  Inc.
                        and Krupp Government  Income Trust  II.[Exhibit 10.30 to
                        Registrant=s  report  on Form  10-K for the  year  ended
                        December 31, 1995 (File No. 0-20164)].*

         (10.28)        Subordinated  Multifamily  Mortgage  Assignment of Rents
                        and Security  Agreement  dated December 14, 1993 between
                        Longa  Vita  Corp.  and Krupp  Government  Income  Trust
                        II.[Exhibit  10.31 to  Registrant=s  report on Form 10-K
                        for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.29)        Additional  Loan  Agreement  dated  December  14, 1993 
                        between the Evelyn  Insoft,  Sidney
                        Insoft,  Richard Slifka and Alfred A. Silfka,  Longa 
                        Vita Corp. and Krupp Government Income
                        Trust  II.[Exhibit  10.32 to  Registrant's report on 
                        Form 10-K for the year ended December
                        31, 1995 (File No. 0-20164)].*

         (10.30)        Mortgage  Note dated  December 14, 1993 between Longa 
                        Vita Corp.  and Cambridge  Healthcare Funding, Inc.
                        [Exhibit  10.33 to  Registrant's  report on Form 10-K 
                     for the year ended December 31, 1995 (File No. 0-20164)].*

         (10.31)        Agreement re  Subordinated  Note dated December 14, 1993
                        between  Cambridge  Healthcare  Funding,  Inc. and Krupp
                        Government    Income   Trust    II.[Exhibit   10.34   to
                        Registrant=s  report  on Form  10-K for the  year  ended
                        December 31, 1995 (File No. 0-20164)].*



                        Sunset Summit

         (10.32)        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)].*

         (10.33)        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)].*

         (10.34)        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)].*

         (10.35)        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)].*

         (10.36)        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)].*

         (10.37)        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)].*

                        Windsor Lake

         (10.38)        Subordinated  Loan  Agreement  dated  June 16,  1994 
                        between  Cedar  Lake L. P. and  Krupp Government Income
                        Trust II  [Exhibit  10.27 to  Registrant's  report on
                        Form 10-K for the year ended December 31, 1994 (File No.
                        0-20164)].*

         (10.39)        Subordinate Note dated June 16, 1994 between
                        Cedar Lake L. P. and Krupp  Government Income
                        Trust II [Exhibit  10.28 to  Registrant's  report on 
                        Form 10-K for the year ended  December 31, 1994 
                        (File No. 0-20164)].*

         (10.40)        Subordination  Agreement  dated  June 16,  1994  between
                        Berkshire  Mortgage Finance Limited  Partnership,  Cedar
                        Lake L. P. and Krupp Government Income Trust II [Exhibit
                        10.29 to  Registrant's  report on Form 10-K for the year
                        ended December 31, 1994 (File No.
                        0-20164)].*

         (10.41)        Assignment  of  Subordination  Agreement  dated June 16,
                        1994 from Berkshire Mortgage Finance Limited Partnership
                        to the  Federal  National  Mortgage  Association  by and
                        between,  Cedar Lake L.P. and Berkshire Mortgage Finance
                        Limited Partnership and Krupp Government Income Trust II
                        [Exhibit 10.30 to  Registrant's  report on Form 10-K for
                        the year ended December 31, 1994 (File No. 0-20164)].*

         (10.42)        Subordinate  Multifamily  Deed to Secure Debt  Agreement
                        dated June 16, 1994  between  Cedar Lake L.P.  and Krupp
                        Government   Income   Trust   II   [Exhibit   10.31   to
                        Registrant's  report  on Form  10-K for the  year  ended
                        December 31, 1994 (File No. 0-20164)].*

         (10.43)        Supplement  to  Prospectus  dated  October  1,  1994 for
                        Federal National  Mortgage  Association pool number MX -
                        073039  [Exhibit  10.32 to  Registrant's  report on Form
                        10-K for the year  ended  December  31,  1994  (File No.
                        0-20164)].*


                        Oasis at Springtree

         (10.44)        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)].*

         (10.45)        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)].*

         (10.46)        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)].*

         (10.47)        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)].*

         (10.48)        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)].*

         (10.49)        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

         (10.50)        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

         (10.51)        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)].*

         (10.52)        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)].*

         (10.53)        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)].*

         (10.54)        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

         (10.55)        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)].*

         (10.56)        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)].*

         (10.57)        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)].*

         (10.58)        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)].*

         (10.59)        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)].*

         (10.60)        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

         (10.61)        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)].*

         (10.62)        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)].*

         (10.63)        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)].*

                        Falls at Hunter Pointe

         (10.64)        Additional  Loan  Note  dated  August  5,  1993  between
                        Goulding L. Stoddard  ("Borrower")  and Krupp Government
                        Income Trust  ("Holder").[Exhibit  10.92 to Registrant's
                        report on Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

         (10.65)        Additional  Loan Agreement  dated August 5, 1993 between
                        Goulding L. Stoddard  ("Borrower")  and Krupp Government
                        Income Trust  ("Holder").[Exhibit  10.93 to Registrant's
                        report on Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

         (10.66)        Subordinated  Promissory  Note,  dated  August  4,  1993
                        between  Hunters  Pointe  Associates,  Ltd.  ("Maker" or
                        "Mortgagor")   and   Krupp   Government   Income   Trust
                        ("Holder").[Exhibit 10.94 to Registrant's report on Form
                        10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.67)        Agreement  re  Subordinated  Note  dated  August 5, 1993
                        between TRI  Capital  Corporation  and Krupp  Government
                        Income  Trust.[Exhibit  10.95 to Registrant's  report on
                        Form 10-K for the year ended December 31, 1995 (File No.
                        0-20164)].*

         (10.68)        Subordinated  Multifamily  Deed of Trust,  Assignment of
                        Rents  and  Security  Agreement  dated  August  5,  1993
                        between  Hunters  Pointe  Associates,   Ltd.  and  Krupp
                        Government Income  Trust.[Exhibit  10.96 to Registrant's
                        report on Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

         (10.69)        Participation  and Servicing  Agreement  dated August 5,
                        1993 by and between TRI  Capital  Corporation  and Krupp
                        Government Income  Trust.[Exhibit  10.97 to Registrant's
                        report on Form 10-K for the year ended December 31, 1995
                        (File No. 0-20164)].*

                        Rivergreens Apartments

         (10.70)        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)].*

         (10.71)        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)].*

         (10.72)        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

         (10.73)        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)].*

         (10.74)        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)].*

         (10.75)        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)].*

         (10.76)        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

(c)  Reports on Form 8-K
         The Trust did not file any reports on Form 8-K during the quarter ended
December 31, 1998.


<PAGE>


                                                     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 12th day of
March, 1999.

                        KRUPP GOVERNMENT INCOME TRUST II



                           /s/Douglas Krupp
                      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 12th day of March, 1999.

            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
Robert A. Barrows                   Trust II


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


/s/ E. Robert Roskind               Trustee of Krupp Government Income Trust II
E. Robert Roskind


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


<PAGE>


                                       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, 1998







<PAGE>


                       KRUPP GOVERNMENT INCOME TRUST II

               INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA






Report of Independent Accountants                                         F-3


Balance Sheets at December 31, 1998 and 1997                              F-4


Statements of Income for the Years Ended December 31, 1998, 1997 and 1996 F-5


Statements of Changes in Shareholders' Equity for the Years
 Ended December 31, 1998, 1997 and 1996                                   F-6


Statements of Cash Flows for the Years Ended December 31, 1998,
 1997 and 1996                                                            F-7


Notes to Financial Statements                                         F-8 - F-21

Schedule II - Valuation and Qualifying Accounts                          F-22

Supplementary Data - Selected Quarterly Financial Data (Unaudited)       F-23



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.


<PAGE>


                  REPORT OF INDEPENDENT ACCOUNTANTS







To the Shareholders of
Krupp Government Income Trust II:

     In  our  opinion,  the  accompanying  financial  statements  and  financial
statement  schedule  listed in the  index on page F-2 of this Form 10-K  present
fairly,  in all material  respects,  the financial  position of Krupp Government
Income Trust II (the "Trust") at December 31, 1998 and 1997,  and the results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles. These financial statements are the responsibility of management; our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards 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  expressed
above.






                                                      PricewaterhouseCoopers LLP

Boston, Massachusetts
March 12, 1999


<PAGE>



                                                       F-22

<TABLE>
<CAPTION>
                                          KRUPP GOVERNMENT INCOME TRUST II

                                                   BALANCE SHEETS

                                             December 31, 1998 and 1997


                                                       ASSETS

                                                                      1998                   1997

Participating Insured Mortgage Investments ("PIMIs")(Notes B, C and I):
<S>                                                                     <C>                    <C>         
Insured mortgages                                                       $133,132,325           $145,537,234
Additional loans, net                                                     23,298,351             29,152,351
Participating Insured Mortgages ("PIMs")
    (Notes B, D and I)                                                    38,331,257             37,645,082
Mortgage-Backed Securities ("MBS")and Insured
mortgage loans
    (Notes B, E and I)                                                    41,834,199             51,171,301

           Total mortgage investments                                    236,596,132            263,505,968

Cash and cash equivalents (Notes B and I)                                 18,010,578             13,520,091
Prepaid acquisition fees and expenses, net of
 accumulated amortization of $7,167,563 and
 $6,099,180 (Note B)                                                       8,289,549             10,384,462
Prepaid participation servicing fees, net of
 accumulated amortization of $2,321,513 and
 $1,858,497 (Note B)                                                       2,830,857              3,636,050
Interest receivable and other assets                                       1,682,882              2,111,153

           Total assets                                                 $267,409,998           $293,157,724

                                        LIABILITIES AND SHAREHOLDERS' EQUITY

Deferred income on Additional Loans (Note B)                            $  2,719,343           $  2,755,705
Other liabilities                                                             43,563                 30,949

           Total liabilities                                               2,762,906              2,786,654



Shareholders' equity (Notes A and F):
    Common stock, no par value; 25,000,000
      Shares authorized; 18,371,477 Shares
      issued and outstanding                                             264,099,856            289,864,327

    Accumulated comprehensive
      income (Notes B and E)                                                 547,236                506,743

Total Shareholders' equity                                               264,647,092            290,371,070

           Total liabilities and Shareholders'
            equity                                                      $267,409,998           $293,157,724



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

</TABLE>

<PAGE>




<TABLE>
<CAPTION>
                                          KRUPP GOVERNMENT INCOME TRUST II

                                                STATEMENTS OF INCOME

                                For the Years Ended December 31, 1998, 1997 and 1996


             1998                                          1997                1996

Revenues:
    Interest income - PIMs and PIMIs:
<S>                                                         <C>                  <C>               <C>        
    Basic interest                                          $12,449,922          $13,828,125       $13,952,237
    Additional Loan interest                                  1,580,517            2,147,468         1,521,980
    Participation income                                      3,252,020            1,769,701           767,747
    Interest income - MBS                                     3,264,905            2,847,442         3,122,508
    Interest income - other                                   1,082,305              697,819           512,459

         Total revenues                                      21,629,669           21,290,555        19,876,931

Expenses:
    Asset management fee to an
     affiliate (Note G)                                       1,889,509            2,002,992         2,056,861
    Expense reimbursements to
     affiliates (Note G)                                        227,556              446,357           391,260
    Amortization of prepaid expenses,
      fees and organization costs                             2,900,106            2,186,556         2,094,905
    General and administrative                                  435,387              391,165           334,723
    Provision for impaired mortgage
      loans (Notes B and C)                                   2,994,000                -                 -

         Total expenses                                       8,446,558            5,027,070         4,877,749

Net income (Notes B and H)                                  $13,183,111          $16,263,485       $14,999,182

Basic earnings per share                                    $       .72          $       .89        $      .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.


</TABLE>


                                       


<PAGE>


<TABLE>
<CAPTION>
                        KRUPP GOVERNMENT INCOME TRUST II

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the Years Ended December 31, 1998, 1997 and 1996


                                                                                 
                                                                                Accumulated             Total
                                                              Retained        Comprehensive             Shareholders'
                                        Common Stock          Earnings              Income                  Equity


<S>                                        <C>                 <C>                    <C>                  <C>         
Balance at December 31, 1995               $304,530,460        $     -                $1,387,525           $305,917,985

Dividends                                    (7,965,219)        (14,999,182)               -                (22,964,401)

Net income                                     -                 14,999,182                -                 14,999,182

Change in unrealized gain on MBS                 -                    -               (1,265,190)            (1,265,190)

Balance at December 31, 1996                296,565,241              -                   122,335            296,687,576

Dividends                                    (6,700,914)        (16,263,485)               -                (22,964,399)

Net income                                     -                 16,263,485                -                 16,263,485

Change in unrealized gain on MBS                 -                    -                  384,408                384,408

Balance at December 31, 1997                289,864,327              -                   506,743            290,371,070

Dividends                                   (25,764,471)        (13,183,111)               -                (38,947,582)

Net income                                     -                 13,183,111                -                 13,183,111

Change in unrealized gain on MBS                 -                    -                   40,493                 40,493

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

Shares  issued and  outstanding  for each of the three years in the period ended
December 31, 1998 are 18,371,477


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


</TABLE>



<PAGE>



<TABLE>
<CAPTION>
                        KRUPP GOVERNMENT INCOME TRUST II

                            STATEMENTS OF CASH FLOWS

               For the Year Ended December 31, 1998, 1997 and 1996


                                                                     1998                   1997                   1996

Operating activities:
<S>                                                               <C>                    <C>                     <C>         
  Net income                                                      $ 13,183,111           $ 16,263,485            $ 14,999,182
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
    Premium amortization                                               185,276                113,094                 169,589
    Provision for impaired mortgage loans                            2,994,000                 -                      -
    Amortization of prepaid expenses,
     fees and organization costs                                     2,900,106              2,186,556               2,094,905
    Changes in assets and liabilities:
    Decrease in interest receivable
       and other assets                                                428,271                153,534                  33,162
    Increase in other liabilities                                       12,614                  3,864                   6,509

     Net cash provided by
       operating activities                                         19,703,378             18,720,533              17,303,347

Investing activities:
  Investment in PIMs                                                (1,003,676)                -                   (5,824,611)
  Investment in Additional Loans                                        -                    (465,000)                -
  Prepayment on Additional Loan                                      2,860,000              1,265,000                 -
  Principal collections on MBS                                       9,192,319              4,775,477               7,427,029
  Principal collections on PIMs                                     12,722,410              1,800,237               1,633,902
  Acquisition of MBS                                                    -                      -                     (591,600)
  Increase (decrease) in deferred income
   on Additional Loans                                                 (36,362)             1,173,651                 555,432

       Net cash provided by
            investing activities                                    23,734,691              8,549,365               3,200,152

Financing activity:
  Dividends                                                        (38,947,582)           (22,964,399)            (22,964,401)
Net increase (decrease) in cash and
 cash equivalents                                                    4,490,487              4,305,499              (2,460,902)

Cash and cash equivalents, beginning
 of period                                                          13,520,091              9,214,592              11,675,494

Cash and cash equivalents, end of
  period                                                           $18,010,578            $13,520,091             $ 9,214,592

Supplemental disclosure of noncash investing activities:

Reclassification of investments in a
  PIM and PIMI to an MBS                                           $    -                 $15,093,814             $    -




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

</TABLE>

<PAGE>


                                         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 AAdvisor@)  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:

           MBS

           The  Trust  accounts  for its MBS in  accordance  with the  Financial
           Accounting  Standards No. 115, "Accounting for Certain Investments in
           Debt and Equity  Securities" (AFAS 115"), under the classification of
           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.

           Effective January 1, 1998, the Trust adopted  "Statement of Financial
           Accounting Standards No. 130, 'Reporting  Comprehensive Income'" (FAS
           130), was issued establishing  standards for reporting and displaying
           comprehensive   income   and  its   components.   FAS  130   requires
           comprehensive   income  and  its  components,   as  recognized  under
           accounting  standards,  to be displayed in a financial statement with
           the same prominence as other financial statements,  if material.  FAS
           130 had no  material  effect on the  Trust's  financial  position  or
           results of operations.

           The Federal Housing  Administration  insured mortgages are carried at
           amortized  cost unless the Advisor of the Trust  believes  there is a
           impairment  in  value,  in  which  case  a  valuation   allowance  is
           established  in accordance  with Financial  Accounting  Standards No.
           114,  AAccounting  by  Creditors  for  Impairment  of  a  Loan,@  and
           Financial  Accounting Standard No. 118,  AAccounting by Creditors for
           Impairment of a Loan - Income Recognition and Disclosures. The Trust
           holds non-participating mortgage loans insured by the Federal
           Housing Administration and carries them at amortized cost.

           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.

                                                     Continued


<PAGE>


                                         KRUPP GOVERNMENT INCOME TRUST II

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


 B.      Significant Accounting Policies, Continued

           PIMs and PIMIs, continued

           The Federal Housing  Administration  Participating  Insured Mortgages
           and all  Additional  Loans are carried at  amortized  cost unless the
           Advisor of the Trust  believes  there is an impairment  in value,  in
           which case a valuation  allowance is established  in accordance  with
           Financial  Accounting Standards No. 114, AAccounting by Creditors for
           Impairment  of a Loan,@ and  Financial  Accounting  Standard No. 118,
           AAccounting   by  Creditors  for   Impairment  of  a  Loan  -  Income
           Recognition and Disclosures.@

           Basic  interest  is  recognized  based  on  the  stated  rate  of the
           Department of Housing and Urban Development  ("HUD") insured mortgage
           (less the servicer's fee) or the stated coupon rate of the Fannie Mae
           MBS.  The Trust  recognizes  interest  related  to the  participation
           features as earned and when it deems these amounts to be collectible.

           The Trust defers the recognition of Additional Loan interest payments
           as income to the extent  these  interest  payments  are from  escrows
           established  with  the  proceeds  of the  Additional  Loan.  When the
           properties  underlying the PIMIs generate  sufficient  cash flow from
           operations  to  make  the  required   interest   payments  under  the
           Additional  Loans,  the Trust has and will  commence  amortizing  the
           deferred interest  payments into income over the remaining  estimated
           term of the Additional Loan.  During periods where mortgage loans are
           impaired the trust suspends amortizing interest income.

           Impaired Mortgage Loans

           Impaired  loans are those loans which the Advisor  believes  that the
           collection  of all amounts  due in  accordance  with the  contractual
           terms  of the loan  agreement  are not  likely.  Impaired  loans  are
           measured  based  on the  fair  value  of the  underlying  collateral.
           Interest  received on the impaired loans is generally applied against
           the loan principal or as interest income if deemed collectable by the
           Advisor.

           Cash Equivalents

           The Trust  includes all  short-term  investments  with  maturities of
           three  months or less from the date of  acquisition  in cash and cash
           equivalents. The Trust invests its cash primarily in commercial paper
           and money market funds with a commercial bank and has not experienced
           any loss to date on its invested cash.

           Prepaid Expenses and Fees

           Prepaid  expenses and fees  represent  prepaid  acquisition  fees and
           expenses  and  prepaid  participation  servicing  fees  paid  for the
           acquisition  and  servicing  of PIMs and PIMIs.  The Trust  amortizes
           prepaid   acquisition   fees  and   expenses   using  a  method  that
           approximates  the effective  interest  method over a period of ten to
           twelve years,  which  represents  the actual  maturity or anticipated
           payoff date of the underlying mortgage.



                                         KRUPP GOVERNMENT INCOME TRUST II
                                     NOTES TO FINANCIAL STATEMENTS, continued
                                                ------------------


 B.      Significant Accounting Policies, Continued

           Prepaid Expenses and Fees, continued

           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.

           Income Taxes

           The  Trust  has  elected  to be taxed as a REIT  under  the  Internal
           Revenue Code of 1986,  as amended,  and believes it will  continue to
           meet all such  qualifications.  Accordingly,  the  Trust  will not be
           subject  to  federal   income   taxes  on  amounts   distributed   to
           shareholders  provided  it  distributes  annually at least 95% of its
           REIT  taxable  income  and  meets  certain  other   requirements  for
           qualifying  as a REIT.  Therefore,  no provision  for federal  income
           taxes has been recorded in the financial statements.

           Estimates and Assumptions

           The preparation of financial  statements in accordance with generally
           accepted accounting  principles requires management to make estimates
           and  assumptions  that  affect  the  reported  amount of  assets  and
           liabilities,  contingent  assets and  liabilities  and  revenues  and
           expenses  during the period.  Significant  estimates  include the net
           carrying  value of Additional  Loans and the  unrealized  gain on MBS
           investments. Actual results could differ from those estimates.

C.      PIMIs

        The Trust had investments in ten PIMIs at December 31, 1998 that provide
        financing  primarily for multi-family  housing.  Each PIMI consists of 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  (AParticipating  Income Interest@) and a percentage
        of any  appreciation of the underlying  property to a preferred  return,
        then  a  percentage  of  any  appreciation  thereafter   (AParticipating
        Appreciation Interest@)  (collectively the "participation  income@). 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.


                                    Continued










                                         KRUPP GOVERNMENT INCOME TRUST II

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

C.      PIMIs, Continued

        The owners of the borrower also pledge their ownership  interests in the
        borrower as additional  collateral.  The Trust made the Additional Loans
        of 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 monthly  payments of principal and interest  payments
        on the insured  mortgages and is also entitled to receive  participation
        income 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)
        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.



                                    Continued


                                         KRUPP GOVERNMENT INCOME TRUST II

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


   C.   PIMIs, Continued

        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.

        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 fifth 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 31,  1998  and on  August  25,  1998,  the  Trust  received  the
        prepayments  of the St.  Germain  Additional  Loan of $2,860,000 and the
        related   Fannie  Mae  MBS  with  a  remaining   principal   balance  of
        $11,006,015.  In addition,  the Trust received  participation  income as
        follows:  (i) Additional Loan interest  payable through the date of sale
        of $83,417,  (ii) Preferred Interest payable through the date of sale of
        $89,975,  (iii) Participating  Appreciation  Interest of $1,874,032.  On
        October  9,  1998,  the Trust  received  Participating  Income  Interest
        payable  through  the  date  of  sale   attributable  to  1998  property
        operations  of $94,258.  On  September  28,  1998,  the Trust used these
        proceeds  to  fund  a  special   dividend  of  $.87  per  share  to  its
        Shareholders

        During the second  quarter of 1997,  the Trust  advanced  an  additional
        $465,000  to  the  owner  of  the  Willows  Apartments,  increasing  the
        Additional  Loan to  $1,265,000.  During the third quarter of 1997, as a
        result of a sale of the property to a third party,  the Trust accepted a
        full repayment of the $1,265,000 Additional Loan and received all of its
        Preferred  Interest  of  $789,336  that was earned as of the date of the
        sale. In  conjunction  with the repayment of the  Additional  Loan,  the
        Trust converted the investment  from a PIMI to an insured  mortgage when
        the purchaser assumed the first mortgage.

        At December 31, 1998 and 1997 there are no insured mortgage loans within
        the Trust's portfolio that are delinquent of principal or interest.






<TABLE>

<CAPTION>
The Trust's  investments in PIMIs consists of the following at December 31, 1998
and 1997:

 Insured  Loan             Interest          Maturity          Balance Outstanding
Mortgages   Amount         Rate                 Date              at December 31,
                                                                                      1998             1997
FHA
<S>                         <C>                 <C>             <C>                 <C>                 <C>         
The Seasons (a)             $ 23,224,649        7.875%          10/1/28             $22,450,457         $ 22,626,180

Hunters Pointe                12,789,100        6.875%           1/1/35              12,526,503           12,600,517

Norumbega Point               15,598,500        7.375%           2/1/36              15,397,380           15,471,328

FNMA (b)
Crossings Village             12,907,334        6.75%           10/1/08              12,253,314           12,403,728

Martin's Landing              11,200,000        6.5%            12/1/08              10,622,947           10,756,840

Sunset Summit                 10,192,801        6.5%            10/1/08               9,674,470            9,796,408

Oasis                         12,401,673        6.75%            7/1/09              11,906,186           12,040,522

Windsor Lake                   9,680,344        6.75%            7/1/09               9,287,879            9,394,283

St. Germain                   11,772,494        6.75%            1/1/09                 -                 11,127,209

Windmill Lakes                11,600,000        6.825%           3/1/10              11,193,107           11,313,766

The Lakes                     18,387,653        6.825%           7/1/10              17,820,082           18,006,453

                            $149,754,548                                           $133,132,325         $145,537,234
                                                                                    (f)

</TABLE>

<TABLE>
<CAPTION>
                                                                                  Base            Preferred
                                                                              Interest            Interest
        Additional Loan                    1998                 1997              Rate               Rate

        <S>                                   <C>                <C>                <C>              <C>
        The Seasons (a)                       $4,925,351         $4,925,351         9%(c)            10%
        Hunters Pointe                           650,000            650,000         7%                9%
        Norumbega Pointe                       3,063,000          3,063,000         7%               10%
        Crossings Village                      2,584,000          2,584,000         7%                9%
        Martin=s Landing                       2,280,000          2,280,000         7%               12%
        Sunset Summit                          1,900,000          1,900,000         7%                9%(d)
        St. Germain                                -              2,860,000         7%             8.75%
        Oasis                                  2,290,000          2,290,000         7%             9.25%
        Windsor Lake                           2,000,000          2,000,000         8%               13%
        Windmill Lakes (e)                     2,000,000          2,000,000       7.5%              9.5%
        The Lakes                              4,600,000          4,600,000         7%                9%

                                             $26,292,351        $29,152,351


</TABLE>

                                                     Continued


                                         KRUPP GOVERNMENT INCOME TRUST II

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



       (a)     The  total  PIM  and   Additional   Loan  on  this  property  are
               $32,300,000 and $6,850,000, respectively, of which 28% is held by
               Krupp Government Income Trust, an affiliate of the Advisor of the
               Trust.
       (b)     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
                    Windsor Lake                                   $ 7,517,000
                    Windmill Lakes                                 $ 8,907,000
                    The Lakes                                      $14,118,000

       (c)     The base interest  rate was 6% per annum for the first three 
               years and  beginning September 1, 1996 increased to 9% per annum.
       (d)     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.
       (e)     As of December 31, 1997 Windmill  Lakes was in technical  default
               on its  Additional  Loan for not  making the full  required  base
               interest  payment  due on the  Additional  Loan.  The  Advisor is
               reviewing the property=s  operating  results to determine whether
               an operating loan may be required.
       (f) The aggregate cost for federal income tax purposes is $133,132,325.




                                                     Continued



                                         KRUPP GOVERNMENT INCOME TRUST II

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

C.      PIMIs, Continued

Impaired Mortgage 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 $2.0 million
has been  established to adjust the carrying amount of the loan to the estimated
fair market value of the collateral  less  anticipated  costs of sale. The Trust
did not recognize  interest income on the Windmill Lakes  Additional Loan during
1998.


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  has  been
established  to adjust the  carrying  amount of the loan to the  estimated  fair
market value of the collateral less anticipated costs of sale. The Trust did not
recognize interest income on the Oasis Additional Loan during 1998.

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

<TABLE>
<CAPTION>
                                     Recorded                Valuation                Carrying
                                        Value                Allowance                  Value

<S>                                     <C>                     <C>                     <C>   
Windmill Lakes                          $2,000,000              $2,000,000              $ -

Oasis   2,290,000                          994,000               1,296,000

Balance at December
        31, 1998                        $4,290,000              $2,994,000              $1,296,000
</TABLE>

The recorded value of the impaired mortgage loans did not differ materially from
the  balances  reported  at the  end of  each  period  with  exception  for  the
impairment  recorded in the fourth  quarter of 1998 for the  Windmill  Lakes and
Oasis  additional  loans. The Trust has also deferred income related to Oasis of
$160,300.

<TABLE>
<CAPTION>
       Reconciliations of activity for 1998, 1997 and 1996 are as follows:

                                                      1998                   1997                    1996

<S>                                               <C>                    <C>                       <C>         
Balance at beginning of period                    $145,537,234           $150,454,030              $150,448,995

       Acquisitions                                      -                     -                      1,303,436

       Reclassification                                  -                 (3,515,288)                    -

       Principal collections                       (12,404,909)            (1,401,508)               (1,298,401)

Balance at end of period                          $133,132,325           $145,537,234              $150,454,030


</TABLE>

                                                      Continued


                                         KRUPP GOVERNMENT INCOME TRUST II

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

C.      PIMIs, Continued


Property Descriptions:

        The  Seasons  is a  1,088-unit  apartment  complex  located  in  Laurel,
        Maryland.
        The Falls at Hunter's Pointe ("Hunters  Pointe") is a 276-unit apartment
       complex located in Sandy City, Utah, a suburb of Salt Lake City.
        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.
        Windsor Lake Apartments ("Windsor Lake") is a 416-unit apartment complex
        in Smyrna, Georgia.
        St. Germain Apartments ("St. Germain") is a 207-unit apartment complex 
        in Boston, Massachusetts.
        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 a
       Fannie Mae MBS which  represents the  securitized  first mortgage loan on
       the  underlying  property or a sole  participation  interest in the first
       mortgage loan originated  under the FHA lending program on the underlying
       property   (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  monthly  principal and interest
       payments on the Fannie Mae MBS  guaranteed by Fannie Mae, and HUD insures
       payment of principal and interest on the FHA first mortgage loan.

       The borrower  generally  cannot prepay the first mortgage loan during the
       first  five  years and may  prepay  the first  mortgage  loan  thereafter
       subject  to a 9%  prepayment  penalty  in years six  through  nine,  a 1%
       prepayment penalty in year ten and no prepayment penalty thereafter.  The
       Trust may receive 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

                                                      Continued
                                         KRUPP GOVERNMENT INCOME TRUST II

                                     NOTES TO FINANCIAL STATEMENTS, continued
                                                ------------------
D.      PIMs, Continued

       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 base.  Payment
       of participation income 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  income  payable by the
       underlying  borrower generally cannot exceed 50% of any increase in value
       of the  property,  however,  generally  any net  proceeds  from a sale or
       refinancing  will be available to satisfy any accrued but unpaid  Minimum
       Additional or Shared Income Interest.

       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.

       During the fourth  quarter of 1997,  the borrower on the Estates PIM sold
       the property to one of the Trust=s affiliated entities. To facilitate the
       sale  transaction,  the borrower  asked and the Advisor agreed to release
       the  participation  features of the PIM and allow the purchaser to assume
       the  obligations  of the  first  mortgage  loan.  In  exchange  for  this
       modification,  the Advisor  required the borrower to pay a settlement  of
       $232,000 to provide the Trust with a financial return  comparable to what
       the Trust would have  expected to receive had the  borrower  continued to
       own the  property.  In  conjunction  with  this  transaction,  the  Trust
       converted the investment from a PIM to an insured mortgage.

        During the second  quarter of 1998,  the Trust  completed the funding of
its commitment on the Fountains PIM.

       At December 31, 1998 and 1997 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, 1998 and 1997:
<TABLE>

<CAPTION>
                                             Interest        Maturity
          PIM  Amount         Rate               Date           Balance at December 31,
                                                                                    1998                1997
FNMA
<S>                          <C>                <C>           <C>                <C>                <C>        
Mequon Trails                $14,937,726        6.50%         1/01/08            $13,971,630        $14,170,803
                                       (a)
FHA
Rivergreens II                 6,137,199        7.375%        1/1/35               6,026,715          6,058,069

Mill Ponds II                  8,245,300        7.125%       12/1/35               8,127,964          8,169,935

The Fountains                 10,336,000        7.875%       11/1/36              10,204,948          9,246,275
                                                  (b)
               Total         $39,656,225                                         $38,331,257        $37,645,082
                                                                                   (c)

</TABLE>


 C.   PIMs, Continued

(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
$38,331,257.




<TABLE>

<CAPTION>
Reconciliations of activity for 1998, 1997 and 1996 are as follows:

                                                        1998                  1997                 1996

<S>                                                     <C>                  <C>                   <C>        
Balance at beginning of period                          $37,645,082          $49,622,337           $45,436,663

       Acquisitions                                       1,003,676              -                   4,521,175

       Reclassification                                      -               (11,578,526)               -

       Principal collections                               (317,501)            (398,729)             (335,501)

Balance at end of period                                $38,331,257          $37,645,082           $49,622,337

Property descriptions:
</TABLE>

        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

       At December 31, 1998,  the Trust's MBS portfolio has an amortized cost of
       $41,286,963  and  gross  unrealized  gains and  losses  of  approximately
       $556,799 and $9,563, respectively.  At December 31, 1997, the Trust's MBS
       portfolio has an amortized cost of  approximately  $50,664,558  and gross
       unrealized  gains  and  losses of  approximately  $547,435  and  $40,692,
       respectively. The MBS have maturities ranging from 2008 to 2023.

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.


                                                     Continued

                                         KRUPP GOVERNMENT INCOME TRUST II

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

F.  Shareholders' Equity, continued

       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.

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  and  the  preparation  and  mailing  of  financial  reports,   tax
       information and other communications to investors.

       The Trust earned or received $443,282,  $1,024,097,  and $295,522 of base
       interest from The Seasons in 1998, 1997 and 1996,  respectively (see Note
       C). In addition,  the Trust received $239,107 in 1998 and $83,360 in 1997
       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 1998 federal income tax
       return follows:

            Net income per statement of income                   $ 13,183,111

              Add:    Provision for impaired mortgage loan          2,994,000
                      Book to tax difference for amortization
                      of prepaid fees and expenses                    625,370
              Less:   Additional Loan interest deferred for book
                      purposes                                       (215,433)

            Net income for federal income tax purposes           $ 16,587,048

        The Trust paid dividends of $2.12 per share during 1998 which represents
        approximately  $  .90  from  ordinary  income  and  $1.22  represents  a
        non-taxable distribution for federal income tax purposes.

        The basis of the Trust=s assets for financial reporting purposes is less
        than  its tax  basis  by  approximately  $8,347,000  and  $4,728,000  at
        December  31,  1998 and 1997,  respectively.  The  basis of the  Trust=s
        liabilities for financial  reporting  purposes exceeded its tax basis by
        approximately  $2,289,000  and $2,545,000 at December 31, 1998 and 1997,
        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.
            Insured  mortgage loans are valued in a manner  consistent  with the
PIM and PIMI's as described below.

            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. Management does not include any participation
            income in the Trust=s estimated fair values, because 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 $2,872,000 at December 31, 1998 
            and gross unrealized losses of approximately $1,049,000 at 
            December 31, 1997.

            Commitments to Fund Construction Loans and PIMIs

            For the year ended December 31, 1997 the Trust approximated the fair
            value  of its  commitment  on The  Fountains  PIM to be equal to the
            commitment amount of approximately $1,006,000.

            At December  31,  1998 and 1997,  the  estimated  fair values of the
            Trust's financial instruments are as follows:

                                     (rounded to thousands)
                                    1998                         1997
                              Fair       Carrying          Fair       Carrying
                              Value        Value           Value        Value

 Cash and cash equivalents  $ 18,011      $ 18,011      $ 13,520      $ 13,520

         MBS                  41,834        41,834        51,171        51,171

         PIMs and PIMIs:
             PIMs             39,056        38,331        37,534        37,645
         Insured mortgages   135,279       133,132       144,599       145,537
         Additional loans     23,298        23,298        29,152        29,152

                            $257,478      $254,606      $275,976      $277,025


<PAGE>



                                         KRUPP GOVERNMENT INCOME TRUST II

                                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


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

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



(1) The Trust recognized a valuation allowance related to the Windmill Lakes and
Oasis Additional Loans.


<PAGE>




<TABLE>
<CAPTION>
                        KRUPP GOVERNMENT INCOME TRUST II

                               SUPPLEMENTARY DATA
                        SELECTED QUARTERLY FINANCIAL DATA
                                   (Unaudited)


                              For the Quarter Ended


                               March 31,             June 30,          September 30,         December 31,
                                 1998                  1998                1998                  1998

<S>                           <C>                  <C>                   <C>                 <C>       
Total revenues                $5,490,525           $4,777,805            $7,055,166          $4,306,173

Net income                    $4,286,801           $3,665,671            $5,028,861          $  201,778

Earnings per Share            $      .23           $      .20            $      .27          $      .02



                              For the Quarter Ended

                               March 31,             June 30,          September 30,         December 31,
                                 1997                  1997                1997                  1997

Total revenues                $5,306,978           $5,057,310            $6,072,765          $4,853,502

Net income $4,012,616         $3,822,465           $4,788,267            $3,640,137

Earnings per Share            $      .22           $      .21            $      .26          $      .20



</TABLE>



<PAGE>