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

For the fiscal year ended   December 31, 2004

                                       or

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

For the transition period from __________________ to __________________

Commission file number   0-20164

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

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

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                 Name of each 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 continued,  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. |_|

SEC 1673 (8-04)   Persons who respond to the collection of information contained
                  in this  form are not  required  to  respond  unless  the form
                  displays a currently valid OMB control number.

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                                                                  Yes |_| No |X|


                                      -1-
<PAGE>

Aggregate  market  value  of  voting  securities  held  by  non-affiliates:  Not
applicable.

Documents incorporated by reference: see Item 15

The exhibit index is located on pages 15 - 17.


                                      -2-
<PAGE>

                                     PART I

This Form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended and the Federal Private  Securities  Litigation
Reform  Act  of  1995.  Words  such  as  "believes,"  "anticipates,"  "expects,"
"intends,"  "estimates,"  "projects," and other similar  expressions,  which are
predictions  of  or  indicate  future  events  and  trends,  typically  identify
forward-looking  statements.  These forward-looking statements involve known and
unknown  risks,  uncertainties  and other  factors  that may  cause  the  actual
results,  performance or  achievements of the Krupp  Government  Income Trust II
(the "Trust") to be materially different from any future results, performance or
achievements  expressed or implied by these forward-looking  statements.  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.

The Trust has used forward-looking statements in a number of places in this Form
10-K,  including,  without  limitation,  "ITEM 1.  DESCRIPTION OF OUR BUSINESS,"
"ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY  SECURITIES,"  "ITEM 7.  MANAGEMENT'S  DISCUSSION AND
ANALYSIS  OF  FINANCIAL  CONDITION  AND  RESULTS  OF  OPERATION,"  and "ITEM 7A.
QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK." The risks and
uncertainties described within these sections include, without limitation, those
related to investments in real estate;  status as a real estate investment trust
("REIT");  capital expenditures and requirements;  corporate structure; debt and
liquidity needs; federal, state or local regulations; adverse changes in general
economic or local  conditions;  the  inability of  borrowers  to meet  financial
obligations on additional loans; pre-payments of mortgages; failure of borrowers
to pay  participation  interests  due to poor  operating  results at  properties
underlying  the  mortgages;  and  uninsured  losses and  potential  conflicts of
interest between the Trust and its affiliates,  including the Berkshire Mortgage
Advisors  Limited  Partnership  (the  "Advisor").  The Trust has discussed these
risks and uncertainties in detail within these sections.

Given the risks and uncertainties, you are cautioned not to place undue reliance
on the  forward-looking  statements  that  may be  made in this  Form  10-K.  We
undertake  no  obligation  to  publicly  update  or revise  any  forward-looking
statements,  whether  as a result  of new  information,  future  events or other
changes.

ITEM 1. BUSINESS

Krupp Government Income Trust II (the "Trust") is a Massachusetts business trust
that 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   (the  "Advisor")   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") of the Trust,  46,319 Shares were
sold for  $880,061.  The  remaining  6,628,523  Shares are available for general
Trust purposes. The Trust has utilized the net proceeds from the public offering
and the DRP 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.

A REIT is a legal  entity  that  holds  real  estate  interests  and  receives a
deduction  for  dividends  paid  to its  shareholders  for  federal  income  tax
purposes.  The Trust has elected to be treated as a real estate investment trust
("REIT"),  under  the  Internal  Revenue  Code of 1986,  as  amended.  Financial
information concerning the Trust and our business segment for each of the fiscal
years ended  December  31,  2004,  December  31, 2003 and  December  31, 2002 is
included  in the  consolidated  financial  statements  and the notes  thereto in
"FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA" in PART II,  ITEM 8. 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 the  Notes to  Financial  Statements  included  in
Appendix A of this report on Form 10-K for additional information.

Although the Trust will  terminate no later than December 31, 2030, the value of
the remaining  two PIMIs may be realized by the Trust through  repayment or sale
as early as ten years from the closing dates of the permanent loans. On December
14, 2004,  the Trust issued a call to the  borrower to  accelerate  the Martin's
Landing  Apartments  PIMI


                                      -3-
<PAGE>

and on February  28,  2005,  the Trust  received a  prepayment  of the  Martin's
Landing  Apartments  PIMI. If the  remaining  PIMI is sold prior to December 31,
2030, the Trust will dissolve.

An  investment  by the  Trust in a PIM on a  multi-family  residential  property
consists of (1) a MBS or an insured  mortgage loan (the  "guaranteed  or insured
mortgage")  guaranteed or insured as to principal  and basic  interest and (2) a
participating mortgage. Guaranteed or insured mortgages are 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 participation  rights to the Trust
are  conveyed  through  a  subordinated   promissory  note  and  mortgage.   The
participation features are neither insured nor guaranteed.

An  investment by the Trust in a PIMI consists of (1) a MBS issued by Fannie Mae
and (2) an  additional  loan  ("Additional  Loan") to the  borrower in excess of
mortgage  amounts  guaranteed  by Fannie Mae that  increases  the Trust's  total
financing with respect to that property.  Additional Loans are collateralized by
a subordinated  mortgage on the underlying  property but are neither insured nor
guaranteed.  Under the Additional Loans, the Trust receives semi-annual interest
payments  and  may  provide  additional   interest  in  the  future,   including
participation  in the net income and residual  value,  if any, of the underlying
property.

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

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

The Trust anticipates that there will be sufficient cash flow from the mortgages
to meet cash  requirements.  To the extent that the Trust's  cash flow should be
insufficient to meet the Trust's operating expenses and liabilities,  it will be
necessary for the Trust to obtain additional funds by liquidating its investment
in one or more mortgages or by borrowing  funds.  The Trust may pledge mortgages
as security for any permitted borrowing of funds.

The Trust may not borrow funds in connection with the acquisition or origination
of  mortgages.  However,  it may borrow funds in order to meet  working  capital
requirements of the Trust. In this event,  the Trust may borrow funds from third
parties  on a  short-term  basis.  The  declaration  of trust of the Trust  (the
"Declaration  of Trust")  limits the amount  that may be  borrowed by the Trust.
Borrowing agreements between the Trust and a lender may also restrict the amount
of indebtedness that the Trust may incur. The Declaration of Trust prohibits the
Trust from issuing debt securities to  institutional  lenders and banks, and the
Trust may not issue  debt  securities  to the public  except in certain  limited
circumstances.  The Trust, under some  circumstances,  may borrow funds from the
Advisor,  a  Trustee,  or an  affiliate  of the Trust or a Trustee.  However,  a
majority  of  the  independent  Trustees,   not  otherwise  interested  in  such
transaction,  must  approve  the  transaction  as being  fair,  competitive  and
commercially  reasonable  and no less  favorable to the Trust than loans between
unaffiliated  lenders and borrowers under the same circumstances.  The Trust has
not borrowed any funds in the past and does not intend to do so in the future.

The FHA coinsurance loan program under Section 221(d)(4) of the National Housing
Act provides for loans with 40-year  terms.  However,  this program allows for a
call option at any time after ten years, upon one year's notice.  The Fannie Mae
Delegated  Underwriting and Servicing Program provides for loans with seven, ten
or 15 year  terms  and an  amortization  period of 35  years.  The  subordinated
promissory  notes and  subordinated  mortgages  that  secure  the  participation
feature of the PIMs and the notes that evidence the Additional Loans provide for
acceleration  of maturity at the earlier of the sale of the underlying  property
or the call date.

The Trust  expects  that,  from time to time,  it may realize the  principal and
participation in residual value, if any, of its mortgages before maturity. It is
expected  that the  mortgages  will be  repaid  after a period of  ownership  of
approximately  ten  years  from  the  closing  dates  of  the  permanent  loans.
Realization of the value of the mortgages may, however, be made at an earlier or
later date.


                                      -4-
<PAGE>

The Trust will not underwrite  securities of other issuers,  offer securities in
exchange for property or invest in  securities  of other issuers for the purpose
of  exercising  control  and has not engaged in any of these  activities  in the
past.  The  Declaration  of Trust  does not  permit  the  Trust to issue  senior
securities.  The Trust has not  repurchased or reacquired any of its Shares from
shareholders  in the  past.  The Trust may not make  loans to the  Advisor,  any
Trustee,  any affiliate of the Advisor or any Trustee or any other person, other
than mortgage investments of the type described above.

The Trust's investments are not expected to be subject to seasonal fluctuations,
although net income may vary  somewhat  from  quarter to quarter  based upon the
participation features of its investments.  The requirements for compliance with
federal,  state and local  regulations  to date have not had a material  adverse
effect  upon the  Trust's  operations,  and the Trust  anticipates  no  material
adverse effect in the future.

To qualify as a REIT for  federal  income tax  purposes,  the Trust made a valid
election  to be so  treated  and must  continue  to  satisfy a range of  complex
requirements  including criteria related to its ownership structure,  the nature
of its  assets,  the  sources of its income and the amount of its  dividends  to
shareholders.  The Trust intends to qualify as a REIT in each year of operation;
certain factors, however, may have an adverse effect on the Trust's REIT status.
If, for any taxable year, the Trustees and the Advisor determine that any of the
asset,  income, or dividend  criteria are not likely to be satisfied,  the Trust
may be required to borrow  funds,  dispose of  mortgages or take other action to
avoid the loss of its REIT status.

Additionally,  if the Trust does not qualify as a REIT for any taxable  year, it
will be  subject  to  federal  income  tax as if it were a  corporation  and the
shareholders  will be taxed as shareholders of a corporation.  If the Trust were
taxed as a corporation, the payment of such tax by the Trust would substantially
reduce the funds  available  for dividends to  shareholders.  To the extent that
dividends had been made in anticipation of the Trust's  qualification as a REIT,
the Trust might be required to borrow  additional funds or to liquidate  certain
of its  investments in order to pay the  applicable  tax.  Moreover,  should the
Trust's election to be taxed as a REIT be terminated or voluntarily revoked, the
Trust  may  not be able to  elect  to be  treated  as a REIT  for the  following
five-year period.

As of December 31, 2004, no personnel were directly employed by the Trust.

ITEM 2. PROPERTIES

None.

ITEM 3. LEGAL PROCEEDINGS

There  are no  material  pending  legal  proceedings  to which  the  Trust,  any
director,  officer or  affiliate  of the Trust is a party to which  would have a
materially  adverse  effect on the Trust.  There are no material  pending  legal
proceedings relating to any of the Trust's investments.

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

None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES

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

The number of investors holding Shares as of December 31, 2004 was approximately
7,800.

The Trust has declared and paid dividends on a quarterly  basis,  and intends to
continue  to do so for  the  foreseeable  future.  The  Trustees  established  a
dividend  rate per Share per quarter of $0.14 for the first  quarter of 2004 and
$0.05 for the second,  third and fourth  quarter of 2004 and $0.14 per share for
each quarter of 2003.


                                      -5-
<PAGE>

The Trust has no  compensation  plans or  individual  compensation  arrangements
under which its equity securities are authorized for issuance.

ITEM 6. SELECTED FINANCIAL DATA

The  table on the  following  page 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)
                                   2004          2003          2002          2001          2000
                                 --------      --------      --------      --------      --------
<S>                              <C>           <C>           <C>           <C>           <C>
Total revenues                   $  3,338      $ 11,498      $ 17,359      $ 25,330      $ 16,978

Net income                       $  2,200      $  8,785      $ 14,037      $ 22,141      $ 13,625

Net income per Share             $   0.12      $   0.48      $   0.76      $   1.21      $   0.74

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

Total assets at December 31      $ 40,214      $ 51,387      $132,860      $167,764      $215,521

Average dividends per Share      $   0.73      $   4.90      $   2.61      $   3.74      $   1.62
</TABLE>

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

Certain  statements in this  Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operations  and elsewhere in this report on Form 10-K
constitute  "forward-looking  statements"  within  the  meaning  of the  Federal
Private  Securities   Litigation  Reform  Act  of  1995.  These  forward-looking
statements  involve  known and unknown  risks,  uncertainties  and other factors
which may cause the Trust's actual  results,  performance or  achievements to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by these forward-looking statements. These factors include,
among other things,  federal,  state or local  regulations;  adverse  changes in
general  economic or local  conditions;  the  inability  of the borrower to meet
financial obligations on Additional Loans; pre-payments of mortgages; failure of
borrowers  to pay  participation  interests  due to poor  operating  results  at
properties underlying the mortgages; uninsured losses and potential conflicts of
interest between the Trust and its Affiliates, including the Advisor.


                                      -6-
<PAGE>

Liquidity and Capital Resources

At  December  31,  2004,  the Trust had  liquidity  consisting  of cash and cash
equivalents of approximately $4.2 million,  as well as the cash inflows provided
by the remaining  PIMIs, MBS and cash and cash  equivalents.  The Trust may also
receive  additional cash flow from the participation  features of its PIMIs. The
Trust  anticipates that these sources will be adequate to provide the Trust with
sufficient  liquidity to meet its obligations,  including providing dividends to
its investors.

The most significant  demands on the Trust's  liquidity are quarterly  dividends
paid to  investors  of  approximately  $919,000,  which  represents  the current
quarterly  dividend  rate of $0.05 per share.  Dividends  are funded by interest
income  received  on the  PIMIs,  MBS and  cash  and  cash  equivalents,  net of
operating expenses, and the principal collections received on its PIMIs and MBS.
The portion of dividends funded from principal  collections  reduces the capital
resources  of the Trust.  As the capital  resources of the Trust  decrease,  the
total cash flows to the Trust will also  decrease  which may result in  periodic
adjustments to the dividends paid to the investors.

The Advisor  periodically  reviews the  dividend  rate to  determine  whether an
adjustment  is  necessary  based on  projected  future cash  flows.  The current
dividend  rate is $0.05  per  share  per  quarter.  The  Trustees,  based on the
Advisor's recommendations, generally set a dividend rate that provides for level
quarterly distributions.  To the extent quarterly dividends do not fully utilize
the cash available for distribution and cash balances increase, the Trustees may
adjust the dividend rate or distribute such funds through a special dividend.

In addition to providing  guaranteed or insured  monthly  principal and interest
payments  from the insured  first  mortgage or Fannie Mae MBS portion of a PIMI,
the Trust's  investments in the PIMIs also may provide additional income through
the  interest  on  the  Additional   Loan  portion  of  the  PIMIs  as  well  as
participation  interest  based on operating  cash flow and increase in the value
realized upon the sale or refinance of the underlying properties. However, these
payments and collection of the Additional Loan principal are neither  guaranteed
nor  insured  and  depend  on  the  successful   operations  of  the  underlying
properties.

For the year ended December 31, 2004, the Trust  received both  installments  of
Additional Loan interest due in 2004 from its PIMI investments.

The  Trust  received  participation  interest  based on cash flow  generated  by
property operations from three of its investments during the year ended December
31, 2004. The Lakes paid $70,752, Martin's Landing paid $65,742 and Mill Pond II
paid $135,547.

On December 14, 2004,  the Trust issued a call to the borrower to accelerate the
Martin's  Landing  Apartments  PIMI of the  $9,560,996  First  Mortgage  and the
$2,280,000  Additional  Loan.  Both the First Mortgage Note and the  Subordinate
Note  were due to  mature  on  September  30,  2005  under the terms of the loan
documents. On February 28, 2005, the Trust received a prepayment of the Martin's
Landing  Apartments  Additional  Loan note.  The Trust  received  $2,280,000  of
Additional  Loan  principal,  in  addition,  the Trust  received  $1,742,959  of
interest,  which included  $1,639,221 of  Participating  Appreciation  Interest,
$79,800 of unpaid  Additional Loan interest and $23,938 of Participating  Income
Interest.  In the  first  quarter  of 2005 the  Trust  expects  to  receive  the
remaining  outstanding  balance of the Martin's  Landing  Apartments  PIMI First
Mortgage  Note of $9,523,897  and will pay a special  dividend of $0.74 in first
quarter of 2005.

On  December  3,  2004,  the Trust  received  a  prepayment  of the Mill Pond II
Apartments PIMI for $7,853,101.  The Trust also received a prepayment premium of
$65,700. In addition, the Trust received $135,547 of participation  interest. On
December 16, 2004, the Trust paid a special dividend of $0.44 per share from the
proceeds received.

In  2004,  the  overall   mortgage   investments  of  the  Trust   decreased  by
approximately  21%.  In  addition,  due  to  the  cumulative  prepayments  since
inception  through  December 31, 2004,  the Trust has  approximately  11% of its
original mortgage investments remaining.

During the first quarter of 2003,  the Trust refunded  $54,258 of  participation
interest  received in 2000 and 2001 to the  borrower on the  Fountains  PIM. The
refund was due to an overpayment of participation  interest by the borrower


                                      -7-
<PAGE>

as a result of an error the borrower made its initial surplus cash  calculations
for 2000 and 2001.  Upon  reexamination,  the borrower  determined  that certain
proceeds  were  incorrectly  included in those  calculations.  The borrower then
submitted revised surplus cash calculations to the Advisor and, upon review, the
Advisor determined that a refund was due to the borrower.

On  December  22,  2003,  the  Trust  received  a  prepayment  of the  Fountains
Apartments PIM for $9,998,884.  The Trust also received a prepayment  premium of
$225,901.  An appraisal of the property  determined that the underlying property
value had not increased  sufficiently to meet the criteria for the Trust to earn
any  participation  interest.  On December  30,  2003,  the Trust paid a special
dividend of $0.56 per share from the proceeds received.

On September 30, 2003, the Trust received a prepayment of the Crossings  Village
Subordinated  Promissory  Note and the Crossings  Village  Additional  Loan. The
Trust received $2,584,000 of Additional Loan principal and $15,073 of Additional
Loan interest. In addition,  the Trust received $2,454,048 of Preferred Interest
and $38,646 of Shared  Appreciation  Interest.  On October 25,  2003,  the Trust
received  $11,349,632 from the Fannie Mae MBS related to Crossings  Village.  On
November 20, 2003, the Trust paid a special dividend of $0.90 per share from the
proceeds of the Crossings Village Apartments prepayment.

On September  25, 2003,  the Trust  received a payoff of the Oasis at Springtree
MBS for  $11,116,057.  On October 7, 2003, the Trust paid a special  dividend of
$0.61 per share from the principal proceeds received.

On  September  18, 2003,  the Trust  received a  prepayment  of the  Rivergreens
Apartments II PIM for $5,845,000.  The Trust also received a prepayment  premium
of $58,450 from this payoff.  On  September  30, 2003,  the Trust paid a special
dividend of $0.33 per share from the proceeds of the  Rivergreens  Apartments II
PIM prepayment. Rivergreens II was a participating insured mortgage that was not
required to  simultaneously  pay off the  Subordinated  Promissory Note with the
first  mortgage.  On  December  8,  2003,  the Trust  received  a payment of the
Rivergreens  Apartments II  Subordinated  Promissory  Note.  The Trust  received
$303,593 of Shared Appreciation Interest. On December 17, 2003, the Trust paid a
special dividend of $0.02 per share from the proceeds received.

On  March  25,  2003,  the  Trust  received  a  payoff  of the  Willows  MBS for
$3,280,432. On May 9, 2003, the Trust paid a special dividend of $0.18 per share
from the principal proceeds.

On March 7, 2003,  the Trust  received a prepayment  of the Oasis at  Springtree
Additional Loan note. The Trust received $2,290,000 of Additional Loan principal
and $2,365,276 of Shared Appreciation Interest. On May 8, 2003, the Trust paid a
special dividend of $0.26 per share from the proceeds of the Oasis at Springtree
Additional Loan  prepayment.  As a result of the  prepayment,  the insured first
mortgage loan on Oasis at Springtree was  reclassified  from a PIMI to a MBS, as
the only  remaining  portion of the  investment  was a FNMA MBS.  The Trust also
reclassified   this  investment  as   available-for-sale   concurrent  with  the
satisfaction of the  participation  feature.  The Trust continued to receive the
scheduled  principal and interest  payments on the first  mortgage  until it was
paid in full on September 25, 2003.

On December 30, 2002,  the Trust  received a prepayment of the Mequon Trails PIM
participation  feature  totaling  $572,226.  The payoff consisted of $385,000 of
Shared  Appreciation  Interest and $187,226 of Minimum  Additional  Interest and
Shared Income Interest.  On January 27, 2003, the Trust received  $13,007,834 in
proceeds  from the Fannie Mae MBS related to Mequon.  On May 7, 2003,  the Trust
paid a special  dividend  of $0.74 per share  from the  proceeds  of the  Mequon
Trails PIM prepayment.

On November 25, 2002, the Trust received  $4,488,878,  as a result of the payoff
of the Sunset Summit Additional Loan. The payoff consisted of $1,900,000 for the
principal  due on the  Additional  Loan,  base  interest of  $33,250,  Preferred
Interest of $1,532,498 and Participating Appreciation Interest of $1,023,130. On
December 26, 2002, the Trust received $9,094,934 in proceeds from the Fannie Mae
MBS  related to Sunset.  On May 5, 2003,  the Trust paid a special  dividend  of
$0.74 per share from the proceeds  received in 2002 from the Sunset  Summit PIMI
payoff.

On March 28,  2002,  the Trust  received  a  prepayment  of the  Windmill  Lakes
Subordinated  Promissory Note and the Windmill Lakes  Additional Loan. The Trust
received $2,000,000 of Additional Loan principal and $162,500 of Additional Loan
interest. As a result of the payoff, the Trust recognized $562,500 of Additional
Loan  interest  which had been  received  in prior  years and was  recorded as a
reduction of the  impaired  Additional  Loan in  accordance  with the  Financial
Accounting  Standards  Board's  Statement  114,  "Accounting  by  Creditors  for
Impairment of a


                                      -8-
<PAGE>

Loan" ("FAS 114") and the Financial  Accounting  Standard Board's Statement 118,
"Accounting  by  Creditors  for  Impairment  of a Loan- Income  Recognition  and
Disclosures  ("FAS118").  As the entire  Additional  Loan  principal  balance of
$2,000,000 was paid in 2002, the remaining  impairment provision of $500,000 was
also reversed.  On April 25, 2002,  the Trust received  $10,727,382 in principal
proceeds  on the first  mortgage  note from  Windmill  Lakes.  The Trust  paid a
special  dividend  of $0.71 per share from the  proceeds of the  Windmill  Lakes
prepayment on May 1, 2002.

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

Whether  the  operating  performance  of any of the  remaining  properties  will
provide  sufficient  cash flow from operations to pay either the Additional Loan
interest or  participation  interest  will depend on factors  that the Trust has
minimal  control over.  Should the  properties be unable to generate  sufficient
cash flow to pay the  Additional  Loan  interest,  it would  reduce the  Trust's
distributable  cash  flow and could  affect  the  value of the  Additional  Loan
collateral.

There are contractual  restrictions  on the prepayment of the PIMIs.  During the
first five years of the  investment,  borrowers  are generally  prohibited  from
repayment.  During the second  five  years,  the PIMI  borrowers  can prepay the
insured  or  guaranteed  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 PIMI results from
the  foreclosure  on the  underlying  property,  an  insurance  claim or under a
guarantee,  the Trust generally would not receive any participation  interest or
any  amounts due under the  Additional  Loan.  At this time,  the Trust does not
expect either of the remaining PIMIs to be subject to any foreclosure  action or
an insurance or guarantee claims.

The  Trust  has  exercised  its  option  to call one of the  remaining  PIMIs by
accelerating its maturity.  The Trust will have the option to call the last PIMI
during 2005 in accordance  with the loan  documents.  The Advisor will determine
the merits of  exercising  the call  option for the  remaining  PIMI as economic
conditions  warrant.  The  Advisor  also has the  ability to modify or waive the
prepayment  premiums.  Such factors as the condition of the asset,  local market
conditions,  the interest rate environment and available  financing will have an
impact on these decisions.

Critical Accounting Policies

The Trust's critical  accounting  policies relate to revenue recognition related
to the Trust's  PIMI  investments,  impaired  mortgage  loans,  amortization  of
Prepaid  Fees and  Expenses  and the  carrying  value of its  MBS.  The  Trust's
policies are as follows:

The Trust accounts for its MBS portion of a PIMI  investment in accordance  with
the Financial  Accounting  Standards  Board's  Statement  115,  "Accounting  for
Certain  Investments  in Debt and  Equity  Securities"  ("FAS  115"),  under the
classification  of held to maturity as these  investments  have a  participation
feature.  As a result, the Trust would not sell or otherwise dispose of the MBS.
Accordingly,  the  Trust  has both  the  intention  and  ability  to hold  these
investments to expected maturity. The Trust carries these MBS at amortized cost.
The insured mortgage portion of the Federal Housing  Administration ("FHA") PIMI
is carried at amortized  cost. The Trust holds these mortgages at amortized cost
since they are fully  insured by the FHA.  The  Additional  Loans are carried at
amortized cost unless the Advisor  believes there is an impairment in value,  in
which case a valuation  allowance  is  established  in  accordance  with FAS 114
"Accounting  by Creditors for  Impairment of a Loan" and FAS 118  "Accounting by
Creditors for  Impairment of a Loan-Income  Recognition  and  Disclosures".  The
Trust,   in  accordance   with  FAS  115,   classifies   its  MBS  portfolio  as
available-for-sale. The Trust classifies its MBS portfolio as available-for-sale
as a portion of the MBS  portfolio  may remain after all of the PIMIs payoff and
it will then be necessary to sell the  remaining MBS portfolio in order to close
out the Trust. In addition, other situations such as liquidity needs could arise
which would  necessitate  the sale of a portion of the MBS portfolio.  The Trust
carries its MBS at fair market


                                      -9-
<PAGE>

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.

Basic  interest  is  recognized  based  on the  stated  rate of the HUD  Insured
Mortgage  loan (less the  servicer's  fee) or the coupon  rate of the Fannie Mae
MBS. The Trust recognizes  interest related to the  participation  features when
the amount becomes fixed and the  transaction  that gives rise to such amount is
finalized,  cash is received and all contingencies  are resolved.  This could be
the result of a sale or refinancing of the underlying real estate, which results
in a cash  payment to the Trust or a cash payment made to the Trust from surplus
cash relative to the participation  feature. The Trust defers the recognition of
Additional  Loan  interest  payments  as income  to the  extent  these  interest
payments are from escrows  established with the proceeds of the Additional Loan.
When the properties  underlying the PIMIs generate  sufficient cash flow to make
the required  Additional Loan interest payments and the Additional Loan value is
deemed  collectible,  the  Trust  recognizes  income  as  earned  and  commences
amortizing  deferred  interest amounts into income over the remaining  estimated
term of the  Additional  Loan.  During periods where mortgage loans are impaired
the Trust suspends amortizing deferred interest.

Impaired  loans are those  Additional  Loans for which the Advisor  believes the
collection of all amounts due in accordance  with the  contractual  terms of the
loan agreement is not likely. Where necessary, impaired loans are measured based
on the fair value of the underlying  collateral net of estimated  selling costs.
The Trust measures  impairment on these loans  quarterly.  Interest  received on
impaired loans is generally applied against the loan principal.

Prepaid fees and expenses  represent  prepaid  acquisition fees and expenses and
prepaid  participation  servicing fees paid for the acquisition and servicing of
PIMIs. The Trust amortizes prepaid  acquisition fees and expenses using a method
that  approximates the effective  interest method over a period of ten to twelve
years,  which  represents  the estimated life of the  underlying  mortgage.  The
prepaid  participation   servicing  fees  are  amortized  using  a  method  that
approximates  the effective  interest method over a ten-year period beginning at
final  endorsement of the loan if a HUD-insured  loan and at closing if a Fannie
Mae loan.  Upon the repayment of a PIMI, any  unamortized  acquisition  fees and
expenses and unamortized  participation  servicing fees related to such loan are
expensed.

Off-Balance Sheet Arrangements

None

Contractual Obligations

None

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Assessment of Credit Risk

The Trust's  investments  in insured  mortgages  and MBS are  guaranteed  and/or
insured by Fannie Mae,  FHLMC,  GNMA and HUD, and  therefore,  the  certainty of
their cash flows and the risk of material loss of the amounts  invested  depends
on the creditworthiness of these entities.

Fannie  Mae  is  a  federally  chartered  private  corporation  that  guarantees
obligations  originated  under  its  programs.  FHLMC is a  federally  chartered
corporation that guarantees  obligations  originated  under its programs.  These
obligations  are not guaranteed by the U.S.  Government or the Federal Home Loan
Bank Board. However, Fannie Mae and FHLMC are two of the largest corporations in
the  United   States,   and  both  have   significant   experience  in  mortgage
securitizations. In addition, their MBS carry the highest credit rating given to
financial instruments.  GNMA guarantees the full and timely payment of principal
and basic interest on the  securities it issues,  which  represents  interest in
pooled mortgages  insured by HUD.  Obligations  insured by HUD, an agency of the
U.S. Government, are backed by the full faith and credit of the U.S. Government.


                                      -10-
<PAGE>

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

On  December  31,  2004,  the Trust's  investments  also  include  cash and cash
equivalents of  approximately  $3.5 million of Agency paper,  which is issued by
Government  Sponsored  Enterprises  with a credit rating equal to the top rating
category of a nationally recognized statistical rating organization.

Interest Rate Risk

The Trust's primary market risk exposure is to interest rate risk,  which can be
defined as the  exposure  of the Trust's  net  income,  comprehensive  income or
financial  condition  to adverse  movements in interest  rates.  At December 31,
2004,  the Trust's  PIMIs and MBS comprise  the majority of the Trust's  assets.
Decreases  in  interest  rates may  accelerate  the  prepayment  of the  Trust's
investments.  Increases in interest  rates may decrease the proceeds from a sale
of the MBS. The Trust does not utilize any  derivatives or other  instruments to
manage  this  risk as the  Trust  plans to hold all of its PIMI  investments  to
expected  maturity while it is expected that  substantially  all of the MBS will
prepay over the same time period thereby  mitigating any potential interest rate
risk to the disposition value of any remaining MBS.

The Trust  monitors  prepayments  and considers  prepayment  trends,  as well as
dividend  requirements of the Trust,  when setting regular dividend policy.  For
MBS, the fund  forecasts  prepayments  based on trends in similar  securities as
reported by statistical reporting entities such as Bloomberg. For the PIMIs, the
Trust incorporates prepayment assumptions into planning as individual properties
notify the Trust of the intent to prepay or as they are scheduled to mature.

The following table provides information about the Trust's financial instruments
that are sensitive to changes in interest rates. For mortgage  investments,  the
table presents  principal cash flows and related weighted average interest rates
("WAIR")  by  expected  maturity  dates.  The  expected  maturity  date  is  the
contractual maturity as adjusted for expectations of prepayments.

<TABLE>
<CAPTION>
                                                            Expected maturity dates ($ in thousands)
                             --------------------------------------------------------------------------------------------
                                                                                                 Total
                                                                                                 Face
                               2005          2006          2007          2008     Thereafter     Value     Fair Value (1)
<S>                          <C>           <C>           <C>           <C>          <C>          <C>          <C>
Interest-sensitive assets:

MBS                          $   580       $ 1,892       $    --       $    --      $    --      $ 2,472      $ 2,656
WAIR                            7.98%         7.98%                                                 7.98%

PIMS                              --            --            --            --           --           --           --
WAIR

PIMIS
Insured Mortgages              9,887        16,002            --            --           --       25,889       26,542
WAIR                            6.71%         6.71%                                                 6.71%

Additional Loans               2,280         4,600            --            --           --        6,880        6,880
WAIR                            7.00%         7.00%                                                 7.00%
                             -------       -------       -------       -------      -------      -------      -------

Total Interest-
Sensitive Assets             $12,747       $22,494       $    --       $    --      $    --      $35,241      $36,078
                             =======       =======       =======       =======      =======      =======      =======
</TABLE>

(1)   The methodology used by the Trust to estimate the fair value of each class
      of financial instrument is described in Note J to the Trust's financial
      statements presented in Appendix A to this report. As described in that
      note, the Trust does not include an estimate of value for the
      participation interest associated with its PIMI investments.


                                      -11-
<PAGE>

Also included in the Trust's assets are cash and cash equivalents. Due to the
short-term maturity of these investments, generally less than three months, the
Trust is not exposed to significant interest rate risk on these investments.

Operations

The  following  relates to the  operations  of the Trust  during the years ended
December 31, 2004, 2003, and 2002.

<TABLE>
<CAPTION>
                                                   (amounts in thousands, except Share amounts)
                                                                Years Ended December 31,
                                                 --------------------------------------------------
                                                     2004               2003               2002
                                                     ----               ----               ----
                                                    Amount             Amount             Amount
                                                    ------             ------             ------
<S>                                              <C>                <C>                <C>
Interest on PIMs and PIMIs:
   Basic interest                                $      2,263       $      4,147       $      6,873
   Additional Loan interest                               482                564              2,912
   Participation interest                                 338              5,810              6,428
Interest income on MBS                                    199                757                860
Interest income - cash and cash equivalents                56                220                286
Trust expenses                                           (945)            (1,385)            (1,588)
Amortization of prepaid fees and expenses                (364)            (1,328)            (2,234)
Operating Expense Limitation                              171                 --                 --
Reduction of provision for impaired
Additional Loans                                           --                 --                500
                                                 ------------       ------------       ------------
Net Income                                       $      2,200       $      8,785       $     14,037
                                                 ============       ============       ============

Weighted Average
   Shares Outstanding                              18,371,477         18,371,477         18,371,477
                                                 ============       ============       ============
</TABLE>

The Trust's net income  decreased in 2004 when compared to 2003 primarily due to
decreases in basic  interest on PIMs and PIMIs,  participation  interest and MBS
interest   income.   This  decrease  was  partially  offset  by  a  decrease  in
amortization  expense and by the operating  expense  limitation  adjustment  (As
described in Note F of Appendix A). Basic  interest on PIMs and PIMIs  decreased
primarily due to the Rivergreens II, Crossings  Village and Fountains payoffs in
2003.  Participation  income decreased primarily due to the payoffs of the Oasis
at Springtree and Crossings  Village  Additional  Loans in 2003. The decrease in
MBS  interest  income  is due to the Oasis at  Springtree  and the  Willows  MBS
payoffs  in  2003  and  on-going   single-family   MBS  principal   collections.
Amortization  expense  decreased  as a result  of the full  amortization  of the
remaining prepaid fees and expenses on the PIM and PIMI prepayments in 2003.

The Trust's net income  decreased in 2003 when compared to 2002 primarily due to
decreases  in  basic  interest  on PIMs and  PIMIs,  Additional  Loan  interest,
participation  interest,  and a reduction in the provision for impaired mortgage
loans and an increase in expense reimbursements to affiliates. This decrease was
partially offset by decreases in amortization expense and asset management fees.
Basic interest on PIMs and PIMIs  decreased  primarily due to the Mequon Trails,
Rivergreens II and Crossings  Village payoffs in 2003 and the Norumbega  Pointe,
Windmill  Lakes and Sunset Summit  payoffs in 2002.  Basic  interest on PIMs and
PIMIs also decreased due to the reclassification of the Oasis at Springtree PIMI
to a MBS in March 2003.  Additional Loan interest decreased primarily due to the
recognition in 2002 of deferred  income from the Norumbega  Pointe payoff,  base
interest  recognized  from the Windmill  Lakes payoff in 2002, the Sunset Summit
payoff in 2002 and the Oasis at  Springtree  and  Crossings  Village  payoffs in
2003.  Participation  interest  decreased  primarily  due to  the  participation
interest  collected from the Norumbega  Pointe,  Mequon Trails and Sunset Summit
payoffs in 2002 exceeding the


                                      -12-
<PAGE>

participation  interest  collected  from the Oasis at  Springtree  and  Crossing
Village  payoffs in 2003.  The reduction in the provision for impaired  mortgage
loans was due to the reversal of the impairment provision for the Windmill Lakes
PIMI as a result of the Additional  Loan payoff received in the first quarter of
2002.  No provisions  for impaired  mortgage  loans were made  subsequent to the
write off in 2002. Expense  reimbursements to affiliates  increase primarily due
to a change in the cost of services provided to the Partnership in 2002 that was
paid in 2003 and an increase in the cost of 2003's services  associated with the
wind-down of the Trust's activities.  Amortization expense decreased as a result
of the full  amortization of the remaining prepaid fees and expenses on the PIMI
prepayments in 2002.  Asset management fees decreased due to the decrease in the
Trust's investments as a result of principal collection and payoffs.

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.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Within the 90 days  prior to the date of this  Annual  Report on Form 10-K,  the
Chief  Executive  Officer  and  the  Chief  Accounting  Officer  carried  out an
evaluation  of the  effectiveness  of the design and  operation  of the  Trust's
disclosure  controls  and  procedures.  Based  upon that  evaluation,  the Chief
Executive  Officer and the Chief Accounting  Officer  concluded that the Trust's
disclosure  controls  and  procedures  were  effective  as of the  date of their
evaluation in timely alerting them to material information relating to the Trust
required to be included in this Annual Report on Form 10-K.

(b) Changes in Internal Controls

There were no significant  changes in the Trust's internal  controls or in other
factors that could significantly affect such internal controls subsequent to the
date of the evaluation described in paragraph (a) above.

ITEM 9B. OTHER INFORMATION

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:

<TABLE>
<CAPTION>
                                Position with Krupp                          Date of             Term
   Name and Age                 Government Income Trust II                   Election            Expires
   ------------                 --------------------------                   --------            -------
<S>                             <C>                                          <C>                 <C>
   Douglas Krupp (58)           Chairman of Board of Trustees and Trustee    May, 1996           May, 2005
*  Charles N. Goldberg (63)     Trustee                                      April, 1991         May, 2005
*  J. Paul Finnegan (80)        Trustee                                      April, 1991         May, 2005
*  Stephen Puleo (70)           Trustee                                      February, 2001      May, 2005
   Wayne Zarozny (46)           Treasurer                                    October, 2004       N/A
   Scott D. Spelfogel (44)      Clerk                                        November, 1991      N/A
   MaryBeth Bloom (31)          Assistant Clerk                              November, 2000      N/A
</TABLE>

* Independent Trustee


                                      -13-
<PAGE>

Douglas Krupp  co-founded and serves as Chairman and Chief Executive  Officer of
The Berkshire  Group,  an integrated real estate  financial  services firm which
over  the  years  has  been  engaged  in  real  estate  acquisitions,   property
management, investment sponsorship, venture capital investing, mortgage banking,
financial management and ownership of operating companies through private equity
investments.  Mr.  Krupp  has held the  position  of  Chairman  and  previously,
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 is a
regional board member of the Anti-Defamation  League. Mr. Krupp is a graduate of
Bryant  College  where he  received  an  honorary  Doctor of Science in Business
Administration in 1989.

Charles N.  Goldberg is  currently a partner of Oppel,  Goldberg & Saenz,  PLLC.
Prior  to that he was of  counsel  to the law  firm of  Broocks,  Baker & Lange,
L.L.P.,  a position  he held from  December  1997 to May 2000.  Prior to joining
Broocks,  Baker & Lange,  L.L.P.,  Mr. Goldberg was a partner in the law firm of
Hirsch &  Westheimer  from  March  1996 to  December  1997.  Prior  to  Hirsch &
Westheimer, he was the Managing Partner of Goldberg Brown, Attorneys at Law from
1980 to March  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.

J. Paul Finnegan  retired as a partner of Coopers & Lybrand in 1987. Since then,
he has been engaged in business as a consultant,  director and  arbitrator.  Mr.
Finnegan holds a B.A.  degree from Harvard  College,  a J.D.  degree from Boston
College  Law School and an ASA from  Bentley  College.  Mr.  Finnegan  currently
serves as a director of Scituate Federal Savings Bank.

Stephen Puleo is currently engaged in business as a consultant and director.  He
retired as a director  of Coopers & Lybrand,  where he worked  from 1995 to 1997
primarily  servicing real estate industry clients.  From 1993 to 1994, Mr. Puleo
was a tax director for Deloitte & Touche.  From 1984 to 1993, Mr. Puleo held the
positions  of  Executive  Vice  President  and  Chief  Financial  Officer  of  a
predecessor to The Berkshire Group. Prior to that, Mr. Puleo was the Chairman of
the National Real Estate  Industry  Group of Coopers & Lybrand where he provided
various  real  estate  services  and was a senior  tax  partner in charge of the
Northeast  Region. He is a graduate of McNeese State University and attended the
Executive  Development  Program  at the Tuck  School of  Business  at  Dartmouth
College. He is a Certified Public Accountant and currently serves as director of
Simpson Housing Limited Partnership of Denver, Colorado.

Wayne Zarozny is Vice President and Corporate Controller of The Berkshire Group.
Mr. Zarozny has held several  positions within The Berkshire Group since joining
the  company in 1986 and is  currently  responsible  for  accounting,  financial
reporting and treasury activities. Before joining The Berkshire Group, he was an
audit supervisor for Pannell Kerr Forster  International  and on the audit staff
of  Deloitte,  Haskins  and Sells in Boston.  He  received a Bachelor of Science
degree from Bryant  College,  a Master of  Business  Administration  degree from
Clark University and is a Certified Public Accountant.

Scott D.  Spelfogel is the Clerk of the Trust and is Senior Vice  President  and
General  Counsel  to The  Berkshire  Group.  Prior to 1997,  he  served  as Vice
President and Assistant  General  Counsel.  Before  joining the firm in November
1988, he was a litigator in private  practice in Boston.  He received a Bachelor
of Science degree in Business  Administration  from Boston  University,  a Juris
Doctor  Degree from Syracuse  University's  College of Law, and a Master of Laws
degree in Taxation from Boston University Law School. He is admitted to practice
law in  Massachusetts  and  New  York,  is a  member  of the  American,  Boston,
Massachusetts  and New York State bar associations and is a licensed real estate
broker in Massachusetts.

MaryBeth  Bloom is the  Assistant  Clerk of the Trust and is  Assistant  General
Counsel to The Berkshire Group. Prior to joining the company in August 2000, she
was an attorney with John Hancock Financial Services. She received a B.A. degree
from the  College of the Holy Cross in 1995 and a J.D.  degree  from New England
School of Law in 1998. She is admitted to practice law in Massachusetts  and New
York and is a member of the American Bar Association.


                                      -14-
<PAGE>

In addition, the following is deemed to be Executive Officer of the registrant:

George Krupp (age 60) is the Co-Founder and Co-Chairman of The Berkshire  Group,
an  integrated  real  estate  financial  services  firm  engaged in real  estate
acquisitions,  property  management,  investment  sponsorship,  venture  capital
investing,  financial management, and ownership of one operating company through
private equity investments. Mr. Krupp has held the position of Co-Chairman since
The Berkshire  Group was  established as The Krupp  Companies in 1969. Mr. Krupp
attended the  University  of  Pennsylvania  and Harvard  University  and holds a
Master's Degree in History from Brown  University.  Douglas and George Krupp are
brothers.

The Trust has a code of ethics that applies to its principal  executive officer,
principal  financial officer,  principal  accounting  officer or controller,  or
persons performing similar functions.

ITEM 11. EXECUTIVE COMPENSATION

Except for the  Independent  Trustees  (as  described  below),  the Trustees and
Officers of the Trust have not been and will not be compensated by the Trust for
their services.  However,  the Officers will be compensated by the Advisor or an
affiliate of the Advisor.

Compensation of Trustees

The Trust paid each of the Independent  Trustees  (Charles N. Goldberg,  J. Paul
Finnegan and Stephen Puleo) a fee of $25,000 in 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of  January  28,  2005,  the  following  were  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 an affiliate of the Advisor.

The amounts and  percentages  of Shares  beneficially  owned are reported on the
basis of  regulations  of the SEC  governing  the  determination  of  beneficial
ownership  of  securities.  Under  these  rules,  a  person  is  deemed  to be a
beneficial owner of a security if that person has or shares voting power,  which
includes  the  power  to vote or to  direct  the  voting  of such  security,  or
investment  power,  which  includes  the power to  dispose  of or to direct  the
disposition of such security.  A person is also deemed to be a beneficial  owner
of any  securities  of  which  that  person  has a right to  acquire  beneficial
ownership within 60 days. Under these rules,  more than one person may be deemed
to be a beneficial owner of the same securities.

<TABLE>
<CAPTION>
Class of               Name of Beneficial                                       Amount and Nature of       Percent
 Stock                       Owner                                               Beneficial Interest       of Class
--------               ------------------                                       --------------------       --------
<S>                    <C>                                                      <C>                         <C>
Shares of              Berkshire Income Realty - OP, L.P. ("BIR - OP")          5,293,322 Shares(1)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              Berkshire Income Realty, Inc. ("BIR")                    5,293,322 Shares(1)(a)      28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              BIR GP, L.L.C.                                           5,293,322 Shares(2)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              KRF Company, L.L.C.                                      5,293,322 Shares(3)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108
</TABLE>


                                      -15-
<PAGE>

<TABLE>
<S>                    <C>                                                      <C>                         <C>
Shares of              The Krupp Family Limited Partnership - 94                5,293,322 Shares(4)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              The George Krupp 1980 Family Trust                       5,293,322 Shares(5)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              The Douglas Krupp 1980 Family Trust                      5,293,322 Shares(5)         28.81%
Beneficial             One Beacon Street, Suite 1500
Interest               Boston, MA 02108

Shares of              George D. Krupp                                          5,293,322 Shares(6)         28.81%
Beneficial             c/o Berkshire Income Realty, Inc.
Interest               One Beacon Street, Suite 1500
                       Boston, MA 02108

Shares of              Douglas Krupp                                            5,293,322 Shares(6)         28.81%
Beneficial             c/o Berkshire Income Realty, Inc.
Interest               One Beacon Street, Suite 1500
                       Boston, MA 02108

Shares of              Douglas Krupp                                               10,000 Shares(7)             **
Beneficial             One Beacon Street
Interest               Boston, MA 02108

Shares of              All Directors and Officers                                  10,000 Shares                **
Beneficial             One Beacon Street
Interest               Boston, MA 02108
</TABLE>

(1)   In  connection  with the April 4, 2003  closing of BIR's offer to exchange
      shares  of  it's  9%  Series  A  Cumulative  Redeemable  Preferred  Stock,
      liquidation  value  $25  per  share  ("Preferred  Stock")  for  shares  of
      beneficial  interest  ("Shares") in Krupp Government Income Trust II ("the
      Trust"), BIR acquired 5,293,322 Shares of the Trust. On April 4, 2003, BIR
      contributed  such shares to BIR - OP in exchange for 100% of the preferred
      limited  partnership  interest  in BIR - OP.  BIR  also  owns  100% of the
      limited liability company interests of BIR GP, L.L.C., the general partner
      of  BIR  - OP.  By  virtue  of  such  interests,  BIR  may  be  deemed  to
      beneficially own indirectly the Shares of the Trust owned by BIR - OP.

(a)   Per the  form of  Amended  and  Restated  Voting  Agreement  (the  "Voting
      Agreement")  between BIR and the Trust, BIR shall vote with respect to any
      matter  brought  before such  holders of Shares,  all of the BIR Shares in
      proportion  to the votes cast by the other holders of Shares of the Trust.
      In each case where BIR is a beneficial  owner of Shares,  BIR  effectively
      has no voting or investment powers in the Trust.

(2)   BIR GP, L.L.C. owns 100% of the general partnership interests in BIR - OP,
      and  by  virtue  of  such  interest,  BIR  GP,  L.L.C.  may be  deemed  to
      beneficially own indirectly the Shares of the Trust owned by BIR - OP.

(3)   KRF Company,  L.L.C. owns 100% of the common limited partnership interests
      in BIR - OP and 100% of the  common  stock of BIR,  and by  virtue of such
      interests,   KRF  Company,  L.L.C.  may  be  deemed  to  beneficially  own
      indirectly the Shares of the Trust owned by BIR - OP.

(4)   The  Krupp  Family  Limited  Partnership  - 94 owns  100%  of the  limited
      liability company interests in KRF company,  L.L.C., and by virtue of such
      interest,  The  Krupp  Family  Limited  Partnership  - 94 may be deemed to
      beneficially own indirectly the Shares of the Trust owned by BIR - OP.


                                      -16-
<PAGE>

(5)   The Douglas  Krupp 1980 Family  Trust owns 50% of the limited  partnership
      interests in The Krupp Family  Limited  Partnership - 94, and by virtue of
      such  interest,  The  Douglas  Krupp  1980  Family  Trust may be deemed to
      beneficially own the shares of GIT II owned by BIR-OP. The sole trustee of
      The Douglas  Krupp 1980 Family  Trust is Robert M.  Dombroff.  The trustee
      controls  the power to  dispose of the assets of the trust and thus may be
      deemed to beneficially own the shares of GIT II owned by BIR-OP;  however,
      the trustee disclaims beneficial ownership of all of those shares that are
      or may be deemed to be  beneficially  owned by Douglas  Krupp or George D.
      Krupp.

(6)   The George  Krupp 1980 Family  Trust owns 50% of the  limited  partnership
      interests in The Krupp Family  Limited  Partnership - 94, and by virtue of
      such  interest,  The  George  Krupp  1980  Family  Trust  may be deemed to
      beneficially own the shares of GIT II owned by BIR-OP. The sole trustee of
      The George  Krupp 1980  Family  Trust is Robert M.  Dombroff.  The trustee
      controls  the power to  dispose of the assets of the trust and thus may be
      deemed to beneficially own the shares of GIT II owned by BIR-OP;  however,
      the trustee disclaims beneficial ownership of all of those shares that are
      or may be deemed to be  beneficially  owned by Douglas  Krupp or George D.
      Krupp.

(7)   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
      partners of Berkshire Mortgage Finance Limited  Partnership.  In each case
      where Mr. Krupp is a beneficial  owner of Shares he has shared  voting and
      investment powers.

**    The amount  owned does not exceed one percent of the Shares of  beneficial
      interest of the Trust outstanding as of January 28, 2005.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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.  During 2004, the Trust incurred
$323,670 and paid $164,961 in Asset Management Fees.

The Trust  also  reimburses  affiliates  of the  Advisor  for  certain  expenses
incurred in connection with  maintaining the books and records of the Trust, the
preparation  and  mailing  of  financial  reports,  tax  information  and  other
communications  to  investors,  and legal fees and  expenses.  During 2004,  The
Berkshire  Companies Limited  Partnership and Berkshire Mortgage Finance Limited
Partnership,  affiliates  of the  Advisor,  received  a  total  of  $363,401  in
reimbursements from the Trust.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

On the  following  page  is a  summary  of the  fees  billed  to  the  Trust  by
PricewaterhouseCoopers  LLP for  professional  services  rendered for the fiscal
years ended December 31, 2004 and December 31, 2003:

Fee Category                 Fiscal 2004 Fees        Fiscal 2003 Fees
------------                 ----------------        ----------------
Audit Fees                        $   39,960            $   37,000
Tax Fees                               3,675                 3,675
                                  ----------            ----------

Total Fees                        $   43,635            $   40,675
                                  ==========            ==========

Audit Fees.  Consists of fees billed for professional  services rendered for the
audit of the  Trust's  annual  financial  statements  and for the reviews of the
unaudited financial statements included in the Trust's Quarterly Reports on Form
10-Q during 2004.


                                      -17-
<PAGE>

Tax Fees. Consists of fees billed for professional services for tax compliance.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

(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.

      3.    Exhibits - see Exhibit index below.

(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)].*

            (10.3)  Waiver  and  Standstill  Agreement,  dated as of August  22,
                    2002,  by and among Krupp  Government  Income  Trust,  Krupp
                    Government  Income Trust II, Berkshire  Income Realty,  Inc.
                    and  Berkshire  Income  Realty - OP,  L.P  [Exhibit  10.3 to
                    Registrant's report on Form 10-K for the year ended December
                    31, 2002 (File No. 0-20164)]*

            (10.4)  Form of Amended and Restated  Voting  Agreement  among Krupp
                    Government  Income Trust,  Krupp Government  Income Trust II
                    and  Berkshire   Income  Realty,   Inc.   [Exhibit  10.4  to
                    Registrant's report on Form 10-K for the year ended December
                    31, 2002 (File No. 0-20164)]*


                                      -18-
<PAGE>

            (10.5)  Extension and Waiver and Standstill  Agreement,  dated March
                    5, 2003, by and among Krupp Government  Income Trust,  Krupp
                    Government  Income Trust II, Berkshire  Income Realty,  Inc.
                    and  Berkshire  Income  Realty,  OP, L.P.  [Exhibit  10.5 to
                    Registrant's report on Form 10-K for the year ended December
                    31, 2002 (File No. 0-20164)]*

                    Martin's Landing

            (10.6)  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)].*

            (10.7)  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)].*

            (10.8)  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)].*

            (10.9)  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)].*

                    The Lakes

            (10.10) 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)].*

            (10.11) 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)].*

            (10.12) 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)].*

            (10.13) 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)].*

            (10.14) 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)].*

            (10.15) 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)].*


                                      -19-
<PAGE>

      (31)          Other

            (31.1)  Chief Executive Officer Certification  pursuant to 18 U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002.+

            (31.2)  Chief Accounting Officer Certification pursuant to 18 U.S.C.
                    Section  1350,  as adopted  pursuant  to Section  302 of the
                    Sarbanes-Oxley Act of 2002.+

      (32)          Other

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

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

            *     Incorporated by reference

            +     Filed herewith


                                      -20-
<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 16th day of March,
2005.

                                  KRUPP GOVERNMENT INCOME TRUST II


                                  By:   /s/ Douglas Krupp
                                      ------------------------------------------
                                      Douglas Krupp, Chairman of the 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 16th day of March, 2005.

Signatures                       Title(s)

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

/s/ Wayne Zarozny                Treasurer and Chief Accounting Officer of
------------------------         Krupp Government Income Trust II
Wayne Zarozny

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

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

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


                                      -21-
<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, 2004


                                      F-1
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

              INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

<TABLE>
<S>                                                                                                       <C>
Report of Independent Registered Public Accounting Firm                                                         F-3

Balance Sheets at December 31, 2004 and 2003                                                                    F-4

Statements of Income and Comprehensive Income for the Years Ended December 31, 2004, 2003 and 2002              F-5

Statements of Changes in Shareholders' Equity for the Years Ended December 31, 2004, 2003 and 2002              F-6

Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002                                   F-7

Notes to Financial Statements                                                                            F-8 - F-16

Schedule II - Valuation and Qualifying Accounts                                                                F-17

Supplementary Data - Selected Quarterly Financial Data (Unaudited)                                             F-18
</TABLE>

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.


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

To the Board of Trustees and Shareholders
of Krupp Government Income Trust II:

In our  opinion,  the  financial  statements  listed in the  accompanying  index
present  fairly,  in all  material  respects,  the  financial  position of Krupp
Government  Income Trust II (the "Trust") at December 31, 2004 and 2003, and the
results of its  operations and its cash flows for each of the three years in the
period  ended  December  31,  2004  in  conformity  with  accounting  principles
generally accepted in the United States of America. In addition, in our opinion,
the financial  statement  schedule  listed in the  accompanying  index  presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial  statements.  These financial  statements
and  financial   statement  schedule  are  the  responsibility  of  the  Trust's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedule based on our audits.  We conducted
our audits of these  statements in  accordance  with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

PricewaterhouseCoopers LLP
Boston, Massachusetts
March 4, 2005


                                      F-3
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                                 BALANCE SHEETS

                           December 31, 2004 and 2003

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                   2004                2003
                                                                               -------------      -------------
<S>                                                                            <C>                <C>
Participating Insured Mortgage Investments
("PIMIs")(Notes B, C and J)
    Insured mortgages                                                          $  25,889,150      $  26,402,701
    Additional loans                                                               6,880,000          6,880,000
Participating Insured Mortgages ("PIMs")
    (Notes B, D and J)                                                                    --          7,865,941
Mortgage-Backed Securities ("MBS")
    (Notes B, E and J)                                                             2,655,606          3,930,944
                                                                               -------------      -------------

     Total mortgage investments                                                   35,424,756         45,079,586
Cash and cash equivalents (Notes B and J)                                          4,187,417          5,454,067
Due from affiliates (Note F)                                                         170,944                 --
Interest receivable and other assets                                                 341,285            399,184
Prepaid acquisition fees and expenses, net of accumulated amortization of
    $1,545,489 and $1,861,827, respectively (Note B)                                  67,190            329,295
Prepaid participation servicing fees, net of accumulated amortization of
    $515,163 and $605,866, respectively (Note B)                                      22,397            124,508
                                                                               -------------      -------------

     Total assets                                                              $  40,213,989      $  51,386,640
                                                                               =============      =============

          LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities                                                                    $     218,670      $     183,379
                                                                               -------------      -------------

Shareholders' equity (Notes A and G):
          Common stock, no par value; 25,000,000
          Shares authorized; 18,371,477 Shares issued and outstanding             39,856,656         51,067,705

          Accumulated comprehensive income
          (Notes B and E)                                                            138,663            135,556
                                                                               -------------      -------------

          Total Shareholders' equity                                              39,995,319         51,203,261
                                                                               -------------      -------------

          Total liabilities and Shareholders' equity                           $  40,213,989      $  51,386,640
                                                                               =============      =============
</TABLE>

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


                                      F-4
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                 STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

              For the Years Ended December 31, 2004, 2003, and 2002

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

<TABLE>
<CAPTION>
                                                             2004               2003               2002
                                                         ------------       ------------       ------------
<S>                                                      <C>                <C>                <C>
Revenues:
 Interest income - PIMs and PIMIs:
   Basic interest                                        $  2,263,479       $  4,147,405       $  6,873,359
   Additional Loan interest                                   481,600            563,826          2,911,978
   Participation interest                                     337,741          5,810,076          6,427,684
 Interest income - MBS                                        198,933            756,572            859,519
 Interest income - cash and cash equivalents                   56,065            220,065            286,099
                                                         ------------       ------------       ------------

        Total revenues                                      3,337,818         11,497,944         17,358,639
                                                         ------------       ------------       ------------

Expenses:
 Asset management fee to an affiliate (Note H)                323,670            587,877            943,476
 Expense reimbursements to affiliates (Note H)                346,735            386,494            219,194
 Amortization of prepaid fees and expenses (Note B)           364,216          1,327,541          2,234,379
 General and administrative (Note H)                          274,012            410,593            424,208
 Reduction of provision for impaired additional
   loan (Notes B and C)                                            --                 --           (500,000)
 Operating Expense limitation (Note F)                       (170,944)                --                 --
                                                         ------------       ------------       ------------

        Total expenses                                      1,137,689          2,712,505          3,321,257
                                                         ------------       ------------       ------------

Net income (Notes B and I)                                  2,200,129          8,785,439         14,037,382

Other comprehensive income:

 Net increase (decrease) in unrealized gain on MBS              3,107           (374,491)           228,928
                                                         ------------       ------------       ------------

Total comprehensive income                               $  2,203,326       $  8,410,948       $ 14,266,310
                                                         ============       ============       ============

Basic earnings per Share                                 $       0.12       $       0.48       $       0.76
                                                         ============       ============       ============

Weighted average Shares outstanding                        18,371,477         18,371,477         18,371,477
                                                         ============       ============       ============
</TABLE>

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


                                      F-5
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

              For the Years Ended December 31, 2004, 2003 and 2002

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

<TABLE>
<CAPTION>
                                                                               Accumulated            Total
                                                             Retained         Comprehensive       Shareholders'
                                      Common Stock           Earnings             Income              Equity
                                      -------------       -------------       -------------       -------------
<S>                                   <C>                 <C>                 <C>                 <C>
Balance at December 31, 2001          $ 166,214,677       $          --       $     281,119       $ 166,495,796

Dividends                               (33,912,173)        (14,037,382)                 --         (47,949,555)

Net income                                       --          14,037,382                  --          14,037,382

Change in unrealized gain on MBS                 --                  --             228,928             228,928
                                      -------------       -------------       -------------       -------------

Balance at December 31, 2002            132,302,504                  --             510,047         132,812,551

Dividends                               (81,234,799)         (8,785,439)                 --         (90,020,238)

Net income                                8,785,439           8,785,439

Change in unrealized gain on MBS                 --                  --            (374,491)           (374,491)
                                      -------------       -------------       -------------       -------------

Balance at December 31, 2003             51,067,705                  --             135,556          51,203,261

Dividends                               (11,211,049)         (2,200,129)                 --         (13,411,178)

Net income                                       --           2,200,129                  --           2,200,129

Change in unrealized gain on MBS                 --                  --               3,107               3,107
                                      -------------       -------------       -------------       -------------

Balance at December 31, 2004          $  39,856,656       $          --       $     138,663       $  39,995,319
                                      =============       =============       =============       =============
</TABLE>

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

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


                                      F-6
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                            STATEMENTS OF CASH FLOWS

              For the Years Ended December 31, 2004, 2003 and 2002

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

<TABLE>
<CAPTION>
                                                                     2004              2003                2002
                                                                ------------       ------------       ------------
<S>                                                             <C>                <C>                <C>
Operating activities:
  Net income                                                    $  2,200,129       $  8,785,439       $ 14,037,382
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Amortization of net premium                                     32,868             16,421             74,010
      Amortization of prepaid fees and expenses                      364,216          1,327,541          2,234,379
      Reduction of provision for impaired additional loans                --                 --           (500,000)
      Changes in assets and liabilities:
         Decrease in interest receivable and other assets             57,899            494,462            280,460
         Decrease in deferred income on Additional Loans                  --                 --         (1,242,282)
         Increase in due from affiliates                            (170,944)                --                 --
         Increase in liabilities                                      35,291            135,531             21,863
                                                                ------------       ------------       ------------

  Net cash provided by operating activities                        2,519,459         10,759,394         14,905,812
                                                                ------------       ------------       ------------

Investing activities:
  Principal collections on MBS                                     1,245,577         18,348,402          4,234,205
  Principal collections on Additional Loans                               --          4,874,000          6,400,500
  Principal collections on PIMs and Insured Mortgages              8,379,492         41,041,586         36,406,298
                                                                ------------       ------------       ------------

  Net cash provided by investing activities                        9,625,069         64,263,988         47,041,003
                                                                ------------       ------------       ------------

Financing activity:
  Dividends                                                      (13,411,178)       (90,020,238)       (47,949,555)
                                                                ------------       ------------       ------------

Net increase (decrease) in cash and cash equivalents              (1,266,650)       (14,996,856)        13,997,260

Cash and cash equivalents, beginning of year                       5,454,067         20,450,923          6,453,663
                                                                ------------       ------------       ------------

Cash and cash equivalents, end of year                          $  4,187,417       $  5,454,067       $ 20,450,923
                                                                ============       ============       ============

Non-cash activities:
 Increase (decrease) in unrealized gain on MBS                  $      3,107       $   (374,491)      $    228,928
                                                                ============       ============       ============

Supplemental disclosure of non-cash investing activities:
  Reclassification of investment in a PIMI to a MBS             $         --       $ 11,199,153       $         --
                                                                ============       ============       ============
</TABLE>

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


                                      F-7
<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  "Advisor")  acquired 10,000 of such Shares for $200,000
      and 18,315,158  Shares were sold for  $365,686,058  net of purchase volume
      discounts  of  $617,102  under  a  public  offering,  which  commenced  on
      September  11, 1991 and was  completed  on February  12,  1993.  Under the
      Dividend Reinvestment Plan ("DRP"),  46,319 Shares were sold for $880,061.
      The Trust shall terminate on December 31, 2030, unless earlier  terminated
      by the affirmative vote of holders of a majority of the outstanding Shares
      entitled to vote thereon.

B.    Significant Accounting Policies

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

      Basis of Presentation

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

      MBS

      The Trust, in accordance with the Financial  Accounting  Standards Board's
      Statement No. 115,  "Accounting for Certain Investments in Debt and Equity
      Securities"    ("FAS   115"),    classifies    its   MBS    portfolio   as
      available-for-sale.   The   Trust   classifies   its  MBS   portfolio   as
      available-for-sale  as a portion of the MBS portfolio may remain after all
      of the PIMIs payoff and it will then be  necessary  to sell the  remaining
      MBS  portfolio  in  order to  close  out the  Trust.  In  addition,  other
      situations such as liquidity needs could arise which would necessitate the
      sale of a portion of the MBS portfolio.  The Trust carries its MBS at fair
      market  value and  reflects any  unrealized  gains  (losses) as a separate
      component of Shareholders'  Equity.  The Trust amortizes purchase premiums
      or discounts over the life of the underlying mortgages using the effective
      interest method.

      PIMs and PIMIs

      The Trust  accounts  for its MBS  portion of a PIM or PIMI  investment  in
      accordance  with FAS 115 under the  classification  of held to maturity as
      these  investments have a participation  feature.  As a result,  the Trust
      would not sell or otherwise dispose of the MBS. Accordingly, the Trust has
      both the  intention  and  ability to hold these  investments  to  expected
      maturity. The Trust carries these MBS at amortized cost.

      The insured mortgage portion of the Federal Housing Administration ("FHA")
      PIM or PIMI is carried at amortized  cost. The Trust holds these mortgages
      at amortized cost since they are fully insured by the FHA.

      The  Additional  Loans are  carried at  amortized  cost unless the Advisor
      believes  there is an  impairment  in  value,  in which  case a  valuation
      allowance  is  established  in  accordance  with  FAS 114  "Accounting  by
      Creditors for  Impairment of a Loan" and FAS 118  "Accounting 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  loan (less the
      servicer's  fee) or the  coupon  rate of the  Fannie  Mae MBS.  The  Trust
      recognizes interest related to the participation  features when the amount
      becomes  fixed  and the  transaction  that  gives  rise to such  amount is
      finalized, cash is received and all contingencies are resolved. This could
      be the sale or refinancing of the underlying real estate, which results in
      a cash  payment  to the Trust or a cash  payment  made to the  Trust  from
      surplus cash relative to the participation  feature.  The Trust defers the
      recognition of Additional  Loan interest  payments as income to the extent
      these interest payments are from escrows  established with the proceeds of
      the Additional  Loan.  When the  properties  underlying the PIMIs generate
      sufficient cash flow to make the required Additional Loan interest

                                    Continued


                                       F-8
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

B.    Significant Accounting Policies, continued

      PIMs and PIMIs, continued

      payments and the Additional  Loan value is deemed  collectible,  the Trust
      recognizes  income as earned and commences  amortizing  deferred  interest
      amounts into income over the remaining  estimated  term of the  Additional
      Loan.  During periods where mortgage loans are impaired the Trust suspends
      amortizing deferred interest.

      The Trust also fully reserves the portion of any Additional  Loan interest
      payment  satisfied  through  the  issuance  of an  operating  loan and any
      associated  interest due on such operating  loan. The Trust will recognize
      the income related to the operating loan when the borrower  repays amounts
      due under the operating loan.

      Impaired Mortgage Loans

      Impaired loans are those  Additional  Loans for which the Advisor believes
      the collection of all amounts due in accordance with the contractual terms
      of the loan agreement is not likely.  Where necessary,  impaired loans are
      measured  based on the  fair  value of the  underlying  collateral  net of
      estimated  selling  costs.  The Trust  measures  impairment on these loans
      quarterly.  Interest  received  on  impaired  loans is  generally  applied
      against the loan principal.

      Cash Equivalents

      The Trust includes all  short-term  investments  with  maturities of three
      months or less from the date of acquisition in cash and cash  equivalents.
      The  majority of the Trust's cash and cash  equivalents  are held at major
      commercial  banks which may at times exceed the Federal Deposit  Insurance
      Corporation limit of $100,000. The Trust has not experienced any losses to
      date on its invested cash.

      Prepaid Fees and Expenses

      Prepaid fees and expenses represent prepaid  acquisition fees and expenses
      and prepaid  participation  servicing  fees paid for the  acquisition  and
      servicing  of PIMIs.  The Trust  amortizes  prepaid  acquisition  fees and
      expenses using a method that  approximates  the effective  interest method
      over a period of ten to twelve years,  which represents the estimated life
      of the underlying mortgage.  The prepaid participation  servicing fees are
      amortized using a method that  approximates the effective  interest method
      over a ten-year  period,  beginning at final  endorsement of the loan if a
      HUD-insured loan and at closing if a Fannie Mae loan.

      Upon  the  repayment  of a PIMI,  any  unamortized  acquisition  fees  and
      expenses and unamortized participation servicing fees related to such loan
      are expensed.

      Income Taxes

      The Trust has  elected  to be taxed as a REIT under the  Internal  Revenue
      Code of 1986,  as amended,  and believes it will continue to meet all such
      qualifications.  Accordingly,  the Trust  will not be  subject  to federal
      income  taxes  on  amounts   distributed  to   shareholders   provided  it
      distributes  annually  at least 90% of its REIT  taxable  income and meets
      certain  other  requirements  for  qualifying  as a  REIT.  Therefore,  no
      provision  for federal  income  taxes has been  recorded in the  financial
      statements.

      Estimates and Assumptions

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

                                    Continued


                                      F-9
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

C.    PIMIs

      The Trust had  investments in two PIMIs at December 31, 2004 and 2003 that
      provide or provided the permanent financing for multi-family housing. Each
      remaining PIMI consists of a Fannie Mae MBS and an "Additional  Loan" made
      to the  borrower  to  provide  additional  funds for the  construction  or
      permanent  financing of the property.  The first  mortgage  underlying the
      Fannie Mae MBS  provided 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  and  a  percentage  of  any  appreciation
      thereafter (collectively the "participation interest").

      The borrower conveys the  participation  features to the Trust through the
      Additional  Loan on a Fannie Mae PIMI. The Trust makes the Additional Loan
      under the Fannie Mae PIMIs  directly to the borrower of the first mortgage
      loan  underlying the Fannie Mae MBS, and the borrower  collateralizes  the
      Additional Loan with a subordinated  mortgage on the property.  The owners
      of the borrower also pledge their  ownership  interests in the borrower as
      additional collateral.

      The Trust  receives  level  monthly  payments of  principal  and  interest
      payments,  amortizing  over  thirty  years on the  Fannie  Mae MBS.  While
      principal  and  interest  payments  on the Fannie Mae MBS are  guaranteed,
      there are  limitations  to the amount and obligation to pay interest under
      the  Additional  Loan. As such amounts due under the  Additional  Loan are
      neither insured nor guaranteed.

      The Additional Loans for Fannie Mae PIMIs entitle the Trust to receive (i)
      semi-annual  interest  payments on the  Additional  Loan  principal,  (ii)
      Participating Income Interest,  (iii) Participating  Appreciation Interest
      and (iv)  Preferred  Interest.  Additional  Loan  interest  accrues at the
      stated  interest  rate on 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
      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
      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 contributions to the partners of the borrower.

      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 are not guaranteed.

      The Fannie Mae PIMIs have maturities of 15 years,  however,  the Trust can
      accelerate the maturity  dates at any time after the tenth  anniversary of
      the closing  date of the Fannie Mae PIMIs,  generally  upon giving  twelve
      months written notice for the payment.

      If the Trust  accelerates the maturity date, the Trust can require payment
      of all  amounts due under the  Additional  Loan  through  the  accelerated
      maturity date and  prepayment of the first  mortgage loan  underlying  the
      Fannie Mae MBS.

                                    Continued


                                      F-10
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

C.    PIMIs, continued

      Fannie  Mae  PIMIs  generally  cannot be  prepaid  during  the five  years
      following  the  closing  date  of  the  underlying  first  mortgage  loan.
      Thereafter, the Fannie Mae first mortgage loan may be prepaid subject to a
      prepayment penalty that declines each year for the next five years with no
      prepayment  penalty after the tenth year.  Any  prepayment of a Fannie Mae
      PIMI generally  requires  prepayment of the first mortgage loan underlying
      the Fannie Mae MBS and payment of amounts due under the  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 Additional Loan would need to be prepaid. Any prepayment usually
      requires not less than 90 nor more than 180 days prior written notice.

      On  December  14,  2004,  the  Trust  issued  a call  to the  borrower  to
      accelerate the Martin's  Landing  Apartments PIMI of the $9,560,996  First
      Mortgage and the $2,280,000  Additional Loan. Both the First Mortgage Note
      and the  Subordinate  Note were due to mature on September  30, 2005 under
      the terms of the loan documents.  On February 28, 2005, the Trust received
      a prepayment of the Martin's Landing Apartments  Additional Loan note. The
      Trust received $2,280,000 of Additional Loan principal,  in addition,  the
      Trust  received  $1,742,959  of interest,  which  included  $1,639,221  of
      Participating  Appreciation  Interest,  $79,800 of unpaid  Additional Loan
      interest  and  $23,938  of  Participating  Income  Interest.  In the first
      quarter of 2005 the Trust  expects to receive  the  remaining  outstanding
      balance of the Martin's  Landing  Apartments  PIMI First  Mortgage Note of
      $9,523,897  and will pay a special  dividend of $0.74 in first  quarter of
      2005.

      On September  30, 2003,  the Trust  received a prepayment of the Crossings
      Village Apartments  Subordinated Promissory Note and the Crossings Village
      Apartments  Additional  Loan. The Trust received  $2,584,000 of Additional
      Loan principal and $15,073 of Additional Loan interest.  In addition,  the
      Trust  received  $2,454,048  of  Preferred  Interest and $38,646 of Shared
      Appreciation Interest. On October 25, 2003, the Trust received $11,349,632
      from the Fannie Mae MBS related to  Crossings  Village.  On  November  20,
      2003,  the Trust  paid a  special  dividend  of $0.90  per share  from the
      proceeds of the Crossings Village Apartments prepayment.

      On  March 7,  2003,  the  Trust  received  a  prepayment  of the  Oasis at
      Springtree   Additional  Loan  note.  The  Trust  received  $2,290,000  of
      Additional Loan principal and $2,365,276 of Shared Appreciation  Interest.
      On May 8, 2003, the Trust paid a special  dividend of $0.26 per share from
      the proceeds of the Oasis at Springtree  Additional Loan prepayment.  As a
      result of the  prepayment,  the insured  first  mortgage  loan on Oasis at
      Springtree  was  reclassified  from a PIMI to a MBS as the only  remaining
      portion of the investment was a FNMA MBS. The Trust also reclassified this
      investment as  available-for-sale  concurrent with the satisfaction of the
      participation  feature.  The Trust  continued  to  receive  the  scheduled
      principal and interest payments on the first mortgage until it was paid in
      full on September 25, 2003.

      At  December  31,  2004 and 2003  there are no PIMIs  within  the  Trust's
      portfolio that are delinquent as to principal or interest.

The Trust's investments in PIMIs consists of the following at December 31, 2004
and 2003:

<TABLE>
<CAPTION>
                                            Approximate
      Insured                                 Monthly      Interest      Maturity         Balance Outstanding at
      Mortgage           Loan Amount          Payment        Rate          Date                December 31,
   -------------         -----------        -----------    --------      --------      ----------------------------
                                                                                           2004             2003
                                                                                           ----             ----
<S>                       <C>               <C>             <C>          <C>           <C>              <C>
        FNMA (a)
Martin's Landing          $11,200,000       $    70,000      6.50%       12/01/08      $ 9,560,996      $ 9,773,837

       The Lakes           18,387,653           118,700     6.825%       07/01/10       16,328,154       16,628,864
                          -----------       -----------                                -----------      -----------

                          $29,587,653       $   188,700                                $25,889,150      $26,402,701
                          ===========       ===========                                ===========      ===========

                                                                                           (b)
</TABLE>

                                    Continued


                                      F-11
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

C.    PIMIs, continued

<TABLE>
<CAPTION>
                          Outstanding Balance
                                                                                    Preferred
                                                                   Base Interest    Interest
  Additional Loan       2004            2003      Maturity Date        Rate           Rate
  ---------------       ----            ----      -------------    -------------    ---------
<S>                  <C>              <C>           <C>                 <C>            <C>
 Martin's Landing    $2,280,000       2,280,000     12/1/2008           7%             12%
 The Lakes            4,600,000       4,600,000      7/1/2010           7%              9%
                     ----------       ---------

                     $6,880,000       6,880,000
                     ==========       =========
                         (c)
</TABLE>

      (a)  Monthly  principal  and  interest  payments  are  based on a  30-year
amortization. The unpaid principal balances due at maturity are as follows:

                 Martin's Landing                             $   8,524,000
                 The Lakes                                    $  14,118,000

      (b) The aggregate cost for federal income tax purposes is $25,889,150.

      (c) The aggregate cost for federal income tax purposes is $6,880,000.

      Impaired Additional Loans

      As a result of the Windmill  Lakes  Additional  Loan payoff in March 2002,
      the remaining impairment provision of $500,000 was reversed.

      Reconciliations of activity for 2004, 2003 and 2002 are as follows:

Insured Mortgages

<TABLE>
<CAPTION>
                                             2004               2003               2002
                                        ------------       ------------       ------------
<S>                                     <C>                <C>                <C>
Balance at beginning of period          $ 26,402,701       $ 49,641,101       $ 85,625,185

 Principal collections                      (513,551)       (12,039,247)       (35,984,084)

 Reclass to MBS                                   --        (11,199,153)                --
                                        ------------       ------------       ------------

Balance at end of period                $ 25,889,150       $ 26,402,701       $ 49,641,101
                                        ============       ============       ============

<CAPTION>
Additional Loans
                                             2004               2003               2002
                                        ------------       ------------       ------------
<S>                                     <C>                <C>                <C>
Balance at beginning of period          $  6,880,000       $ 11,754,000       $ 17,654,500

 Additional Loan prepayments                      --         (4,874,000)        (6,400,500)

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

Balance at end of period                $  6,880,000       $  6,880,000       $ 11,754,000
                                        ============       ============       ============
</TABLE>

                                    Continued


                                      F-12
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

C.    PIMIs, continued

      Property Descriptions:

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


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

D.    PIMS

      At December 31, 2004 the Trust had no investments in PIMs. On December 31,
      2003 the Trust had an investment in one PIM. The Trust's PIMs consisted of
      either a Fannie Mae MBS or a sole participation  interest in a HUD-insured
      first mortgage loan originated under the FHA lending program (collectively
      the "insured mortgages") and participation interests in the revenue stream
      and  appreciation  of the property above  specified  levels.  The borrower
      conveys  these  participation  features to the Trust  generally  through a
      subordinated promissory note and mortgage (the "Agreement").

      On December 3, 2004,  the Trust  received a prepayment of the Mill Pond II
      Apartments  PIM for  $7,853,101.  The Trust  also  received  a  prepayment
      penalty  of  $65,700.   In  addition,   the  Trust  received  $135,547  of
      participation  interest.  On December 16,  2004,  the Trust paid a special
      dividend of $0.44 per share from the proceeds received.

      On December 22, 2003,  the Trust  received a prepayment  of the  Fountains
      Apartments  PIM for  $9,998,884.  The Trust  also  received  a  prepayment
      premium of $225,901.  An appraisal  of the  property  determined  that the
      underlying  property  value  had not  increased  sufficiently  to meet the
      criteria for the Trust to earn any participation interest. On December 30,
      2003,  the Trust  paid a  special  dividend  of $0.56  per share  from the
      proceeds received.

      On September 18, 2003, the Trust received a prepayment of the  Rivergreens
      Apartments  II PIM for  $5,845,000.  The Trust also  received a prepayment
      premium of $58,450 from this payoff. On September 30, 2003, the Trust paid
      a special dividend of $0.33 per share from the proceeds of the Rivergreens
      Apartments II PIM prepayment.  Rivergreens II was a participating  insured
      mortgage that was not required to simultaneously  pay off the Subordinated
      Promissory  Note with the first  mortgage.  On December 8, 2003, the Trust
      received  a  payment  of  the   Rivergreens   Apartments  II  Subordinated
      Promissory  Note.  The Trust  received  $303,593  of  Shared  Appreciation
      Interest. On December 17, 2003, the Trust paid a special dividend of $0.02
      per share from the proceeds received.

      At December 31, 2004 and 2003 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, 2004 and 2003:

     PIM           Original Amount        Balance Outstanding at December 31,
-------------      ---------------        -----------------------------------
                                               2004                   2003
                                               ----                   ----
FHA
Mill Ponds II        $8,245,300             $      --              $7,865,941
                     ----------             ---------              ----------

Total                $8,245,300             $      --              $7,865,941
                     ==========             =========              ==========
                                               (a)

      (a)   There is no aggregate cost for federal income tax purposes.

                                    Continued


                                      F-13
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

D.    PIMs, continued

            Reconciliation of activity for 2004, 2003, and 2002 are as follows:

<TABLE>
<CAPTION>
                                        2004               2003               2002
                                    ------------       ------------       ------------
<S>                                 <C>                <C>                <C>
Balance at beginning of period      $  7,865,941       $ 36,817,984       $ 37,239,922

Discount amortization                         --             50,297                276

Principal collections                 (7,865,941)       (29,002,340)          (422,214)
                                    ------------       ------------       ------------

Balance at end of period            $         --       $  7,865,941       $ 36,817,984
                                    ============       ============       ============
</TABLE>

E.    Mortgage Backed Securities

      At December 31, 2004, the Trust's MBS portfolio had an amortized cost of $
      2,516,943 and gross unrealized gains of $138,663. At December 31, 2003 the
      Trust's  MBS  portfolio  had an  amortized  cost of  $3,795,388  and gross
      unrealized gains of $135,556. The MBS have maturities ranging from 2008 to
      2031.  Management  reviews the MBS  portfolio to  determine if  impairment
      indicators exist. If an other than temporary  impairment in carrying value
      exists, a provision to write down the asset to fair value will be recorded
      in the Trust's financial statements

      On  September  25,  2003,  the  Trust  received  a payoff  of the Oasis at
      Springtree  MBS for  $11,116,057.  On October  7,  2003,  the Trust paid a
      special dividend of $0.61 per share from the principal proceeds received.

      On March 25,  2003,  the Trust  received a payoff of the  Willows  MBS for
      $3,280,432. On May 9, 2003, the Trust paid a special dividend of $0.18 per
      share from the principal proceeds received.

      The Trust's MBS portfolio had the following  contractual  maturities as of
      December 31, 2004:

                    Maturity Date              Fair Value       Unrealized Gain
                    -------------              ----------       ---------------

                    2004 - 2008                $   10,495         $      234
                    2009 - 2013                    44,503             2 ,069
                    2014 - 2031                 2,600,608            136,360
                                               ----------         ----------

                    Total                      $2,655,606         $  138,663
                                               ==========         ==========

F.    Operating Expense Limitation

      Per Article VI, Section 5 of the  Declaration  of Trust,  the total annual
      operating  expenses  of the Trust may not exceed the  greater of 2% of the
      average  invested  assets of the Trust or 25% of the  Trust's  net income.
      These tests are calculated  each quarter by the Advisor based on the prior
      twelve months of activity. In order for the Trust to be in compliance with
      this  requirement,  the Advisor refunded $170,944 of the Trust's operating
      expenses for the twelve  months ended  September  30, 2004 on February 23,
      2005.

                                    Continued


                                      F-14
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

G.    Shareholders' Equity

      Under the Declaration of Trust, and commencing with the initial closing of
      the public  offering of Shares,  the Trust has declared and paid dividends
      on a quarterly basis.  During the period in which the Trust qualifies as a
      REIT, the Trust has and will pay quarterly dividends  aggregating at least
      90%  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  unless an  exemption  is granted by the  Trustees 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.

      On August 22, 2002,  the Trustees  agreed to waive the ownership  limit to
      allow affiliates of the Advisor to own up to 55% of the outstanding shares
      of the Trust. The affiliates delivered an opinion of counsel to the effect
      that this waiver will not cause the Trust to lose its status as a REIT. In
      connection  with this  waiver,  the  affiliates  also  agreed not take any
      action  to cause the Trust to cease to be a  reporting  company  under the
      Exchange  Act or to cause a majority of the board of trustees to no longer
      be comprised  of  independent  trustees.  They also agreed not to solicit,
      seek to effect,  negotiate  with or provide any  information  to any other
      party with the intent of effecting a business  combination  with the Trust
      without the approval of a majority of the board of  trustees.  In April of
      2003, BIR acquired 28.81% of the outstanding shares of the Trust.

H.    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.  During 2004, the
      Trust incurred $323,670 and paid $164,961 in Asset Management Fees.

      The Trust also reimburses  affiliates of the Advisor for certain  expenses
      incurred  in  connection  with  maintaining  the books and  records of the
      Trust, the preparation and mailing of financial  reports,  tax information
      and  other  communications  to  investors  and  legal  fees and  expenses.
      Included  in  general  and  administrative  expenses  are  legal  fees and
      expenses paid by the Trust to an  affiliate.  During the three years ended
      December 31, 2004, 2003 and 2002 these fees totaled  $16,666,  $20,070 and
      $16,083, respectively.

I.    Federal Income Taxes

      The reconciliation of the income reported in the accompanying statement of
      income with the income  reported in the Trust's  2004  federal  income tax
      return follows:

<TABLE>
<S>                                                                                          <C>
      Net income per statement of income                                                     $ 2,200,129

      Less: Book to tax difference related to amortization of prepaid fees and expenses         (169,549)

      Less: Book to tax difference related to Additional Loan interest income                         --
                                                                                             -----------

      Net income for federal income tax purposes                                             $ 2,030,580
                                                                                             ===========
</TABLE>

      The Trust paid dividends of $ 0.73 per share during 2004 which  represents
      approximately   $0.12  from  ordinary   income  and  $0.61   represents  a
      non-taxable dividend for federal income tax purposes.

      The basis of the Trust's assets for financial  reporting  purposes is less
      than its tax basis by approximately  $2,260,000 and $2,433,000 at December
      31, 2004 and 2003, respectively.  The basis of the Trust's liabilities for
      financial  reporting  purposes  were the same as its tax basis at December
      31, 2004 and 2003.

                                    Continued


                                      F-15
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II

                    NOTES TO FINANCIAL STATEMENTS, Continued

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

J.    Fair Value Disclosures of Financial Instruments

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

      Cash and Cash Equivalents

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

      MBS

      The Trust  estimates the fair value of MBS based on quoted market  prices.
      Based on the  estimated  fair value  determined  using  these  methods and
      assumptions,  the Trust's investments in MBS had gross unrealized gains of
      approximately  $139,000 at December 31, 2004 and gross unrealized gains of
      approximately $136,000 at December 31, 2003.

      PIMs and PIMIs

      There is no established  trading market for these investments.  Management
      estimates  the fair  value of the  insured  mortgage  portion of the PIMIs
      using quoted  market  prices of MBS having the same stated  coupon rate as
      the insured mortgages and similar expected maturity date. Additional Loans
      are based on the lower of the estimated collection value of the loan based
      on the estimated fair value of the underlying  properties or the remaining
      principal balance of the loan as an estimate of the fair value of the loan
      is not practicable.  Management does not include any participation  income
      in the Trust's  estimated fair values,  as Management  does not believe it
      can predict the amount or timing of  realization  of any such feature with
      any certainty.

      Based on the  estimated  fair value  determined  using  these  methods and
      assumptions,  the Trust's  investments in PIMIs had gross unrealized gains
      of approximately  $653,000 at December 31, 2004 and gross unrealized gains
      of approximately $763,000 at December 31, 2003.

      At December 31, 2004 and 2003,  the  estimated  fair values of the Trust's
      financial instruments are as follows:

<TABLE>
<CAPTION>
                                                  (rounded to thousands)
                                           2004                               2003
                               -----------------------------     -----------------------------
                                Fair Value    Carrying Value     Fair Value     Carrying Value
                                ----------    --------------     ----------     --------------
<S>                            <C>              <C>              <C>              <C>
Cash and cash equivalents      $     4,187      $     4,187      $     5,454      $     5,454

MBS                                  2,656            2,656            3,931            3,931

PIMs and PIMIs:
   PIMs                                 --               --            7,964            7,866
   Insured mortgages                26,542           25,889           27,068           26,403
   Additional loans                  6,880            6,880            6,880            6,880
                               -----------      -----------      -----------      -----------

Total                          $    40,265      $    39,612      $    51,297      $    50,534
                               ===========      ===========      ===========      ===========
</TABLE>


                                      F-16
<PAGE>

                             KRUPP GOVERNMENT INCOME TRUST II
                     SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
2004
                    Balance at        Charged to                           Balance at
                   Beginning of       costs and                              end of
 Description          period           expenses          Reversals           period
--------------     ------------      ------------      ------------       ------------
<S>                <C>               <C>               <C>                <C>
Valuation
Allowance          $         --      $         --      $         --       $         --
                   ============      ============      ============       ============

<CAPTION>
2003
                    Balance at        Charged to                           Balance at
                   Beginning of       costs and                              end of
 Description          period           expenses          Reversals           period
--------------     ------------      ------------      ------------       ------------
<S>                <C>               <C>               <C>                <C>
Valuation
Allowance          $         --      $         --      $         --       $         --
                   ============      ============      ============       ============

<CAPTION>
2002
                    Balance at        Charged to                           Balance at
                   Beginning of       costs and                              end of
 Description          period           expenses          Reversals           period
--------------     ------------      ------------      ------------       ------------
<S>                <C>               <C>               <C>                <C>
Valuation
Allowance          $    500,000      $         --      $   (500,000)      $         --
                   ============      ============      ============       ============
</TABLE>


                                      F-17
<PAGE>

                        KRUPP GOVERNMENT INCOME TRUST II
                               SUPPLEMENTARY DATA
                        SELECTED QUARTERLY FINANCIAL DATA
                                   (Unaudited)

<TABLE>
<CAPTION>
                                           For the Quarter Ended
                                           ---------------------

                          March 31,         June 30,        September 30,     December 31,
                            2004              2004              2004              2004
                        ------------      ------------      -------------     ------------
<S>                     <C>               <C>               <C>               <C>
Total revenues          $    900,850      $    762,752      $    762,900      $    911,316
                        ============      ============      ============      ============

Net income              $    548,804      $    466,677      $    623,296      $    561,352
                        ============      ============      ============      ============

Earnings per Share      $        .03      $        .03      $        .03      $        .03
                        ============      ============      ============      ============

<CAPTION>
                                            For the Quarter Ended
                                            ---------------------

                          March 31,         June 30,        September 30,     December 31,
                            2003              2003              2003              2003
                        ------------      ------------      -------------     ------------
<S>                     <C>               <C>               <C>               <C>
Total revenues          $  3,968,248      $  1,586,724      $  4,396,051      $  1,546,921
                        ============      ============      ============      ============

Net income              $  3,238,642      $  1,066,208      $  3,708,924      $    771,665
                        ============      ============      ============      ============

Earnings per Share      $        .18      $        .05      $        .21      $        .04
                        ============      ============      ============      ============
</TABLE>


                                      F-18