FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-15448
CENTENNIAL MORTGAGE INCOME FUND II
(Exact name of registrant as specified in its charter)
California 33-0112106
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1540 South Lewis Street, Anaheim, California 92805
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (714)502-8484 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Limited Partnership Units
(Title of Class)
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 file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
Indicate by check mark whether if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
YES X NO
PART I
ITEM 1. BUSINESS.
(a) General Development of the Business
Centennial Mortgage Income Fund II (the "Partnership"), a California Limited
Partnership, was organized on July 12, 1985. The Partnership's registration
statement became effective January 17, 1986. The general partners are John B.
Joseph, Ronald R. White and Centennial Corporation ("CC").
Beginning in the fourth quarter of 1987, the Partnership ceased accepting
capital contributions and entered its operating stage of business. During the
fourth quarter of 1992, 60 months after the closing of its offering stage, the
Partnership ceased making new loans and entered the repayment stage. For
additional information, See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
(b) Financial Information about Industry Segments
Given that the Partnership is in the process of liquidation, the Partnership
has identified only one operating business segment which is the business of
asset liquidation.
(c) Narrative Description of Business
The Partnership was formed to invest in mortgage investments consisting of
participating first mortgage loans, other equity participation loans,
construction loans, and wrap-around and other junior loans on commercial,
industrial and residential income-producing real property.
The Partnership's objectives are to preserve the Partnership's invested
capital, provide increased cash distributions to the limited partners as the
cash flow from the properties underlying mortgage investments increases over
the life of the Partnership, provide capital growth through participation in
the increased value of the underlying properties and provide liquidating
distributions as cash from the sale of real estate owned is no longer needed
for development and operations of real estate owned.
Due to the long term recession and falling real estate market values in
California during the early 1990's, many of the Partnership's loans became
delinquent and management of the Partnership elected to foreclose, thereby
increasing real estate owned balances. As a result, the Partnership became a
direct investor in this real estate. The Partnership has managed its
operating properties and completed certain development processes on its raw
land over the last several years in an effort to make this real estate more
marketable.
The improving real estate markets and development of the Partnership's assets
have enabled the Partnership to liquidate the majority of its assets. As of
December 31, 1999, the Partnership's assets consisted of $2,039,000 in cash
and cash equivalents and $2,286,000 in other non-cash assets. Based upon the
current stated maturity dates of the Partnership's $548,000 in notes
receivable and the improving real estate markets, it is possible that most of
these non-cash assets could be liquidated during 2000.
Real estate owned by the Partnership reached a peak at December 31, 1993 and
has been declining since that time. The following are the balances of real
estate owned before allowance for possible losses as of December 31 for the
past seven years:
1993 $ 24,170,000
1994 11,284,000
1995 11,314,000
1996 11,316,000
1997 10,827,000
1998 4,599,000
1999 2,843,000
As of December 31, 1999, the Partnership had established a $1,112,000
allowance for possible losses on its real estate owned. The Partnership is
actively marketing the remaining real estate assets for sale.
The liquidation of assets during 1998 enabled the Partnership to make a
$3,496,000 cash distribution to its limited partners in October 1998.
Risks of the year 2000 Issue
As discussed above, the Partnership is in the process of liquidating its
remaining assets. As of December 31, 1999, the Partnership held only cash and
cash equivalents, two notes receivable, a single parcel of unimproved real
estate and $7,000 in other non-cash assets. In light of these circumstances,
the Partnership made only the absolutely necessary modifications to existing
software which were necessitated by the year 2000 issues. The cost of these
modifications was less than $10,000.
To date, the Partnership has experienced only minor computer related problems
that are the result of the year 2000. None of these problems have caused any
significant disruption to the Partnership's operations. The Partnership
anticipates that it will encounter additional minor problems in the coming
months. It does not anticipate that it will be required to spend any
significant amounts to correct these problems or that these problems will
cause any disruptions of any consequence to the Partnership's operations.
Cautionary Statements Regarding Forward-Looking Information
The Partnership wishes to caution readers that the forward-looking statements
contained in this Form 10-K under "Item 1. Business," "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-K involve known and unknown risks and uncertainties
which may cause the actual results, performance or achievements of the
Partnership to be materially different from any future results, performance or
achievements expressed or implied by any forward-looking statements made by or
on behalf of the Partnership. In connection with the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Partnership is
filing the following cautionary statements identifying important factors that
in some cases have affected, and in the future could cause the Partnership's
actual results to differ materially from those expressed in any such forward-
looking statements.
The factors that could cause the Partnership's results to differ materially
include, but are not limited to, general economic and business conditions,
including interest rate fluctuations; the impact of competitive products and
pricing; success of operating initiatives; adverse publicity; changes in
business strategy or development plans; quality of management; availability,
terms and deployment of capital; the results of financing efforts; business
abilities and judgment of personnel; availability of qualified personnel;
employee benefit costs and changes in, or the failure to comply with
government regulations.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
Not applicable.
ITEM 2. DESCRIPTION OF PROPERTY.
No properties or facilities are owned or leased by the Partnership other than
real estate owned which was obtained through foreclosure of real estate loans
receivable, as described in notes 5 and 6 of Notes to Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership has been named in a lawsuit that was filed on October 7, 1999
in the Superior Court of California, County of Orange. The plaintiff in the
suit is Continental Central Credit, Inc., A California Corporation
("Continental"). Continental is a licensed collection agency and is seeking
to collect unpaid homeowners association assessments on 25 time-share units in
Oxnard, California to which the Partnership holds title. The Partnership had
taken title to a much larger number of units in this project between 1989 and
1991. It acquired these units through foreclosure of various notes it held
which were secured by units in the project. The Partnership was successful in
its efforts to sell a number of the units it had acquired, but was unable to
sell the 25 units involved in this litigation prior to the termination of
marketing by the project's developer in 1992. As a result, the Partnership
charged off as worthless the remaining 25 units in 1992. At that time, the
Partnership believed that the homeowners association would simply foreclose on
the remaining units for past due association fees. However, the association's
covenants, conditions and restrictions provide for personal liability to the
owners of units for homeowners assessments and the association has elected to
pursue its right to sue for this personal liability rather than simply
foreclosing on the units. The Partnership has reached a tentative agreement
to settle this litigation in exchange for the payment of $42,600 and the
assignment to the association of all of the Partnership's ownership rights in
the time-share units at the project.
There are no other material pending legal proceedings other than ordinary
routine litigation incidental to the registrant's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters have been submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED SECURITY
HOLDER MATTERS.
(a) Securities Market Information
There is no market for the Partnership's limited partnership units, nor is one
expected to develop. The Partnership units were offered by the Partnership
through selected dealers who were members of the National Association of
Securities Dealers, Inc.
(b) Approximate Number of Holders of Limited Partnership Units
As of December 31, 1999, there were approximately 3,078 holders of limited
partnership units.
(c) Partnership Distributions
The Partnership paid a $3,496,000 cash distribution to limited partners in
October 1998. This distribution equaled approximately $120.00 per limited
partnership unit.
Management intends to distribute cash flow available for distribution (as
defined in the Partnership Agreement), if any, on a periodic basis as
substantial cash balances are accumulated from property sales and/or loan
payoffs. Distributions may vary in amount and may be suspended based upon
advice from legal counsel until the possibility of any unforeseen legal action
against the Partnership becomes remote. See Item 7. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended
(dollars in thousands, except per unit data)
- -----------------------------------------------------------------------------
12/31/99 12/31/98 12/31/97 12/31/96 12/31/95
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Total revenue $ 277 $ 479 $ 170 $ 251 $ 279
Net loss (254) (754) (929) (1,515) (2,377)
Net loss per limited
partnership unit-
basic and diluted (8.72) (25.87) (31.88) (51.99) (81.57)
Cash distributions
per limited
partnership unit --- 120.00 -- -- --
CONSOLIDATED BALANCE
SHEET DATA:
Total loans before
allowance for losses 548 598 1,029 1,068 1,856
Total real estate
owned before allowance
for losses 2,843 4,599 10,827 11,316 11,314
Total assets 4,325 4,820 9,354 10,132 11,605
Partners' equity 4,260 4,514 8,764 9,693 11,208
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
Net loss and loss per limited partnership unit were $(254,000) and $(8.72) for
the year ended December 31, 1999, down from $(754,000) and $(25.87) for the
year ended December 31, 1998 and $(929,000) and $(31.88) in 1997. Major
changes between statements of operations components from 1998 to 1999
included: i) a $460,000 decrease in provision for possible losses; ii) a
$127,000 decrease in expenses associated with non-operating real estate owned;
iii) a $197,000 decrease in gain (loss) on sale of real estate owned; and iv)
a $96,000 decrease in share of losses in unconsolidated investee. Major
changes between statements of operations components from 1997 to 1998
included: i) a $227,000 increase in the provision for possible losses; ii) a
$146,000 decrease in expenses associated with non-operating real estate owned;
iii) a $73,000 increase in general and administrative-affiliates; iv) a
$72,000 increase in interest on interest-bearing deposits; and v) a $192,000
increase in gain on sale of property. A detailed discussion of the
significant changes in each component of revenue and expense for each of the
years in the three year period ended December 31, 1999 is included in the
following paragraphs.
Liquidity and Capital Resources
At December 31, 1999, the Partnership had $2,039,000 in unrestricted cash and
cash equivalents. Additional sources of funds are expected to be from the
repayments of notes receivable and the sale of real estate owned. Since the
Partnership sold its only remaining operating property in December 1999, there
will be no future cash provided by operations of real estate owned.
During 1999, the Partnership's principal sources of cash were: i) $1,479,000
of cash proceeds from the sale of real estate; ii) $50,000 in principal
payments received on loans in excess of disbursements on loans; iii) $68,000
in net operating income from operating property; and iv) $100,000 in interest
income on loans and interest bearing deposits. The Partnership's principal
uses of cash during 1999 were: i) $234,000 in principal payments on notes
payable; ii) $311,000 in general and administrative costs; iii) $39,000 in
real estate taxes paid; iv) $25,000 in other expenses associated with non-
operating real estate owned; v)$27,000 in additions to real estate owned; and
vi) $29,000 in interest payments.
Subsequent to December 31, 1999, the Partnership entered into and consummated
a purchase and sale agreement involving 5.63 acres of the remaining 27.8 acres
in Sacramento. The Partnership received approximately $846,000 in net cash
proceeds from the sale. The Partnership has also entered into a contract to
sell an additional 2.65 acres of this property. This sale is subject to
numerous uncertainties and there is a significant possibility that it will not
be consummated. The property had a net carrying value of $1,731,000 after
allowance for possible losses as of December 31, 1999. Management does not
anticipate that the sale transactions discussed above will result in a gains
or losses in excess of $50,000.
As of December 31, 1999, the Partnership had no unfunded loan commitments.
The Partnership had no remaining notes payable commitments. The
Partnership's principal capital requirements include: i) property taxes and
bonds on real estate owned of approximately $26,000 payable in 2000, and ii)
selling, general and administrative costs.
Effective with the third quarter of 1991, the Partnership had suspended making
any cash distributions to partners, due to a decline in liquidity and the
uncertainty of the cash requirements for existing and potential real estate
owned. Pursuant to the Partnership Agreement, 60 months after the closing of
the offering, cash proceeds from mortgage investments are no longer available
for reinvestment by the Partnership.
Through the latter part of 1997, the general partners believed that the cash
proceeds from mortgage reductions and the sale of real estate owned should be
retained by the Partnership until such time as it was assured that it had
sufficient cash to fulfill any potential operating requirements. Due to the
substantial real estate owned balances, these potential operating costs were
considered to be very significant. As a result of the substantial decrease in
real estate owned which occurred in 1997 and 1998, the general partners
determined that the Partnership could make a $3,496,000 distribution to its
limited partners in October 1998.
The general partners have had discussions with legal counsel regarding the
amounts of cash balances that would be prudent to be retained by the
Partnership at this time. In light of the substantial amount of real estate
that the Partnership has held an interest in over the years, there is always
the potential for future litigation to arise, particularly in the area of
toxic contamination. The recent litigation which has arisen and is discussed
in "Item 3 - Legal Proceedings" is an example of this. Although the general
partners are not aware of any other threatened litigation, or litigation that
is likely to arise, they have determined that the Partnership should retain at
least $1,000,000 in cash balances to be available to defend the Partnership in
any future litigation which may arise. It is expected that these cash
balances will be retained until such time as legal counsel advises the general
partners that the potential for any future litigation is remote.
As of February 28, 2000, the Partnership's cash balances had increased to over
$2.9 million. Additionally, the Partnership anticipates that its notes
receivable could be repaid and that the pending real estate transaction
discussed above could close escrow within the next 120 days. Once it is known
whether these potential sources of cash will be available, the Partnership is
likely to declare a cash distribution to limited partners to reduce the
Partnership's cash balance to approximately $1.0 million.
Results of Operations
The Partnership's non-cash assets declined from $9,159,000 as of December 31,
1997 to $2,286,000 as of December 31, 1999. The substantial reduction in non-
cash assets during 1998 and 1999 caused many changes in the Partnership's
results of operations as discussed below.
Interest income on loans to affiliates, including fees was $16,000 for 1998.
There was no interest income on loans to affiliates for 1999 or 1997 because
the loans receivable from unconsolidated investees were placed on nonaccrual
status in late 1996. The income in 1998 is related to interest repayments on
loans to the Silverwood joint venture, which was constructing homes in
Lancaster, California. This interest, which was repaid in 1998, had not
previously been accrued by the Partnership.
Interest income on loans to nonaffiliates was $45,000, $12,000 and $3,000 in
1999, 1998 and 1997, respectively. During 1997 interest income on loans to
nonaffiliates had decreased to almost zero due to payoffs of existing loans in
prior years. In October 1998, the Partnership received two loans in
connection with the payoff of certain loans to Silverwood Homes, an
unconsolidated investee discussed in more detail below. These new loans were
the principal source of interest income on loans to nonaffiliates in 1998 and
1999. The increase in 1999 can be attributed to the fact that the loans were
outstanding for a greater part of the year.
The real estate owned balance before allowance for possible losses at December
31, 1999, 1998 and 1997 was $2,843,000, $4,599,000 and $10,827,000,
respectively. The balance at December 31, 1999 is comprised of a single
property located in Sacramento California and is offset by a $1,112,000
allowance for possible losses. As discussed above, the Partnership sold a
portion of this property subsequent to December 31, 1999 and has entered into
a purchase and sale agreement to sell another portion of the property.
The following sections entitled "Nonaccrual Loans and Other Loans to
Affiliates" and "Real Estate Owned" provide a detailed analysis of these
assets.
Nonaccrual Loans and Other Loans to Affiliates
Loans on nonaccrual status during the years ended December 31, 1998 and 1999
are summarized below:
During 1994 the Partnership acquired a 50% interest in LCR Development, Inc.,
an unconsolidated subsidiary. The balance of LCR is owned by Centennial
Mortgage Income Fund ("CMIF "), an affiliate. LCR was formed in order to take
title to 179 residential lots in Lancaster, California through foreclosure of
a $1,250,000 secured loan held by CMIF and a $2,115,000 secured loan held
jointly by the Partnership and CMIF II. The Partnership assigned its interest
in the $2,115,000 note to LCR in exchange for a new note payable by LCR to the
Partnership and CMIF II. LCR subsequently: i) took title to the 179 lots
through foreclosure; ii) entered into a joint venture with Home Devco, Inc.
named Silverwood Homes ("Silverwood"); and iii) contributed the 179 lots to
Silverwood. The principal purpose of the joint venture was to construct homes
on the property. From 1995 through 1997. Silverwood constructed and sold
homes on the property and the Partnership and CMIF II made several
construction and development loans to Silverwood. It was anticipated that
there would be excess cash from the home sales after paying off the
development and construction loans and this excess cash would be used to repay
LCR for its investment in the joint venture. LCR would then be able to use
this anticipated excess cash from Silverwood's home sales to repay the
Partnership and CMIF II for the $1,250,000 and $2,115,000 loans.
LCR reported substantial net losses due to the continuing decline in value of
the lots from 1994 through 1997. The Partnership recorded its share of losses
from LCR as a reduction in the net carrying value of its notes due from LCR
and Silverwood. Cash generated from home sales at Silverwood was insufficient
to enable Silverwood to remit any payments to LCR. As a result, no payments
were ever made against the $1,250,000 or $2,115,000 loans and the loans were
placed on nonaccrual. As of December 31, 1997, the Partnership's share of the
principal balance of the $2,115,000 note was $1,059,000. The Partnership had
reduced the carrying value of this note by $1,059,000, a portion of its share
of losses from this unconsolidated investee as of December 31, 1997. During
1998, the remaining lots were sold and one hundred percent of the proceeds
from the sale were paid to the Partnership and CMIF II as a partial repayment
of their development and construction loans to Silverwood. Accordingly, the
Partnership charged off the LCR notes against the $1,059,000 of previously
recorded losses from unconsolidated investee during 1998.
At December 31, 1997, the Partnership held a 50 percent participation in three
notes due from Silverwood consisting of a land development loan, a model home
loan and a home construction loan with a combined disbursed balance of
$1,191,000. The Partnership had reduced the carrying value of one of these
loans by $377,000, the remainder of its share of losses in unconsolidated
investee as of December 31, 1997. This resulted in a net carrying value for
the Silverwood loans of $814,000 as of December 31, 1997.
During 1998, all but one of the remaining homes were sold and all of the
undeveloped lots were sold. The Partnership funded additional advances of
$295,000 on the development loan and the Phase II construction loan in 1998.
The Partnership also recorded an additional $96,000 in losses from
unconsolidated investee during 1998 and received cash payments totaling
$410,000 against these loans. Additionally, the Partnership received two
notes receivable totaling $586,000 from an unaffiliated party as a partial
repayment of the development loan in connection with the sale of the remaining
157 lots in October 1998. These new notes are secured by the 157 lots sold.
The remaining combined principal balances of the development and construction
loans was $490,000 after the 1998 advances and payments were made. The
Partnership charged off $468,000 of this balance against the remaining losses
from unconsolidated investee, leaving a balance of loans receivable and losses
from unconsolidated investee of $22,000 and $5,000, respectively, as of
December 31, 1998.
During 1999, Silverwood sold its final home and made payments totalling
$12,000 to the Partnership out of cash generated from this sale.
Real Estate Owned
A description of the Partnership's principal real estate owned during the
years ended December 31, 1999 and 1998 follows:
Office Building in San Bernardino, California
The Partnership funded a loan during January 1988 with an original committed
amount of $921,000 which was secured by a second trust deed on an office
building comprised of 15,984 square feet of rentable space located in San
Bernardino, California. The loan was provided as gap financing behind a first
deed of trust in the amount of $350,000 to another financial institution. The
borrower was unable to payoff the loan at maturity and the Partnership
foreclosed on April 20, 1993. The project was 74 percent leased as of
December 31, 1997 and 83 percent leased as of December 31, 1998. Additional
leases signed increased the occupancy to as high as 92 percent, however, a
number of leases expired in 1999 and occupancy levels have declined slightly
as a result. The property generated net operating income of $68,000 during
1999. As of December 31, 1998, the property was encumbered by a new note
secured by a first trust deed of $234,000 which was to mature June 1, 2008.
The Partnership used the majority of the proceeds from this new note to payoff
the prior note and pay for several improvements to the building including the
elevator. The Partnership sold this property in December 1999. The sale
generated net sales proceeds of $637,000. The sale resulted in a $5,000 loss
after applying $299,000 of the Partnership's previously recorded allowance for
possible losses on real estate investments. The note payable discussed above
was repaid with funds from the proceeds of this sale.
28 Acres in Sacramento, California
The Partnership funded a loan in 1987 with a committed amount of $4,000,000
secured by a first trust deed on 44.52 acres in Sacramento, California. The
loan was provided for the development of offsite improvements. The maturity
date was February 1, 1991. The borrower was unable to obtain construction
financing and bring interest current. The Partnership accepted a grant deed
on the property on March 10, 1992. The property is zoned for multi-family and
light industrial use. A portion of the property is adjacent to Highway 99 and
has good freeway visibility. The Partnership rezoned and subdivided a portion
of the property to facilitate one escrow on a 6.5 acre portion of the property
without freeway visibility. This transaction closed escrow during the fourth
quarter of 1997. During the first quarter of 1999, the Partnership opened
escrow on a 9.45 acre portion of the property which also did not have freeway
visibility. for a purchase price of $900,000. The escrow closed at the end of
the second quarter of 1999, generated $842,000 in net cash proceeds and was
recorded at no gain or loss. Both parcels sold are zoned for residential use.
The balance of the property is zoned for industrial/commercial use. There has
been only limited industrial/commercial use development activity in the area
surrounding this property during the past several years. In light of this
limited activity and management's objective of liquidating the Partnership's
remaining assets as soon as practical, the Partnership recorded an additional
$504,000 provision for losses against the carrying value of this property
during 1998. At December 31, 1999, the carrying value before allowance for
possible losses was $2,843,000. The Partnership has recorded a $1,112,000
allowance for losses related to this property as of December 31, 1999.
Proposed Marina and Condominiums in Redwood City, California
On April 7, 1989, the Partnership foreclosed on a land loan located in Redwood
City, California with an original committed amount of $3,487,000. The purpose
of the loan was to acquire the land and provide for the planning of a 122-slip
marina plus an office building and restaurant. The original maturity date of
October 21, 1986 was extended to March 1, 1987. In March 1987, the borrower
filed bankruptcy. The property had been in escrow since 1996 for a purchase
price of $4,000,000. Due to some pending costs to resolve access issues, the
price was reduced to $3,900,000. It closed escrow June 12, 1998 and the
Partnership received net proceeds from the sale of $3,699,000. During the
first quarter of 1998, the Partnership reversed $55,000 of its previously
recorded provision for losses against this property. The Partnership recorded
a $71,000 gain on sale on this transaction.
10.66 Acres in Roseville, California
The Partnership funded a loan in 1990 with an original commitment of
$2,779,000 secured by a second deed of trust on 982 acres in Roseville,
California. The borrower failed to make the required yearly principal payment
to the first and second trust deed holders. The first trust deed holder filed
a notice of default for nonpayment. Management negotiated a settlement
agreement to accept a 10.66 acre commercial site as payment in full for the
$2,779,000 note. The property had been in escrow for an all cash purchase
price of $1,200,000 and closed escrow June 30, 1998 with the Partnership
receiving net proceeds of $1,124,000. The Partnership recorded a $121,000
gain on sale on this transaction.
Interest on Interest-Bearing Deposits
Interest on interest-bearing deposits was $55,000 in 1999, $78,000 in 1998 and
$6,000 in 1997. The decrease in interest income was caused by lower average
cash and cash equivalent balances that were the result of the $3.5 million
cash distribution to limited partners in October 1998. The increase in
interest on interest-bearing deposits for 1998 is primarily the result of
higher cash and cash equivalent balances due to the sale of real estate owned
in 1997 and 1998. Interest on interest-bearing deposits represents interest
earned on Partnership funds invested, for liquidity, in time certificate and
money market deposits.
Income from Operations of Real Estate Owned
Income from operations of real estate owned consists of operating revenues of
$173,000 in 1999, $160,000 in 1998 and $131,000 in 1997. The 1999, 1998 and
1997 revenues are from the office building in San Bernardino. The increases
for 1999 and 1998 are primarily due to increased occupancy levels.
Gain (loss) on Sale of Real Estate Owned
As discussed above, the Partnership recorded a loss of $5,000 on the sale of
the office building in San Bernardino in 1999. The Partnership also recorded
gains of $71,000 and $121,000 on the sales of the Redwood City and Roseville
properties, respectively, during 1998. There were no gains or losses on the
sale of real estate during 1997.
Provision for Possible Losses
The provision for possible losses was $460,000 in 1998 and $233,000 in 1997.
There was no provision for possible losses recorded in 1999. The 1998
provision is comprised of a $504,000 provision on the 45 acres in Sacramento,
an $11,000 provision on the office building in San Bernardino offset by a
reversal of $55,000 on the proposed marina and condominiums in Redwood City.
The 1997 provision relates to the 45 acres in Sacramento and the proposed
marina and condominiums in Redwood City.
Management believes that the allowance for possible losses at December 31,
1999 is adequate to absorb the known risks in the Partnership's loan and real
estate owned portfolios.
Other Expenses
The Partnership has invested in corporations in which it has less than a
majority ownership and accounts for these investments using the equity method.
The Partnership charged off its investment in one of these corporations during
1996. The Partnership's share of losses in the remaining unconsolidated
investee was $96,000 for 1998 and $125,000 for 1997. There was no comparable
amount reported in 1999. The 1998 and 1997 share of losses consist primarily
of operating losses from the sale of homes and finished lots recorded by LCR.
The Partnership's remaining investment in and loans receivable from this
unconsolidated investee has been reduced to $5,000 as of December 31, 1999.
Operating expenses from operations of real estate owned were $93,000 in 1999,
$92,000 in 1998 and $87,000 in 1997. The increase for 1998 can be attributed
to several air conditioning unit repairs at the office building in San
Bernardino.
Operating expenses from operations of real estate owned paid to affiliates
were $12,000 each for 1999, 1998 and 1997. The expenses consist of property
management fees paid to affiliates of the general partners.
Expenses associated with non-operating real estate owned were $105,000 in
1999, $232,000 in 1998 and $378,000 in 1997. The expenses relate principally
to the proposed marina and condominiums in Redwood City, the 45 acres in
Sacramento and the 10.66 acres in Roseville. These expenses include property
taxes of $39,000, $130,000 and $234,000 for 1999, 1998 and 1997, respectively.
The decreases from 1997 to 1998 and again to 1999 are principally attributable
to the sale of the proposed marina and condominiums in Redwood City and the
10.66 acres in Roseville in June 1998. The 1999 expense also includes $43,000
in costs accrued in anticipation of the settlement of litigation discussed in
note 8 to the consolidated financial statements involving certain time-share
units which were charged off in 1992.
Depreciation and amortization expense was $4,000 in 1999, $4,000 in 1998 and
$6,000 in 1997 for the office building in San Bernardino and office equipment.
The decreases are due to assets becoming fully amortized.
Interest expense was $37,000 for 1999, $16,000 for 1998 and $12,000 for 1997.
This interest expense relates to the debt secured by the office building in
San Bernardino. The increase in interest expense from 1997 to 1998 and again
in 1999 is a result of the refinance of property in June 1998 with a new
$235,000 note bearing interest at 8.64 percent per annum. When this note was
repaid in December 1998 in conjunction with the sale of the property, the
Partnership incurred a $8,000 prepayment penalty and wrote off certain
financing costs which were being amortized over the life of the loan.
General and administrative expenses, affiliates were $192,000, $257,000 and
$184,000 in 1999, 1998 and 1997, respectively. These expenses are primarily
salary allocation reimbursements paid to affiliates for the management of the
Partnership's assets. The decrease in 1999 is attributable to a substantial
layoff of the corporate partners personnel in response to the Partnership's
decreasing assets. The increase for 1998 is primarily attributable to $67,000
in accrued severance payments.
General and administrative expenses, nonaffiliates was $88,000, $64,000 and
$62,000 in 1999, 1998 and 1997, respectively. The increase in 1999 is
principally attributable to an increase in accounting fee and investor
reporting costs .
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Partnership does not invest in any derivative financial instruments
or enter into any activities involving foreign currencies, its market risk
associated with financial instruments is limited to the effect that changing
domestic interest rates might have on the fair value of its bank deposits and
notes receivable.
As of December 31, 1999, the Partnership held fixed rate bank deposits with
carrying values totaling $2,039,000, variable rate mortgage note receivables
with carrying values totaling $5,000 and fixed rate mortgage notes receivable
with carrying values totaling $543,000. The bank deposits all had maturities
of less than ninety days. The fixed rate mortgage notes had maturities of
less than six months from December 31, 1999 and bore interest at rates ranging
from 8 percent to 10 percent per annum. The fair value of all of these assets
was estimated to be equal to their carrying values as of December 31, 1999.
Increasing interest rates could have an adverse effect on the fair value of
the Partnership's fixed rate notes receivable and/or the value of the
underlying real estate collateral which secure the Partnership's note
receivable.
Management currently intends to hold the remaining fixed rate receivables
until their respective maturities. Accordingly, the Partnership is not
exposed to any material cash flow or earnings risk associated with these
receivables. Given the relatively short-term maturities of these assets,
management does not believe the Partnership is exposed to any significant
market risk related to their fair value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON REPORTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of General Partners
The Partnership is managed by its general partners. The individual general
partners' principal occupations and affiliations during the last five years
are described in the following table. The general partners devote to the
affairs of the Partnership such portion of their time as they consider
necessary for the effective supervision of its affairs.
Name, Age and Position
Principal Occupation and
Affiliation during Last Five Years
- ------------------------------------------------------------------------------
John B. Joseph
Age 61
General Partner
John B. Joseph is currently Vice Chairman of the Board of Directors and Vice
President of Centennial Corporation. He has held these positions since 1983.
Mr. Joseph also has served, in the following capacities during the past five
years: he was on the board of directors for West Coast Bancorp ("WCB"), a
publicly held bank holding company operating in California from its inception
in 1981 through February 1999; he was Chairman of the Board of Directors of
WCB since its inception in 1981 and CEO from April 1991 until 1998. Mr. Joseph
has also been general partner of various public and private limited
partnerships engaged in real estate development and lending activities.
Mr. Joseph has 30 years of experience in asset management in both securities
and real estate. Mr. Joseph has worked in all areas of real estate. In the
past, Mr. Joseph has been engaged in the syndication and management of over
$100 million worth of income property, including industrial complexes,
shopping centers, business centers, office buildings, commercial properties
and residential units. Mr. Joseph has been named as a subject of a pending
legal proceeding in the Justice Court, Las Vegas Township, Clark County ,
Nevada, Case No. 99F08732A-F. The proceedings involve several charges
associated with an investment Mr. Joseph made in a mining venture which is
unrelated to the Partnership and its affiliates. Mr. Joseph has denied any
wrongdoing and has employed legal counsel to defend him in this matter.
Ronald R. White
Age 53
General Partner
Ronald R. White is currently President and CEO of Centennial Corporation. He
has held these positions since 1983. He was also Executive Vice President and
Vice Chairman of the Board of Directors of WCB until 1998. Mr. White served
in these capacities since April 1987. Mr. White also serves, or has served,
in the following capacities during the past five years: general partner of
various public and private limited partnerships engaged in real estate
development and lending activities.
Mr. White's career spans the financial and management fields in both
securities and real estate. Mr. White has 28 years of experience in asset
management. In the past, Mr. White has been engaged in the syndication and
management of over $100 million worth of income property including industrial
complexes, shopping centers, business centers, office buildings, commercial
properties, and residential units.
Centennial Corporation ("CC"), a privately-held corporation, whose stock is
owned by affiliates of Ronald R. White and John B. Joseph, was voted in as new
general partner in the first quarter of 1994. CC was incorporated in 1983 to
engage in the real estate lending business and to provide consulting services.
Identification of Executive Officers
The Partnership does not have officers as such. The affairs of the
Partnership are managed by the general partners noted above.
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
The following table summarizes the types and recipients of compensation paid
and to be paid to the general partners and affiliates by the Partnership.
Amount Earned/
Type of Reimbursable for the
Compensation & Year Ended
Name of Entity Description of Payment December 31, 1999
- ------------------------------------------------------------------------------
Operating Stage:
Application and An amount up to a maximum $ ---
commitment fees of 3 percent of the gross
- - the general proceeds of the offering
partner or on any single mortgage
affiliates investment, and an aggregate
maximum of 7 percent of the
gross proceeds of the offering,
payable to the general partners
or affiliates. The application
and commitment fees are payable
solely from borrowers and
prospective borrowers and not
directly from the proceeds of
the offering.
General partners' The general partners or affiliates $ 204,000 (1)
reimbursable shall be entitled to reimbursement
expenses for certain expenses, subject to
- general the conditions of the Partnership
partner or Agreement.
affiliates
General partners' A 5 percent interest in cash $ ---
interest in cash flow available for distribution
distributions for any year until all limited
- - general partnership unit holders have
partners or received an amount equal to a 12
affiliates percent non-cumulative annual
return on their adjusted invested
capital, and 10 percent of the
balance of any cash flow available
for distribution for such year
Mortgage 1/4 of 1 percent of the $ ---
investment maximum amount funded or to
servicing fees be funded by the Partnership
on mortgage investments
serviced by CC
Repayment Stage:
General partners' One percent of mortgage $ ---
share of reductions until all limited
mortgage partners have received an
reductions amount equal to their adjusted
- - general invested capital and cumulative
partners or distributions (including cash
affiliates flow available for distribution)
equal to a 12 percent annual
return with respect to their
adjusted invested capital, and
15 percent of the balance of
any mortgage reductions.
(1) Such reimbursable expenses include salaries and related salary expenses
for services which could be performed directly for the Partnership by
independent parties such as legal, clerical, accounting, financial reporting,
governmental reporting, transfer agent, data processing and duplication
services. Such reimbursement of expenses will be made regardless of whether
any distributions are made to the limited partners.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
No persons are known by the Partnership to own beneficially more than 5
percent of the limited partnership units at December 31, 1999.
(b) Security Ownership of Management
The percent of units owned by Management is less than 1 percent.
Name and address Nature and Number of Percent of
of Beneficial Owner Units Outstanding Units Outstanding
- ------------------------------------------------------------------------------
Ronald R. White
1540 S. Lewis St.
Anaheim, CA 92805 Limited partnership units: 1 ---
(c) Change in Control
The Partnership knows of no contractual arrangements which may at a subsequent
date result in a change of control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This disclosure is made in note 5 of Notes to the Consolidated Financial
Statements incorporated in this filing.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) - See Index to Consolidated Financial Statements and
Schedules attached hereto.
(a)(3) - Exhibits.
(3) & (4) Articles of Incorporation and Bylaws
The Amended and Restated Limited Partnership Agreement
Incorporated by reference to Exhibit A to the Partnership's
Prospectus contained in the Partnership's registration
Statement on Form Form S-11 (Commission File No. 0-15448)
Dated January 17, 1986, as supplemented filed under the Securities
Act of 1933
(27) Financial Data Schedule
(b)(4) - Reports on Form 8-K.
None.
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.
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A California Limited Partnership
By:/s/John B. Joseph
_________________________________
John B. Joseph
General Partner March 30, 2000
By:/s/Ronald R. White
_________________________________
Ronald R. White
General Partner March 30, 2000
By: CENTENNIAL CORPORATION
General Partner
/s/John B. Joseph
_________________________________
John B. Joseph
Executive Vice President March 30, 2000
/s/Ronald R. White
_________________________________
Ronald R. White
President March 30, 2000
/s/Joel H. Miner
_________________________________
Joel H. Miner
Chief Financial Officer March 30, 2000
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
ANNUAL REPORT
Form 10-K
Consolidated Financial Statements
Items 8, 14(a)(1) and 14(a)(2)
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Items 8, 14(a)(1) and 14(a)(2)
Index to Consolidated Financial Statements and Schedules
Consolidated Financial Statements Page
Independent Auditors' Report F-2
Consolidated Balance Sheets --
December 31, 1999 and 1998 F-3
Consolidated Statements of Operations --
Years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Partners' Equity --
Years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows --
Years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial
Statements F-8
Schedules
Schedule III - Consolidated Real Estate Owned F-20
Schedule IV - Mortgage Loans on Real Estate F-21
All other schedules are omitted as the required information is inapplicable,
or the information is presented in the consolidated financial statements or
notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
To the General Partners
Centennial Mortgage Income Fund II:
We have audited the consolidated financial statements of Centennial Mortgage
Income Fund II, a limited partnership, and subsidiaries as listed in the
accompanying index. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules
as listed in the accompanying index. These consolidated financial statements
and financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Centennial
Mortgage Income Fund II and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
KPMG LLP
Orange County, California
March 14, 2000
F-2
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents (note 5) $ 2,039,000 $ 1,010,000
Real estate loans receivable, earning 543,000 581,000
Real estate loans receivable from
unconsolidated investee,
nonearning (note 5) 5,000 17,000
- ------------------------------------------------------------------------------
Net real estate loans receivable 548,000 598,000
- ------------------------------------------------------------------------------
Real estate owned, held
for sale (notes 6 and 7) 2,843,000 4,599,000
Less allowance for possible losses on
real estate owned (note 4) 1,112,000 1,411,000
- ------------------------------------------------------------------------------
Net real estate owned 1,731,000 3,188,000
- ------------------------------------------------------------------------------
Due from unconsolidated investee 2,000 2,000
Other assets, net 5,000 22,000
- ------------------------------------------------------------------------------
$ 4,325,000 $ 4,820,000
==============================================================================
LIABILITIES AND PARTNERS' EQUITY
- ------------------------------------------------------------------------------
Note payable (note 7) $ --- $ 234,000
Accounts payable
and accrued liabilities 65,000 72,000
- ------------------------------------------------------------------------------
Total liabilities 65,000 306,000
- ------------------------------------------------------------------------------
Partners' equity (deficit) --
29,141 limited partnership units
outstanding in 1999 and 1998
General partners (56,000) (56,000)
Limited partners 4,316,000 4,570,000
- ------------------------------------------------------------------------------
Total partners' equity 4,260,000 4,514,000
Contingencies (note 8)
- ------------------------------------------------------------------------------
$ 4,325,000 $ 4,820,000
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Interest on loans to affiliates,
including fees (note 5) $ --- $ 16,000 $ ---
Interest on loans to
nonaffiliates 45,000 12,000 3,000
Interest on interest-bearing
deposits (note 5) 55,000 78,000 6,000
Income from operations
of real estate owned 173,000 160,000 131,000
Gain (loss)on sale of real estate
owned (5,000) 192,000 ---
Other 9,000 21,000 30,000
- ------------------------------------------------------------------------------
Total revenue 277,000 479,000 170,000
- ------------------------------------------------------------------------------
Expenses:
Provision for possible losses
(notes 3 and 4) --- 460,000 233,000
Share of losses in unconsolidated
investee (note 5) --- 96,000 125,000
Operating expenses from operations
of real estate owned 93,000 92,000 87,000
Operating expenses from operations
of real estate owned paid to
affiliates (note 5) 12,000 12,000 12,000
Expenses associated with
non-operating real estate owned 105,000 232,000 378,000
Depreciation and amortization expense 4,000 4,000 6,000
Interest expense 37,000 16,000 12,000
General and administrative,
affiliates (note 5) 192,000 257,000 184,000
General and administrative,
nonaffiliates 88,000 64,000 62,000
- ------------------------------------------------------------------------------
Total expenses 531,000 1,233,000 1,099,000
- ------------------------------------------------------------------------------
Net loss $ (254,000) $ (754,000) $ (929,000)
==============================================================================
Net loss per limited partnership
unit - basic and diluted $ ( 8.72) $ (25.87) $ (31.88)
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-4
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Partners' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partners Partners Equity
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance (deficit) at
December 31, 1996 $ (195,000) $ 9,888,000 $ 9,693,000
Net loss --- (929,000) (929,000)
- ------------------------------------------------------------------------------
Balance (deficit) at
December 31, 1997 (195,000) 8,959,000 8,764,000
Net loss --- (754,000) (754,000)
Distribution to
limited partners --- (3,496,000) (3,496,000)
Reduction in general
partner deficit capital
account (note 1) 139,000 (139,000) ---
- ------------------------------------------------------------------------------
Balance (deficit) at
December 31, 1998 (56,000) 4,570,000 4,514,000
Net loss --- (254,000) (254,000)
- ------------------------------------------------------------------------------
Balance (deficit) at
December 31, 1999 $ (56,000) $ 4,316,000 $ 4,260,000
==============================================================================
</TABLE>
See accompanying notes to consolidated financial statements
F-5
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (254,000) $ (754,000) $ (929,000)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Provision for possible losses --- 460,000 233,000
Depreciation and amortization 4,000 4,000 6,000
Gain (loss) on sale of real estate
owned 5,000 (192,000) ---
Equity in losses of
unconsolidated investee --- 96,000 125,000
Changes in assets and liabilities:
(Increase) decrease in other assets 13,000 (22,000) 2,000
Increase (decrease) in accounts
payable and accrued liabilities (7,000) 63,000 (3,000)
Increase (decrease) in property
taxes payable on real estate owned --- (484,000) 201,000
Decrease in payable to affiliates --- --- (1,000)
- ------------------------------------------------------------------------------
Net cash used in operating activities (239,000) (829,000) (366,000)
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collected on loans 50,000 615,000 293,000
Advances on loans made to
unconsolidated investee --- (295,000) (179,000)
Capital expenditures
for real estate owned (27,000) (154,000) (2,000)
Proceeds from sale of
real estate owned 1,479,000 4,823,000 222,000
Decrease in restricted cash
and short term investments --- --- 12,000
Decrease in due from
unconsolidated investee --- 14,000 ---
- -----------------------------------------------------------------------------
Net cash provided by
investing activities 1,502,000 5,003,000 346,000
- -----------------------------------------------------------------------------
F-6
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Statements of Cash Flows (Continued)
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on notes payable --- 235,000 ---
Principal payments on notes payable (234,000) (98,000) (46,000)
Distributions to limited partners --- (3,496,000) ---
- -----------------------------------------------------------------------------
Net cash used in financing activities (234,000) (3,359,000) (46,000)
- -----------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 1,029,000 815,000 (66,000)
Cash and cash equivalents
at beginning of year 1,010,000 195,000 261,000
- -----------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 2,039,000 $ 1,010,,000 $ 195,000
=============================================================================
Supplemental schedule of cash
flow information - interest
paid during the year $ 29,000 $ 16,000 $ 12,000
- -----------------------------------------------------------------------------
Supplemental schedule of
noncash investing and
financing activities:
Decrease in real estate owned and
increase in real estate loans
through sale and carryback
financing of real estate $ --- $ --- $ 200,000
Decrease in allowance for
possible losses on real
estate loans and on real
estate owned as a result
of sales and chargeoffs 299,000 1,766,000 69,000
Receipt of notes receivable as
partial repayment
of note receivable --- 586,000 ---
</TABLE>
See accompanying notes to consolidated financial statements
F-7
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Notes to Consolidated Financial Statements
December 31, 1999, 1998, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING P0LICIES
Business
Centennial Mortgage Income Fund II (the "Partnership") was formed in 1985 and
initially invested in commercial, industrial and residential income-producing
real property through mortgage investments consisting of participating first
mortgage loans, other equity participation loans, construction loans, and
wrap-around and other junior loans. The Partnership's underwriting policy for
granting credit was to fund loans secured by first and second deeds of trust
on real property. The Partnership's area of concentration is in California.
In the normal course of business, the Partnership participated with other
lenders in extending credit to single borrowers. The Partnership did this in
an effort to decrease credit concentrations and provide a greater
diversification of credit risk.
As of December 31, 1999, most of the loans secured by operating properties
have been repaid to the Partnership. However, during the early 1990's, real
estate market values for undeveloped land in California declined severely.
As the loans secured by undeveloped land became delinquent, the Partnership
elected to foreclose on certain of these loans, thereby increasing real estate
owned balances. As a result, the Partnership has become a direct investor in
this real estate and intends to manage operating properties and develop raw
land until such time as the Partnership is able to sell the remaining real
estate owned. The real estate owned balance before allowance for possible
losses at December 31, 1997 was $10,827,000, decreasing to $4,599,000 at year
end 1998 and decreasing to $2,843,000 at year end 1999.
Beginning with the fourth quarter of 1992, the Partnership entered its
repayment stage and cash proceeds from mortgage investments are no longer
available for reinvestment in new loans by the Partnership.
Basis of Presentation
The Partnership has formed several subsidiaries to own and operate certain of
its real estate assets. The corporations formed were PIR Development, Inc.,
RSA Development, Inc. ("RSA"), CTA Development, Inc.and LCR Development, Inc.,
("LCR"). All of these corporations are California corporations. Several of
the Partnership's assets were transferred to these corporations, at the
Partnership's cost basis, in transactions which included no cash down and the
Partnership carrying 100 percent of the financing. RSA was liquidated during
1998. With the exception of LCR, all of these corporations are wholly owned
corporations and have been consolidated in the accompanying consolidated
financial statements. All significant intercompany balances and transactions,
including the aforementioned transfers, have been eliminated in consolidation.
As the Partnership's ownership interest in LCR is more than 20 percent but
does not exceed 50 percent, the Partnership accounts for its ownership
interest using the equity method. The Partnership has made several loans to
LCR and its subsidiary. Under the equity method of accounting, these loans
are a component of the Partnership's investment in LCR, and
F-8
therefore the Partnership has recorded losses by LCR as a reduction of the
carrying value of these loans receivable (see note 5).
Organization
The Partnership was organized on July 12, 1985 in accordance with the
provisions of the California Uniform Limited Partnership Act. The Partnership
commenced operations in June 1986. The general partners are John B. Joseph,
Ronald R. White and Centennial Corporation ("CC"), a privately-held California
corporation whose stock is owned by affiliates of Ronald R. White and John B.
Joseph.
Partners' Capital Accounts
Cash Available for Distribution, as defined in the Partnership Agreement, is
to be allocated 95 percent to the limited partners and 5 percent to the
general partners until each limited partner has received an amount equal to a
12 percent non-cumulative annual return on his adjusted invested capital (as
defined in the Partnership Agreement). Thereafter, Cash Available for
Distribution is to be allocated 90 percent to the limited partners and 10
percent to the general partners. All distributions of Mortgage Reductions (as
defined in the Partnership Agreement) after the first sixty months following
the closing date of the Partnership, shall be distributed 99 percent to the
limited partners and 1 percent to the general partners, until each limited
partner has received a 12 percent cumulative annual return on his adjusted
invested capital, after which such amounts are to be distributed 85 percent to
the limited partners and 15 percent to the general partners. In order to
properly reflect the economic effect of the allocations discussed above, the
Partnership has allocated financial statement net earnings (losses) 95 percent
to the limited partners and 5 percent to the general partners through 1992.
The Partnership had no Cash Available for Distribution during the three years
ended December 31, 1999.
Based upon these and various other terms of the Partnership Agreement, it is
improbable that the general partners would be required to make any capital
contributions to the Partnership in excess of their negative capital account
as of December 31, 1992. Accordingly, since January 1, 1993, the Partnership
has allocated 100 percent of the losses to the limited partners. As a result
of the liquidation of the majority of the Partnership's investments in 1998,
it became clear that the amount of the required deficit restoration of the
General Partners would not exceed $56,000 and the capital accounts of the
General Partners and limited partners were adjusted in 1998 to reflect such
maximum deficit restoration
Real Estate Loans and Allowance for Possible Losses
Loans are reported at the principal amount outstanding, net of unearned income
and the allowance for possible loan losses. Interest accrual is discontinued
when, in the opinion of management, its collection is deemed doubtful. The
allowance for possible loan losses is established through a provision for
possible losses charged to expense. Loans are charged against the allowance
for possible loan losses when management believes that the collectibility of
principal is unlikely.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions.
F-9
Impaired Loans
The Partnership considers a loan to be impaired when based upon current
information and events, it believes it is probable that the Partnership will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. In determining impairment, the Partnership considers large
non-homogeneous loans including nonaccrual loans, troubled debt restructuring
and performing loans which exhibit, among other characteristics, high loan-to-
value ratios, low debt-coverage ratios, or other indications that the
borrowers are experiencing increased levels of financial difficulty. The
Partnership bases the measurement of collateral-dependent impaired loans on
the fair value of the loan's collateral. The amount by which the recorded
investment of the loan exceeds the measure of the impaired loan's value is
recognized by recording a valuation allowance.
Real Estate Owned
Long-lived assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell. Estimated fair values are determined
by using appraisals, discounted cash flows and/or other valuation techniques.
The actual market price of real estate can only be determined by negotiation
between independent third parties in a sales transaction and sales proceeds
could differ substantially from estimated fair values. An impairment loss
shall be measured as the amount by which the carrying amount of the asset
exceeds the fair value of the assets less costs to sell. Assets to be disposed
of are not depreciated while they are held for disposal. The Partnership
considered all real estate owned as held for sale during 1999 and 1998, and is
actively marketing all properties using third party brokers or in house sales
staff. Management's intent is to attempt to sell all properties within one
year, however, there can be no assurance that the balance of the Partnership's
assets will actually be sold in that period.
Loan Fees
Origination fees and direct costs associated with lending were netted and
amortized to interest income as an adjustment to yield over the respective
lives of the loans using the interest method.
Income Taxes
Under provisions of the Internal Revenue Code and the California Revenue and
Taxation Code, partnerships are generally not subject to income taxes. For
tax purposes, any income or losses realized are those of the individual
partners, not the Partnership. The Partnership reports certain transactions
differently for tax and financial statement purposes. The following is a
recap of current and cumulative temporary differences between earnings for
generally accepted accounting principles ("GAAP") and taxable earnings.
F-10
<TABLE>
<CAPTION>
Current Temporary
Differences Partnership Corporations Total
(Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
GAAP earnings (loss) for
the year ended
December 31, 1999 $ (615,000) $ 361,000 $ (254,000)
Provision for losses (244,000) (55,000) (299,000)
Accrued expenses not deducted
under the cash basis
method of accounting 42,000 (342,000) (300,000)
Carrying costs expensed for
books and capitalized for
tax purposes --- (125,000) (125,000)
Increase in net operating loss --- 88,000 88,000
Depreciation --- 73,000 73,000
- ------------------------------------------------------------------------------
Taxable loss for the year
ended December 31, 1999 $ (817,000) $ --- $ (817,000)
==============================================================================
Taxable loss allocable to
General Partner ---
==============================================================================
Taxable loss per limited
partner unit $ (28.04)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Cumulative Temporary Differences as of December 31, 1999
Partnership Corporations
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------
<S> <C> <C>
Net operating loss carry forwards $ --- $ 336,000
Provision for losses --- 1,112,000
Accrued expenses not deducted
under the cash basis 42,000 1,841,000
Carrying costs expensed for books and
capitalized for tax purposes --- 775,000
Share of losses in unconsolidated investees (1,000) ---
- ------------------------------------------------------------------------------
Total cumulative
temporary differences $ 41,000 $ 4,064,000
==============================================================================
</TABLE>
F-11
As of December 31, 1999, the Partnership held approximately $6.1 million in
loans and interest receivable from the consolidated corporations. These loans
have been eliminated in the Partnership's consolidated financial statements.
It is anticipated that the temporary differences should reverse on the
corporations' returns when the corporations liquidate their investments. If
these investments are liquidated at current carrying values, the Partnership
should be able to deduct bad debt expense on its tax returns in the
approximate amount of the temporary differences shown above which is
approximately $139 per limited partnership unit.
The subsidiary corporations are subject to taxation and account for income
taxes under an asset and liability approach to establishing deferred tax
assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the corporation's assets and liabilities.
None of the subsidiary corporations have paid any income taxes since their
respective formations and all of them have had net deferred tax assets which
have been fully offset by valuation allowances as of December 31, 1999, 1998
and 1997. Accordingly, no tax expense or benefit has been recorded by these
corporations during the three years ended December 31, 1999. No deferred tax
asset related to the corporations cumulative temporary differences shown above
has been recorded in the consolidated financial statements due to the
improbability of realization. Future consolidated financial statements could
reflect income tax expense in the event that these corporations generate
taxable profits in excess of operating loss carryforwards available. Some of
the subsidiary corporations are cash basis taxpayers.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
and interest-bearing deposits with original maturities of three months or
less.
Net Loss Per Limited Partnership Unit
Net loss per limited partnership unit for financial statement purposes was
based on 29,141 weighted average limited partnership units outstanding in
1999, 1998 and 1997.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenue from rental income on real estate owned is recognized on a straight-
line basis over the life of the lease when payments become due under operating
leases. The Partnership has recognized gains or losses on the sale of real
estate owned as the gains or losses are determinable and the earnings process
is complete.
Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform with the 1999 presentation.
F-12
Financial Information about Industry Segments
Given that the Partnership is in the process of liquidation, the Partnership
has identified only one operating business segment which is the business of
asset liquidation.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures About Fair
Value of Financial Instruments" ("SFAS 107"), requires that the Partnership
disclose estimated fair values for its financial instruments as well as the
methods and significant assumptions used to estimate fair values. The
following information does not purport to represent the aggregate net fair
value of the Partnership.
The following methods and assumptions were used by the Partnership in
estimating the fair value of each class of financial instrument.
Cash and Cash Equivalents
The carrying amount, which is cost, is assumed to be the fair value because of
the liquidity of these instruments. As of December 31, 1999, the Partnership
had bank deposits at four different banks whose deposits are federally
insured. Approximately $1,727,000 of the Partnership's cash and cash
equivalent balance as of that same date was in excess of maximum balances
covered by such insurance.
Real Estate Loans Receivable - Earning
The net carrying value of earning loans is estimated to be fair value. The
loans are carried at their face value. Management believes that the interest
rates on these loans is at market rates and that the loans are adequately
secured.
Real Estate Loans Receivable from Unconsolidated Investee - Nonearning
The net carrying value of loans from unconsolidated investee is not estimable
due to the uncertainty of the amounts and timing of future payments to be
made.
Accounts Payable and Accrued Liabilities, and Property Taxes Payable
Carrying value is considered to be equal to the fair value of these
liabilities as they are due on demand.
Note Payable
The carrying value of the fixed rate note payable is estimated to be the fair
value using current market rates.
F-13
(3) ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Changes in the allowance for possible loan losses are as follows:
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ --- $ 15,000 $ 8,000
Loans to affiliates and
nonaffiliates charged-off --- (15,000) ---
Provision for possible losses --- --- 7,000
- ------------------------------------------------------------------------------
Balance at end of year $ --- $ --- $ 15,000
==============================================================================
</TABLE>
At December 31, 1999, there was one loan to an unconsolidated investee which
was considered impaired and for which there was no allowance for possible loan
losses at December 31, 1999. However, as discussed in note 5, the
unconsolidated investee has recorded substantial operating losses and the
Partnership's proportionate share of the losses in unconsolidated investee has
reduced the net carrying value of this loan to $5,000 as of December 31, 1999.
There was a $295,000 investment in impaired loans during the year ended
December 31, 1998. There was no investment in impaired loans during 1999.
For the year ended December 31, 1998, the Partnership recognized $16,000 in
interest income on these impaired loans. There was no interest income
recognized on these impaired loans for the years ended December 31, 1999 or
1997. For the year ended December 31, 1998, the Partnership recognized
$16,000 in cash basis income on impaired loans. No cash basis income was
recognized on these impaired loans for the years ended December 31, 1999 and
1997.
(4) ALLOWANCE FOR POSSIBLE LOSSES ON REAL ESTATE OWNED
<TABLE>
<CAPTION>
Changes in the allowance for possible losses on real estate owned are as
follows:
1999 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 1,411,000 $ 2,702,000 $ 2,545,000
Real estate owned charged-off (299,000) (1,751,000) (69,000)
Provision for losses --- 460,000 226,000
- ------------------------------------------------------------------------------
Balance at end of year $ 1,112,000 $ 1,411,000 $ 2,702,000
==============================================================================
</TABLE>
(5) TRANSACTIONS WITH AFFILIATES
As discussed in note 1, the Partnership owns 50 percent of the stock of a
corporation which has not been consolidated in the accompanying financial
statements; LCR. The balance of stock in this corporation is owned by
Centennial Mortgage Income Fund ("CMIF"), an affiliate. LCR has invested in a
joint venture, Silverwood Homes ("Silverwood") which has constructed homes.
The Partnership has participated in making several loans to this corporation
F-14
and this joint venture. Under the equity method of accounting, these loans
are a component of the Partnership's investment in LCR, and therefore the
Partnership has recorded losses by LCR as a reduction of the carrying value of
these loans receivable. All but one of these loans were charged off in 1998.
A summary of these real estate loans receivable from unconsolidated investee
as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Net
Principal Losses Carrying
Balance Offset Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
50 percent interest
in unsecured loan
from Silverwood $ 10,000 $ 5,000 $ 5,000
- ------------------------------------------------------------------------------
Total $ 10,000 $ 5,000 $ 5,000
- ------------------------------------------------------------------------------
</TABLE>
A summary of these real estate loans receivable from unconsolidated investee
as of December 31, 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net
Principal Losses Carrying
Balance Offset Value
- ------------------------------------------------------------------------------
50 percent interest in unsecured
note receivable from LCR (a) $ --- $ --- $ ---
50 percent interest in development
loan secured by a first trust
deed from Silverwood (a) --- --- ---
50 percent interest in construction
loan secured by a first trust deed
from Silverwood 22,000 5,000 17,000
- ------------------------------------------------------------------------------
Total $ 22,000 $ 5,000 $ 17,000
- ------------------------------------------------------------------------------
</TABLE>
(a) The unpaid balances of these loans were charged off by the Partnership
during 1998 when the collateral associated with the notes was sold to an
unaffiliated party. The Partnership accepted its 50 percent share of the net
proceeds from the sale of the collateral and released its security interest in
the collateral. Since the proceeds from the sale were less than the balances
of the notes, the Partnership charged off the balance of the notes. The
cumulative principal balance of the loans charged off was $1,527,000.
F-15
LCR entered into a joint venture agreement entitled Silverwood with Home
Devco, ("Home Devco"), an affiliate of the general partners of the
Partnership, to construct and sell single-family homes at the project. During
1995, LCR contributed 179 lots which were zoned for single family homes in
Lancaster, California to the joint venture as its initial capital
contribution. As LCR has a 99.99 percent ownership interest in the joint
venture, Silverwood has been consolidated with LCR.
The consolidated balance sheets and statements of operations of LCR have not
been consolidated in the Partnership's financial statements. The Partnership
accounts for its investment in this corporation using the equity method. The
following represents condensed financial information for LCR at December 31,
1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997:
LCR Development, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1999 1998
- -------------------------------------------------------------------------
<S> <C> <C>
Cash $ 8,000 $ 11,000
Restricted cash 10,000 20,000
Real estate owned --- 119,000
Less allowance for losses on real
estate investments --- 17,000
- --------------------------------------------------------------------------
Net real estate owned --- 102,000
- --------------------------------------------------------------------------
$ 18,000 $ 133,000
==========================================================================
Liabilities and Stockholders' Deficit
- --------------------------------------------------------------------------
Notes payable
to affiliates:
CMIF $ 2,782,000 $ 2,882,000
CMIF II 1,537,000 1,549,000
- --------------------------------------------------------------------------
Total notes payable 4,319,000 4,431,000
Accounts payable
and accrued liabilities 4,000 12,000
Interest payable to affiliates 2,192,000 1,837,000
Payable to affiliates 9,000 5,000
- --------------------------------------------------------------------------
Total liabilities 6,524,000 6,285,000
Stockholders'
deficit (6,506,000) (6,152,000)
- --------------------------------------------------------------------------
$ 18,000 $ 133,000
==========================================================================
</TABLE>
F-16
LCR Development, Inc.
Consolidated Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
- -----------------------------------------------------------------------------
Revenues
Housing sales $ 123,000 $ 1,509,000 $ 834,000
Sale of finished lots --- 1,499,000 ---
- ------------------------------------------------------------------------------
123,000 3,008,000 834,000
- ------------------------------------------------------------------------------
Costs and expenses
Cost of housing sales 118,000 1,437,000 852,000
Cost of sale of
finished lots --- 1,514,000 ---
Provision for losses on
real estate owned --- 216,000 207,000
Selling and
marketing expenses --- 66,000 131,000
General and
administrative 1,000 24,000 64,000
- ------------------------------------------------------------------------------
119,000 3,257,000 1,254,000
- ------------------------------------------------------------------------------
Operating income (loss) 4,000 (249,000) (420,000)
Interest expense 357,000 403,000 361,000
- ------------------------------------------------------------------------------
Net loss $ (353,000) $ (652,000) $ (781,000)
==============================================================================
Interest not included
in share of losses (354,000) (460,000) (532,000)
- ------------------------------------------------------------------------------
Allocable net income (loss) $ 1,000 $ (192,000) $ (249,000)
==============================================================================
Share of losses
recorded $ --- $ (96,000) $ (125,000)
==============================================================================
</TABLE>
Although the Partnership owns a 50 percent interest in LCR, it holds less than
50 percent of LCR's debt. Since CMIF has made a $1,250,000 unsecured loan to
LCR, CMIF was allocated losses to the extent of the unsecured loan and
remaining losses were allocated 50 percent to the Partnership and 50 percent
to CMIF during 1996. Additionally, the Partnership and CMIF have not recorded
interest income in connection with the $2,192,000 of accrued interest payable
to affiliates by LCR and Silverwood. Accordingly, the Partnership has not
recorded its share of losses from LCR to the extent that it represents this
nonaccrued interest income.
F-17
<TABLE>
<CAPTION>
Difference of Allocation of Share of Losses
1999
- -----------------------------------------------------------------------------
<S> <C>
The Partnership's 50 percent share
of LCR's stockholders' deficit
at December 31, 1999 $(3,253,000)
Cumulative interest payable by LCR
to the Partnership not accrued as
income by the Partnership 1,096,000
Loans receivable considered as part
of the Partnership's investment (a) 1,537,000
Disproportionate loss allocation 625,000
- ------------------------------------------------------------------------------
Net loans receivable $ 5,000
==============================================================================
(a) The Partnership has charged off $1,527,000 of these loans.
</TABLE>
The Partnership reimburses the general partner for salaries and related
expenses incurred on behalf of the Partnership for services such as legal,
clerical, accounting, property management and other administrative functions.
The general partners and affiliates charged $170,000 $202,000 and $196,000 for
such services in 1999, 1998 and 1997, respectively. The Partnership also
accrued an additional $22,000 and $67,000 as general and administrative,
affiliates expense during 1999 and 1998, respectively. These amounts were the
Partnership's share of certain severance pay due under several employment
contracts entered into during 1998.
During 1999, 1998 and 1997, the Partnership maintained interest-bearing
deposits with Sunwest Bank, an affiliate of the general partners up until
March 1999. The balances at December 31, 1998 and 1997 were $131,000 and
$66,000, respectively. Interest earned on such deposits for three months
ended March 31, 1999 and the years ended December 31, 1998 and 1997 was
$1,000, $16,000 and $2,000, respectively.
(6) REAL ESTATE OWNED
<TABLE>
<CAPTION>
Real estate owned consists of the following:
<S> <C> <C>
December 31, December 31,
1999 1998
- ------------------------------------------------------------------------------
1. Office building
in San Bernardino, CA $ --- $ 914,000
2. Land in Sacramento, CA 2,843,000 3,685,000
- ------------------------------------------------------------------------------
Total real estate owned $ 2,843,000 $ 4,599,000
==============================================================================
</TABLE>
F-18
The Partnership sold approximately 9.45 acres of its 37.28 acre parcel of land
in Sacramento in June 1999. The sale generated net sales proceeds of
$842,000. The Partnership recorded no gain or loss on this sale.
The Partnership also sold its office building in San Bernardino in December
1999. The sale generated net sales proceeds of $637,000. The sale resulted
in a $5,000 loss after applying $299,000 of the Partnership's previously
recorded allowance for possible losses on real estate investments. The note
payable discussed below was repaid with funds from the proceeds of this sale.
(7) NOTE PAYABLE
<TABLE>
<CAPTION>
Note payable consists of the following:
December 31, December 31,
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Note payable secured by office
building in San Bernardino, CA,
repaid in December 1999; interest
at 8.64%, $ --- $ 234,000
- ------------------------------------------------------------------------------
$ --- $ 234,000
==============================================================================
</TABLE>
(8) Contingencies
The Partnership has been served with a lawsuit filed in the Superior Court of
California in the County of Orange. The complaint seeks the recovery of past
due homeowners association assessments which have accrued on certain time
share interests to which the Partnership holds title. The Partnership wrote
off these interests in 1998 because the accrued liabilities, including
homeowners assessments and real property taxes, were greater than the resale
value of the interests. The Partnership has reached a tentative agreement to
settle this claim for a cash payment of approximately $43,000 and the
assignment of all of the Partnership's interest in the association. The
settlement is expected to relieve the Partnership of all future liability
related to this time share project. This amount was accrued as an expense
during 1999 and is included in accounts payable and accrued liabilities as of
December 31, 1999.
There are no other material pending legal proceedings other than ordinary
routine litigation incidental to the Partnership's business. Based on part of
advice of legal counsel, management does not believe that the results of any
of these matters will have a material impact on the Partnership's financial
position or results of operations.
F-19
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
Consolidated Real Estate Owned
December 31, 1999
<TABLE>
<CAPTION>
Schedule III
Initial Costs Capitalized Gross Amount at
Cost to Subsequent Which Carried
Partnership to Acquisition on Books <F1>
Total
Real Real Life on Which
Encum- Estate Improvements Carrying Estate Date Depreciation is
Property brances Owned Costs Owned Acquired Computed
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
28 Acres in Sacramento --- 2,601,000 153,000 89,000 2,843,000 March-92 None
- -----------------------------------------------------------------------------------------------------------
$ --- $ 2,601,000 $ 153,000 $ 89,000 $ 2,843,000
============================================================================================================
<FN>
<F1> Aggregate cost for Federal income tax purposes is $3,618,000 at December 31, 1999.
</FN>
</TABLE>
<TABLE>
The following is a summary of consolidated real estate owned for the three years ended December 31, 1999.
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 4,599,000 $ 10,827,000 $ 11,316,000
Additions during period:
Improvements 27,000 154,000 2,000
Deductions during period:
Real estate sold (1,783,000) (4,631,000) (422,000)
Charge-offs --- (1,751,000) (69,000)
- -------------------------------------------------------------------------------------------------------------
Balance at year end $ 2,843,000 $ 4,599,000 $ 10,827,000
=============================================================================================================
</TABLE>
See accompanying independent auditors report
F-20
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
<TABLE>
<CAPTION>
SCHEDULE IV
<S> <C> <C> <C> <C> <C> <C> <C>
Principal
Amount
of Loan
Carrying Subject to
Final Periodic Face Amount of Delinquent
Interest Maturity Payment Prior Amount of Mortgages Principal or
Description Rate Date Terms Liens Mortgages <F1> or Interest
- ------------------------------------------------------------------------------------------------------------
Note secured by:
50 percent interest Interest only
in First Trust Balloon payments
Deed on 157 lots of $325,000 and $1,070,000 $543,000 $325,000
in Lancaster, CA 8% Fixed 4/23/00 $745,000 due in None (50%--$535,000)
July 1999
and April 2000
50 percent interest P +I due at $21,000 10,000 21,000
in unsecured note Prime +1% 7/1/98 maturity None (50% - 10,000)
Loss from unconsolidated investee (5,000)
- -------------------------------------------------------------------------------------------------------------
$548,000 $346,000
- -------------------------------------------------------------------------------------------------------------
<FN>
<F1> Aggregate cost for Federal Income Tax purposes is $548,000 at December 31, 1999.
</FN>
</TABLE>
F-21
CENTENNIAL MORTGAGE INCOME FUND II AND SUBSIDIARIES
A Limited Partnership
<TABLE>
Schedule IV
Mortgage Loans on Real Estate
(Continued)
December 31, 1999
<CAPTION>
The following is a summary of activity for the years ended December 1999, 1998 and 1997.
<S> <C> <C> <C>
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 598,000 $ 1,029,000 $ 1,068,000
Additions during period:
New mortgage loans/disbursements --- 295,000 179,000
Loans transferred from real estate owned --- --- 200,000
Deductions during period:
Collections of principal (50,000) (615,000) (293,000)
Chargeoffs --- (15,000) ---
Losses from unconsolidated investees --- (96,000) (125,000)
- ------------------------------------------------------------------------------------------------------------
Balance at year end $ 548,000 $ 598,000 $ 1,029,000
============================================================================================================
</TABLE>
See accompanying independent auditors' report.
F-22
</DOCUMENT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,039
<SECURITIES> 0
<RECEIVABLES> 548
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,594
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,325
<CURRENT-LIABILITIES> 65
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,260
<TOTAL-LIABILITY-AND-EQUITY> 4,325
<SALES> 0
<TOTAL-REVENUES> 277
<CGS> 0
<TOTAL-COSTS> 531
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (254)
<INCOME-TAX> 0
<INCOME-CONTINUING> (254)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (254)
<EPS-BASIC> (8.72)
<EPS-DILUTED> (8.72)
</TABLE>
