<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 0-14562
KEYSTONE MORTGAGE FUND
(Exact name of registrant as specified in its charter.)
CALIFORNIA 95-3786580
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11340 W. OLYMPIC BOULEVARD, STE. 300
LOS ANGELES, CALIFORNIA 90064
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-4121
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
1
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PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The business of Keystone Mortgage Fund (the "Partnership") was to make
loans secured by deeds of trust on improved commercial and industrial real
properties. As of December 31, 1996, the Partnership had no loans outstanding
as compared to $1,031,390 outstanding at December 31, 1995.
During 1990, the general partners informed the limited partners that all
principal repayments received by the Fund will be distributed to the limited
partners less required reserves for operating expenses. The limited partners
were also informed that the Fund will no longer repurchase units.
2
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EMPLOYEES
The Partnership does not have any employees. Services are performed for
the Partnership by Keystone, for which it receives compensation as set forth in
the Partnership Agreement.
Item 2. PROPERTIES.
The fund occupies space leased by Keystone Mortgage Company, and pays no
rent.
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
3
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PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
None.
Item 6. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following table sets forth in tabular form, selected financial data for
the fiscal years 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
Years Ended December 31st
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $564,193 $496,762 $604,547 $664,578 $699,899
Net (loss) Income 362,444 (1,565) 385,502 414,914 516,032
Trust Deed Notes
Receivable, Net 0 1,029,370 1,608,880 4,457,222 4,614,328
Total Assets 3,255,816 4,106,537 5,156,127 6,938,939 7,000,427
Net (loss) income
attributable to
limited partners
per limited
partnership unit $27.04 ($0.12) $28.76 $30.95 $38.52
</TABLE>
The following table set forth in tabular form, distributions and
withdrawals for the fiscal years 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
DISTRIBUTIONS 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
AND WITHDRAWALS
- ---------------
<S> <C> <C> <C> <C> <C>
General Partners None None None None $1,519
Limited Partners $1,223,944 $1,316,497 $2,166,682 $474,877 $2,008,730
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES:
4
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The portion of Partnership cash flow consisting of principal repayments is
being distributed to the limited partners less required reserves for operating
expenses. Excess cash flow is used to purchase short-term investments and those
investments have maturities consistent with the timing of Partnership
distributions. The Fund will no longer repurchase units. Interest income, net
of Partnership expenses, is distributed to the Partners on a semi-annual basis.
However, the General Partners have the right to retain up to 10% of Partnership
cash flow for the purpose of maintaining an adequate liquidity.
The Partnership's liquidity is primarily subject to the schedule of
maturities of Partnership loans and the extent of liquidity can therefore be
projected with reasonable accuracy. During 1996, the Partnership's working
capital increased $446,002. Management believes the Partnership has adequate
working capital and cash reserves to carry on its business.
In 1990 the decision was made to liquidate the Fund by distributing all
proceeds of loan repayments to the Limited Partners as the loans mature through
1997. The investment in real estate will be held for the production of income
until 1997.
On a short-term basis, the Partnership is able to generate adequate amounts
of cash to meet the Partnership's need for cash and contingencies through its
receipt of monthly principal and interest payments on mortgage loans and,
furthermore, as liquidity needs arise the partnership may change the frequency
of cash distributions to Limited Partners.
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
Partnership revenue increased 13.6% in 1996 over 1995 as compared to a
decrease of 17.8% in 1995 as compared to 1994. The 1996 increase was due mainly
to the gain on disposition of investment in real estate. Interest earned on
trust deed notes receivable continues to decrease due to the continued loan
payoffs. Revenue from rental property decreased 21.5% in 1996 over 1995
primarily because of the disposition of some properties. Rental revenue
increased 17.2% in 1995 as compared to 1994.
General and administrative expenses decreased 84.4% in 1996 over 1995 and
increased substantially, $274,547, in 1995 over 1994. In 1995 there was a
$270,000 charge to General & Administrative expenses for the reimbursement of
fund expenses to the General Partners.
Servicing related expenses increased 11.0% in 1996 over 1995 and decreased
34.3% in 1995 as compared to 1994. Expenses related to investment in real
estate decreased 28.0% in 1996 over 1995 compared to an increase of 14.1% in
1995 over 1994.
5
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The net income per Limited Partnership unit was determined by using a
weighted average of the number of units outstanding during the applicable fiscal
year. The partnership had an increase of $27.16 per limited partnership unit in
1996 over 1995 as compared to a decrease of $28.88 in 1995 over 1994.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to the financial statements of Keystone Mortgage Fund is included
in Item 14.
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
6
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KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
7
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PEAT MARWICK LLP
725 South Figueroa Street
Los Angeles, CA 90017
INDEPENDENT AUDITORS' REPORT
The General Partners
Keystone Mortgage Fund:
We have audited the accompanying balance sheets of Keystone Mortgage Fund (a
California limited partnership) as of December 31, 1996 and 1995 and the
related statements of operations, partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1996. These
financial statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in
all material respects, the financial position of Keystone Mortgage Fund as of
December 31, 1996 and 1995 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996
in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP (Signature)
January 22, 1997, except
for note 7, which is as of
February 28, 1997
8
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KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,526 $ 157,848
Short-term investments (market value of $2,417,512 in 1996
and $1,775,183 in 1995) 2,417,512 1,772,598
Interest receivable on trust deed note receivable -- 8,917
Other receivable -- 35,000
Current portion of trust deed note receivable (note 4) -- 11,894
---------- -----------
Total current assets 2,443,038 1,986,257
Investment in real estate, net (note 5) 812,778 1,102,804
Trust deed note receivable, net (note 4) -- 1,017,476
---------- -----------
$3,225,816 $4,106,537
---------- -----------
---------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other liabilities $ 1,208 429
Due to general partner (note 3) 280,000 270,000
---------- -----------
Total current liabilities 281,208 270,429
---------- -----------
Partners' capital:
General partners 26,655 23,031
Limited partners - authorized 20,000 units; outstanding 13,272
units 2,974,953 3,813,077
---------- -----------
2,974,608 3,836,108
---------- -----------
$3,255,816 $4,106,537
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Revenue:
Interest on trust deed on notes receivable $ 90,975 $147,940 $346,013
Investment income 143,598 118,183 61,689
Rental and other revenue from investment in
real estate 181,165 230,639 196,845
Gain on disposition of investment in real
estate 148,455 -- --
--------- -------- --------
564,193 496,762 604,547
--------- -------- --------
Expenses:
Servicing-related expenses (note 3) 34,026 30,657 46,656
General and administrative expenses (note 3) 46,689 299,636 25,089
Expenses related to investment in real estate 121,034 168,034 147,300
--------- -------- --------
201,749 498,327 219,045
--------- -------- --------
Net income (loss) $362,444 $ (1,565) $385,502
--------- -------- --------
--------- -------- --------
Weighted average number of limited partnership
units outstanding 13,272 13,272 13,272
--------- -------- --------
--------- -------- --------
Net income (loss) attributable to limited
partners per limited partnership unit $ 27.04 $ (0.12) 28.76
--------- -------- --------
--------- -------- --------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 19,192 $ 6,916,158 $ 6,935,350
Net income for 1994 3,855 381,647 385,502
Net distributions - $163.25 per limited
partnership unit -- (2,166,682) (2,166,682)
--------- ----------- -----------
Balance at December 31, 1994 23,047 5,131,123 5,154,170
Net loss for 1995 (16) (1,549) (1,565)
Net distributions - $99.19 per limited
partnership unit -- (1,316,497) (1,316,497)
--------- ----------- -----------
Balance at December 31, 1995 23,031 3,813,077 3,836,108
Net income for 1996 3,624 358,820 362,444
Net distributions - $92.22 per limited
partnership unit -- (1,223,944) (1,223,944)
--------- ----------- -----------
Balance at December 31, 1996 $ 26,655 $ 2,947,953 $2,947,608
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 362,444 $ (1,565) $ 385,502
Depreciation expense for investment in real
estate -- 52,700 58,000
Amortization of net loan origination fees (2,020) (1,100) (5,800)
Gain on sale of investment in real estate (148,455) -- --
Changes in operating assets and liabilities:
Interest receivable on trust deed notes
receivable 8,917 9,946 20,695
Accounts payable and other liabilities 779 (1,528) (1,632)
Due to general partner 10,000 270,000 --
Other 35,000 (35,000) 379
----------- ---------- -----------
Net cash provided by operating
activities 266,665 293,453 457,144
----------- ---------- -----------
Cash flows from investing activities:
Collection of trust deed notes receivable 1,031,390 580,508 2,854,142
Proceeds from sale of investment in real
estate 438,481 -- --
Purchases of short-term investments (2,367,190) (5,419,781) (4,662,573)
Proceeds from maturities of short-term
investments 1,722,276 5,922,756 2,387,000
----------- ---------- -----------
Net cash provided by investing
activities 824,957 1,083,483 578,569
----------- ---------- -----------
Cash flows from financing activities -
distributions to partners (1,223,944) (1,316,497) (2,166,682)
----------- ---------- -----------
Increase (decrease) in cash and
cash equivalents (132,322) 60,439 (1,130,969)
Cash and cash equivalents at beginning of year 157,848 97,409 1,228,378
----------- ---------- -----------
Cash and cash equivalents at end of year $ 25,526 $ 157,848 $ 97,409
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Notes to Financial Statements
December 31, 1996 and 1995
(1) ORGANIZATION AND PARTNERSHIP AGREEMENT
Keystone Mortgage Fund (the Fund), a California limited partnership, was
formed on April 19, 1984 for the purpose of investing in short- to
intermediate-term loans secured by deeds of trust on commercial
industrial real property.
Profits and losses are generally allocated 1% to the general partners
and 99% to the limited partners. To the extent property is obtained in
settlement of a loan obligation, any net gain resulting from the sale of
such property, determined using cost before any previous write-downs,
would be allocated 24% to the general partners and 76% to the limited
partners.
Distributions are allocated in the same manner as profits and losses,
except that any distribution of principal repayments of trust deed notes
receivable are made 100% to the limited partners. Effective January 1,
1992, the partnership agreement was amended to allow for distribution to
the partners on a semiannual basis rather than on a quarterly basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Fund considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
The Fund invests in various bank notes and U.S. Government securities
with original maturities between three months and six months. The Fund
accounts for short-term investments under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115). In accordance with SFAS 115, the Fund
classifies its investment in debt securities as held-to-maturity
securities and such short-term investments are stated at cost as the
Fund intends to hold these securities to maturity. At December 31, 1996
and 1995, short-term investments consisted of U.S. Government agency
notes with remaining maturities of less than five months. At December 31,
1996 and 1995, these securities had an unrealized gain of $0 and $2,585,
respectively, and there were no unrealized loses.
USES OF ESTIMATES
Management of the Fund has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from these estimates.
13
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KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Notes to Financial Statements, Continued
TRUST DEED NOTE RECEIVABLE
The trust deed note receivable is accounted for under the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS 114),
"Accounting by Creditors for Impairment of a Loan,'' and Statement of
Financial Accounting Standards No. 118 (SFAS 118), "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures.'' Under SFAS 114, a loan is impaired when it is "probable"
that a creditor will be unable to collect all amounts due (i.e., both
principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (1) the present
value of the expected future cash flows of the impaired loan discounted
at the loan's original effective interest rate, (2) the observable
market price of the impaired loan or (3) the fair value of the collateral
of a collateral-dependent loan. The amount by which the recorded
investment of the loan exceeds the measure of the impaired loan is
recognized by recording a valuation allowance with a corresponding
charge to provision for loan losses.
ALLOWANCE FOR LOSSES ON TRUST DEED NOTE RECEIVABLE
An analysis of the collectibility of the trust deed note receivable is
performed by management on a regular basis. Management considers such
factors as current economic conditions, the borrower's ability to repay
and repayment performance, probability of foreclosure and estimated
collateral values in determining any allowance need. Management has
determined that no allowance is necessary as of December 31, 1996 and
1995.
INVESTMENT IN REAL ESTATE
The investment in real estate was acquired in settlement of loans. It
was initially recorded at estimated fair value, less selling costs. At
the time of foreclosure, any excess of cost over the estimated net fair
value was accounted for as a loan charge-off and deducted from the
allowance for loan losses. As of December 31, 1995, such real estate was
carried at the lower of cost or net realizable value as the Fund is
holding the real estate for the production of income. Depreciation was
recorded based on the straight-line method and an estimated life of 20
years. As of December 31, 1996, the real estate is held for sale and is
carried at the lower of cost or fair value, less estimated costs to
sell, and depreciation is no longer provided in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" (SFAS 121). The provisions of SFAS 121 were implemented on January
1, 1996. There was no impact to the carrying value of the real estate as
a result of implementing SFAS 121 as the fair value, less estimated
costs to sell exceeds the cost of the real estate.
ORIGINATION FEES
Fees from the origination of trust deed notes receivable and certain
direct origination costs are recognized over the contractual life of
such trust deed notes receivable using methods which generally produce a
level-yield on the unpaid loan balance.
INTEREST INCOME ON TRUST DEED NOTES RECEIVABLE
Interest income on trust deed notes receivable is accrued as it is
earned. Interest receivable which is deemed uncollectible is excluded
from interest income. Trust deed notes receivable are placed on
nonaccrual status after being delinquent 90 days. There are no notes on
nonaccrual status at December 31, 1996 and 1995.
14
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Notes to Financial Statements, Continued
INCOME TAXES
No provision has been made for income taxes in the accompanying financial
statements, inasmuch as the liability for taxes arising from the
transactions of the Fund is the responsibility of the partners.
INCOME AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Net income and distributions per limited partnership unit are based on
the net income and distributions attributable to the limited partners
and the weighted average number of limited partnership units outstanding
during each period.
(3) RELATED PARTY TRANSACTIONS
The general partners of the Fund are Keystone Mortgage Company (managing
general partner), John P. Sullivan and Christopher E. Turner. Messrs.
Sullivan and Turner are officers/directors of Keystone Mortgage Company.
As compensation for servicing loans, the Fund pays an annual fee of 1/2
of 1% of the average outstanding loan principal balances, computed as of
the end of each month, to Keystone Mortgage Company. Servicing-related
expenses include approximately $4,000 in 1996, $7,000 in 1995 and
$16,000 in 1994 of servicing fees paid to Keystone Mortgage Company.
Prior to 1995, Keystone Mortgage Company did not pass through to the
Fund expenses that Keystone Mortgage Company incurred related to
operation of the Fund as allowed by the Fund's partnership agreement.
During 1995, Keystone Mortgage Company made a decision to charge the Fund
for reimbursement of such expenses incurred by Keystone Mortgage Company
from inception of the Fund and, accordingly, requested payment from the
Fund. The expense reimbursement totals $270,000 and is included in
general and administrative expenses for the year ended December 31, 1995
in the accompanying statements of operations and in due to general
partner in the accompanying balance sheets as of December 31, 1996
and 1995. Expense reimbursements totaling $10,000 relating to 1996
are included in general and administrative expenses for the year ended
December 31, 1996 in the accompanying statement of operations and in
due to general partner in the accompanying balance sheet as of
December 31, 1996.
(4) TRUST DEED NOTE RECEIVABLE
Trust deed note receivable consists of the following at December 31, 1995:
First trust deed on an office/warehouse/light industrial
billing located in Hawthorne, California, interest rate
of 10.375%, originally due November 1, 1997, repaid
during 1996 $1,031,390
Less:
Net deferred loan origination fees 2,020
Less current portion 11,894
----------
$1,017,476
----------
----------
The estimated fair value of the trust deed note receivable at December
31, 1995 is equivalent to the carrying value.
15
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Notes to Financial Statements, Continued
(5) INVESTMENT IN REAL ESTATE
Investment in real estate consists of industrial condominium units
located in Arizona. At December 31, 1996, the investment is held for
sale and is carried at the lower of cost or fair value, less estimated
costs to sell. The investment is composed of the following at December
31, 1995:
Land $ 260,000
Buildings and improvements 1,040,000
----------
1,300,000
Less:
Accumulated depreciation 162,696
Net realizable value allowance 34,500
----------
$1,102,804
----------
----------
Future minimum rental payments to be received under operating leases are
as follows:
1997 $ 92,405
1998 18,410
Thereafter --
--------
$110,815
--------
--------
(6) RECONCILIATION OF NET INCOME BETWEEN FINANCIAL
STATEMENTS AND PARTNERSHIP TAX RETURN (UNAUDITED)
The difference between the net income for financial reporting purposes
and the net income for Federal income tax purposes per the partnership
tax return is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Net income (loss) for financial reporting
purposes $362,444 $ (1,565) $385,502
Interest revenue on mortgage loans recognized
for financial reporting - previously
recognized for tax purposes (2,020) (3,118) (5,800)
Difference between book and tax depreciation,
gain on sale and net realizable value
adjustment for investment in real estate 14,117 18,980 18,823
-------- -------- --------
Net income for Federal income tax
purposes $374,541 $ 14,297 $398,525
-------- -------- --------
-------- -------- --------
</TABLE>
16
<PAGE>
KEYSTONE MORTGAGE FUND
(A California Limited Partnership)
Notes to Financial Statements, Continued
(7) SUBSEQUENT EVENTS
On February 28, 1997, the investment in real estate was sold to an
unrelated third party for approximately $1.2 million, net of selling
costs. The Fund recognized a gain of approximately $400,000 in the sale
transaction during 1997. Management plans to distribute the total net
assets of the Fund to the general partners and limited partners during
the second quarter of 1997. Cash flows from the final distribution in
liquidation of the Fund shall be distributed in accordance with capital
accounts.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVES OFFICERS.
The affairs of the Partnership are managed by the Managing General Partner,
Keystone Mortgage Company, and the Individual General Partners, John P. Sullivan
and Christopher E. Turner.
KEYSTONE MORTGAGE COMPANY
Keystone Mortgage Company, A California Corporation ("Keystone"), has been
engaged in the mortgage banking business since 1957. Keystone is a member of
the Mortgage Bankers Association of America, the California Mortgage Bankers
Association and the Southern California Mortgage Bankers Association. Keystone
originates and services real estate loans on behalf of more than ten national
life insurance companies, a savings bank, a commercial bank and various trust
funds. In addition, Keystone and certain officers have been, and continue to be
joint venture partners in the development of real estate with several of the
life insurance companies for which Keystone acts as a mortgage loan
correspondent. Keystone currently services a portfolio of loans in principal
amount in excess of $350,000,000 and has originated loans in original principal
amount in excess of $1,000,000,000 since its inception in 1957. Other
activities of Keystone include property management and the sale and leasing real
estate. Keystone is a licensed real estate broker in the State of California.
Keystone Mortgage Company is also the Managing General Partner of Keystone
Mortgage Fund II, a California limited partnership.
DIRECTORS AND OFFICERS
The directors and executive officers of Keystone Mortgage Company are:
NAME AGE TITLE DATE OF
APPT.
John P. Sullivan 71 President and Chairman of the Board 1957
Christopher E. Turner 63 Executive Vice President and Director 1972
Ron N. Buchanan 50 Vice President 1978
Sandra B. Coopersmith 58 Vice President 1975
Melinda F. Love 42 Vice President 1984
Norma Foster 57 Vice President 1986
John G. Sullivan 35 Vice President 1992
Mark G. Sullivan 40 Secretary 1984
JOHN P. SULLIVAN has been in mortgage banking in California since 1953, and
since 1957, he has served as president of Keystone. He was a founding member of
American Real Estate Association, and has been a director of the Southern
California Mortgage Bankers Association, a member of the International Council
of Shopping Centers, and a member of the Executive Committee of the Southern
California Economic and Job Development Council of the Los Angeles Chamber of
Commerce. He has served as a director of a savings and loan association, a
lecturer at Stanford University and the School of
18
<PAGE>
Mortgage Banking at Michigan State, and a lecturer on the subject of shopping
center financing at the University of California at Los Angeles.
CHRISTOPHER E. TURNER has been active in mortgage banking in California
since 1963, and since 1972, he has served as executive vice president of
Keystone. Prior to joining Keystone, Mr. Turner was employed at the
University of California at Los Angeles in the real estate research program
where he worked for three years as a graduate research economist after
receiving his MBA degree. He lectured on the subject of real estate
appraising and investments at the University of Southern California from 1967
to 1974 and lectured on the subject of industrial real estate at the
University of California at Los Angeles in 1974 and 1975 in the real estate
extension program. Mr. Turner has also lectured at the Schools of Mortgage
Banking at Stanford University and Houston University. He is a member of the
American Industrial Real Estate Association and the Urban Land Institute, the
National Mortgage Bankers Association and the American Society of Real Estate
Counselors. He has also served on the research committee of the National
Mortgage Bankers Association and on the Board of Governors of the American
Industrial Real Estate Association.
RON N. BUCHANAN joined Keystone in 1972 and currently serves as vice
president. Prior to his association with Keystone, he was employed by Security
Pacific National Bank in the construction loan department. He is an active
member in the American Industrial Real Estate Association and has served on its
Board of Directors. Mr. Buchanan has been a lecturer in real estate finance in
the University of California at Los Angeles extension program since 1976.
SANDRA B. COOPERSMITH has been with Keystone since 1967. Her present
responsibilities include management of the loan closing and loan servicing
departments. For a year prior to her employment at Keystone, she was the
corporate treasurer of a Los Angeles-based mortgage banking company. She has
also been a manager of the real estate division of a Los Angeles-based financial
institution, overseeing field inspectors, loan officers, credit checkers and
loan processors. She is a past president and life member of the Los Angeles
Escrow Association.
MELINDA F. LOVE has been with Keystone since 1978 and was appointed vice
president in 1984. Prior to joining Keystone, she was a mortgage analyst in the
real estate department of Farmers New World Life Insurance Company. She is an
active member in the American Industrial Real Estate Association, of which she
has served as affiliate representative on the Board of Directors; she is also a
member of the Southern California Mortgage Bankers Association of which she was
the 1988 co-chairman of the Income Property Roundtable Committee, the 1989
assistant treasurer, 1990 treasurer and serves as a Director for 1991.
NORMA FOSTER joined Keystone in 1980 and was appointed vice president in
late 1986. Ms. Foster currently serves as Business Manager for Keystone and in
addition to her administrative and management responsibilities handles limited
partnership accounting. Since 1962, Ms. Foster has been involved in
19
<PAGE>
international banking, accounting and corporate administration. Ms. Foster
holds an MBA in management from University of California at Los Angeles.
JOHN G. SULLIVAN has been with Keystone since 1984 and was appointed
assistant vice president in 1987. He is an active member of the
International Council of Shopping Centers, American Industrial Real Estate
Association, and the Ventura county Economic Development Association. He
holds a bachelors degree in business economics from the University of
California at Santa Barbara. John G. Sullivan is not related to either John
P. Sullivan, an Individual General Partner, or Mark G. Sullivan.
MARK G. SULLIVAN has been the secretary of Keystone since early 1984. Mr.
Sullivan has experience in the analysis and development of commercial real
estate projects. He holds a bachelor degree in science and geology from the
University of California at Santa Barbara. He is the son of John P. Sullivan.
No director of executive officer of Keystone, within the preceding five
year period, has filed a petition under Federal Bankruptcy laws, or has been
convicted in a criminal proceeding or is named subject of a pending criminal
proceeding.
Item 11. EXECUTIVE COMPENSATION.
Compensation for services rendered by the General Partners on behalf of the
Partnership for the fiscal years 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
Compensation Paid or
Name of Individual Accrued for Service Cash
or Group Rendered in 1994 1995 1996 Bonus
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Keystone Mortgage Co. Loan Servicing Fees $16,000 $7,000 $4,000 None
John P. Sullivan Management Fees None None None None
Christopher E. Turner Management Fees None None None None
</TABLE>
In addition, the General Partners of the Partnership are entitled to
receive certain cast distributions and allocations of income or loss. No cash
distributions and allocations were made for fiscal years 1994, 1995 and 1996.
Prior to 1995, Keystone did not pass expenses that Keystone Mortgage
Company incurred relating to the operation of the Partnership as allowed by the
Partnership agreement. During 1995 Keystone made a decision to charge the
Partnership for such expenses from the inception of the Partnership. The
expense reimbursement totals $270,000 and such amount was recorded as general
and administrative expense during 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
20
<PAGE>
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
No one holder of Units owns more than five percent of the total Units.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
The Individual General Partners are also officers or directors of.
(c) CHANGES IN CONTROL.
A majority in interest of the Limited Partners may at any time, by
vote or written consent, remove any General Partner, with or without
cause. Upon such removal, the General Partner so removed shall have
no further liability as a General Partner of the Partnership and the
Partnership Agreement shall be amended to state that the General
Partner so removed is no longer a General Partner of the Partnership.
After said removal, the interest of the General Partner in the
Partnership shall automatically convert to a limited partnership
interest and the General Partner shall have, with respect thereto, all
rights and powers of a Limited Partner.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Partnership is strictly prohibited from making any loan or
participating in any other transaction involving the General Partners, or any of
them, their affiliates, or any officer or director or employee of any those
entities under any circumstances.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements of Keystone Mortgage Fund are
in Item 8:
Report of Independent Auditors........................................8
Balance Sheets as of December 31, 1996 and 1995.......................9
21
<PAGE>
Statements of Operation for the Years Ended
December 31, 1996, 1995, and 1994................................10
Statement of Partners' Capital for the
Years Ended December 31, 1996, 1995, and 1994...................11
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995, and 1994.........................12
Notes to Financial Statements........................................13
(a) Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instruction or are
inapplicable, and therefore have been omitted.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Keystone Mortgage Fund
Date: March , 1997 /s/
---------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: March , 1997 /s/
---------------------------------
John P. Sullivan
General Partner
Date: March , 1997 /s/
--------------------------------
Christopher E. Turner
General Partner
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 25,526
<SECURITIES> 2,417,512
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,443,038
<PP&E> 812,778
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,255,816
<CURRENT-LIABILITIES> 281,208
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,974,608
<TOTAL-LIABILITY-AND-EQUITY> 3,255,816
<SALES> 0
<TOTAL-REVENUES> 564,193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 201,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 362,444
<INCOME-TAX> 0
<INCOME-CONTINUING> 362,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362,444
<EPS-PRIMARY> 27.04
<EPS-DILUTED> 27.04
</TABLE>
