<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from
Commission file Number 0-15363
COMMONWEALTH GROWTH FUND II, A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified on its charter)
California 68-0088748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705 University Avenue, Sacramento, California 95825
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 929-5433
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
NONE 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
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
The aggregate market value of the voting units of limited partnership interest
held by nonaffiliates of the registrant outstanding at March 31, 1996, was
$9,193,960.(1)
The number of Units outstanding at March 31, 1996 was 459,698.
Documents Incorporated by Reference:
NONE
- ----------------------------
(1) Based solely on the original offering price of $20.00 per unit, as there
is no secondary trading market in the Units.
Sequential Page No.: 1 of 32
Exhibit Index: Sequential Page 31
<PAGE> 2
COMMONWEALTH GROWTH FUND II
December 31, 1995
Page
PART I
Item 1. Business 1
Item 2. Properties 3
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security
Holders 4
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 5
Item 6. Selected Financial Data 5
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
Item 8. Financial Statements and Supplementary Data 7
Item 9. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 7
PART III
Item 10. Directors and Executive Officers of the
Registrant 17
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 20
i
<PAGE> 3
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PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
Commonwealth Growth Fund II, a California limited partnership (the
"Partnership" or "Growth Fund II"), was organized as a California limited
partnership in December 1985. The managing general partner and individual
general partner are B & B Property Investment, Development and Management
Company, Inc. ("B & B" or the "Managing General Partner") and Jeffrey B. Berger,
respectively (collectively referred to as, the "General Partners"). The
Partnership's primary objectives, in order of priority, are (a) to preserve and
protect the invested capital of limited partners; (b) to benefit from
appreciation in the value of acquired properties; (c) to generate cash from
operations which may be distributed to the partners; and (d) to provide income
tax deductions, including depreciation, in excess of income, which deductions,
if provided, will shelter the Partnership's cash distributions to the limited
partners from income tax.
The Partnership operates pursuant to its Agreement of Limited
Partnership ("Partnership Agreement") and a statement of investment objectives
and policies, which direct the Partnership in acquiring, improving, operating
and holding for investment various types of real property investments. In its
capacity as Managing General Partner of the Partnership, B & B supervised the
sale of the units of limited partnership interest (the "Units") and identified
and negotiated investment opportunities for the Partnership. B&B continues to
supervise the development, improvement and operation of the Partnership's
properties and oversees the refinancing and sale of the Partnership's
properties.
The Partnership is no longer investing or reinvesting in real property
investments. Although the Partnership Agreement permits reinvestment of proceeds
from property dispositions, the Partnership has determined not to reinvest such
proceeds except to the extent necessary to protect Partnership assets.
Accordingly, the Partnership is now in an operating and liquidation phase.
Proceeds from the disposition of any of the Partnership's assets will be
distributed to partners.
During the year ended December 31, 1995, no real property investments
were sold.
At December 31, 1995, the Partnership owned the notes receivable
collateralized by deeds of trust on real property specified in Note 4 of Notes
to Financial Statements and in Schedule XII. Since its inception, the
Partnership has been involved in only one industry segment: acquiring,
operating, developing and holding real properties for investment and making
loans collateralized by real property and improvements in connection with these
activities. Revenues, net income and assets relating to this industry segment
are set forth in the Partnership's financial statements.
1
<PAGE> 4
The Partnership offered its Units to California residents from February
14, 1986 until August 3, 1987. During that period, the Partnership sold 459,698
Units for total gross proceeds of $9,193,960.
During the last three years, the following sources have contributed to
the Partnership's total income:
<TABLE>
<CAPTION>
Years Ended December 31,
Percent of Total Income From: 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Rental income 1% 32% 58%
Interest income 99% 68% 42%
Gain on sale -- -- --
</TABLE>
The real estate market is highly competitive and results of operations
of the Partnership will depend upon the comparative yields available from time
to time on real estate and other investments. These factors, in turn, are
influenced to a large extent by the type of investment involved, the condition
of the money market, the nature and geographical location of the property,
competition and other factors.
The success of the Partnership also depends upon factors generally
applicable to the real estate investment market, including general trends in the
economy, construction costs, changes in income tax laws, increases or decreases
in operating expenses, governmental regulations, real estate market
fluctuations, shifts in industrial centers, population trends, legislation and
the ability of the Partnership to keep its properties leased at profitable
levels.
The rules and regulations adopted by various agencies of federal, state
or local governments relating to environmental controls and the development and
operation of real property may adversely affect the properties currently owned
by the Partnership. While the Partnership does not believe environmental
controls have had a material impact on its activities, there can be no assurance
that the Partnership will not be adversely affected by such controls in the
future.
The Partnership presently has no employees. The Managing General
Partner provides administrative services for the Partnership and manages the
Partnership's properties.
2
<PAGE> 5
Recent And Proposed Tax Legislation
Since 1986, significant tax legislation has been enacted into law each
year (except for the year 1991). The Omnibus Budget Reconciliation Act of 1993
enacted significant tax changes that include (i) modifying the passive loss
rules for persons in certain real estate trades or businesses, (ii) relaxing the
restrictions on pension plan investments in real estate, (iii) extending the
depreciable life of nonresidential real estate, (iv) increasing the individual
tax rates to 36 percent for certain high income taxpayers and adding a 10
percent surtax for certain higher income taxpayers, for a total possible nominal
marginal individual tax rate of 39.6 percent, (v) increasing the tax rate from
34 percent to 35 percent for highly profitable corporations, (vi) reducing the
deductible portion of meals and entertainment expenses from 80 percent to 50
percent, (vii) disallowing the deduction for compensation in excess of $1
million to individuals (unless linked to productivity), (viii) improving
compliance with the tax laws, (ix) initiating a broad-based tax on all types of
energy, including fuel oil, coal and natural gas, (x) creating a permanent small
business tax credit and a temporary marginal investment tax credit for all
qualifying tangible personal property investments, (xi) simplifying and
enhancing depreciation provisions for companies subject to the alternative
minimum tax, and (xii) providing relief from a portion of the gain from capital
gains tax for investors in small businesses.
The Internal Revenue Service ("IRS") has not yet issued regulations to
carry out numerous provisions enacted as part of the tax legislation passed
since 1986. Nor has the IRS addressed the issues relating to the application of
some of the new tax rules to partnerships or their partners. Until such
regulations are issued by the IRS, it is difficult to gauge what impact, if any,
such new legislation may have on entities such as the Partnership and its
partners.
ITEM 2. PROPERTIES
Recent Dispositions of Partnership Properties
No partnership properties were sold during the year ended December 31,
1995.
3
<PAGE> 6
ITEM 3. LEGAL PROCEEDINGS
On August 29, 1995, the Partnership instituted judicial foreclosure
proceedings against W & F Building Maintenance ("W & F"), who was in possession
of the property located at 4350 Warehouse Court in Sacramento, California. W & F
had defaulted on the Note in favor of the Partnership, and the Partnership
sought to enforce the terms of the Deed of Trust also in its favor. On August
31, 1995, the Court appointed a Receiver to operate and manage the property
during the pendency of the foreclosure. That appointment was subsequently
confirmed by the Court on September 11, 1995. Thus far, the receivership has
been in possession of the property, has been collecting rents, and has reported
to the court periodically. A Notice of Default was recorded on November 3, 1995.
Subsequent to year-end, the foreclosure action against W & F has been
resolved. A third party purchased the Note and Deed of Trust from the
Partnership, and all disputes, contentions and claims were released as between
the litigants to the foreclosure action. The Receivership was thereupon
terminated, and the foreclosure proceedings were suspended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
<PAGE> 7
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PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Partnership offered its Units to California residents from February
1986 until August 1987. There is no public trading market for the Units.
As of December 31, 1995, there were 1,641 record holders of Units.
There are no outstanding options or warrants to purchase, or securities
convertible into, Units. The Partnership has not entered into any agreements to
register any Units under the Securities Act of 1933.
The Partnership has paid the following distributions since its
inception:
<TABLE>
<CAPTION>
Aggregate Distribution Per
Record Date Distribution Limited Partner Unit
----------- ------------ --------------------
<S> <C> <C>
9/30/86 $ 23,301 None to $0.20
4/14/90 $399,937 $0.87
3/15/91 $459,698 $1.00
2/07/92 $459,698 $1.00
2/28/93 $1,149,245 $2.50
2/01/94 $459,698 $1.00
10/03/94 $2,413,414 $5.25
12/04/95 $114,924 $0.25
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for Commonwealth
Growth Fund II for the years ended December 31, 1995, 1994, 1993, 1992 and 1991.
The data should be read in conjunction with the other financial statements and
related notes included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 263,293 573,888 722,245 1,010,142 888,569
Net (loss) income(1)(2) $ 112,589 (448,106) 216,177 648,269 275,553
Total assets $3,702,944 3,705,279 7,101,276 8,152,268 7,978,129
Net (loss) income
per limited
partnership unit $.23 (.98) .40 1.34 .57
Cash distributions
per limited
partnership unit $.25 6.25 2.50 1.00 1.00
</TABLE>
(1) Includes net (loss) gain from disposal of rental properties and notes
receivable of $0, $(627,468), $(109,528) and $90,183 in 1995, 1994,
1993 and 1992, respectively.
(2) Includes valuation losses of $139,967 in 1991.
5
<PAGE> 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
From February 1986 to August 1987, the Partnership sold 459,698 Units
for $20.00 per Unit. The net proceeds from the sale of Units, after deducting
selling commissions and other costs of the offering, were $7,663,402. The
Partnership has met its liquidity needs through operating income, cash reserves,
borrowings collateralized by deeds of trust on its properties, unsecured
borrowing and collection of notes receivable. The Partnership has no unfunded
material commitments for 1996. The Partnership anticipates that operating income
and collection of notes receivable will be adequate to meet future liquidity
needs.
Results of Operations
1995 vs. 1994
Net income increased $560,695 from 1994 to 1995 due to the loss on
disposal of the Southland Park Drive property in October of 1994. The sale of
this property also attributed to the decrease from 1994 to 1995 in rental income
($182,662 or 98%), depreciation ($38,069 or 100%), and operating expenses
($231,044 or 92%). Interest income decreased $127,933 (33%) from 1994 to 1995 as
a result of the payoff of a note receivable in August of 1994. General and
administrative expenses increased $25,541 (24%) from 1994 to 1995 primarily due
to increased legal expenses relating to the foreclosure proceedings as discussed
in Item 3. Legal Proceedings.
1994 vs. 1993
Net income decreased $664,283 (159%) from 1993 to 1994 as a result of
the sale of 9700 Goethe Road in May of 1993 and the sale of Southland Park Drive
in October of 1994. The sale of these two properties also attributed to the
decrease from 1993 and 1994 in rental income ($231,083) and depreciation
($47,048). Operating expenses increased $1,932 (1%) from 1993 to 1994 due to
increased leasing expenses in connection with the leasing of 2,661 square feet
to two new tenants in July of 1994 at Southland Park Drive, increased note
receivable collection fees, and landscape renovation costs in August of 1994.
These increases were offset in part by decreased operating expenses resulting
from the sale of Southland Park Drive in October of 1994. Interest income
increased $82,726 (27%) as a result of notes receivable acquired through the
sale of 9700 Goethe Road in May of 1993 and the sale of Southland Park Drive in
October of 1994. General and administrative expenses increased $51,954 (98%)
from 1993 to 1994 primarily due to increased accounting and consulting &
appraisal costs.
6
<PAGE> 9
Future Operations
The Partnership is no longer investing or reinvesting in real property
investments, however, it is continuing to improve the investments it already
owns. Although the Partnership Agreement permits reinvestment of proceeds from
dispositions of Partnerships properties, the Partnership has determined not to
reinvest such proceeds except to the extent necessary to protect Partnership
assets. Accordingly, the Partnership is now in an operations and liquidation
phase. Proceeds from the disposition of any of the Partnership's assets will be
distributed to partners.
Impact of Inflation
The Partnership's operations have not been materially affected by
inflation. The rate of inflation has been relatively low since the Partnership
commenced operations in May 1986.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Independent Auditors' Report 8
Balance Sheets
December 31, 1995 and 1994 9
Statements of Income
Years Ended December 31, 1995, 1994 and 1993 10
Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 11
Statements of Partners' Equity
Years Ended December 31, 1995, 1994 and 1993 12
Notes to Financial Statements 13-16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
<PAGE> 10
[WARNER M.MEYER LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
The Partners
Commonwealth Growth Fund II:
We have audited the accompanying balance sheet of Commonwealth Growth Fund II
as of December 31, 1995 and the related statements of operations, partners'
equity and cash flows for the year then ended. In connection with our audit of
the financial statements, we also have audited the accompanying financial
statement schedules as listed in the accompanying index. These financial
statements and financial statement schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audit.
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 the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Commonwealth Growth Fund II at
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, presently fairly, in all
material respects, the information set forth therein.
/s/ WARNER M. MEYER
March 31, 1996
<PAGE> 11
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
ASSETS
Land $ 160,000 160,000
Notes receivable 3,019,038 3,054,869
Cash 438,182 430,596
Other assets 85,724 59,814
----------- ---------
Total assets $ 3,702,944 3,705,279
=========== =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 6,049 --
Deferred gain 69,739 69,739
----------- ---------
Total liabilities 75,788 69,739
----------- ---------
Partners' Equity:
General partners' equity (37,505) (37,086)
Limited partners' equity; authorized 1,000,000 units;
issued and outstanding 459,698 in 1994 and 1993 3,664,661 3,672,626
----------- ---------
Total partners' equity 3,627,156 3,635,540
----------- ---------
Total liabilities and partners' equity $ 3,702,944 3,705,279
=========== =========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 12
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Rental income $ 3,192 185,854 416,937
Expenses:
Operating expenses 20,411 251,455 249,523
Interest -- 250 9,102
Depreciation and amortization -- 38,069 85,117
--------- -------- --------
(Loss) income from rental operations (17,219) (103,920) 73,195
Interest income 260,101 388,034 305,308
General and administrative expenses 130,293 104,752 52,798
--------- -------- --------
Net income before loss on
sale of rental properties 112,589 179,362 325,705
Loss on disposal of rental properties and
notes receivable -- (627,468) (109,528)
--------- -------- --------
Net income (loss) 112,589 (448,106) 216,177
Allocated to general partners 5,630 2,693 31,306
--------- -------- --------
Allocated to limited partners $ 106,959 (450,799) 184,871
========= ======== ========
Net income (loss) per Limited Partnership unit $ 0.23 (0.98) 0.40
========= ======== ========
</TABLE>
See accompanying notes to financial statements.
10
<PAGE> 13
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 112,589 (448,108) 216,177
--------- ---------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization -- 38,070 85,117
Loss on disposal of rental properties and
notes receivable -- 627,468 109,528
Changes in other assets and liabilities:
(Increase) decrease in other assets (25,910) 51,462 20,005
Increase (decrease) in accounts payable and
accrued expenses 6,049 (1,799) (44,626)
Decrease in security deposits -- (14,630) (7,580)
--------- ---------- ----------
Total adjustments to net income (19,861) 700,571 162,444
--------- ---------- ----------
Net cash provided by operating activities 92,728 252,463 378,621
--------- ---------- ----------
Cash flows from investing activities:
Purchases of and improvements to rental properties -- (131,007) (82,234)
Proceeds from the sale of rental properties -- 1,306,000 495,817
Acquisition of properties -- (160,000) --
Investment in notes receivable -- (1,096,000) --
Collections on notes receivable 35,831 2,294,887 5,816
--------- ---------- ----------
Net cash provided by investing activities 35,831 2,213,880 419,399
--------- ---------- ----------
Cash flows from financing activities:
Distributions to partners (120,973) (2,931,460) (1,180,861)
--------- ---------- ----------
Net cash used by financing activities (120,973) (2,931,460) (1,180,861)
--------- ---------- ----------
Net increase (decrease) in cash 7,586 (465,117) (382,841)
Cash, beginning of year 430,596 895,713 1,278,554
--------- ---------- ----------
Cash, end of year $ 438,182 430,596 895,713
========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE> 14
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1992 $ 18,879 7,960,912 7,979,791
Net income 31,306 184,872 216,178
-------- ---------- ----------
Distributions (31,616) (1,149,245) (1,180,861)
Balance at December 31, 1993 18,569 6,996,539 7,015,108
Net loss 2,693 (450,801) (448,108)
Distributions (58,349) (2,873,112) (2,931,461)
-------- ---------- ----------
Balance at December 31, 1994 (37,087) 3,672,626 3,635,539
Net income 5,630 106,959 112,589
Distributions (6,049) (114,924) (120,973)
-------- ---------- ----------
Balance at December 31, 1995 $(37,506) 3,664,661 3,627,155
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 15
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND PARTNERSHIP AGREEMENT
Commonwealth Growth Fund II (the Partnership) is a Limited Partnership organized
under the laws of the State of California to acquire, hold for investment, and
ultimately sell real property investments. The Partnership was organized in
December 1985 and commenced operations in May 1986 when subscription for the
minimum of 58,825 ($1,176,500) Limited Partnership units (Units) had been
obtained. The Managing General Partner is B&B Property Investment, Development
and Management Company, Inc., a California corporation (B&B), and Jeffrey B.
Berger is the Individual General Partner. Each general partner made an initial
capital contribution of $5,000.
Profits, losses and cash distributions from operations for financial and income
tax reporting purposes are allocated 5% to the General Partners and 95% to the
Limited Partners. Profits, losses and cash distributions from sale or
refinancing of Partnership properties are allocated in accordance with the
Partnership Agreement.
(b) BASIS OF PRESENTATION
The Partnership prepares its financial statements in accordance with generally
accepted accounting principles. Accordingly, revenues are recognized when earned
and expenses are recognized when incurred.
(c) RENTAL PROPERTIES
Rental properties are stated at cost less accumulated depreciation. Depreciation
is computed on the straight-line method over the estimated useful lives of the
rental properties which is 31 years. The cost of maintenance and repairs is
expensed as incurred; significant improvements are capitalized.
13
<PAGE> 16
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(d) NET INCOME PER LIMITED PARTNERSHIP UNIT
The net income per Limited Partnership unit is computed based on the weighted
average number of Units outstanding during the year. The weighted average number
of units were 459,698 for 1995, 1994, and 1993.
(e) INCOME TAXES
A provision for federal and state income taxes is not included in the
accompanying financial statements because the Partnerships' income, deductions,
credits and other items are allocated to the individual partners for inclusion
in their income tax returns.
(f) LEASING COMMISSIONS AND LOAN FEES
Leasing commissions and loan fees paid are included in other assets. Leasing
commissions are amortized over the lease term and loan fees are amortized over
the term of the loan using the straight-line method.
(g) SALES OF REAL ESTATE
The Partnership complies with the provisions of Financial Accounting Standards
Board Statement No. 66, "Accounting for Sales of Real Estate." Accordingly, the
recognition of gains on certain transactions are deferred until such
transactions have complied with the criteria for full profit recognition under
the statement.
(2) TRANSACTIONS WITH THE MANAGING GENERAL PARTNER
The Managing General Partner is entitled to receive a 3% fee on a sale of
Partnership property provided all Limited Partners have received distributions
equal to their original capital contributions plus a 6% cumulative return.
Property management responsibilities of the Partnership are provided by B&B
Property Investments, Inc. (B&B Property), a wholly-owned subsidiary of B&B.
Property management fees were $12,957, $31,505 and $27,997 for 1995, 1994 and
1993, respectively.
14
<PAGE> 17
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(3) RENTAL PROPERTIES
At December 31, 1995 and 1994, respectively, the Partnership had no investments
in rental properties.
(4) NOTES RECEIVABLE
The Partnership has invested in a variety of notes collateralized by deeds of
trust. Generally, the notes are collateralized by properties in California.
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ---------
<S> <C> <C>
Note receivable, interest at 10% per
annum payable monthly, principal due
and payable October, 1996, collateralized
by a first deed of trust $ 358,869 358,869
Note receivable, interest at 10% per
annum payable monthly, principal due
and payable October, 1992, collateralized
by a first deed of trust. Note has been
paid as of February 14, 1996 1,564,169 1,600,000
Note receivable, interest at 8.5% per
annum payable monthly, principal due
and payable October, 2001, collateralized
by a first deed of trust 1,096,000 1,096,000
---------- ---------
$3,019,038 3,054,869
========== =========
</TABLE>
15
<PAGE> 18
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(5) RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING
A reconciliation of the financial statement method of accounting to the income
tax method of accounting is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Net income - financial $ 112,589 (448,108) 216,177
Increases (reductions) to taxable
income resulted from:
Tax gain (loss) in excess of book
from gain on sale of properties -- 33,268 8,510
Accelerated depreciation -- -- --
----------- ---------- ----------
Net income - income tax method $ 112,589 (414,840) 224,687
=========== ========== ==========
Taxable income per Limited Partnership
Unit after giving effect to the
taxable income allocated to the
general partner $ .23 (.90) .40
=========== ========== ==========
Partners' equity $ 3,627,156 3,635,539 7,015,108
Increases (reductions) resulting from:
Tax gain in excess of book gain on
sale of properties 547,158 547,158 513,890
Nondeductible valuation losses and
reserves 153,783 153,783 153,783
Accelerated depreciation (51,443) (51,443) (51,443)
Selling expenses for Partnership
units 1,530,546 1,530,546 1,530,546
----------- ---------- ----------
Partners' equity - income tax method $ 5,807,200 5,815,583 9,161,884
=========== ========== ==========
</TABLE>
(6) STATEMENTS OF CASH FLOWS SUPPLEMENTARY INFORMATION
None.
16
<PAGE> 19
- --------------------------------------------------------------------------------
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Management of the Partnership
The Managing General Partner has exclusive management and control of
the affairs of the Partnership and has general responsibility for and final
authority in all matters affecting the Partnership's business. In order to
protect the limited partners from personal liability as general partners, the
limited partners have no right to participate in management or control of the
Partnership's business or affairs other than to exercise limited voting rights
as provided in the Partnership Agreement. Historically, the Managing General
Partner's specific responsibilities have included (1) locating and evaluating
properties suitable for investment; (2) negotiating and entering into agreements
on behalf of the Partnership with respect to the acquisition, development and
disposition of such properties; and (3) operating the properties owned by the
Partnership. The Managing General Partner determines, based upon a regular
review of available financing and of the real estate markets in the areas in
which the Partnership's properties are located and elsewhere, whether or not and
at what time it is in the best interests of the Partnership to sell or refinance
properties. At such time as the Managing General Partner determines to sell or
refinance a property, it may employ others, including its affiliates, to locate
potential purchasers or lenders and otherwise assist in the sale or refinancing.
By executing the Subscription Agreement and the Partnership Agreement,
limited partners granted the Managing General Partner the right to admit, in its
sole discretion without further concurrence of the limited partners, any person,
including any affiliate, as an additional general partner of the Partnership so
long as such action does not increase the interest of the General Partners as a
group or the fees, commissions and other payments to the General Partners as a
group over the amounts provided for in the Partnership Agreement.
The officers and directors of the Managing General Partner are as
follows:
<TABLE>
<CAPTION>
Served as Officer
Name Age Position or Director Since
- ---- --- -------- -----------------
<S> <C> <C> <C>
Jeffrey B. Berger 43 Chairman of the 1976
Board and President
</TABLE>
17
<PAGE> 20
Resumes of Managing General Partner's Key Management
The following is a brief description of the background and experience
of the officers and directors of the Managing General Partner:
Jeffrey B. Berger. Mr. Berger is the Chairman of the Board of Directors
of the Managing General Partner and the individual General Partner of the
Partnership. He was President of the Managing General Partner from 1976 until
1990 and from 1992 to date. Mr. Berger has over 22 years of experience in real
estate and business management and marketing. Mr. Berger served as Chairman of
the Board of Trustees of Commonwealth Equity Trust USA, a California real estate
investment trust ("CET USA") from 1986 to 1991, as Chairman of the Board of
Trustees of Cal REIT from 1988 to 1991 and as Chairman of the Board of Director
of BBR from 1988 to 1991. Mr. Berger also formerly was President and Chairman of
the Board of Directors of The B.B. Real Estate Investment Corporation ("B.B.
Real Estate"), a majority owned subsidiary of CET, which merged with and into
Cal REIT in July 1989. Mr. Berger holds a B.A. degree from the University of
California at Davis and a J.D. degree from Western State University College of
Law. He is a member of the State Bar of California and the American Bar
Association.
The business address of each of the foregoing persons is in care of the
Managing General Partner.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any employees. The Partnership's business
is conducted by the Managing General Partner, which is entitled to acquisition
fees, property management fees, sales fees, placement fees, a subordinated
incentive fee and an interest in the Partnership. All of such fees are provided
for in Article 6 of the Partnership Agreement. The Managing General Partner's
fees totalled $12,957 in 1995.
In addition, the General Partners are entitled to be reimbursed for
out-of-pocket expenses incurred on behalf of the Partnership and paid to
non-affiliated persons. To partially defray the direct costs to the Managing
General Partner of performing administrative and transfer agency services for
the Partnership, including non-supervisory salaries incurred in performing such
services for the Partnership and salaries for those who perform services for the
Partnership which could be performed by independent parties, such as legal,
accounting, transfer agent, partner relations, data processing, duplicating, tax
return preparation and reporting services, the Partnership advanced 5% of the
gross proceeds of the offering of the Units to the Managing General Partner
during the offering period.
18
<PAGE> 21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No executive officer or director of the Managing General Partner owns
any Units. The Managing General Partner and Mr. Berger each contributed $5,000
to Partnership capital accounts; however, no securities were issued in respect
thereof. No person is known to the Partnership to own beneficially more than 5%
of the Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
19
<PAGE> 22
- --------------------------------------------------------------------------------
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Page
----
Independent Auditors' Report 8
Balance Sheets
December 31, 1995 and 1994 9
Statements of Operations
Years ended December 31, 1995, 1994 and 1993 10
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993 11
Statements of Partners' Equity
Years ended December 31, 1995, 1994 and 1993 12
Notes to Financial Statements 13-16
(a) (2) Financial Statement Schedules
Schedule X Supplementary Income Statement
Information 23
Schedule XI Real Estate and Accumulated
Depreciation 24-25
Schedule XII Mortgage Loans on Real Estate 26-27
The statements and schedules referred to above should be read in conjunction
with the financial statements and notes to financial statements included in Part
II of this Form 10-K. Schedules not included in this item have been omitted
because they are not applicable or because the required information is presented
in the financial statements or notes thereto.
20
<PAGE> 23
(a) (3) List of Exhibits
Item Number Description
3 Second Amended and Restated Agreement of Limited
Partnership of Commonwealth Growth Fund II (previously
filed with the Commission as Exhibit 3.0 to the
Partnership's Form 10-K for the year ended December 31,
1987 and incorporated herein by reference)
4 See Sections 5, 7, 8 and 9 of Exhibit 3
10.1 Purchase and Sale Agreement for 700 University Avenue
dated January 6, 1989 by and between Commonwealth Growth
Fund II, as seller, and Max H. Hoseit, as buyer
(previously filed with the Commission as Exhibit 10 to the
Partnership's Form 10-K for the year ended December 31,
1988 and incorporated herein by reference)
10.2 Real Estate Purchase Contract and Deposit Receipt for
Warehouse Court dated July 31, 1989 by and between
Commonwealth Growth Fund II, as seller, and Joseph H. and
Nancy B. Pierce and W. & F. Building Maintenance Company,
Inc., as buyers (previously filed with the Commission as
Exhibit 10.2 to the Partnership's Form 10-K for the year
ended December 31, 1989 and incorporated herein by
reference)
10.3 Purchase and Sale Agreement for 7200 Southland Park Drive
dated July 27, 1989 by and between Commonwealth Growth
Fund II, as seller, and Andrew M. Hazen, as buyer
(previously filed with the Commission as Exhibit 10.3 to
the Partnership's Form 10-K for the year ended December
31, 1989 and incorporated herein by reference)
10.4 Purchase and Sale Agreement for 715-735 University Avenue
dated March 30, 1989 by and between Commonwealth Growth
Fund II, as seller, and David Pick, as buyer (without
exhibits) (previously filed with the Commission as Exhibit
10.4 to the Partnership's Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference)
21
<PAGE> 24
10.5 Purchase and Sale Agreement for 4210 Roseville Road dated
May 18, 1992 by and between Commonwealth Growth Fund II,
as seller, and John and Marian Fox, as buyer (without
exhibits) (previously filed with the Commission as Exhibit
10.5 to the Partnership's Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference)
10.6 Purchase and Sale Agreement for 9700 Goethe Road dated
April 12, 1993 by and between Commonwealth Growth Fund II,
as seller, and Steve Gold and Howard Goldenberg, as buyers
(previously filed with the Commission as Exhibit 10.6 to
the Partnership's Form 10-K for the year ended December
31, 1993 and incorporated herein by reference)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
22
<PAGE> 25
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE X - SUPPLEMENTARY STATEMENT OF INCOME INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
ITEM YEARS ENDED DECEMBER 31,
- ------------------------ ----------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Real estate taxes $2,342 14,243 46,890
Repairs and maintenance -- 7,709 35,324
</TABLE>
23
<PAGE> 26
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
- ----------------------------- ------------ ---------------------------- ----------------------------
COST CAPITALIZATION
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO ACQUISITION
---------------------------- ----------------------------
BUILDINGS,
IMPROVEMENTS,
AND PERSONAL
DESCRIPTION ENCUMBRANCES LAND PROPERTY IMPROVEMENTS CARRYING COST
- ----------------------------- ------------ -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
LAND:
Sunrise Blvd. & Whiterock Rd.
Sacramento, California None $160,000 -- -- --
<CAPTION>
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
- ----------------------------- ------------------------------------ ------------ ------------ -------- ----------------
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF PERIOD LIFE ON WHICH
------------------------------------ DEPRECIATION IN
LATEST STATEMENT
BUILDINGS AND ACCUMULATED DATE OF DATE OF INCOME IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
- ----------------------------- ------- ------------- ------- ------------ ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
LAND:
Sunrise Blvd. & Whiterock Rd.
Sacramento, California 160,000 -- 160,000 -- -- 10/94 n/a
</TABLE>
24
<PAGE> 27
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
- --------------------------------------------------------------------------------
Reconciliation of total real estate carrying values for the three years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
ASSET RECONCILIATION:
Balance, beginning of year $160,000 1,940,958 5,378,708
Additions:
Cost of real estate acquired -- 160,000 --
Deletions:
Cost of properties sold -- (1,940,958) (3,437,750)
-------- ---------- ----------
Balance, end of year $160,000 160,000 1,940,958
======== ========== ==========
ACCUMULATED DEPRECIATION RECONCILIATION:
Balance, beginning of year $ -- 309,724 627,477
Additions:
Depreciation -- 38,069 85,117
Deletions:
Accumulated depreciation on
properties sold -- (347,793) (402,870)
-------- ---------- ----------
Balance, end of year $ 0 0 309,724
======== ========== ==========
</TABLE>
25
<PAGE> 28
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (NOTES RECEIVABLE COLLATERALIZED
BY DEEDS OF TRUST)
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
- -------------------------- -------- -------- -------------------------- -------- ----------- ---------- ---------------------
CARRYING PRINCIPAL AMOUNT OF
FINAL FACE AMOUNT AMOUNT OF LOAN SUBJECT TO
INTEREST MATURITY PRIOR OF NOTE NOTE DELINQUENT PRINCIPAL
DESCRIPTION RATE DATE PERIODIC PAYMENT TERMS LIENS RECEIVABLE RECEIVABLE OR INTEREST
- -------------------------- -------- -------- -------------------------- ----- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Warehouse/office 10.00% 1992 Monthly payments amortized - $1,600,000 1,564,169 1,564,169
Sacramento, California over 36 months
Office building 10.00% 1996 Monthly interest payments - 358,869 358,869 None
Sacramento, California only
Commercial building 8.50% 2001 Monthly interest payments - 1,096,000 1,096,000 None
Sacramento, California only
---------- --------- ---------
$3,054,869 3,019,038 1,564,169
========== ========= =========
</TABLE>
26
<PAGE> 29
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
(NOTES RECEIVABLE COLLATERALIZED BY DEEDS OF TRUST)
- --------------------------------------------------------------------------------
A summary of activity for notes receivable collateralized by deeds of trust for
the three years ended December 31, 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 3,054,869 4,453,052 1,958,869
Additions:
New loans -- 1,096,000 2,500,000
Deletions:
Collections of principal (35,831) (2,494,183) (5,817)
----------- ---------- ----------
BALANCE, END OF YEAR $ 3,019,038 3,054,869 4,453,052
=========== ========== ==========
</TABLE>
27
<PAGE> 30
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.
COMMONWEALTH GROWTH FUND II, a
California Limited Partnership
Dated: April 1, 1996 By: /s/ Jeffrey B. Berger
--------------------------------------
Jeffrey B. Berger, General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
COMMONWEALTH GROWTH FUND II, a
California Limited Partnership
By: B & B Property Investment,
Development and Management Company,
Inc., Its General Partner
Dated: April 1, 1996 /s/ Jeffrey B. Berger
------------------------------------
Jeffrey B. Berger, Chairman of the
Board of Directors and President
By: Jeffrey B. Berger,
Its Individual General Partner
Dated: April 1, 1996 /s/ Jeffrey B. Berger
------------------------------------
Jeffrey B. Berger
28
<PAGE> 31
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
EXHIBIT INDEX
For
COMMONWEALTH GROWTH FUND II
EXHIBIT INDEX
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
3 Second Amended and Restated Agreement of N/A
Limited Partnership of Commonwealth Growth
Fund II (previously filed with the
Commission as Exhibit 3.0 to the
Partnership's Form 10-K for the year ended
December 31, 1987 and incorporated herein
by reference)
4 See Sections 5, 7, 8 and 9 of Exhibit 3 N/A
10.1 Purchase and Sale Agreement for 700 N/A
University Avenue dated January 6, 1989 by
and between Commonwealth Growth II, as
Seller, and Max H. Hoseit, as Buyer
(previously filed with the Commission as
Exhibit 10 to the Partnership's Form 10-K
for the year ended December 31, 1988 and
incorporated herein by reference)
10.2 Real Estate Purchase Contract and Deposit N/A
Receipt for Warehouse Court dated July 31,
1989 by and between Commonwealth Growth
Fund II, as seller, and Joseph H. and Nancy
B. Pierce and W. & F. Maintenance Company,
Inc., as buyers (previously filed with the
Commission as Exhibit 10.2 to the
Partnership's Form 10-K for the year ended
December 31, 1989 and incorporated herein
by reference)
10.3 Purchase and Sale Agreement for 7200 N/A
Southland Park Drive dated July 27, 1989 by
and between Commonwealth Growth Fund II as
seller, and Andrew M. Hazen, as buyer
(previously filed with the Commission as
Exhibit 10.3 to the Partnership's Form 10-K
for the year ended December 31, 1989 and
incorporated herein by reference)
29
<PAGE> 32
10.4 Purchase and Sale Agreement for 715-735 N/A
University Avenue dated March 31, 1989 by
and between Commonwealth Growth Fund II, as
seller, and David Pick, as buyer (without
exhibits) (previously filed with the
Commission as Exhibit 10.4 to the
Partnership's Form 10-K for the year ended
December 31, 1989 and incorporated herein
by reference)
10.5 Purchase and Sale Agreement for 4210 N/A
Roseville Road dated May 18, 1992 by and
between Commonwealth Growth Fund II, as
seller, and John and Marian Fox, as buyer
(without exhibits) (previously filed with
the Commission as Exhibit 10.5 to the
Partnership's Form 10-K for the year ended
December 31, 1992 and incorporated herein
by reference)
10.6 Purchase and Sale Agreement for 9700 Goethe N/A
Road dated April 12, 1993 by and between
Commonwealth Growth Fund II, as seller, and
Steve Gold and Howard Goldenberg, as buyers
(previously filed with Commission as Exhibit
10.6 to the Partnership's Form 10-K for the
year ended December 31, 1993 and incorporated
herein by reference)
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1995 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
1995 10-K.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 438,182
<SECURITIES> 0
<RECEIVABLES> 3,019,038
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,542,944
<PP&E> 160,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,702,944
<CURRENT-LIABILITIES> 75,788
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,627,156
<TOTAL-LIABILITY-AND-EQUITY> 3,702,944
<SALES> 0
<TOTAL-REVENUES> 263,293
<CGS> 0
<TOTAL-COSTS> 20,411
<OTHER-EXPENSES> 130,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 112,589
<INCOME-TAX> 0
<INCOME-CONTINUING> 112,589
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,589
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
