<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, 1997
------------------------------------
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)
<TABLE>
<CAPTION>
California 68-0088748
---------- ----------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
705 University Ave., Sacramento, California 95825
------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (916) 929-5433
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ------------------------
<S> <C>
NONE NONE
</TABLE>
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 December 31, 1997, was
$9,193,960.(1)
The number of Units outstanding at December 31, 1997 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.
<PAGE> 2
COMMONWEALTH GROWTH FUND II
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
i
<PAGE> 3
- --------------------------------------------------------------------------------
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, 1997, no real property investments
were sold.
At December 31, 1997, 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: 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rental income 0% 0% 1%
Interest income 100% 100% 99%
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. 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 Taxpayer Relief Act of 1997
made significant changes to tax rates and holding periods relating to capital
assets held by individuals.
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,
1997.
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.
On February 14, 1996 the Note was paid off at a discount resulting in a
loss to the partnership in the amount of $150,148.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
4
<PAGE> 7
- --------------------------------------------------------------------------------
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, 1997, there were 1,632 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
04/30/96 $1,608,942 $3.50
02/12/97 $ 298,804 $0.65
10/15/97 $ 298,804 $0.65
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for Commonwealth Growth
Fund II for the years ended December 31, 1997, 1996, 1995, 1994, and 1993. The
data should be read in conjunction with the other financial statements and
related notes included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended
--------------------------------------------------------------------------------------
12/31/97 12/31/96 12/31/95 12/31/94 12/31/93
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues $ 123,351 175,347 263,293 573,888 722,245
Net (loss) income(1)(2) $ (44,518) (128,259) 112,589 (448,106) 216,177
Total assets $ 1,365,373 2,024,991 3,702,944 3,705,279 7,101,276
Net (loss) income
per limited
partnership unit $ (.09) (.27) .23 (.98) .40
Cash distributions
per limited
partnership unit $ 1.30 3.50 .25 6.25 2.50
</TABLE>
(1) Includes net (loss) gain from disposal of rental properties and notes
receivable of $(150,148), $0, $(627,468), and $(109,528) in 1996, 1995,
1994, and 1993, respectively.
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 1998. The Partnership anticipates that operating income
and collection of notes receivable will be adequate to meet future liquidity
needs.
Results of Operations
1997 vs. 1996
Net loss decreased by $45,415 from 1996 to 1997 as a result of the
following: Interest income decreased by $51,997 due to the payment of the Pick
Note in full and from less cash held in bank accounts. As the Pick Note was
redeemed at face value, the Partnership did not experience a gain or loss on the
transaction. General and administrative expenses increased by $52,736, however,
$39,553 of this increase was attributable to a one time adjustment to
administrative expenses incurred by the general partners in prior years.
1996 vs. 1995
Net income decreased $228,853 from 1995 to 1996 as a result of the
following: Net rental income decreased by $3,192 and net rental expenses
decreased by $20,411 due to the final disposal of rental property in 1995. The
Partnership incurred a loss of $150,148 on the disposal of the Pierce note after
finalization and termination of the bankruptcy proceedings surrounding this
asset. Interest income decreased by $84,804 from 1995 to 1996 also due to the
disposal of the Pierce note. General and administrative expenses increased by
$23,165 from 1995 to 1996; however $38,326 of this increase was attributable to
a one-time adjustment to accrue expenses incurred by the General Partners in
prior years but which had not yet been repaid.
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.
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 8
Balance Sheets
December 31, 1997 and 1996 9
Statements of Income
Years Ended December 31, 1997, 1996 and 1995 10
Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995 11
Statements of Partners' Equity
Years Ended December 31, 1997, 1996 and 1995 12
Notes to Financial Statements 13-16
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
7
<PAGE> 10
[DONALD 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, 1997 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997, 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, present fairly, in all material
respects, the information set forth therein.
/s/ DONALD M. MEYER
Donald M. Meyer, CPA
March 31, 1998
8
<PAGE> 11
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Land $ 160,000 160,000
Notes receivable 1,096,000 1,454,869
Cash 97,727 364,874
Other assets 11,645 45,198
----------- -----------
Total assets $ 1,365,372 2,024,941
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 5,002 43,224
Deferred gain 69,739 69,739
----------- -----------
Total liabilities 74,741 112,963
----------- -----------
Partners' Equity:
General partners' equity (3,265) (21,847)
Limited partners' equity; authorized 1,000,000 units;
issued and outstanding 459,698 in 1996 and 1994 1,293,896 1,933,825
----------- -----------
Total partners' equity 1,290,631 1,911,978
----------- -----------
Total liabilities and partners' equity $ 1,365,372 2,024,941
=========== ===========
</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, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Rental income $ -- -- 3,192
Expenses:
Operating expenses -- -- 20,411
Interest -- -- --
Depreciation and amortization -- -- --
--------- --------- ---------
(Loss) income from rental operations -- -- (17,219)
Interest income 123,350 175,297 260,101
General and administrative expenses 167,868 153,458 130,293
--------- --------- ---------
Net income before loss on
sale of rental properties (44,518) 21,839 112,589
Loss on disposal of rental properties and
notes receivable -- (150,148) --
--------- --------- ---------
Net income (loss) (44,518) (128,309) 112,589
Allocated to general partners (2,226) (6,415) 5,630
--------- --------- ---------
Allocated to limited partners $ (42,292) (121,894) 106,959
========= ========= =========
Net income (loss) per Limited Partnership unit $ (0.09) (0.27) 0.23
========= ========= =========
</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, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (44,518) (128,309) 112,589
---------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization -- -- --
Loss on disposal of rental properties and
notes receivable -- 150,148 --
Changes in other assets and liabilities:
(Increase) decrease in other assets 33,553 40,525 (25,910)
Increase (decrease) in accounts payable and
accrued expenses (38,222) 37,175 6,049
Decrease in security deposits -- -- --
---------- ---------- ----------
Total adjustments to net income (4,669) 227,848 (19,861)
---------- ---------- ----------
Net cash provided by operating activities (49,187) 99,539 92,728
---------- ---------- ----------
Cash flows from investing activities:
Purchases of and improvements to rental properties -- -- --
Proceeds from the sale of rental properties -- -- --
Acquisition of properties -- -- --
Investment in notes receivable -- -- --
Collections on notes receivable 358,869 1,414,021 35,831
---------- ---------- ----------
Net cash provided by investing activities 358,869 1,414,021 35,831
---------- ---------- ----------
Cash flows from financing activities:
Distributions to partners (616,382) (1,625,194) (120,973)
---------- ---------- ----------
Contributions 39,553
Net cash used by financing activities (576,829) 38,326 (120,973)
---------- ---------- ----------
Net increase (decrease) in cash (267,147) (73,308) 7,586
Cash, beginning of year 364,874 438,182 430,596
---------- ---------- ----------
Cash, end of year $ 97,727 364,874 438,182
========== ========== ==========
</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, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
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
Net Loss (6,415) (121,894) (128,309)
Contributions 38,326 -- 38,326
Distributions (16,252) (1,608,942) (1,625,194)
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 $ (21,847) 1,933,825 1,911,978
---------- ---------- ----------
Net Loss (2,226) (42,292) (44,518)
Contributions 39,553 39,553
Distributions (18,745) (597,637) (616,382)
BALANCE AT DECEMBER 31, 1997 (3,265) 1,293,896 1,290,631
========== ========== ==========
</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, 1997, 1996 AND 1995
(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) 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 1997, 1996, and 1995.
According to Gemisys, Inc., the transfer agent, some transfers of units took
place. Source of the transfers appear to have been made to already existing unit
holders, thereby reducing the number of holders by four (4) from a total of 1637
to 1632.
13
<PAGE> 16
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(d) 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.
(e) 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.
(f) 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 $7,920, $11,222 and $12,957 for 1997, 1996 and
1995, respectively.
14
<PAGE> 17
COMMONWEALTH GROWTH FUND II
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(3) RENTAL PROPERTIES
At December 31, 1997, 1996 and 1995, 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,
-------------------------
1997 1996
---------- ----------
<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
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
---------- ----------
$1,096,000 1,454,869
========== ==========
</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>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income(loss) - financial $ (44,518) $ (128,309) $ (112,589)
Increases (reductions) to taxable
income resulted from:
Tax gain (loss) in excess of book
from gain on sale of properties -- 33,268
Accelerated depreciation -- -- --
----------- ----------- -----------
Net income(loss) - income tax method $ (44,518) (128,309) (79,321)
=========== =========== ===========
Taxable income per Limited Partnership
Unit after giving effect to the
taxable income allocated to the
general partner $ (.09) (.27) .23
=========== =========== ===========
Partners' equity $ 1,290,631 1,911,978 3,627,156
Increases (reductions) resulting from:
Tax gain in excess of book gain on
sale of properties 547,158 547,158 547,158
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 $ 3,470,675 4,092,022 5,807,200
=========== =========== ===========
</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 45 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 23 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 the foregoing person 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 $7,920 in 1997.
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
<TABLE>
<CAPTION>
(a) (1) Financial Statements Page
- ---------------------------- ----
<S> <C>
Independent Auditors' Report 8
Balance Sheets
December 31, 1997 and 1996 9
Statements of Operations
Years ended December 31, 1997, 1996 and 1995 10
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995 11
Statements of Partners' Equity
Years ended December 31, 1997, 1996 and 1995 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
</TABLE>
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
<TABLE>
<CAPTION>
Item Number Description
----------- -----------
<S> <C>
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)
</TABLE>
21
<PAGE> 24
<TABLE>
<S> <C>
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)
27 Financial Data Schedule
</TABLE>
(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,
- ----------------------- ----------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Real estate taxes $2,750 2,087 2,342
Repairs and maintenance -- -- --
</TABLE>
23
<PAGE> 26
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Cost Capitalization Gross Amount at Which
Initial Cost to Partnership Subsequent to Acquisition Carried at Close of Period
Buildings,
Improvements,
and Personal Buildings and
Description Encumbrances Land Property Improvements Carrying Cost Land Improvements
<S> <C> <C> <C> <C> <C> <C> <C>
LAND:
Sunrise Blvd. & Whiterock Rd
Sacramento, California None $160,000 -- -- -- 160,000 --
</TABLE>
<TABLE>
<CAPTION>
Column A Column F Column G Column H Column I
Life on Which
Depreciation in
Latest Statement
Accumulated Date of Date of Income is
Description Total Depreciation Construction Acquired Computed
<S> <C> <C> <C> <C> <C>
LAND:
Sunrise Blvd. & Whiterock Rd
Sacramento, California 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, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
ASSET RECONCILIATION:
BALANCE, BEGINNING OF YEAR $160,000 160,000 160,000
Additions:
Cost of real estate acquired -- -- --
Deletions:
Cost of properties sold -- -- --
-------- -------- --------
BALANCE, END OF YEAR $160,000 160,000 160,000
======== ======== ========
</TABLE>
25
<PAGE> 28
- --------------------------------------------------------------------------------
COMMONWEALTH GROWTH FUND II
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
(Notes Receivable Collateralized by Deeds of Trust)
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Final
Interest Maturity Prior
Description Rate Date Periodic Payment Terms Liens
<S> <C> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial building 8.50% 2001 Monthly interest payments only -
Sacramento, California
</TABLE>
<TABLE>
<CAPTION>
Column A Column F Column G Column H
Carrying Principal Amount of
Face Amount Amount of Loan Subject to
of Note Note Delinquent Principal
Description Receivable Receivable or Interest
<S> <C> <C> <C>
FIRST DEEDS OF TRUST:
Commercial building 1,096,000 1,096,000 None
Sacramento, California
$ 1,096,000 1,096,000 0
</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, 1997, 1996, and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 1,454,869 3,019,038 3,054,869
Additions:
New loans -- -- --
Deletions:
Collections of principal (358,869) (1,564,169) (35,831)
----------- ----------- -----------
BALANCE, END OF YEAR $ 1,096,000 1,454,869 3,019,038
=========== =========== ===========
</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 15, 1998 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 15, 1998 /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 15, 1998 /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
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Exhibit Numbered Page
- ------ ------- -------------
<S> <C> <C>
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)
</TABLE>
29
<PAGE> 32
<TABLE>
<S> <C> <C>
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)
27 Financial Data Schedule
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
1997 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 97,727
<SECURITIES> 0
<RECEIVABLES> 1,096,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,205,372
<PP&E> 160,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,365,372
<CURRENT-LIABILITIES> 74,741
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,290,631
<TOTAL-LIABILITY-AND-EQUITY> 1,365,372
<SALES> 0
<TOTAL-REVENUES> 123,350
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 167,868
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (44,518)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,518)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,518)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
