<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1995 0-15537
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter.)
CALIFORNIA 95-4061580
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
11340 W. OLYMPIC BOULEVARD, STE. 300
LOS ANGELES, CALIFORNIA 90064
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 479-4121
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
1
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PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
The business of Keystone Mortgage Fund II, A California Limited Partnership
(the "Partnership") was to make loans secured by deeds of trust on improved
commercial and industrial real properties. As of December 31, 1995, the
Partnership had one loan outstanding in the aggregate principal amount of
$1,538,433. No loans were made during the year ended December 31, 1995.
In 1990, the general partners informed the limited partners that all
principal repayments received by the Fund will be distributed to the limited
partners less required reserves. The limited partners were also informed that
the Fund will no longer repurchase units or make new loans.
2
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EMPLOYEES
The Partnership does not have any employees. Services are performed for
the Partnership by Keystone, for which it receives compensation as set forth in
the Partnership Agreement.
Item 2. PROPERTIES.
The fund occupies space leased by Keystone Mortgage Company, and pays no
rent.
Item 3. LEGAL PROCEEDINGS.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
None.
Item 6. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following table sets forth in tabular form, selected financial data for
the fiscal years 1995, 1994, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
Years Ended December 31st
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 284,771 $ 438,682 $ 556,401 $ 628,686 $ 800,237
Net (loss) Income (14,177) 318,290 473,843 537,114 706,442
Trust Deed Notes 1,469,193 2,950,898 5,356,524 5,438,206 5,973,565
Receivable, Net
Total Assets 2,656,315 4,183,487 6,465,549 6,465,307 6,972,856
Net (loss) income
attributable to
limited partners
per limited
partnership unit $(0.34) 7.60 11.31 12.83 16.99
</TABLE>
3
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The following table set forth in tabular form, distributions and
withdrawals for the fiscal years 1995, 1994, 1993, 1992, and 1991:
<TABLE>
<CAPTION>
Distributions
and Withdrawals 1995 1994 1993 1992 1991
- ---------------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
General Partners None None None $ 1,594 $ 4,761
Limited Partners $1,760,784 $2,598,372 $472,883 $1,043,556 $2,110,230
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES:
The portion of Partnership cash flow consisting of principal repayments is
being distributed to the limited partners less required reserves for operating
expenses. Excess cash flow is used to purchase short term investments and those
investments have maturities consistent with the timing of Partnership
distributions. The Fund will no longer repurchase units. Interest income, net
of Partnership expenses, is distributed to the Partners on a semi-annual basis.
However, the General partners have the right to retain up to 10% of Partnership
cash flow for the purpose of maintaining an adequate liquidity.
The Partnership's liquidity is primarily subject to the schedule of
maturities of Partnership loans and the extent of liquidity can therefore be
projected with reasonable accuracy. During 1995, the Partnership's working
capital decreased $1,740,411. Management believes the Partnership has
adequate working capital and cash reserves to carry on its business.
On a short term basis, the Partnership is able to generate adequate amounts
of cash to meet the Partnership's need for cash and contingencies through its
receipt of monthly principal and interest payment on mortgage loans and,
furthermore, as liquidity needs arise the Partnership may change the
frequency of cash distributions to Limited Partners.
4
<PAGE>
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
As of December 31, 1995, the Partnership had one loan with outstanding
principal aggregating $1,538,433 as compared to two loans totaling $3,021,838
at December 31, 1994. Loan payments were current for both years and the
Partnership has not experienced problems with delinquent payments nor
experienced any loss in connection with Partnership loans.
Partnership revenues decreased during 1995. The decrease in revenue in
1995 from the prior year was 35.1% as compared to a 21.2% decrease in 1994
from the prior year and was primarily due to the decrease of interest income
as a result of loan payoffs and distribution of capital to Limited Partners.
The Partnership's investment in trust deeds, net, decreased $2,405,626,
or 44.9% in 1995 from 1994 and decreased $1,424,105, or 48.3% in 1994 from
1993. Cash, cash equivalents and short-term investments decreased $34,064, or
2.8% in 1995 from 1994 and increased $142,166, or 13.3% in 1994 as compared
to 1993.
General and administrative expenses increased substantially, $254,113 in
1995 from 1994 due to the $249,000 charge for reimbursement of fund expenses
discussed below and decreased 50.6% in 1994 from 1993.
Prior to 1995, Keystone did not pass-through expenses that Keystone
Mortgage Company incurred relating to the operation of the Partnership as
allowed by the Partnership agreement. During 1995 Keystone made a decision to
charge the Partnership for such expenses from the inception of the
Partnership.
Servicing related expenses decreased 27.3% in 1995 from 1994 and
decreased 21.8% in 1994 from 1993.
The net income per Limited Partnership unit was determined by using a
weighted average of the number of units outstanding during the applicable
fiscal year. The Partnership had a loss of $0.34 per limited unit in 1995 and
the net income per limited partnership unit was $7.60 in 1994 or a 32.9%
decrease from the 1993 amount of $11.31.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to the financial statements of Keystone Mortgage Fund II is
included in Item 14.
5
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Financial Statements
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
The General Partners
Keystone Mortgage Fund II,
a California Limited Partnership:
We have audited the accompanying balance sheets of Keystone Mortgage Fund II, a
California Limited Partnership as of December 31, 1995 and 1994 and the related
statements of operations, partners' capital and cash flows for each of the years
in the three-year period ended December 31, 1995. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Keystone Mortgage Fund II, a
California Limited Partnership as of 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.
February 2, 1996
7
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 93,997 207,216
Short-term investments (market value of $1,085,049 in 1995 and
$1,009,412 in 1994) 1,083,120 1,003,965
Interest receivable on trust deed notes receivable 10,005 21,408
Current portion of trust deed notes receivable (note 4) 36,218 1,483,373
--------- ---------
Total current assets 1,223,340 2,715,962
Trust deed notes receivable, net (note 4) 1,432,975 1,467,525
--------- ---------
$ 2,656,315 4,183,487
--------- ---------
--------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other liabilities $ 641 1,852
Due to general partner (note 3) 249,000 --
--------- ---------
Total current liabilities 249,641 1,852
Partners' capital:
General partners (207,958) (207,816)
Limited partners - 41,459 units outstanding in 1995 and 1994,
respectively 2,614,632 4,389,451
--------- ---------
Net partners' capital 2,406,674 4,181,635
--------- ---------
$ 2,656,315 4,183,487
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue:
Interest on trust deed notes receivable $ 185,897 377,649 515,960
Investment income 98,874 61,033 40,441
--------------- --------------- ---------------
284,771 438,682 556,401
--------------- --------------- ---------------
Expenses:
Provision for losses on trust deed notes receivable
(note 4) -- 64,000 --
Servicing-related expenses (note 3) 30,761 42,318 54,086
General and administrative expenses (note 3) 268,187 14,074 28,472
--------------- --------------- ---------------
298,948 120,392 82,558
--------------- --------------- ---------------
Net (loss) income $ (14,177) 318,290 473,843
--------------- --------------- ---------------
--------------- --------------- ---------------
Weighted average number of limited partnership
units outstanding 41,459 41,459 41,459
--------------- --------------- ---------------
--------------- --------------- ---------------
Net (loss) income attributable to limited partners
per limited partnership unit $ (0.34) 7.60 11.31
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1992 $ (215,737) 6,676,494 6,460,757
Net income for 1993 4,738 469,105 473,843
Net distributions - $11.41 per limited partnership
unit -- (472,883) (472,883)
--------------- --------------- ---------------
Balance at December 31, 1993 (210,999) 6,672,716 6,461,717
Net income for 1994 3,183 315,107 318,290
Net distributions - $62.67 per limited partnership
unit -- (2,598,372) (2,598,372)
--------------- --------------- ---------------
Balance at December 31, 1994 (207,816) 4,389,451 4,181,635
Net loss for 1995 (142) (14,035) (14,177)
Net distributions - $42.47 per limited partnership
unit -- (1,760,784) (1,760,784)
--------------- --------------- ---------------
Balance at December 31, 1995 $ (207,958) 2,614,632 2,406,674
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA 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 (loss) income $ (14,177) 318,290 473,843
Amortization of net origination fees (1,700) (2,310) (9,320)
Changes in operating assets and liabilities:
Interest receivable on trust deeds 11,435 17,308 (8,406)
Accounts payable and other liabilities (1,211) (1,980) (718)
Due to general partner 249,000 -- --
Other assets -- 1,294 2,761
--------------- --------------- ---------------
Net cash provided by operating
activities 243,347 332,602 458,160
--------------- --------------- ---------------
Cash flows from investing activities:
Collection of trust deed notes receivable 1,483,373 2,407,936 91,002
Purchase of short-term investments (4,700,155) (3,400,965) --
Proceeds from maturities of short-term investments 4,621,000 2,397,000 394,933
--------------- --------------- ---------------
Net cash provided by investing
activities 1,404,218 1,403,971 485,935
--------------- --------------- ---------------
Cash flows used in financing activities -
distributons to partners (1,760,784) (2,598,372) (472,883)
--------------- --------------- ---------------
(Decrease) increase in cash and cash
equivalents (113,219) (861,799) 471,212
Cash and cash equivalents at beginning of year 207,216 1,069,015 597,803
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 93,997 207,216 1,069,015
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1995 and 1994
(1) ORGANIZATION AND PARTNERSHIP AGREEMENT
Keystone Mortgage Fund II, a California Limited Partnership (Fund II), was
formed on May 7, 1986 for the purpose of investing in short to
intermediate-term loans secured by deeds of trust on commercial and
industrial real property.
Profits and losses are generally allocated 1% to the general partners and
99% to the limited partners. To the extent property is obtained as
satisfaction of loan obligation, any net gain resulting from the sale of
such property, determined using cost before any previous write-downs, would
be allocated 24% to the general partners and 76% to the limited partners.
Distributions are allocated in the same manner as profits and losses except
that any distribution of principal repayments of trust deed notes
receivable are made 100% to the limited partners. Effective January 1,
1992, the partnership agreement was amended to allow for distributions to
the partners on a semiannual basis rather than on a quarterly basis.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Fund II considers all highly liquid investments with a maturity of three
months or less when purchased to be equivalent to cash.
SHORT-TERM INVESTMENTS
Fund II invests in various bank notes and U.S. government securities with
original maturities between three months and six months. Fund II accounts
for short-term investments under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," (SFAS 115). In accordance with SFAS 115, Fund II classifies
its investment in debt securities as held to maturity securities and such
short-term investments are stated at cost as the Fund intends to hold these
securities to maturity. At December 31, 1995 and 1994, short-term
investments consisted of U.S. government agency notes with remaining
maturities of less than five months. At December 31, 1995 and 1994, these
securities had an unrealized gain of $1,929 and $5,447, respectively, and
there were no unrealized losses.
USES OF ESTIMATES
Management of Fund II has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from these estimates.
12
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements, Continued
TRUST DEED NOTES RECEIVABLE
Trust deed notes receivable are accounted for under the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS 114), "Accounting
by Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." Under
SFAS 114, a loan is impaired when it is "probable" that a creditor will be
unable to collect all amounts due (i.e., both principal and interest)
according to the contractual terms of the loan agreement. The measurement
of impairment may be based on (1) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original effective
interest rate, (2) the observable market price of the impaired loan or (3)
the fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of
the impaired loan is recognized by recording a valuation allowance with a
corresponding charge to provision for loan losses.
ALLOWANCE FOR LOSSES ON TRUST DEED NOTES RECEIVABLE
An analysis of the collectibility of each trust deed note receivable is
performed by management on a regular basis. Management considers such
factors as current economic conditions and interest rates, the borrower's
ability to repay and repayment performance, probability of foreclosure and
estimated collateral values in determining any allowance need. Management
has provided a valuation allowance of $64,000 as of December 31, 1995 and
1994.
ORIGINATION FEES
Fees from the origination of trust deed notes receivable and certain direct
origination costs are recognized over the contractual life of such trust
deed notes receivable using methods which generally produce a level yield
on the unpaid loan balance.
INTEREST INCOME ON TRUST DEED NOTES RECEIVABLE
Interest income on trust deed notes receivable is accrued as it is earned.
Interest receivable which is deemed uncollectible is excluded from interest
income. Trust deed notes receivable are placed on nonaccrual status after
being delinquent 90 days. At December 31, 1995 and 1994, there were no
trust deed notes receivable on nonaccrual status.
INCOME TAXES
No Provision has been made for income taxes in the accompanying financial
statements, inasmuch as the liability for taxes arising from the
transactions of Fund II are the responsibility of the partners.
INCOME AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Net income and distributions per limited partnership unit are based on the
net income and distributions attributable to the limited partners and the
weighted average number of limited partnership units outstanding during
each period.
RECLASSIFICATIONS
Certain 1994 and 1993 balances have been reclassified to be consistent with
1995 presentation.
(3) RELATED PARTY TRANSACTIONS
The general partners of Fund II are Keystone Mortgage Company (managing
general partner), John P. Sullivan and Christopher E. Turner.
Messrs. Sullivan and Turner are officers/directors of Keystone Mortgage
Company. As compensation for servicing trust deed notes receivable,
Fund II pays an annual fee equal to 1/2 of 1% of the average outstanding
trust deed notes receivable principal balances, computed as of the end of
each month, to Keystone Mortgage Company. Servicing-related expenses
include approximately $10,000 in 1995, $20,000 in 1994 and $27,000 in 1993
of servicing fees paid to Keystone Mortgage Company.
Prior to 1995, Keystone Mortgage Company did not pass-through to Fund II
expenses that Keystone Mortgage Company incurred related to operation of
Fund II as allowed by Fund II's partnership agreement. During 1995,
Keystone Mortgage Company made a decision to charge Fund II for
reimbursement of such expenses incurred by Keystone Mortgage Company from
inception of Fund II and, accordingly, requested payment from Fund II. The
expense reimbursement totals $249,000 and is included in general and
administrative expenses for the year ended December 31, 1995 in the
accompanying statement of operations and in due to general partner in the
accompanying balance sheet as of December 31, 1995.
13
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements, Continued
(4) TRUST DEED NOTES RECEIVABLE
Trust deed notes receivable consist of the following at December 31:
<TABLE>
<CAPTION>
MONTHLY
PAYMENT,
INCLUDING
INTEREST 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
First trust deed on industrial building located in Paramount,
California, interest rate of 10.75%, repaid during 1995
$ 16,592 -- 1,449,254
First trust deed on industrial building located in Van Nuys,
California, interest rate, adjusted every six months at
2.65% plus 11th District monthly weighted average cost
of funds, due February 1, 1999 16,797 1,538,433 1,572,584
--------------- --------------- ---------------
---------------
1,538,433 3,021,838
Less current portion 36,218 1,483,373
Less net deferred origination fees 5,240 6,940
Less allowance for loss 64,000 64,000
--------------- ---------------
Net noncurrent trust deeds notes receivable $ 1,432,975 1,467,525
--------------- ---------------
--------------- ---------------
</TABLE>
<TABLE>
<CAPTION>
Minimum future payments of principal at December 31, 1994 are as follows:
<S> <C>
1996 $ 36,218
1997 39,732
1998 44,639
1999 and thereafter 1,417,844
---------------
$ 1,538,433
---------------
---------------
</TABLE>
(5) RECONCILIATION OF NET INCOME BETWEEN FINANCIAL
STATEMENTS AND PARTNERSHIP TAX RETURN (UNAUDITED)
The difference between the net income for financial reporting purposes and
the net income for Federal income tax purposes per the partnership tax
return is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Net (loss) income for financial reporting purposes $ (14,177) 318,290 473,843
Interest revenue on mortgage loans previously recognized
for tax purposes (1,700) (2,310) (9,320)
Provisions for losses on trust deed notes receivable -- 64,000 --
Other, net (23) 518 1,228
--------------- --------------- ---------------
Net (loss) income for Federal income tax
purposes $ (15,900) 380,498 465,751
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
14
<PAGE>
Item 9. CHANGES IN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVES OFFICERS.
The affairs of the Partnership are managed by the Managing General Partner,
Keystone Mortgage Company, and the Individual General Partners, John P. Sullivan
and Christopher E. Turner.
KEYSTONE MORTGAGE COMPANY
Keystone Mortgage Company, A California Corporation ("Keystone"), has been
engaged in the mortgage banking business since 1957. Keystone is a member of
the Mortgage Bankers Association of America, the California Mortgage Bankers
Association and the Southern California Mortgage Bankers Association. Keystone
originates and services real estate loans on behalf of more than ten national
life insurance companies, a savings bank, a commercial bank and various trust
funds. In addition, Keystone and certain officers have been, and continue to be
joint venture partners in the development of real estate with several of the
life insurance companies for which Keystone acts as a mortgage loan
correspondent. Keystone currently services a portfolio of loans in principal
amount in excess of $350,000,000 and has originated loans in original principal
amount in excess of $1,000,000,000 since its inception in 1957. Other
activities of Keystone include property management and the sale and leasing real
estate. Keystone is a licensed real estate broker in the State of California.
Keystone Mortgage Company is also the Managing General Partner of Keystone
Mortgage Fund, a California limited partnership.
DIRECTORS AND OFFICERS
The directors and executive officers of Keystone Mortgage Company are:
<TABLE>
<CAPTION>
DATE OF
NAME AGE TITLE APPT.
- ---- --- ----- -------
<S> <C> <C> <C>
John P. Sullivan 70 President and Chairman of the Board 1957
Christopher E. Turner 62 Executive Vice President and Director 1972
Ron N. Buchanan 49 Vice President 1978
15
<PAGE>
Sandra B. Coopersmith 57 Vice President 1975
Melinda F. Love 41 Vice President 1984
Norma Foster 56 Vice President 1986
John G. Sullivan 34 Vice President 1992
Mark G. Sullivan 39 Secretary 1984
Susan Kao 34 Chief Financial Officer 1990
</TABLE>
JOHN P. SULLIVAN has been in mortgage banking in California since 1953, and
since 1957, he has served as president of Keystone. He was a founding member of
American Real Estate Association, and has been a director of the Southern
California Mortgage Bankers Association, a member of the International Council
of Shopping Centers, and a member of the Executive Committee of the Southern
California Economic and Job Development Council of the Los Angeles Chamber of
Commerce. He has served as a director of a savings and loan association, a
lecturer at Stanford University and the School of Mortgage Banking at Michigan
State, and a lecturer on the subject of shopping center financing at the
University of California at Los Angeles.
CHRISTOPHER E. TURNER has been active in mortgage banking in California
since 1963, and since 1972, he has served as executive vice president of
Keystone. Prior to joining Keystone, Mr. Turner was employed at the University
of California at Los Angeles in the real estate research program where he worked
for three years as a graduate research economist after receiving his MBA degree.
He lectured on the subject of real estate appraising and investments at the
University of Southern California from 1967 to 1974 and lectured on the subject
of industrial real estate at the University of California at Los Angeles in 1974
and 1975 in the real estate extension program. Mr. Turner has also lectured at
the Schools of Mortgage Banking at Stanford University and Houston University.
He is a member of the American Industrial Real Estate Association and the Urban
Land Institute, the National Mortgage Bankers Association and the American
Society of Real Estate Counselors. He has also served on the research committee
of the National Mortgage Bankers Association and on the Board of Governors of
the American Industrial Real Estate Association.
RON N. BUCHANAN joined Keystone in 1972 and currently serves as vice
president. Prior to his association with Keystone, he was employed by Security
Pacific National Bank in the construction loan department. He is an active
member in the American Industrial Real Estate Association and has served on its
Board of Directors. Mr. Buchanan has been a lecturer in real estate finance in
the University of California at Los Angeles extension program since 1976.
SANDRA B. COOPERSMITH has been with Keystone since 1967. Her present
responsibilities include management of the loan closing and loan servicing
departments. For a year prior to her employment at Keystone, she was the
corporate treasurer of a Los
16
<PAGE>
Angeles-based mortgage banking company. She has also been a manager of the real
estate division of a Los Angeles-based financial institution, overseeing field
inspectors, loan officers, credit checkers and loan processors. She is a past
president and life member of the Los Angeles Escrow Association.
MELINDA F. LOVE has been with Keystone since 1978 and was appointed vice
president in 1984. Prior to joining Keystone, she was a mortgage analyst in the
real estate department of Farmers New World Life Insurance Company. She is an
active member in the American Industrial Real Estate Association, of which she
has served as affiliate representative on the Board of Directors; she is also a
member of the Southern California Mortgage Bankers Association of which she was
the 1988 co-chairman of the Income Property Roundtable Committee, the 1989
assistant treasurer, 1990 treasurer and serves as a Director for 1991.
NORMA FOSTER joined Keystone in 1980 and was appointed vice president in
late 1986. Ms. Foster currently serves as Business Manager for Keystone and in
addition to her administrative and management responsibilities handles limited
partnership accounting. Since 1962, Ms. Foster has been involved in
international banking, accounting and corporate administration. Ms. Foster
holds an MBA in management from University of California at Los Angeles.
JOHN G. SULLIVAN has been with Keystone since 1984 and was appointed
assistant vice president in 1987. He is an active member of the International
Council of Shopping Centers, American Industrial Real Estate Association, and
the Ventura county Economic Development Association. He holds a bachelors
degree in business economics from the University of California at Santa Barbara.
John G. Sullivan is not related to either John P. Sullivan, an Individual
General Partner, or Mark G. Sullivan.
MARK G. SULLIVAN has been the secretary of Keystone since early 1984. Mr.
Sullivan has experience in the analysis and development of commercial real
estate projects. He holds a bachelor degree in science and geology from the
University of California at Santa Barbara. He is the son of John P. Sullivan.
SUSAN KAO joined Keystone in 1990 as the chief financial officer. She is a
certified public accountant with a broad range of industry experience which
include residential and commercial real state, leisure time organizations -
restaurants and hotels and entertainment. In addition to her experiences in
public accounting, she has had extensive training in the review of corporate
operation and internal controls. Ms. Kao holds a bachelors of science in
accounting from Loyola Marymount University.
No director of executive officer of Keystone, within the preceding five
year period, has filed a petition under Federal Bankruptcy laws, or has been
convicted in a criminal
17
<PAGE>
proceeding or is named subject of a pending criminal proceeding.
Item 11. EXECUTIVE COMPENSATION.
Compensation for services rendered by the General Partners on behalf of the
Partnership for the fiscal years 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
Name of Individual Compensation Paid or Accrued Cash
or Group for Service Rendered in 1993 1994 1995 Bonus
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Keystone Mortgage Co. Loan Servicing Fees $27,000 $20,000 $10,000 None
John P. Sullivan Management Fees None None None None
Christopher E. Turner None None None None
</TABLE>
In addition, the General Partners of the Partnership are entitled to
receive certain cash distributions and allocations of taxable income or loss.
No such distributions or allocations were made for fiscal years 1993, 1994 or
1995.
As previously discussed, prior to 1995, Keystone did not pass expenses
that Keystone Mortgage Company incurred relating to the operation of the
Partnership as allowed by the Partnership agreement. During 1995 Keystone
made a decision to charge the Partnership for such expenses from the
inception of the Partnership. The expense reimbursement totals $249,000 and
such amount was recorded as general and administrative expense during 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
No one holder of Units owns more than five percent of the total Units.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
The Individual General Partners are also officers or directors of
Keystone. None of the General Partners hold Units in the Partnership.
(c) CHANGES IN CONTROL.
A majority in interest of the Limited Partners may at any time, by
vote or written consent, remove any General Partner, with or without
cause. Upon such
18
<PAGE>
removal, the General Partner so removed shall have no further
liability as a General Partner of the Partnership and the Partnership
Agreement shall be amended to state that the General Partner so
removed is no longer a General Partner of the Partnership. After said
removal, the interest of the General Partner in the Partnership shall
automatically convert to a limited partnership interest and the
General Partner shall have, with respect thereto, all rights and
powers of a Limited Partner.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Partnership is strictly prohibited from making any loan or
participating in any other transaction involving the General Partners, or any of
them, their affiliates, or any officer or director or employee of any those
entities under any circumstances.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements of Keystone Mortgage Fund II
are in Item 8:
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . 7
Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . 8
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . 9
Statements of Partners' Capital for the
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . 10
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 11
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . 12
(a) All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instruction or are
inapplicable, and therefore have been omitted.
19
<PAGE>
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Date: March , 1996 /s/ JOHN P. SULLIVAN
--------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: March , 1996 /s/ JOHN P. SULLIVAN
--------------------------------
John P. Sullivan
General Partner
Date: March , 1996 /s/ CHRISTOPHER E. TURNER
--------------------------------
Christopher E. Turner
General Partner
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 93,977
<SECURITIES> 1,083,120
<RECEIVABLES> 1,533,193
<ALLOWANCES> 64,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,223,340
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,656,315
<CURRENT-LIABILITIES> 249,641
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,406,674
<TOTAL-LIABILITY-AND-EQUITY> 2,656,315
<SALES> 0
<TOTAL-REVENUES> 284,771
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 298,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,177)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
