<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1996 0-15537
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,
1996, the Partnership had one loan outstanding in the principal amount of
$1,505,238. No loans were made during the year ended December 31, 1996.
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 1996, 1995, 1994, 1993, and 1992:
<TABLE>
<CAPTION>
Years Ended December 31st
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $193,721 $284,771 $438,682 $556,401 $628,686
Net (loss) Income 135,681 (14,177) 318,290 473,843 537,114
Trust Deed Notes
Receivable, Net 1,437,698 1,469,193 2,950,898 5,356,524 5,438,206
Total Assets 2,146,832 2,656,315 4,183,487 6,465,549 6,465,307
Net (loss) income
attributable to
limited partners
per limited
partnership unit $3.24 (0.34) 7.60 11.31 12.83
</TABLE>
3
<PAGE>
The following table set forth in tabular form, distributions and
withdrawals for the fiscal years 1996, 1995, 1994, 1993, and 1992:
Distributions 1996 1995 1994 1993 1992
- ------------- ---- ---- ---- ---- ----
and Withdrawals
- ---------------
General Partners None None None None $1,594
Limited Partners $655,818 $1,760,784 $2,598,372 $472,883 $1,043,556
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 these investments have maturities consistent with the timing
of Partnership distributions. The Fund will no longer repurchase units.
Interest income, net of Partnership expenses, is distributed to the Partners
on a semi-annual basis. However, the General Partners have the right to
retain up to 10% of Partnership cash flow for the purpose of maintaining an
adequate liquidity.
The Partnership's liquidity is primarily subject to the schedule of
maturities of Partnership loans and the extent of liquidity can therefore be
projected with reasonable accuracy. During 1996, the Partnership's working
capital decreased $485,128. 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, 1996, the Partnership had one remaining loan
outstanding in the amount of $1,505,238. Loan payments are current and the
Partnership has not experienced any recent problems with delinquent payments
in connection with this loan.
Partnership revenue decreased 32.0% in 1996 over 1995 as compared to
35.1% decrease in 1995 over 1994. The decrease in revenue for each of these
two years was primarily due to the decrease of interest income as a result of
loan payoffs and the subsequent distributions of capital to Limited Partners.
General and administrative expenses decreased $237,811 or 88.7% in 1996
over 1995 as compared to an increase of $254,113 in 1995 over 1994. The
large increase in 1995 was due to a $249,000 charge for reimbursement of fund
expenses incurred by the General Partner.
Servicing related expenses decreased 10.1% in 1996 as compared to 1995,
and decreased 27.3% in 1995 as compared to 1994.
Net income increased $149,858 in 1996 over 1995, and decreased $332,467
in 1995 over 1994.
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. Net Income per Limited Partnership unit increased $3.58 in 1996
over 1995, and decreased $7.94 in 1995 over 1994.
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, 1996 and 1995
(With Independent Auditors' Report Thereon)
6
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[LOGO] PEAT MARWICK LLP
725 South Figueroa Street
Los Angeles, CA 90017
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, 1996 and 1995 and the related
statements of operations, partners' capital and cash flows for each of the years
in the three-year period ended December 31, 1996. These financial statements
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Keystone Mortgage Fund II, a
California Limited Partnership as of December 31, 1996 and 1995 and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
January 22, 1997
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------------------- ----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 15,808 93,997
Short-term investments (market value of $684,005 in 1996 and
$1,085,049 in 1995) 684,005 1,083,120
Interest receivable on trust deed note receivable 9,321 10,005
Current portion of trust deed note receivable (note 4) 39,732 36,218
---------------------- -----------------------
Total current assets 1,397,966 1,223,340
---------------------- -----------------------
Trust deed note receivable, net (note 4) $ 2,146,832 2,656,315
---------------------- -----------------------
---------------------- -----------------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other liabilities $ 1,295 641
Due to general partner (note 3) 250,000 249,000
---------------------- -----------------------
Total current liabilities 260,295 249,641
---------------------- -----------------------
Partners' capital:
General partners (206,601) (207,958)
Limited partners - authorized 41,459 units; outstanding
41,459 units) 2,093,138 2,614,632
---------------------- -----------------------
Net partners' capital 1,886,537 2,406,674
---------------------- -----------------------
$ 2,146,832 $ 2,656,315
---------------------- -----------------------
---------------------- -----------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenue:
Interest on trust deed notes receivable $ 117,787 185,897 377,649
Investment income 75,934 98,874 61,033
------------------ ----------------- ------------------
193,721 284,771 438,682
------------------ ----------------- ------------------
Expenses:
Provision for losses on trust deed note
receivable (note 4) -- -- 64,000
Servicing-related expenses (note 3) 27,664 30,761 42,318
General and administrative expenses (note 3) 30,376 268,187 14,074
------------------ ----------------- ------------------
58,040 298,948 120,392
------------------ ----------------- ------------------
Net income (loss) $ 135,681 (14,177) 318,290
------------------ ----------------- ------------------
------------------ ----------------- ------------------
Weighted average number of limited
partnership units outstanding 41,459 41,459 41,459
------------------ ----------------- ------------------
------------------ ----------------- ------------------
Net income (loss) attributable to limited
partners per limited partnership unit $ 3.24 (0.34) 7.60
------------------ ----------------- ------------------
------------------ ----------------- ------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Partners' Capital
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1993 $ (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
Net income for 1996 1,357 134,324 135,681
Net distributions - $15.82 per limited
partnership unit -- (655,818) (655,818)
---------------- ---------------- ----------------
Balance at December 31, 1996 $ (206,601) 2,093,138 1,886,537
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 135,681 (14,177) 318,290
Amortization of net origination fees (1,700) (1,700) (2,310)
Changes in operating assets and liabilities:
Interest receivable on trust deeds 684 11,435 17,308
Accounts payable and other liabilities 654 (1,211) (1,980)
Due to general partner 10,000 249,000 -
Other assets -- -- 1,294
---------------- ---------------- ----------------
Net cash provided by operating
activities 145,319 243,347 331,602
---------------- ---------------- ----------------
Cash flows from investing activities:
Collection of trust deed notes receivable 33,195 1,483,373 2,407,936
Purchase of short-term investments (1,100,099) (4,700,155) (3,400,965)
Proceeds from maturities of short-term
investments 1,499,214 4,621,000 2,397,000
---------------- ---------------- ----------------
Net cash provided by investing
activities 432,310 1,404,218 1,403,971
---------------- ---------------- ----------------
Cash flows used in financing activities -
distributions to partners (655,818) (1,760,784) (2,598,372)
---------------- ---------------- ----------------
Decrease in cash and cash
equivalents (78,189) (113,219) (861,799)
Cash and cash equivalents at beginning of year 93,997 207,216 1,069,015
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 15,808 93,997 207,216
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1996 and 1995
(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, 1996 and 1995, short-term
investments consisted of U.S. Government agency notes with remaining
maturities of less than five months. At December 31, 1996 and 1995, these
securities had an unrealized gain of $0 and $1,929, respectively, and there
were not 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.
TRUST DEED NOTE RECEIVABLE
The trust deed note receivable is accounted for under the provisions of
Statement of Financial Accounting Standards No. 114 (SFAS 114), "Accounting
by Creditors for Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118 (SFAS 118), "Accounting by Creditors for
Impairments of a Loan - Income Recognition and Disclosures." Under SFAS
114, a loan is impaired
12
<PAGE>
when it is "probable" that a creditor will be unable to collect all
amounts due (i.e., both principal and interest) according to the
contractual terms of the loan agreement. The measurement of impairment
may be based on (1) the present value of the expected future cash flows
of the impaired loan discounted at the loan's original effective interest
rate, (2) the observable market price of the impaired loan or (3) the
fair value of the collateral of a collateral-dependent loan. The
amount by which the recorded investment of the loan exceeds the measure of
the impaired loan is recognized by recording a valuation allowance with a
corresponding charge to provision for loan losses.
ALLOWANCE FOR LOSSES ON TRUST DEED NOTE RECEIVABLE
An analysis of the collectibility of the trust deed note receivable is
performed by management on a regular basis. Management considers such
factors as current economic conditions 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, 1996 and
1995.
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, 1996 and 1995, there were no
trust deed notes receivable on nonaccural 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 is the responsibility of the partners.
INCOME AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Net income and distributions per limited partnership unit are based on the
net income and distributions attributable to the limited partners and the
weighted average number of limited partnership units outstanding during
each period.
(3) RELATED PARTY TRANSACTIONS
The general partners of 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 $8,000 in 1996, $10,000 in 1995 and $20,000 in 1994 of
servicing feeds paid to Keystone Mortgage Company.
13
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements, Continued
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 sheets as of December 31,
1996 and 1995. Expense reimbursements totaling $10,000 relating to 1996 are
included in general and administrative expenses for the year ended December
31, 1996 in the accompanying statement of operations and in due to general
partner in the accompanying balance sheet as of December 31, 1996.
(4) TRUST DEED NOTE RECEIVABLE
Trust deed note receivable consists of the following at December 31:
MONTHLY
PAYMENT,
INCLUDING
INTEREST 1996 1995
---------- ---------- ---------
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 $ 12,529 1,505,238 1,538,433
----------
----------
Less:
Current portion 39,732 36,218
Net deferred origination fees 3,540 5,240
Allowance for loss 64,000 64,000
--------- ---------
Net noncurrent trust deeds note
receivable $1,397,966 1,432,975
--------- ---------
--------- ---------
The estimated fair value of the trust deed note receivable at December 31, 1996
and 1995 is equivalent to the carrying value.
Minimum future payments of principal at December 31, 1996 are as follows:
1997 $ 39,732
1998 44,639
1999 and thereafter $1,420,867
----------
$1,505,238
----------
----------
14
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements, Continued
(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:
1996 1995 1994
-------- -------- --------
Net income (loss) for financial
reporting purposes $135,681 (14,177) 318,290
Interest revenue on mortgage
loans previously recognized
for tax purposes (1,700) (1,700) (2,310)
Provisions for losses on trust
deed notes receivable -- -- 64,000
Other, net -- (23) 518
-------- -------- --------
Net income (loss) for
Federal income tax purposes $133,981 (15,900) 380,498
-------- -------- --------
-------- -------- --------
15
<PAGE>
Item 9. CHANGES AND 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:
NAME AGE TITLE DATE OF
- ---- --- ----- APPT.
-------
John P. Sullivan 71 President and Chairman of the Board 1957
Christopher E. Turner 63 Executive Vice President and Director 1972
Ron N. Buchanan 50 Vice President 1978
Sandra B. Coopersmith 58 Vice President 1975
Melinda F. Love 42 Vice President 1984
Norma Foster 57 Vice President 1986
John G. Sullivan 35 Vice President 1992
Mark G. Sullivan 40 Secretary 1984
JOHN P. SULLIVAN has been in mortgage banking in California since 1953,
and since 1957, he has served as president of Keystone. He was a founding
16
<PAGE>
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 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
17
<PAGE>
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.
No director of executive officer of Keystone, within the preceding five
year period, has filed a petition under Federal Bankruptcy laws, or has been
convicted in a criminal proceeding or is named subject of a pending criminal
proceeding.
Item 11. EXECUTIVE COMPENSATION.
Compensation for services rendered by the General Partners on behalf of the
Partnership for the fiscal years 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
Compensation Paid
Name of Individual or Accrued for Cash
or Group Service Rendered in 1994 1995 1996 Bonus
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Keystone Mortgage Co. Loan Servicing Fees $20,000 $10,000 $8,000 None
John P. Sullivan Management Fees None None None None
Christopher E. Turner Management Fees None None None None
</TABLE>
In addition, the General Partners of the Partnership are entitled to
receive certain cast distributions and allocations of income or loss. No
such distributions or allocations were made for fiscal years 1994, 1995 or
1996.
Prior to 1995, Keystone did not pass expenses that Keystone Mortgage
Company incurred relating to the operation of the Partnership as allowed by
the Partnership agreement. During 1995 Keystone made a decision to charge the
18
<PAGE>
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 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.
19
<PAGE>
(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, 1996 and 1995........................8
Statements of Operation for the Years Ended
December 31, 1996, 1995 and 1994...................................9
Statement of Partners' Capital for the
Years Ended December 31, 1996, 1995 and 1994.....................10
Statements of Cash Flows for the Years
Ended December 31, 1996, 1995 and 1994...........................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.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Date: March , 1997 /s/
---------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: March , 1997 /s/
---------------------------------
John P. Sullivan
General Partner
Date: March , 1997 /s/
---------------------------------
Christopher E. Turner
General Partner
21
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,808
<SECURITIES> 684,005
<RECEIVABLES> 1,447,019
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 748,866
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,146,832
<CURRENT-LIABILITIES> 260,295
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,886,537
<TOTAL-LIABILITY-AND-EQUITY> 2,146,832
<SALES> 0
<TOTAL-REVENUES> 193,721
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 58,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 135,681
<INCOME-TAX> 0
<INCOME-CONTINUING> 135,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,681
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
