<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, 1997 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,
1997, the Partnership had one loan outstanding in the principal amount of
$1,470,285. No loans were made during the year ended December 31, 1997.
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
<PAGE>
EMPLOYEES
The Partnership does not have any employees. Services are performed for
the Partnership by Keystone Mortage Company, a California Corporation, for which
it receives compensation as set forth in the Partnership Agreement.
Item 2. PROPERTIES.
The fund occupies space leased by Keystone, 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 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
Years Ended December 31st
1997 1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $151,251 $193,721 $284,771 $438,682 $556,401
Net (loss) Income 86,842 135,681 (14,177) 318,290 473,843
Trust Deed Notes
Receivable, Net 1,404,445 1,437,698 1,469,193 2,950,898 5,356,524
Total Assets 1,818,786 2,146,832 2,656,315 4,183,487 6,465,549
Net (loss) income
attributable to
limited partners
per limited
partnership unit $2.09 $3.24 (0.34) 7.60 11.31
</TABLE>
3
<PAGE>
The following table set forth in tabular form, distributions and withdrawals
for the fiscal years 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
Distributions
and Withdrawals 1997 1996 1995 1994 1993
- --------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General Partners None None None None None
Limited Partners $641,078 $655,818 $1,760,784 $2,598,372 $472,883
</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 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 scheduled maturity of
the Partnership's loan and the extent of liquidity can therefore be projected
with reasonable accuracy. During 1997, the Partnership's working capital
decreased $318,623. 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 its mortgage loan 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, 1997, the Partnership had one remaining loan outstanding in
the amount of $1,470,285. Loan payments are current and the Partnership has not
experienced any recent problems with delinquent payments in connection with this
loan.
Partnership revenue decreased 21.9% in 1997 over 1996 as compared to 32.0%
decrease in 1996 over 1995. 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 in 1997 were comparable to 1996 whereas
there was a decrease of 88.7% in 1996 over 1995. General and administrative
expenses for 1995 included a $249,000 charge for reimbursement of Fund expenses
incurred by the General Partner. Servicing related expenses increased 23.7% in
1997 as compared to 1996 and decreased 10.1% in 1996 as compared to 1995.
As a result of factors discussed above, net income decreased $48,839 in 1997
over 1996, and increased $149,858 in 1996 over 1995.
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 decreased $1.15 to $2.09 in 1997 from
$3.24 in 1996, and increased $3.58 in 1996 over the $(.34) in 1995.
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, 1997 and 1996
(With Independent Auditors' Report Thereon)
6
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[LETTERHEAD]
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, 1997 and 1996 and the
related statements of operations, partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1997. 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 Funds II, a
California Limited Partnership as of 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.
KPMG Peat Marwick LLP
January 22, 1998
7
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KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,484 15,808
Short-term investments (market value of
$392,695 in 1997 and $684,005 in 1996) 392,695 684,005
Interest receivable on trust deed note
receivable 9,162 9,321
Current portion of trust deed note receivable
(note 4) 35,727 39,732
---------- ----------
Total current assets 450,068 749,866
Trust deed note receivable, net (note 4) 1,368,718 1,397,966
---------- ----------
$1,818,786 2,146,832
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other liabilities $ 11,120 1,295
Due to general partner (note 3) 269,000 259,000
---------- ----------
Total current liabilities 280,120 260,295
---------- ----------
Partners' capital:
General partners 632 (206,601)
Limited partners - authorized 41,459
units; outstanding 41,459 units 1,538,034 2,093,138
---------- ----------
Total partners' capital 1,538,666 1,886,537
---------- ----------
$1,818,786 2,146,832
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Interest on trust deed note receivable $112,036 117,787 185,897
Investment income 39,215 75,934 98,874
-------- -------- --------
151,251 193,721 284,771
-------- -------- --------
Expenses:
Servicing-related expenses (note 3) 34,220 27,664 30,761
General and administrative expenses
(note 3) 30,189 30,376 268,187
-------- -------- --------
64,409 58,040 298,948
-------- -------- --------
Net income (loss) $ 86,842 $135,681 (14,177)
-------- -------- --------
-------- -------- --------
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 $ 2.09 $ 3.24 $ (.34)
-------- -------- --------
-------- -------- --------
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
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
Net income for 1997 868 85,974 86,842
Contributions 206,365 -- 206,365
Net distributions - $15.46 per
limited partnership unit -- (641,078) (641,078)
--------- ----------- -----------
Balance at December 31, 1997 $ 632 1,538,034 1,538,666
--------- ----------- -----------
--------- ----------- -----------
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 86,842 135,681 (14,177)
Amortization of net origination fees (1,700) (1,700) (1,700)
Changes in operating assets and liabilities:
Interest receivable on trust deed note receivable 159 684 11,435
Accounts payable and other liabilities 9,825 654 (1,211)
Due to general partner 10,000 10,000 249,000
--------- --------- ----------
Net cash provided by operating activities 105,126 145,319 243,347
--------- --------- ----------
Cash flows from investing activities:
Collection of trust deed note receivable 34,953 33,195 1,483,373
Purchase of short-term investments -- (1,100,099) (4,700,155)
Proceeds from maturities of short-term investments 291,310 1,499,214 4,621,000
--------- --------- ----------
Net cash provided by investing activities 326,263 432,310 1,404,218
--------- --------- ----------
Cash flows from financing activities:
Distributions to partners (641,078) (655,818) (1,760,784)
Contributions from partners 206,365 -- --
--------- --------- ----------
Net cash used in financing activities (434,713) (655,818) (1,760,784)
--------- --------- ----------
Decrease in cash and cash equivalents (3,324) (78,189) (113,219)
Cash and cash equivalents at beginning of year 15,808 93,997 207,216
--------- --------- ----------
Cash and cash equivalents at end of year $ 12,484 15,808 93,997
--------- --------- ----------
--------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
(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 is made 100% to the limited partners.
(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 Fund II intends to hold these securities to maturity. At
December 31, 1997 and 1996, short-term investments consisted of U.S.
Government agency notes with remaining maturities of less than five
months.
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those 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 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
12
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements, Continued
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 needed. Management has established a valuation allowance of
$64,000 as of December 31, 1997 and 1996.
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 NOTE 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,
1997 and 1996, 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 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 $7,000 in 1997,
$8,000 in 1996 and $10,000 in 1995 of servicing fees 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, 1997 and 1996. Expense reimbursements totaling $10,000
relating to 1997 and 1996 are included in general and administrative
expenses for the years ended December 31, 1997 and 1996 in the
accompanying statements of operations.
(4) TRUST DEED NOTE RECEIVABLE
Trust deed note receivable consists of the following at December 31:
<TABLE>
<CAPTION>
MONTHLY
PAYMENT,
INCLUDING
INTEREST 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
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 $ 11,426 1,470,285 1,505,238
----------
----------
Less:
Current portion 35,727 39,732
Net deferred origination fees 1,840 3,540
Allowance for loss 64,000 64,000
------------ -------------
Net noncurrent trust deeds note
receivable $ 1,368,718 1,397,966
------------ -------------
------------ -------------
</TABLE>
The estimated fair value of the trust deed note receivable at
December 31, 1997 and 1996 is equivalent to the carrying value.
Minimum future payments of principal at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 35,727
1999 1,434,558
-------------
$ 1,470,285
-------------
-------------
</TABLE>
14
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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:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Net income (loss) for financial
reporting purposes $86,842 135,681 (14,177)
Interest revenue on mortgage loans
previously recognized for tax
purposes (1,700) (1,700) (1,700)
Other, net - - (23)
------- -------- --------
Net income (loss) for Federal
income tax purposes $85,142 133,981 (15,900)
------- -------- --------
------- -------- --------
</TABLE>
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, 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 72 President and Chairman of the Board 1957
Christopher E. Turner 64 Executive Vice President and Director 1972
Ron N. Buchanan 51 Vice President 1978
Sandra B. Coopersmith 59 Vice President 1975
Melinda F. Love 43 Vice President 1984
Norma Foster 58 Vice President 1986
John G. Sullivan 36 Vice President 1992
Mark G. Sullivan 41 Secretary 1984
</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
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.
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 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
Compensation Paid
Name of Individual or Accrued for Cash
or Group Service Rendered in 1997 1996 1995 Bonus
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Keystone Mortgage Co. Loan Servicing Fees $7,000 $8,000 $10,000 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 cash distributions and allocations of income or loss. No
such distributions or allocations were made for fiscal years 1997, 1996, and
1995.
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.
18
<PAGE>
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.
19
<PAGE>
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, 1997 and 1996 . . . . . . . . 8
Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . 9
Statements of Partners' Capital for the
Years Ended December 31, 1997, 1996 and 1995 . . . . . . .10
Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 . . . . . . . . . .11
Notes to Financial Statements . . . . . . . . . . . 12 through 15
(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 , 1998 /s/ JOHN P. SULLIVAN
------------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: March , 1998 /s/ JOHN P. SULLIVAN
------------------------------------
John P. Sullivan
General Partner
Date: March , 1998 /s/ CHRISTOPHER E. TURNER
------------------------------------
Christopher E. Turner
General Partner
21
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,484
<SECURITIES> 392,695
<RECEIVABLES> 1,413,607
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 450,068
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,818,786
<CURRENT-LIABILITIES> 280,120
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,538,666
<TOTAL-LIABILITY-AND-EQUITY> 1,818,786
<SALES> 0
<TOTAL-REVENUES> 151,251
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 64,409
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 86,842
<INCOME-TAX> 0
<INCOME-CONTINUING> 86,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,842
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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