<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, 1998 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
<PAGE>
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,
1998, the Partnership had one loan outstanding in the principal amount of
$1,437,195. No loans were made during the year ended December 31, 1998.
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.
The remaining loan is due to be paid off during the first quarter of
1999 with final distributions scheduled to be made at some date thereafter.
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 1998, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Years Ended December 31st
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 196,526 $ 151,251 $ 193,721 $ 284,771 $ 438,682
Net (loss) Income 129,556 86,842 135,681 (14,177) 318,290
Trust Deed Notes
Receivable, Net 1,437,055 1,404,445 1,437,698 1,469,193 2,950,898
Total Assets 1,883,813 1,818,786 2,146,832 2,656,315 4,183,487
Net (loss) income
attributable to
limited partners
per limited
partnership unit $3.09 $2.07 $3.24 ($0.34) $7.60
</TABLE>
3
<PAGE>
The following table set forth in tabular form, distributions and withdrawals for
the fiscal years 1998, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
DISTRIBUTIONS 1998 1997 1996 1995 1994
AND WITHDRAWALS ------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
General Partners None None None None None
Limited Partners $77,569 $641,078 $655,818 $1,760,784 $2,598,372
</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 1998, the Partnership's
working capital increased $1,420,705. 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, 1998, the Partnership had one remaining loan of
$1,437,195. Loan payments are current and the Partnership has not
experienced any recent problems with delinquent payments in connection with
this loan.
Partnership revenue increased 29.9% in 1998 over 1997 as compared to
21.9% decrease in 1997 over 1996. The increase in revenue for 1998 was due
to the reduction of allowance for loss on trust deed note receivable. The
decrease in revenue for 1997 resulted from lower interest due to trust deed
notes receivable payoffs.
General and administrative expenses in 1998 increased 25.9% compared to
1997 primarily as a result of computer updating, accounting and SEC report
filing. Such expenses were compatable for 1997 and 1996. Servicing related
expenses decreased 15.4% in 1998 as compared to 1997 and increased 23.7% in
1997 as compared to 1996.
As a result of factors discussed above, net income increased $42,714
(49.2%) in 1998 over 1997 and decreased $48,839 (36.0%) in 1997 over 1996.
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 49.3% in 1998
over 1997 and decreased 36.1% in 1997 over 1996.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Index to the financial statements of Keystone Mortgage Fund II is
included in Item 14.
5
<PAGE>
KEYSTONE MORTGAGE FUND II
A CALIFORNIA LIMITED PARTNERSHIP
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
6
<PAGE>
KPMG
726 South Ferguson 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, 1998 and 1997 and the
related statements of operations, partners' capital and cash flows for each
of the years in the three-year period ended December 31, 1998. 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, 1998 and 1997 and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
January 15, 1999
7
[LETTERHEAD FOOTER]
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 437,768 12,484
Short-term investments (market value of $392,695 in 1997) -- 392,695
Interest receivable on trust deed note receivable 8,990 9,162
Current portion of trust deed note receivable (note 4) 1,437,055 35,727
------------ ------------
Total current assets 1,883,813 450,068
Trust deed note receivable, net (note 4) -- 1,368,718
------------ ------------
$ 1,883,813 1,818,786
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and other liabilities $ 14,160 11,120
Due to general partner (note 3) 279,000 269,000
------------ ------------
Total current liabilities 293,160 280,120
------------ ------------
Partners' capital:
General partners 1,928 632
Limited partners -- authorized 41,459 units; outstanding 41,459
units 1,588,725 1,538,034
------------ ------------
Total partners' capital 1,590,653 1,538,066
------------ ------------
$ 1,883,813 1,818,786
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
KEYSTONE MORTGAGE FUND II,
A CALIFORNIA LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Interest on trust deed note receivable $ 111,285 112,036 117,787
Investment income 21,241 39,215 75,934
Reduction of allowance for loss on trust deed
note receivable 64,000 -- --
------------ ------------ ------------
196,526 151,251 193,721
------------ ------------ ------------
Expenses:
Servicing-related expenses (note 3) 28,962 34,220 27,664
General and administrative expenses (note 3) 38,008 30,189 30,376
------------ ------------ ------------
66,970 64,409 58,040
------------ ------------ ------------
Net income $ 129,556 86,842 135,681
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of limited partnership
units outstanding 41,459 41,459 41,459
------------ ------------ ------------
------------ ------------ ------------
Net income attributable to limited partners per
limited partnership unit $ 3.09 2.07 3.24
------------ ------------ ------------
------------ ------------ ------------
</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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
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
Net income for 1998 1,296 128,260 129,556
Net distributions -- $1.87 per limited partnership
unit -- (77,569) (77,569)
------------ ------------ ------------
Balance at December 31, 1998 $ 1,928 1,588,725 1,590,653
------------ ------------ ------------
------------ ------------ ------------
</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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 129,556 86,842 135,681
Reduction of allowance for loss on trust deed
note receivable (64,000) -- --
Amortization of net origination fees (1,700) (1,700) (1,700)
Changes in operating assets and liabilities:
Interest receivable on trust deed note
receivable 172 159 684
Accounts payable and other liabilities 3,040 9,825 654
Due to general partner 10,000 10,000 10,000
------------ ------------ ------------
Net cash provided by operating
activities 77,068 105,126 145,319
------------ ------------ ------------
Cash flows from investing activities:
Collection of trust deed note receivable 33,090 34,953 33,195
Purchase of short-term investments -- -- (1,100,099)
Proceeds from maturities of short-term
investments 392,695 291,310 1,499,214
------------ ------------ ------------
Net cash provided by investing
activities 425,785 326,263 432,310
------------ ------------ ------------
Cash flows from financing activities:
Distributions to partners (77,569) (641,078) (655,818)
Contributions from partners -- 206,365 --
------------ ------------ ------------
Net cash used in financing activities (77,569) (434,713) (655,818)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 425,284 (3,324) (78,189)
Cash and cash equivalents at beginning of year 12,484 15,808 93,997
------------ ------------ ------------
Cash and cash equivalents at end of year $ 437,768 12,484 15,808
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
KEYSTONE MORTGAGE II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
(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. Fund II intends to liquidate after its
remaining trust deed loan is collected, which is expected to occur in
1999.
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 the 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
notees receivable is made 100% to the limited partners.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) 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.
(B) 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 Deccember 31, 1997, short-term
investments consisted of U.S. Government agency notes with
remaining maturities of less than five months.
(C) 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.
(D) 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
(Continued)
12
<PAGE>
KEYSTONE MORTGAGE II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
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.
(E) ALLOWANCE FOR LOSSES ON TRUST DEED NOTE RECEIVABLE
An analysis of the collectibility of the trust deed note receivalbe
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.
(F) 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.
(G) 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, 1998 and 1997, there were no trust deed notes
receivable on nonaccrual status.
(H) 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.
(I) 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 partnerhip
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 Chistopher 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 Comnpany. Servicing-related expenses include
approximately $7,000 in 1998, $7,000 in 1997 and $8,000 in 1996 of
servicing fees paid to Keystone Mortgage Company.
(Continued)
13
<PAGE>
KEYSTONE MORTGAGE II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
Expense reimbursements to Keystone Mortgage Company related to
operations of Fund II totaling $10,000 are included in general and
administrative expenses for each of the years in the three-year period
ended December 31, 1998 in the accompanying statements of operations.
The amounts due to general partners included in the accompanying balance
sheets consist of unpaid expense reimbursements to Keystone Mortgage
Company.
(4) TRUST DEED NOTE RECEIVABLE
Trust deed note receivable consists of the following at December 31:
<TABLE>
<CAPTION>
MONTHLY
PAYMENT,
INCLUDING
INTEREST 1998 1997
--------- ------------ ---------
<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 $ 1,437,195 1,470,285
---------
---------
Less:
Net deferred origination fees 140 1,840
Allowance for loss -- 64,000
------------ --------
Net trust deed note receivable $ 1,437,055 1,404,445
------------ --------
------------ --------
</TABLE>
The estimated fair value of the trust deed note receivable at December 31,
1998 and 1997 is equivalent to the carrying value.
(Continued)
12
<PAGE>
KEYSTONE MORTGAGE II,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1998 and 1997
(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>
1998 1997 1998
-------- ------ -------
<S> <C> <C> <C>
Net income for financial reporting purposes $ 129,556 86,842 135,681
Reduction of allowance for loss on trust
deed note receivable (64,000) -- --
Interest revenue on mortgage loans
previously recognized for tax purposes (1,700) (1,700) (1,700)
-------- ------ -------
Net income for Federal income tax
purposes $ 63,856 85,142 122,981
-------- ------ -------
-------- ------ -------
</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.
DIRECTORS AND OFFICERS
The directors and executive officers of Keystone Mortgage Company are:
<TABLE>
<CAPTION>
NAME AGE TITLE DATE OF
APPT.
- --------------------- --- ------------------------------------- -------
<S> <C> <C> <C>
John P. Sullivan 73 President and Chairman of the Board 1957
Christopher E. Turner 65 Executive Vice President and Director 1972
Ron N. Buchanan 52 Vice President 1978
Sandra B. Coopersmith 60 Vice President 1975
Melinda F. Love 44 Vice President 1984
Norma Foster 59 Vice President 1986
John G. Sullivan 37 Vice President 1992
</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
16
<PAGE>
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 Director for 1991.
17
<PAGE>
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 or 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 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
Compensation Paid
Name of Individual or Accrued for Cash
or Group Service Rendered in 1998 1997 1996 Bonus
- --------------------- ------------------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Keystone Mortgage Co. Loan Servicing Fees $7,000 $7,000 $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 cash distributions and allocations of income or loss. No such
distributions or allocations were made for fiscal years 1998, 1997, and 1996.
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, 1998 and 1997 . . . . . . . . 8
Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996 . . . . . . . . . . . . . 9
Statements of Partners' Capital for the
Years Ended December 31, 1998, 1997, and 1996. . . . . . .10
Statements of Cash Flows for the Years
Ended December 31, 1998, 1997, and 1996. . . . . . . . . .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 9, 1999 /s/ JOHN P. SULLIVAN
---------------------------------
Keystone Mortgage Company
By: John P. Sullivan, President
Date: March 9, 1999 /s/ JOHN P. SULLIVAN
---------------------------------
John P. Sullivan
General Partner
Date: March 9, 1999 /s/ CHRISTOPHER E. TURNER
---------------------------------
Christopher E. Turner
General Partner
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 437,768
<SECURITIES> 0
<RECEIVABLES> 1,466,045
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,883,813
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,883,813
<CURRENT-LIABILITIES> 293,160
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,590,653
<TOTAL-LIABILITY-AND-EQUITY> 1,883,813
<SALES> 0
<TOTAL-REVENUES> 196,526
<CGS> 0
<TOTAL-COSTS> 66,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 129,556
<INCOME-TAX> 0
<INCOME-CONTINUING> 129,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,556
<EPS-PRIMARY> 3.09
<EPS-DILUTED> 3.09
</TABLE>
