UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d)

of the Securities and Exchange Act of 1934

 

For the fiscal year ended **December 31, 2002**
Commission File Number **33-4682
 

CAPITAL BUILDERS DEVELOPMENT PROPERTIES II,

A CALIFORNIA LIMITED PARTNERSHIP

(Exact name of registrant as specified in its charter)

 
**California (State or other jurisdiction of incorporation or organization)
**77-0111643I.R.S. Employer Identification No.)
**1130 Iron Point Road, Suite 170, Folsom, California 95630

(Address of principal executive offices)		Zip Code

Registrant's telephone number, including area code: (916) 353-0500

Securities registered pursuant to Section 12(b) of the Act: **NONE**
Securities registered pursuant to Section 12(g) of the Act:
**Limited Partnership Units**
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No

As of December 31, 2002 the aggregate Limited Partnership Units held by nonaffiliates of the registrant was 23,030. There is no market for the Units.

Documents Incorporated by Reference

Limited Partnership Agreement dated February 6, 1986, filed as Exhibit 3.3, and the Amendment to the Limited Partnership Agreement dated May 22, 1986 filed as Exhibit 3.4 to Registration Statement No. 33-4682 of Capital Builders Development Properties II, A California Limited Partnership, are hereby incorporated by reference into Part IV of this Form 10K.

Forward-Looking Statements

When used in this annual report, the words "believes," "anticipates" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected, including, but not limited to, those set forth in the sections entitled "Potential Factors Affecting Future Operating Results" and "Qualitative and Quantitative Disclosures About Market Risks" below. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the case hereof. The Partnership undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

 

 
**PART I

ITEM 1.	BUSINESS
(a)	General Development of Business

Capital Builders Development Properties II (the "Partnership") is a publicly held limited partnership organized under the provisions of the California Revised Limited Partnership Act pursuant to the Limited Partnership Agreement dated February 6, 1986, as amended (the "Agreement"). The Partnership commenced on May 22, 1986 and shall continue in full force and be effective until December 31, 2021 unless dissolved sooner by certain events as described in the Agreement. The Managing General Partner is Capital Builders, Inc., a California Corporation (CB). The Associate General Partner is the sole shareholder, President and Director of CB.

On October 6, 1986 the Partnership sold 2,407 Limited Partnership Units for a total of $1,203,500. From October 6, 1986, through May 21, 1988, the Partnership sold an additional 20,623 Units for a total of 23,030 Units. On May 21, 1988, the Partnership was closed to capital raising activity with a total of $11,515,000 proceeds raised from the offering. The General Partners have contributed capital in the amount of $1,000 to the Partnership for a 1% interest in the profits, losses, tax credits and distributions of the Partnership.
**(b)	Financial Information about Industry Segments**
The Partnership is in the business of real estate development and is not a significant factor in its industry. The Partnership's investment properties are located near major urban areas and, accordingly, compete not only with similar properties in their immediate areas but with hundreds of properties throughout the urban areas. Such competition is primarily on the basis of locations, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar partnerships, real estate investment trusts and financial institutions) with respect to the purchase and sale of land, primarily on the basis of the prices and terms of such transactions.
**(c)	Narrative Description of the Business**
The Partnership's business objective is to complete the lease-up of its existing light industrial and office buildings and eventually sell all of its properties. The primary investment objective of the Partnership is to realize capital appreciation from the sale of the Properties developed by it. A secondary investment objective is to generate cash from the leasing of Partnership Properties pending their sale for distribution to the Limited Partners. Since the Partnership has not sold all of its investment properties, it has not achieved its investment goals as yet. Although investor returns cannot be accurately determined until the investment properties are sold, due to the additional time required to lease up the investment properties, the decline in real estate values during the recession of the early 90's, and although the real estate market has shown recovery from that recession, it is anticipated that ultimate returns will be less than initially projected. Funds obtained by the Partnership from the sale of Limited Partnership Units were used to acquire equity interest in one piece of land for development and a 40% equity interest in another for development in accordance with its investment objective.

On April 10, 1987, the Partnership entered into a joint venture called Capital Builders Roseville Venture ("JV") with Capital Builders Development Properties ("CBDP"), a California limited partnership. The Partnership and CBDP were affiliates as they had the same General Partner, but there were no direct transactions between the respective Partnerships. The Partnership contributed $900,000 resulting in a 40% interest in the profits, losses and cash distributions of the JV. CB, the Managing General Partner of the Partnership, had the same rights and obligations with respect to the JV's operations and management as it could exercise as Managing General Partner of the Partnership. The JV was dissolved as of May 1, 1997 when the Partnership purchased the remaining 60% interest in the JV.

The acquisition of the real estate is consistent with the Partnership objectives which are to acquire, develop, hold, maintain, lease, sell, or otherwise dispose of real property within the Western United States (including the states of California, Oregon, Washington, Arizona, Nevada, New Mexico, Utah, Colorado, Hawaii, and Alaska), including without limitation, the acquisition of undeveloped land for development and construction of research and development, light industrial, commercial/retail, or office buildings thereon, and the acquisition of partially completed commercial real property developments for completion of development.

Although the Associate General Partners, Officers, and Directors of the Managing General Partners are experienced in real property operation and management, they also may utilize independent advisors, agents, and workers, in addition to the Partnership employees, to assist them in the operation, leasing, maintenance and improvement of the Partnership's properties.

The Partnership has no full time employees but is managed by CB, the Managing General Partner.
** 

(d)	Available Information**
We expect to file annual, quarterly and special reports, and other information with the SEC. Our SEC filings will be available to the public over the Internet at the SEC's website at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0300 for further information on the public reference rooms.

You may request a free copy of any of the above filings by writing or calling:

	Capital Builders Development Properties II

	c/o Capital Builders, Inc.

	1130 Iron Point Road, Suite 170

	Folsom, CA 95630

	(916) 353-0500
** 

ITEM 2.	PROPERTIES
The Partnership owns 100% equity interest in two properties, Highlands 80 Commerce Center ("H80") and Capital Professional Center ("CPC"). H80 is a three phase development located in North Highlands, California. Phase I is a 109,083 square foot office/industrial project consisting of five multi-tenant buildings. Phase II consists of approximately 45,777 square feet of two, one-story light industrial/office space buildings and Phase III consists of one, 27,664 square foot, two-story office building. Phase III's building was placed into service during the first quarter of 2002. There are currently no leases signed for this building's space.

During the third quarter of 2002, the Highlands 80 Commerce Center ("H80") was listed for sale and categorized as discontinued operations. During the fourth quarter 2002, four out of the eight buildings listed were sold for cash amounts in excess of their book values. After payment of commissions and closing costs, the net sale proceeds were $8,525,041.

The remaining Highlands 80 buildings are listed for sale, with one currently under contract to be sold for $1,850,000. The Partnership closed the sale subsequent to December 31, 2002, netting the Partnership $1,774,160 in proceeds after sales commissions and closing costs. The sales price exceeded the book value of the building.

CPC is a 40,465 square foot office project, located in Roseville, California, consisting of two multi-tenant buildings which are completely developed and have achieved a stabilized occupancy. This project was placed under contract for sale during the fourth quarter 2002 and is now classified as discontinued operations. Subsequent to the year ended December 31, 2002, the property was sold for a cash amount in excess of its book value. After payment of commissions and closing costs, the net sale proceeds were $7,649,350.

The Partnership's investment properties are located in major urban areas and, therefore, must compete with properties of greater and lesser quality. Such competition is based primarily on rent, location, services and amenities. The properties are suitable for their current and anticipated use.
**ITEM 3.	LEGAL PROCEEDINGS
NONE
**ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
**PART II

ITEM 5.	MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS
There is no public trading market for the Partnership's Limited Partnership Units and it is not anticipated that a public trading market will develop. Furthermore, the Partnership Agreement prohibits Limited Partners from transferring Limited Partnership Interests if such transfers would result in the dissolution of the Partnership for tax purposes under Section 708 of the Internal Revenue Code.

As of December 31, 2002, there were 1,487 holders and 23,030 Limited Partnership Units outstanding.
** 

ITEM 6.	SELECTED FINANCIAL DATA
The following constitutes a summary of selected financial data for the following periods (000's omitted except net loss per Limited Partnership Unit):

 **2002**2001**2000**1999**1998
 
 
 
 
 
 
Revenues
$2,507
$2,678
$2,414
$2,145
$1,985
 
 
 
 
 
 
Gain from Sale of Buildings
$4,241
- - -
- - -
- - -
- - -
 
 
 
 
 
 
Net Income (Loss)
$3,990
($74)
($102)
($247)
($323)
 
 
 
 
 
 
Net Income (Loss) per Limited Partnership Unit
$171.51
($3.19)
($4.37)
($10.63)
($13.90)
 
 
 
 
 
 
Total Assets
$11,352
$14,983
$13,626
$12,808
$12,799
 
 
 
 
 
 
Notes and Loans Payable
$4,085
$11,327
$10,251
$9,313
$9,094
 

(See ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA)
** 

ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the month of July 2002, the Highlands 80 project (8 individual buildings) was listed for sale, and during the month of October 2002 the CPC project (two individual buildings) was listed for sale, which resulted in all real estate assets of the Partnership being listed for sale during the year ended December 31, 2002.

In accordance with the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), the current year results from the operations and financial position of the entire entity have been classified as discontinued operations as the Partnership had listed all assets for sale before December 31, 2002 and the Partnership had met all of the other criteria of long-lived assets to be disposed of by sale. Additionally, all prior periods have been stated as if the entire entity had been a discontinued operation. Depreciation was ceased on all buildings or project when the buildings or project was listed for sale in accordance with FAS 144. 
**Liquidity and Capital Resources**
The Partnership commenced operations on May 22, 1986 upon the sale of the minimum number of Limited Partnership Units. The Partnership's initial source of cash was from the sale of Limited Partnership Units. Through the offering of Units, the Partnership raised $11,515,000 (represented by 23,030 Limited Partnership Units). Cash generated from the sale of Limited Partnership Units was used to acquire land and for the development of a mixed use commercial project and a 40% interest in a commercial office project. In May 1997, the remaining 60% interest in the project was acquired.

The Partnership's primary current sources of cash are from cash balances, property rental income and proceeds from the partial sale of its assets. As of December 31, 2002, the Partnership had $1,196,236 in unrestricted cash. It is the Partnership's intention to utilize existing cash balances for continued leasing operations (tenant improvements and leasing commissions) at Highlands 80 Phase III. Both of the Partnership's projects have achieved occupancy and rental rates sufficient to meet its expected current and future debt service obligations.

The Partnership's scheduled principal and interest payments during 2003, 2004, 2005 and 2006 are $387,996, $387,996, $387,996 and $3,900,355, respectively. The scheduled interest payments assume a fixed interest rate of 7.97%.

During the year ended December 31, 2002, the Partnership expended $583,330 on improvements for both its properties. These improvements consisted of the construction of Highlands 80 Phase III (a 27,664 sq. foot office building), lobby and common area upgrades at Capital Professional Center, and tenant improvements for both of the Partnership's properties. The Partnership funded these improvements with $509,516 from construction loan proceeds and $73,814 from cash from operations. The Partnership also received $8,525,041 of net sales proceeds from the sale of four out of the eight H80 buildings. The sale of these buildings represents 49% of the entire project (88,686 sq. ft. sold out of 182,523 sq. ft.). The net proceeds from sale were primarily used to pay $7,751,679 of the H80 loan obligations, which represented the outstanding loan balances for the entire H80 project. The remaining net proceeds contributed to the net increase of $796,722 in December 31, 2002 cash balances.

During the fourth quarter of 2002, the Partnership entered into contracts to sell Capital Professional Center and an additional building at Highlands 80. Both of these contracts closed escrow subsequent to December 31, 2002 and netted the Partnership $9,423,510 in net proceeds after commissions and closing costs. The sales prices for each sale exceeded their respective book value. The Partnership applied $4,084,942 of these proceeds to pay its remaining loan obligation encumbering Capital Professional Center. It is Management's intention to distribute the majority of the remaining cash proceeds from this sale to its Limited Partners by the end of the first quarter 2003.

The Partnership may continue to incur improvement costs as the Highlands 80 Phase III building is leased. The total projected tenant improvement costs that may be incurred during 2003 are estimated to be $810,000. These costs will be funded with cash.

During the year ended December 31, 2002, the Partnership paid $125,320 in management fees to its Managing General Partner. Management fees are classified on the Statements of Operations as an Operating Expense. The General Partner is currently charging 5% of collected revenue.

The Partnership's ability to maintain or improve cash flow is dependent upon its ability to maintain and improve the occupancy of its investment properties. Management believes the Partnership's financial resources should be adequate to meet 2003's obligations and no adverse change in liquidity is foreseen. The Partnership's properties' current market values are in excess of its total liabilities.
**Critical Accounting Policies and Estimates**
The Partnership's discussion and analysis of its financial condition and results of operations are based upon the Partnership's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires Partnership Management to make estimates and judgments that effect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Partnership Management evaluates its estimates, including those related to long lived assets, accounts receivable, deferred revenue, and contingencies and litigation. Additionally, on an on-going basis Partnership Management also evaluates the debt obligations of the Partnership and evaluates the Partnership's ability to satisfy these obligations. Partnership Management bases its estimates on current information, historical experience and or various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 

The Partnership believes the following critical accounting policy affects its more significant judgments and estimates used in the preparation of its financial statements:

 

Valuation of Investment Property (Long-Lived Assets):

Investment property is evaluated for impairment on a continual basis based on the property's occupancy levels, annual cash flows, and projected cash flows based on the rental market and other factors including prospective new tenants. 

Debt Obligations:

Partnership management also believes that the evaluation of the Partnership's debt obligations and the Partnership's ability to satisfy these obligations is critical in the preparation of its financial statements. 

Partnership Management evaluates the debt obligations of the Partnership continually and determines the Partnership's ability to satisfy debt obligations through either refinancing, repayment, or various other strategic methods including potential sale of the property. 

Classification as Discontinued Operations:

All real estate assets of the Partnership have been listed for sale during the year ended December 31, 2002.

In accordance with the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), the current year results from the operations and financial position of the entire entity have been classified as discontinued operations as the Partnership had listed all assets for sale before December 31, 2002 and the Partnership had met all of the other criteria of long-lived assets to be disposed of by sale. Additionally, all prior periods have been stated as if the entire entity had been a discontinued operation. Depreciation was ceased on all buildings or project when the buildings or project was listed for sale in accordance with FAS 144. 
**Results of Operations

2002 vs 2001

All real estate assets of the Partnership have been listed for sale during the year ended December 31, 2002. In accordance with the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), the current year results from the operations and financial position of the entire entity have been classified as discontinued operations. Additionally, all prior periods have been stated as if the entire entity had been a discontinued operation. Depreciation was ceased on all buildings or project when the buildings or project was listed for sale in accordance with FAS 144. 

During the year ended December 31, 2002 as compared to December 31, 2001, the Partnership's total revenues decreased by $170,125 (6.4%), while its expenses increased by $6,655 (.2%).

The decrease in revenue is primarily due to a decrease in occupancy for Highlands 80 during the year and a loss of revenue from buildings sold during the fourth quarter.

Expenses increased for the year ended December 31, 2002, as compared to December 31, 2001, primarily due to the net effect of:

a) $32,270 (6.2%) increase in operating expenses due to an increase in utility and insurance costs and the recognition of bad debt expense of $16,842 for uncollectable rent;

b)	$119,914 (28.6%) increase in repairs and maintenance primarily due to readying Highlands 80 for sale to a condition that would maximize the sales prices;

c)	$11,986 (7.6%) decrease in property taxes due to the partial sale of Highlands 80;

d)	$75,549 (37.4%) increase in general and administrative due to an increase in administrative costs associated with additional reporting requirements by the SEC and IRS, an increase in audit fees, and sale study fees for Highlands 80; and

e) $206,464 (31.9%) decrease in depreciation due to both the Highlands 80 and Capital Professional Center projects being re-classified as held for sale in the third and fourth quarter, respectively, and therefore depreciation was no longer recorded on those assets.

During the fourth quarter 2002, the Partnership sold four out of the eight Highlands 80 buildings. The Partnership received net proceeds of $8,525,041 after commissions and closing costs. The sale of these buildings resulted in gain recognition of $4,240,907. During the year ended December 31, 2001, no buildings were sold.
**2001 vs 2000

During the year ended December 31, 2001 as compared to December 31, 2000, the Partnership's total revenues increased by $263,942 (10.9%), while its expenses increased by $236,562 (9.4%), resulting in a change in net loss to $74,284 from $101,664.

The increase in revenue is primarily due to an increase in occupancy for Highlands 80 during the year and rent increases at Capital Professional Center. Highlands 80 maintained an average occupancy of 90% during 2001, but during the fourth quarter lost a 9,900 square foot tenant, bringing its year-end occupancy down to 84%.

Expenses increased for the year ended December 31, 2001, as compared to December 31, 2000, primarily due to the net effect of:

a)	$79,722 (18.2%) increase in operating expenses due to an increase in property management salaries related to an increase in occupancy at Highlands 80, supervision costs for the refurbishing of Capital Professional Center's lobbies, and general wage increases ($47,850); an increase in property management fees due to increases in Highlands 80 occupancy and in rental rates at both H80 and CPC ($15,470); an increase in general liability insurance costs ($8,732); and an increase in utility costs ($7,670);

b) $106,296 (33.9%) increase in non-capitalized repairs and maintenance due to the refurbishment of Capital Professional Center's lobbies and building exteriors, plus minor repairs for suite turnovers at various H80 and CPC suites;

c) $40,891 (4.8%) decrease in interest due to large interest rate drops on Highlands 8's variable interest rate loans;

d) $20,597 (11.4%) increase in general and administrative due to an increase in administrative costs associated with additional reporting requirements by the SEC and IRS, an increase in audit fees, and administrative costs associated with the development of Phase III; and

e) $69,279 (12%) increase in depreciation due to additional amortized costs for Highlands 80 tenant improvements.
**Recent Accounting Pronouncements

In June 2001, the FASB issued SFAS 143, which requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. This Statement is effective for fiscal years beginning after June 15, 2002, and is not expected to have a significant impact to the Financial Statements.

In July 2002, the FASB issued SFAS 146, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This Statement is effective prospectively for exit or disposal activities initiated after December 31, 2002. Management does not expect this Statement to have a material impact to the Financial Statements.

In November 2002, the FASB issued FIN 45, which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applied prospectively to guarantees issued or modified after December 31, 2002. The adoption of these recognition provisions will not have a significant impact to the Financial Statements. The disclosure requirements of this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. Management does not expect this Interpretation to have a material impact to the Financial Statements.

 
**ITEM 7a. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS**
The Partnership does not have a material market risk due to financial instruments held by the Partnership.

 

 
**ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

 
 
Page Number
 
 
 
INDEPENDENT AUDITORS' REPORT
12
 
 
 
FINANCIAL STATEMENTS
 
 
 
 
 
BALANCE SHEETS
13
 
AS OF DECEMBER 31, 2002 AND 2001
 
 
 
 
 
STATEMENTS OF OPERATIONS
14
 
FOR THE YEARS ENDED
 
 
DECEMBER 31, 2002, 2001, AND 2000
 
 
 
 
 
STATEMENTS OF PARTNERS' EQUITY
15
 
FOR THE YEARS ENDED
 
 
DECEMBER 31, 2002, 2001, AND 2000
 
 
 
 
 
STATEMENTS OF CASH FLOWS
16
 
FOR THE YEARS ENDED
 
 
DECEMBER 31, 2002, 2001, AND 2000
 
 
 
 
 
NOTES TO FINANCIAL STATEMENTS
17-25
 
 
 
SUPPLEMENTAL SCHEDULE
 
 
 
 
 
SCHEDULE III
33
 
REAL ESTATE AND ACCUMULATED DEPRECIATION
 
		

Financial schedules not included have been omitted because of the absence of conditions under which they are required or because the information is included elsewhere in this report.

 

 
**Independent Auditors' Report

 

The Partners

Capital Builders Development Properties II:

We have audited the accompanying balance sheets of Capital Builders Development Properties II, a California Limited Partnership, as of December 31, 2001 and 2000, and the related statements of operations, partners' equity and cash flows for each of the years in the three-year period ended December 31, 2002. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Capital Builders Development Properties II as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

						KPMG LLP

Sacramento, California						

February 7, 2003

 

 

 

	**PART 1 - FINANCIAL INFORMATION**
**Capital Builders Development Properties II**(A California Limited Partnership)**BALANCE SHEETS**[Discontinued Operations]**December 31,**December 31,**2002 **2001 **ASSETS
Cash
$1,196,236 
$399,514 
Accounts receivable, net of allowance for doubtful accounts of $20,049 and $3,201 as of December 31, 2002 and 2001, respectively
148,588 
290,857 
Investment property, at cost, net of accumulated Depreciation of $2,070,581 and $3,149,455 at December 31, 2002 and 2001, respectively
9,776,167 
13,935,483 
Lease commissions, net of accumulated amortization of $190,200 and $240,236 at December 31, 2002 and 2001, respectively
140,843 
240,294 
Other assets, net of accumulated Amortization of $34,593 and $141,852 at December 31, 2002 and 2001, respectively
90,327 
116,659 **Total assets**$11,352,161 **$14,982,807 **LIABILITIES AND PARTNERS' EQUITY
Notes payable
$4,084,942 
$11,327,106 
Accounts payable and accrued liabilities
21,076 
356,871 
Tenant deposits
97,471 
140,001 **Total liabilities**4,203,489 **11,823,978 
Commitments and contingencies
Partners' Equity:
General Partners
(24,345)
(64,243)
Limited Partners
7,173,017 
3,223,072 **Total Partners' equity**7,148,672 **3,158,829 **Total liabilities and Partners' equity**$11,352,161 **$14,982,807 
See accompanying notes to the financial statements.
** 

 

 **
**Capital Builders Development Properties II**(A California Limited Partnership)**STATEMENTS OF OPERATIONS**YEARS ENDED DECEMBER 31,**[Discontinued Operations]**2002 **2001 **2000 **Revenues
Rental and other income
$2,500,494 
$2,648,296 
$2,398,711 
Interest income
6,966 
29,289 
14,932 **Total revenues**2,507,460 **2,677,585 **2,413,643 **Expenses
Operating expenses
549,623 
517,353 
437,631 
Repairs and maintenance
539,536 
419,622 
313,326 
Property taxes
146,259 
158,245 
156,686 
Interest
804,363 
806,991 
847,882 
General and administrative
277,555 
202,006 
181,409 
Depreciation and amortization
441,188 
647,652 
578,373 **Total expenses**2,758,524 **2,751,869 **2,515,307 **Loss from operations**(251,064)**(74,284)**(101,664)
Gain from sale of investment property
4,240,907 
- - - - -
- - - - -**Net income (loss)**3,989,843 **(74,284)**(101,664)
Allocated to General Partners
39,898 
(743)
(1,017)
Allocated to Limited Partners
$3,949,945 
($73,541)
($100,647)**Net income (loss) per Limited Partnership Unit**$171.51 **($3.19)**($4.37)**Average Units outstanding**23,030 **23,030 **23,030 
See accompanying notes to the financial statements.

	

	**Capital Builders Development Properties II**
	**(A California Limited Partnership)**
	

	**STATEMENTS OF PARTNERS' EQUITY**
	**YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
[Discontinued Operations]**
	

 
 
 **Total
 **General**Limited**Partners'
 **Partners**Partners**Equity
 
 
 
 
 
 
 
 
Balance at December 31, 1999
($62,483)
$3,397,260
$3,334,777
 
 
 
 
Net loss
(1,017)
(100,647)
(101,664)
 
 
 
 
Balance at December 31, 2000
(63,500)
3,296,613
3,233,113
 
 
 
 
Net loss
(743)
(73,541)
(74,284)
 
 
 
 
Balance at December 31, 2001
(64,243)
3,223,072
3,158,829
 
 
 
 
Net income
39,898
3,949,945
3,989,843
 
 
 
 
Balance at December 31, 2002
($24,345)
$7,173,017
$7,148,672
 

See accompanying notes to the financial statements.

	
** 

 **
**Capital Builders Development Properties II**(A California Limited Partnership)**STATEMENTS OF CASH FLOWS**YEARS ENDED DECEMBER 31,**[Discontinued Operations]**2002**2001**2000**Cash flows from operating activities:
Net income (loss)
$3,989,843 
($74,284)
($101,664)
Adjustments to reconcile net income (loss) to cash flow provided by operating activities:
Gain from sale of investment property
(4,240,907)
- - - - -
- - - - -
Depreciation and amortization
441,188 
647,652 
578,373 
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable
63,575 
(113,227)
(33,047)
Increase in leasing commissions
(72,190)
(155,693)
(71,905)
(Increase) Decrease in other assets
(20,719)
17 
1,260 
(Decrease) Increase in accounts payable and accrued liabilities
(21,085)
12,103 
(15,987)
(Decrease) Increase in tenant deposits
(42,530)
27,712 
(2,324)**Net cash provided by operating activities**97,175 **344,280 **354,706 **Cash flows from investing activities:
Improvements to investment properties
(583,330)
(2,227,743)
(159,561)
Net proceeds from sale of buildings
8,525,041 
- - - - -
- - - - -**Net cash provided by (used in) investing activities**7,941,711 **(2,227,743)**(159,561)**Cash flows from financing activities:
Proceeds from issuance of debt
509,515 
1,225,804 
1,074,407 
Payments of debt
(7,751,679)
(149,606)
(136,433)
Payments of loan fees
- - - - - 
(25,735)
(116,874)**Net cash (used in) provided by financing activities**(7,242,164)**1,050,463 **821,100 **Net increase (decrease) in cash**796,722 **(833,000)**1,016,245 **Cash, beginning of year**399,514 **1,232,514 **216,269 **Cash, end of year**$1,196,236 **$399,514 **$1,232,514 **Cash paid for interest, net of interest capitalized**$804,363 **$806,991 **$847,882 **Non cash financing activity:
Refinance of mini-permanent loan with mortgage loan**- - - - - **- - - - - **$3,249,992 **Non cash investing activity:
Capital improvements financed through accounts payable and accrued liabilities**- - - - - **$314,710 **- - - - - 
See accompanying notes to the financial statements.** 

Capital Builders Development Properties II

(A California Limited Partnership)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001, AND 2000

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND

	 ORGANIZATION

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows:

Basis of Accounting

The financial statements of Capital Builders Development Properties II (The "Partnership") are prepared on the accrual basis of accounting and therefore revenue is recorded as earned and costs and expenses are recorded as incurred.

During the month of July 2002, the Highlands 80 project (8 individual buildings) was listed for sale, and during the month of October 2002 the CPC project (two individual buildings) was listed for sale, which resulted in all real estate assets of the Partnership being listed for sale during the year ended December 31, 2002. As discussed in Note 3, four of the eight H80 buildings were sold during the fourth quarter of 2002, resulting in gain recognition of $4,240,907. No other buildings or project were sold during the year ended December 31, 2002. However, as discussed in Note 3, subsequent to year-end one additional H80 building was sold, resulting in gain recognition, and the CPC project was sold, resulting in gain recognition. In conjunction with each sale, the corresponding debt was paid in full.

In accordance with the Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144), the current year results from the operations and financial position of the entire entity have been classified as discontinued operations as the Partnership had listed all assets for sale before December 31, 2002 and the Partnership had met all of the other criteria of long-lived assets to be disposed of by sale. Additionally, all prior periods have been stated as if the entire entity had been a discontinued operation. Depreciation was ceased on all buildings or project when the buildings or project was listed for sale in accordance with FAS 144. 

Additionally, in accordance with FAS 144, all unsold buildings were evaluated for impairment. No impairment adjustments were required.

Management has not and will not adopt a strategy for dissolving the Partnership until such time as a majority of the Partnership's properties have been sold, sales contracts for the balance of the properties are pending, and the General Partner approves such a plan. 

Organization

Capital Builders Development Properties II, a California Limited Partnership, is owned under the laws of the State of California. The Managing General Partner is Capital Builders, Inc., a California corporation (CB).

The Partnership is in the business of real estate development and is not a significant factor in its industry. The Partnership's investment properties are located near major urban areas and, accordingly, compete not only with similar properties in their immediate areas but with hundreds of properties throughout the urban areas. Such competition is primarily on the basis of locations, rents, services and amenities. In addition, the Partnership competes with significant numbers of individuals and organizations (including similar companies, real estate investment trusts and financial institutions) with respect to the purchase and sale of land, primarily on the basis of the prices and terms of such transactions.

Investment Properties

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

The Partnership's investment property consists of commercial land, buildings and leasehold improvements that are carried net of accumulated depreciation. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives of three to forty years. The straight-line method of depreciation is followed for financial reporting purposes.

Other Assets

Included in other assets are loan fees. Loan fees are amortized over the life of the related note.

Lease Commissions

Lease commissions are costs associated with obtaining leases with terms in excess of one year. The Partnership capitalizes these costs and amortizes them on a straight line basis over their related lease term.

Income Taxes

The Partnership has no provision for income taxes since all income or losses are reported separately on the individual Partners' tax returns.	

Revenue Recognition

Rental income is recognized on a straight-line basis over the life of the lease, which may differ from the scheduled rental payments.

Allowance for Doubtful Accounts Receivable

The allowance for doubtful accounts is based upon analysis of possible losses from trade receivables. The allowance for doubtful accounts was $20,049 and $3,201 as of December 31, 2002 and 2001, respectively. The provision for losses during the years ended December 31, 2002 and 2001 was $16,648 and $3,201, respectively.

Net Loss per Limited Partnership Unit

The net loss per Limited Partnership Unit is computed based on the weighted average number of Units outstanding of 23,030 during the years ended December 31, 2002 , 2001 and 2000.

Statement of Cash Flows

For purposes of the statement of cash flows, the Partnership considers all short-term investments with a maturity, at date of purchase, of three months or less to be cash equivalents.

Use of Estimates

The preparation of financial statements requires Partnership Management to make estimates and judgments that effect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, Partnership Management evaluates its estimates, including those related to long lived assets, accounts receivable, and contingencies and litigation. Partnership Management bases its estimates on current information, historical experience and or various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recognition of revenue that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 
** 

NOTE 2 - RELATED PARTY EXPENSE REIMBURSEMENT AND FEE ARRANGEMENT**
The Managing General Partner (Capital Builders, Inc.) and the Associate General Partners are entitled to reimbursement of expenses incurred on behalf of the Partnership and certain fees from the Partnership. These fees include: a portion of the sales commissions payable by the Partnership with respect to the sale of the Partnership Units; an acquisition fee of up to 12.5% of gross proceeds from the sale of the Partnership Units; a property management fee up to 6% of gross rental revenues realized by the Partnership with respect to its properties; a subordinated real estate commission of up to 3% of the gross sales price of the properties; and a subordinated 25% share of the Partnership's distributions of cash from sales or refinancing. The property management fee currently being charged is 5% of gross rental revenues collected. 

All acquisition fees and expenses, all underwriting commissions, and all offering and organizational expenses which can be paid are limited to 20% of the gross proceeds from sales of Partnership Units provided the Partnership incurs no borrowing to develop its properties. However, these fees may increase to a maximum of 33% of the gross offering proceeds based upon the total acquisition and development costs, including borrowing. Since the formation of the Partnership, 27.5% of these fees were paid to the Partnership's related parties, leaving a remaining maximum of 5.5% ($633,325) of the gross offering proceeds. The Managing general Partner is projecting that the Partnership will most likely not incur any portion of these fees, although the ultimate amount of these costs cannot be determined until the Phase III Highlands 80 property is fully developed.

The total management fees paid to the Managing General Partner were $125,320, $131,105 and $115,635 for the years ended December 31, 2002, 2001 and 2000, respectively, while total reimbursement of expenses was $288,229, $270,706 and $226,652 respectively.

Management fees are classified on the Statements of Operations as an Operating Expense. Reimbursement of expenses are primarily for investor services, preparation of SEC filings, audit coordination and other Partnership management functions. Expense reimbursements are classified as General and Administrative expenses on the Statements of Operations.

In accordance with the Partnership Agreement, the General Partner may hire outside consultants or perform the necessary accounting, reporting and investor service functions internally, and pass through the associated costs. It has been determined by the General Partner that if outside consultants were to perform these functions, the related costs would be substantially higher to the Partnership.

The Managing General Partner will reduce its future participation in proceeds from sales by an amount equal to the loss on the abandonment of option fees in 1988 ($110,000) and interest on the amount at a rate equal to that of the borrowed funds rate as determined by construction or permanent funds utilized by the Partnership.
** 

NOTE 3 - INVESTMENT PROPERTY**
The components of the investment property account at December 31, are as follows:

 **2002**2001
Land
$ 2,858,121
$ 4,053,799
Building and Improvements
8,048,437
9,256,574
Tenant Improvements
940,190
1,772,746
Construction in Progress
- - - - -
2,001,819
Investment property, at cost
11,846,748
17,084,938
 
 
 
Less:  accumulated depreciation and amortization
(2,070,581)
(3,149,455)
 
 
 
Investment property, net
$ 9,776,167
$ 13,935,483
During the fourth quarter 2002, the Partnership sold four out of the eight Highlands 80 buildings. The Partnership received net proceeds of $8,525,041 after commissions and closing costs. The sale of these buildings resulted in gain recognition of $4,240,907. In conjunction with these sales, tenant security deposits were assumed by the Buyers while the Partnership retained ownership of the accounts receivable.

The remaining Highlands 80 buildings are listed for sale, with one currently under contract to be sold for $1,850,000. The Partnership closed the sale subsequent to December 31, 2002, netting the Partnership $1,774,160 in proceeds after sales commissions and closing costs. The sales price exceeded the book value of the building.

As of December 31, 2002, the Partnership also had Capital Professional Center under contract for sale for $8,000,000. The Partnership closed the sale subsequent to December 31, 2002, netting the Partnership $7,649,350 in proceeds after sales commissions and closing costs. The sales price exceeded the book value of the project.

 
**NOTE 4 - NOTES PAYABLE**
Notes Payable consist of the following at December 31,:

 **2002**2001
A mortgage loan of $4,200,000 with a fixed interest rate of 7.97% and requiring monthly principal and interest payments of $32,333, which is sufficient to amortize the loan over 25 years. The loan is due January 10, 2006. The note is collateralized by a First Deed Of Trust on Capital Professional Center's (CPC) land, buildings and improvements. This loan was paid off subsequent to December 31, 2002.
$ 4,084,942
$ 4,144,755
A mini-permanent loan of $5,000,000 with a fixed 8.95% interest rate. The loan required monthly principal and interest payments of $41,789 which was sufficient to amortize the loan over 25 years. The loan was due October 1, 2002. The note was collateralized by a First Deed Of Trust on Highlands 80 Phase I land, buildings and improvements. This Note was paid in full in the fourth quarter of 2002.
- - - - -
4,542,367
A construction loan of $1,930,000 with a variable interest rate of one month LIBOR plus 350 basis points. The loan required monthly interest only payments and its due date was November 3, 2002. The note was collateralized by a First Deed of Trust on Highlands 80 Phase II land, buildings and improvements. This Note was paid in full in the fourth quarter of 2002.
- - - - -
1,863,759
A construction loan of $2,390,000 with a variable interest rate of one month LIBOR plus 350 basis points. The loan required monthly interest only payments and was due February 13, 2003. The Note was collateralized by a First Deed of Trust on Highlands 80 Phase III land, buildings and improvements, and was cross collateralized by Highlands 80 Phase I and Phase II improvements. This Note was paid in full in the fourth quarter of 2002.
- - - - -
776,225**Total Notes Payable**$ 4,084,942**$ 11,327,106** 

The Partnership is in compliance with all restrictive debt covenants as of December 31, 2002. 

Scheduled principal payments during 2003, 2004, 2005, and 2006 are $64,311, $70,106, 75,904 and $3,874,621, respectively; however, the mortgage loan was paid off in January 2003, concurrent with the 2003 property sales discussed in Note 3.

The pay off of mortgage loans did not result in gain or loss being recognized.

The Partnership's Highlands 80 Phase I mini-permanent, and Phase II and III construction loans were paid in full during the fourth quarter of 2002.
** 

NOTE 5 - LEASES**
The Partnership leases its continuing property under long term noncancelable operating leases to various tenants. The facilities are leased through agreements for rents based on the square footage leased. Minimum annual base rental payments, excluding leases associated with the January 2003 sales, under these leases for the full years ending December 31 are as follows:

2003 
$ 260,619 
2004 
244,872 
2005 
186,810 
2006 
155,848 **Total**$ 848,149 
** 

NOTE 6 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

**YEAR 2002**March 31 **June 30 **September 30 **December 31 
Revenues
$669,103 
$702,756 
$628,958 
$506,643 
Gain on sale of investment properties
- - - - -
- - - - -
- - - - -
$4,240,907 
Net (loss)/income
($74,650)
($146,365)
($64,794)
$4,275,652 
Net (loss)/income per limited partnership unit
($3.21)
($6.29)
($2.79)
$183.80 **YEAR 2001**March 31**June 30**September 30**December 31
Revenues
$641,635 
$701,798 
$663,837 
$670,315 
Net (loss)/income
($29,758)
$32,587 
($69,859)
($7,254)
Net (loss)/income per limited partnership unit
($1.28)
$1.40 
($3.03)
($0.28)** 

 

NOTE 7 - RECONCILIATION TO INCOME TAX METHOD OF ACCOUNTING

A reconciliation of the net loss as reflected on the accompanying Statements of Operations to that reflected on the Federal income tax return for the years ended December 31 is as follows:
**	**
 **2002**2001**2000
 
 
 
 
Net income (loss) - Statements of Operations
$3,989,843
($74,284)
($101,664)
 
 
 
 
Adjustments
 
 
 
  Resulting from:
 
 
 
  Difference in depreciation and amortization and in 2002 the sale of properties
(1,508,585)
141,516
5,276
 
 
 
 
  Net income (loss) - tax return
$2,481,258
$67,232
($96,388)
 
 
 
 
Partners' equity - Statements of Partners' Equity
$ 7,148,672
$3,158,829
$3,233,113
 
 
 
 
Increases 
 
 
 
  resulting from:
 
 
 
  Difference in depreciation and amortization
1,601,743
3,110,328
2,968,812
 
 
 
 
  Selling expenses for Partnership units
1,713,666
1,713,666
1,713,666
 
 
 
 
  Partners' equity - tax return
$10,464,081
$7,982,823
$7,915,591
 
 
 
 
Taxable income (loss) per Limited Partnership unit after giving effect to the taxable income or (loss) allocated to the General Partner
$106.66
$2.89
($4.14)** 

NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Partnership in estimating its fair value disclosures for financial instruments.
**Notes payable**
The fair value of the Partnership's Notes Payable are estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Partnership for debt of the same remaining maturities.

The estimated fair values of the Partnership's financial instruments are as follows:,

 **December 31, 2002**December 31, 2001
 
Carrying
Estimated
Carrying
Estimated
 
Amount
Fair Value
Amount
Fair Value**Liabilities
 
 
 
 
Note payable
- - - - -
- - - - -
$4,542,367
$4,542,367
Note payable
- - - - -
- - - - -
$1,863,759
$1,863,759
Note payable
- - - - -
- - - - -
$ 776,225
$ 776,225
Note payable
$4,084,942
$4,084,942
$4,144,755
$4,144,755
 
**NOTE 9 - RECENTLY ISSUED ACCOUNTING STANDARDS**
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimated useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144. The Partnership adopted SFAS No. 142 on January 1, 2002, and because the Partnership has not recorded goodwill or intangible assets with indefinite useful lives, the adoption of SFAS No. 142 did not have an impact on the Partnership's financial statements. The Partnership has recorded intangible assets with estimated useful lives, primarily loan fees and leasing commissions, and has applied SFAS No. 142 and SFAS No. 144 effective January 1, 2002. The adoption of these accounting standards did not impact to the Partnership's financial statements. 

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS No. 143). This statement requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets. SFAS No. 143 also requires the enterprise to record the contra to the initial obligation as an increase to the carrying amount of the related long-lived asset, i.e., the associated asset retirement costs, and to depreciate that cost over the life of the asset. The liability is increased at the end of each period to reflect the passage of time, i.e., accretion expense, and changes in the estimated future cash flows underlying the initial fair value measurement. The Partnership is required to adopt SFAS No. 143 on January 1, 2003. This statement is not expected to have a material impact on the Partnership's financial reporting and related disclosures. 

In August, 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lives assets. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Partnership adopted SFAS No. 144 on January 1, 2002 and the adoption of SFAS No. 144 did not have an impact on the Partnership's financial statements.
**NOTE 10 - COMMITMENTS AND CONTINGENCIES**
The Partnership is involved in litigation arising in the normal course of its business. In the opinion of management, the Partnership's recovery or liability if any, under any pending litigation would not materially affect its financial condition or results of operations.
** 

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE	

NONE
** 

PART III

ITEM 10. 	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors. The Partnership is managed by Capital Builders, Inc. ("CB"), the Managing General Partner. The following are the names and other information relating to the Managing General Partner. No expiration date has been set for the term during which the Managing General Partner is to serve.
** 

MANAGING GENERAL PARTNER

The Partnership is being managed by CB, the Managing General Partner. CB is a California corporation organized in May 1978. CB relocated on October 8, 1999 and moved its executive offices at 1130 Iron Point Road, Suite 170, Folsom, California 95630 (telephone number 916-353-0500). To date, CB has organized ten partnerships to engage in commercial real estate development. As the General Partner, CB may be responsible for certain liabilities that a partnership it manages is unable to pay.

 

The officers, directors, and key personnel of CB are as follows:

Name
Office
Michael J. Metzger
President and Director
Mark J. Leggio
Director
Ellen Wilcox
Director
Andrew Gianulias
Director
 

Michael J. Metzger: Mr. Metzger is responsible for the general management of CB. Mr. Metzger assumed responsibility for the management of CB in December 1986. He was formerly the Executive Vice President of The Elder-Nelson Company (EN) and its subsidiary, the Elder-Nelson Equities Corporation - affiliated companies which provided underwriting and administrative services to CB. Prior to joining EN in 1977, Mr. Metzger was Partner/General Manager for two years in his family's real estate contracting, development and syndication business. Mr. Metzger has also had five years of experience in manufacturing management and served as an Army Officer for four years. Mr. Metzger holds a B.S. degree in Business and Industrial Management and a California Real Estate Broker's License.

Ellen Wilcox: Ellen Wilcox is a Registered Investment Advisor, the current Owner/Manager of Crestview Capital Management and the former Owner/Manager of Wilcox Financial Services. She is licensed in General Securities and Insurance through Linsco/Private Ledger, an NASD Registered Broker/Dealer. As an Investment Advisor and Broker, Ms. Wilcox provides a full range of investment products and services to individuals and small business owners. She has been actively providing such services since 1986. Ms. Wilcox teaches classes on retirement planning, investment strategies, and basic money management. She is a popular speaker and lecturer on financial topics, has authored many published articles, and has appeared on several radio shows. 

Mark J. Leggio: Mark Leggio is the Owner of Mark J. Leggio, CPA. He provides tax accounting and business consultation services to a wide variety of small and mid-size businesses. From 1978 to 1995 he worked for KPMG LLP and was a partner when he left. Mr. Leggio holds a Bachelor of Science degree in Accounting from the University of Southern California, where he graduated cum laude.

Andrew Gianulias: Andrew Gianulias is a Real Estate Investor, specializing in development and investment of commercial/retail real estate. Mr. Gianulias also has a background as a real estate attorney and received his Juris Doctor from the University of California School of Law, Berkeley. He has been a member of the State Bar of California for over 37 years and a member of the International Conference of Shopping Centers (ICSC) for two years. Mr. Gianulias is also a licensed Real Estate Broker.
**ITEM 11.	EXECUTIVE COMPENSATION
The Partnership does not have any officers or employees and, therefore, does not pay compensation to such persons. The Partnership's business is conducted by the Managing General Partner which is entitled under Article IV of the Partnership Agreement to receive underwriting commissions, acquisition fees, property management fees, subordinated real estate commission, share of distribution and an interest in the Partnership. The Managing General Partner's fees totaled $125,320 in 2002, consisting entirely of property management fees which are calculated as 5% of gross rental revenues collected.

In addition to the fees described above, the General Partner is entitled to reimbursement for out of pocket expenses incurred on behalf of the Partnership. Such expenses aggregated $288,229 in 2002.
**ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
	MANAGEMENT
The Managing General Partner contributed $1,000 to the Partnership Capital accounts, however, no securities were issued in respect thereof. No person is known to the Partnership to own beneficially more than 5% of the Units.
**ITEM 13. 	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership agreement (see Part IV, Item 14(a)(4) Exhibits) which was executed in 1985, authorized the compensation set forth below to be paid to the Managing General Partner and to affiliates of the Managing General Partner.

During the year ended December 31, 2002, the Managing General Partner and/or its affiliate received $288,229 for reimbursement of administrative services and $125,320 for property management and administrative fees.
**ITEM 14. 	CONTROLS AND PROCEDURES
A review and evaluation was performed by the Fund's Management, including the Fund's President and Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of the Fund's disclosure controls and procedures as of a date within 90 days prior to the filing of this Annual Report on Form 10-K. Based on that review and evaluation, the President and CFO have concluded that the Fund's current disclosure controls and procedures, as designed and implemented, were effective. There have been no significant changes in the Fund's internal controls or in other factors that could significantly affect the Fund's internal controls subsequent to the date of their evaluation. There were no significant material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Fund.
** 

PART IV

ITEM 15. EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 

 **EXHIBIT
 
 **NUMBER**EXHIBIT
 
 
 
(a)
1,2
See Item 8 of this Form 10-K for the Consolidated Financial Statements of the Partnership, Notes thereto, and Supplementary Schedules. An index to Financial Statements and Schedules is included and incorporated herein by reference.
 
4
Limited Partnership Agreement dated February 6, 1986 filed as exhibit 3.3 and the Amendment to the Limited Partnership Agreement dated May 22, 1986, filed as exhibit 3.4 to Registration Statement No. 2-96042 of Capital Builders Development Properties II, a California Limited Partnership are hereby incorporated by reference.
 
11
Statement regarding computation of per Unit earnings is not included because the computation can be clearly determined from the material contained in this report.   
(b)
 
Reports on Form 8-K
 
 
The Partnership filed an 8-K dated November 11, 1992.
 
 
The Partnership filed an 8-K dated August 16, 2002.
 
 
The Partnership filed an 8-K dated December 17, 2002.
 
**SIGNATURES**
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
**Capital Builders Development Properties II

a California Limited Partnership**
By **CAPITAL BUILDERS, INC.,**
The Managing General Partner,

For and On Behalf of the 

Capital Builders Development Properties II

A California Limited Partnership

 

											
Michael J. Metzger, President			Date

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
**Signature			Title		 	Date
				Associate General					
Michael J. Metzger	Partner; President and

				Director of Capital Builders,

				Inc. ("CB")

 

				Chief Financial					
Kenneth L. Buckler	Officer of CB

		

		
**SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.**
The Partnership has not sent an annual report or proxy statements to the Limited Partners and does not intend to send a proxy statement to the Limited Partners. The Partnership will send the Limited Partners an annual report and will furnish the Commission with copies of the annual report on or before April 30, 2003.
** 

 

 

CERTIFICATIONS

I, Michael J. Metzger, President of Capital Builders, Inc., certify, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:

1. I have reviewed this annual report on Form 10-K of Capital Builders Development Properties II.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 

6. The registrant's other certifying officer and I have indicated in the annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

						

Michael J. Metzger, President

 

_________________________

Date

 

 

I, Kenneth L. Buckler, Chief Financial Officer of Capital Builders, Inc., certify, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:

1. I have reviewed this annual report on Form 10-K of Capital Builders Development Properties II.

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14 for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 

6. The registrant's other certifying officer and I have indicated in the annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

						

Kenneth L. Buckler

Chief Financial Officer

 

_________________________

Date

	

 
**Capital Builders Development Properties II**A California Limited Partnership and Subsidiary**SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION**December 31, 2002****Column A**Column B**Column C**Column D**Description**Encumbrances**Initial Cost**Cost Capitalized Subsequent to Acquisition**Land (1)**Improvements(1)**Carry Costs**Commercial Office Bldg.**Highlands 80
$0 
$919,470 
$6,144,627 
$29,281 **Roseville
4,084,942 
986,715 
3,677,329 
89,326 **Commercial Office Bldg.
$4,084,942 
$1,906,185 
$9,821,956 
$118,607 **Balance at beginning of period**Additions**Deletions (2)**Balance at end of period**Column A**Column E**Description**Gross Carrying Amount at End of Period**Land(1)**Buildings & Improvements(1)**Total (1)**Commercial Office Bldg.**Highlands 80
$1,426,336 
$5,667,042 
$7,093,378 **Roseville
1,431,785 
3,321,585 
4,753,370 **Commercial Office Bldg.
$2,858,121 
$8,988,627 
$11,846,748 **Column E Total**2000**2001**2002**Balance at beginning of period
$14,917,738 
$14,556,377 
$17,084,938 **Additions
159,561 
2,542,453 
583,330 **Deletions (2)
(520,922)
(13,892)
(5,821,520)**Balance at end of period
$14,556,377 
$17,084,938 
$11,846,748 **Column A**Column F**Column G**Column H**Column I**Description**Accumulated Depre-ciation**Date of Con-struction**Date Acquired**Depre-ciation Life**Commercial Office Bldg.**Highlands 80
$1,321,546 
1987
1987
40 Years (Bldg.)**Roseville
749,035 
1987
1987
40 Years (Bldg.)**Commercial Office Bldg.
$2,070,581 
Life of Lease Tenant Imp.)**Column F Total**2000**2001**2002**Balance at beginning of period
$2,714,863 
$2,648,467 
$3,149,455 **Additions
454,526 
514,880 
352,019 **Deletions (2)
(520,922)
(13,892)
(1,430,893)**Balance at end of period
$2,648,467 
$3,149,455 
$2,070,581 **1) Valuation allowance for possible investment loss of $469,000 at December 31, 1995 was charged against the cost basis of the land and building and improvements on a pro rata basis in accordance with the provisions of SFAS No. 121 which was adopted during 1995.****2) Deletions represent the write-off of fully amortized tenant improvement costs during 2000 & 2001 During 2002, deletions represent the sale of Highlands 80 buildings 4604,4700,4704, & 4708).********************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************************