<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                            ----------------------

                                    FORM 10-Q


                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



                 FOR QUARTER ENDED               COMMISSION FILE NUMBER
                SEPTEMBER 30, 1997                       0-15537


                            ----------------------


                           KEYSTONE MORTGAGE FUND II,
                        A CALIFORNIA LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter.)



               CALIFORNIA                              95-4061580
        (State of Incorporation)          (I.R.S. Employer Identification No.)

       11340 W. OLYMPIC BOULEVARD
                SUITE 300
         LOS ANGELES, CALIFORNIA                       90064-1661
(Address of principal executive offices)               (Zip Code)


       Registrant's telephone number, including area code:  (310) 479-4121


                            ----------------------


Indicated by check mark whether the registrant (1) has filed all report 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 period 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 _____

<PAGE>

                          KEYSTONE MORTGAGE FUND II
                      A CALIFORNIA LIMITED PARTNERSHIP

                                     INDEX

                                                                          PAGE
                                                                          ----
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.
    (a)  Condensed Balance Sheets, December 31, 1996 and 
         September 30, 1997  . . . . . . . . . . . . . . . . . . . . . .   3
    (b)  Condensed Statements of Income, three and nine months ended,
         September 30, 1997 and 1996 . . . . . . . . . . . . . . . . . .   4
    (c)  Condensed Statements of Partners' Capital (Deficit) for the 
         year ended December 31, 1996 and the nine months ended 
         September 30, 1997 . . . . . . . . . . . . . . . . . . . . . .    5  
    (d)  Condensed Statements of Cash Flows, nine months ended
         September 30, 1997 and 1996. . . . . . . . . . . . . . . . . .    6  
    (e)  Notes to condensed financial statements. . . . . . . . . . . .  7 & 8

Item 2.  Management's discussion and analysis of financial condition 
         and results of operations. . . . . . . . . . . . . . . . . . .    9  

PART II  OTHER INFORMATION

Item 6.  Exhibits and reports on Form 8-K . . . . . . . . . . . . . . . 10 & 11


                                       2
<PAGE>

                            KEYSTONE MORTGAGE FUND II,
                         A CALIFORNIA LIMITED PARTNERSHIP

                                BALANCE SHEETS

                                     ASSETS
<TABLE>
<CAPTION>
                                                                            (Unaudited)
                                                             *December 31   September 30
                                                                  1996          1997
                                                             ------------    ------------
<S>                                                           <C>            <C>
Current assets:                                                                          
  Cash and cash equivalents . . . . . . . . . . . . . . . .   $   15,808      $    8,958 
  Short-term investments (market value of $684,005 in 1996                               
    and $917,415 in 1997) . . . . . . . . . . . . . . . . .      684,005         917,415 
  Interest receivable on trust deed notes receivable  . . .        9,321           9,202 
  Current portion of trust deed notes receivable (note B) .       39,732          40,133 
                                                             ------------    ------------
    Total current assets. . . . . . . . . . . . . . . . . .      748,866         975,708 
                                                                                         
Trust deed notes receivable, net (note B) . . . . . . . . .    1,397,966       1,372,411 
                                                             ------------    ------------
                                                              $2,146,832      $2,348,119 
                                                             ------------    ------------
                                                             ------------    ------------
                                                                                         
                       LIABILITIES AND PARTNERS' CAPITAL                                 
                                                                                         
Current Liabilities:                                                                     
  Accounts payable and other liabilities. . . . . . . . . .   $    1,295      $      616 
  Due general partners. . . . . . . . . . . . . . . . . . .      259,000         266,500 
                                                             ------------    ------------
    Total Current Liabilities . . . . . . . . . . . . . . .      260,295         267,116 
                                                                                         
Partners' capital:                                                                       
  General Partners. . . . . . . . . . . . . . . . . . . . .     (206,601)            745 
  Limited Partners - 41,459 units outstanding in 1996 and                                
    1997 respectively . . . . . . . . . . . . . . . . . . .    2,093,138       2,080,258 
                                                             ------------    ------------
      Net partners' capital . . . . . . . . . . . . . . . .    1,886,537       2,081,003 
                                                             ------------    ------------
                                                              $2,146,832      $2,348,119 
                                                             ------------    ------------
                                                             ------------    ------------
</TABLE>

                See accompanying notes to financial statements.
      * Extracted from audited December 31, 1996 financial statements.


                                       3
<PAGE>

                            KEYSTONE MORTGAGE FUND II
                        A CALIFORNIA LIMITED PARTNERSHIP

                    CONDENSED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>
                                              Nine Months Ended       Three Months Ended
                                                 September 30            September 30
                                                1997      1996          1997       1996
                                              --------  --------      --------  ---------
<S>                                           <C>       <C>           <C>       <C>
Revenue:                                                                                 
  Interest on mortgage loans . . . . . . . .  $ 84,057  $ 89,341      $ 28,096  $  29,570
  Interest on short-term investments . . . .    32,294    33,027        11,541        895
                                              --------  --------      --------  ---------
                                               116,351   122,368        39,637     30,465
                                                                                         
Expenses:                                                                                
  Servicing related expenses . . . . . . . .    25,810    29,791         4,368      5,795
  General and administrative expenses. . . .    16,067    15,087         4,724      4,889
                                              --------  --------      --------  ---------
                                                41,877    44,878         9,092     10,684
                                              --------  --------      --------  ---------
    NET INCOME . . . . . . . . . . . . . . .  $ 74,474  $ 77,490      $ 30,545   $ 19,781
                                              --------  --------      --------  ---------
                                              --------  --------      --------  ---------
                                                                                         
Weighted average number of limited                                                       
  partnership units outstanding. . . . . . .    41,459    41,459        41,459     41,459
                                              --------  --------      --------  ---------
                                              --------  --------      --------  ---------
                                                                                         
Net income per limited partnership unit. . .  $   1.80  $   1.87      $    .74  $     .48
                                              --------  --------      --------  ---------
                                              --------  --------      --------  ---------

</TABLE>

                        See notes to financial statements


                                       4 
<PAGE>

                            KEYSTONE MORTGAGE FUND II
                        A CALIFORNIA LIMITED PARTNERSHIP

                    STATEMENTS OF PARTNER'S CAPITAL (DEFICIT)

<TABLE>
<CAPTION>
                                                    General     Limited
                                                    Partners    Partners      Total
                                                    ----------  ----------  ----------
<S>                                                 <C>         <C>         <C>
Balance at December 31, 1996 . . . . . . . . . .    $(206,601)  $2,093,138  $1,886,537
General Partners Contribution. . . . . . . . . .      206,601                  206,601
Net income nine months ended September 30, 1997.          745       73,729      74,474
Less distribution. . . . . . . . . . . . . . . .                   (86,609)    (86,609)
                                                    ----------  ----------  ----------

Balance as of September 30, 1997 (unaudited) . .    $     745   $2,080,258  $2,081,003
                                                    ----------  ----------  ----------
                                                    ----------  ----------  ----------
</TABLE>


                                       5
<PAGE>

                           KEYSTONE MORTGAGE FUND II,
                        A CALIFORNIA LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                      Nine Months Ended September 30
                                                      ------------------------------
                                                              1997         1996
                                                              ----         ----
<S>                                                       <C>           <C>
OPERATING ACTIVITIES:                                                             
                                                                                  
 Net Income. . . . . . . . . . . . . . . . . . . . . . .  $  74,474     $   77,490
 Changes in operating assets and liabilities:                                     
    Amortization of net origination fees . . . . . . . .     (1,275)        (1,275) 
    Decrease in interest and accounts receivable . . . .        119            625
    Increase in due general partners . . . . . . . . . .      7,500          7,500
    Decrease in accounts payable . . . . . . . . . . . .       (679)           (10) 
                                                          ----------    ----------
        NET CASH PROVIDED BY OPERATING ACTIVITIES. . . .     80,139         84,330
                                                                                  
INVESTING ACTIVITIES:                                                             
                                                                                  
  Decrease in notes receivable . . . . . . . . . . . . .     26,429         23,690
  Increase in short-term investments . . . . . . . . . .   (233,410)       (74,118)
                                                                                  
                                                                                  
FINANCING ACTIVITIES:
                                                                                  
General Partners contributions . . . . . . . . . . . . .    206,601                
Distribution and withdrawals . . . . . . . . . . . . . .    (86,609)      (104,782)
                                                          ----------    ----------
  Decrease in cash and cash equivalents. . . . . . . . .     (6,850)       (70,880)
  Cash and cash equivalents at beginning year. . . . . .     15,808         93,997
                                                          ----------    ----------
    CASH AND CASH EQUIVALENTS
    AT END OF PERIOD . . . . . . . . . . . . . . . . . .  $   8,958     $   23,117
                                                          ----------    ----------
                                                          ----------    ----------
</TABLE>


                      See notes to financial statements


                                       6
<PAGE>

                           KEYSTONE MORTGAGE FUND II,
                        A CALIFORNIA LIMITED PARTNERSHIP

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - UNAUDITED BASIS OF PRESENTATION

     The accompanying unaudited condensed financial statements have been 
     prepared by Keystone Mortgage Fund II in accordance with generally 
     accepted accounting principles, pursuant to the rules and regulations of 
     the Securities and Exchange Commission.  Certain information and 
     footnote disclosures normally included in financial statements have been 
     condensed or omitted pursuant to such rules and regulations.  In the 
     opinion of management, the accompanying condensed financial statements 
     contain all adjustments necessary, which were of normal recurring 
     nature, for a fair statement of the results for the interim periods 
     presented. It is suggested that these condensed financial statements be 
     read in conjunction with the financial statements and the notes thereto 
     included in Form 10-K for the year ended December 31, 1996 filed by the 
     Company under the Securities Exchange Act of 1934.


                                       7
<PAGE>

                          KEYSTONE MORTGAGE FUND II,
                       A CALIFORNIA LIMITED PARTNERSHIP

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(B) TRUST DEED NOTES RECEIVABLE

<TABLE>
<CAPTION>
                                                     Monthly
                                                     Payment,
                                                    including   December 31  September 30
                                                     interest       1996         1997  
                                                     --------       ----         ----  
<S>                                                 <C>         <C>          <C>
First trust deed on industrial building, interest                                      
  rate, adjusted every six months at 2.65% plus                                        
  11th District monthly weighted average cost of                                       
  funds, due February 1, 1999 . . . . . . . . . .   $12,039     $1,505,238   $1,478,809
                                                    -------                            
                                                    -------                            
                                                                                       
Less current portion. . . . . . . . . . . . . . .                   39,732       40,133
Less net deferred loan origination fees . . . . .                    3,540        2,265
Less allowance for loss . . . . . . . . . . . . .                   64,000       64,000
                                                                ----------   ----------
                                                                                       
    Net noncurrent trust deed notes receivable. .               $1,397,966   $1,372,411
                                                                ----------   ----------
                                                                ----------   ----------
</TABLE>


                                       8
<PAGE>

                          KEYSTONE MORTGAGE FUND II,
                       A CALIFORNIA LIMITED PARTNERSHIP

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
--------------------------------------------------------------------------------

     Revenue for the nine months ended September 30, 1997 decreased $5,284 or 

5.9% over the same period September 30, 1996.  Revenue for the three months 

ended September 30, 1997 decreased $1,474 or 4.9% for the same period ending 

Sept. 30, 1996.


     This decrease was due to a decrease in interest income as a result of 

distribution of loan payoff to limited partners.


     Servicing expenses decreased 15.4% and general and administrative 

expenses increased 6.5% for the nine months ended September 30, 1997 over the 

same period ended September 30, 1996.  Servicing expenses decreased 24.9% and 

general and administrative expenses increased 3.4% for the three months ended 

September 30, 1997 over the same period 1996.


     Net income decreased $3,016 or 3.9% for the nine months ended September 

30, 1997 over the same period September 30, 1996.  Net income increased 

$10,764 or 54.4% for the three moths ended September 30, 1997 over the same 

period September 30, 1996.


     Working capital increased $220,021 for nine months ended September 30, 

1997. The Partnership has adequate working capital and cash reserved to carry 

on its business.


     The Partnership continues to distribute to the Limited Partners 

principal repayments less required reserves.  Revenues and net income 

continue to decrease as the Partnership liquidates its assets.


                                       9
<PAGE>

                           PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      The Registrant filed no reports on Form 8-K during the quarter ended 
         September 30, 1997.


                                      10
<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:  November 13, 1997                    /S/John P. Sullivan
                                            ---------------------------------
                                               Keystone Mortgage Company
                                               By: John P. Sullivan, President




Date:  November 13, 1997                    /S/John P. Sullivan
                                            ---------------------------------
                                               John P. Sullivan
                                               General Partner




Date:  November 13, 1997                     /S/Christopher E. Turner
                                            ---------------------------------
                                               Christopher E. Turner
                                               General Partner


                                       11