<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 0-17556
Brauvin High Yield Fund L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3580153
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 443-0922
(Registrant's telephone number, including area code)
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
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>
BRAUVIN HIGH YIELD FUND L.P. II
INDEX
Page
PART I Financial Information
Item 1. Consolidated Financial Statements. . . . . . . 3
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 . . .. . . . . . . . . . . . . 4
Consolidated Statements of Operations for the
three months ended March 31, 1997 and 1996. . . . . 5
Consolidated Statements of Partners' Capital for
the periods January 1, 1996 to March 31, 1997 . . . 6
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996. . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 26
PART II Other Information
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . 33
Item 2. Changes in Securities. . . . . . . . . . . . . . . . 37
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 37
Item 4. Submissions of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 37
Item 5. Other Information. . . . . . . . . . . . . . . . . . 37
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . 37
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Except for the December 31, 1996 Consolidated Balance Sheet,
the following Consolidated Balance Sheet as of March 31, 1997,
Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996, Consolidated Statements of Partners'
Capital for the periods January 1, 1996 to March 31, 1997 and
Consolidated Statements of Cash Flows for the three months ended
March 31, 1997 and 1996 for Brauvin High Yield Fund L.P. II (the
"Partnership") are unaudited and have not been examined by
independent public accountants but reflect, in the opinion of the
management, all adjustments necessary to present fairly the
information required. All such adjustments are of a normal
recurring nature.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Partnership's 1996 Annual Report on Form
10-K.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
ASSETS
Investment in real estate (Note 5):
Land $10,961,124 $10,961,124
Buildings 24,440,040 24,440,040
35,401,164 35,401,164
Less: Accumulated depreciation (5,533,128) (5,357,473)
Net investment in real estate 29,868,036 30,043,691
Investment in Brauvin Bay
County Venture (Note 6) 282,011 283,793
Cash and cash equivalents 2,411,244 2,413,914
Rent receivable 27,191 37,063
Deferred rent receivable 359,429 342,539
Due from General Partners (Note 4) 140,000 140,000
Other assets 26,489 29,582
Total Assets $33,114,400 $33,290,582
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued
expenses $ 49,124 $ 59,233
Rent received in advance 105,865 142,596
Total Liabilities 154,989 201,829
MINORITY INTEREST:
Brauvin High Yield Venture 32,044 32,374
Brauvin Funds Joint Venture 2,445,936 2,450,861
PARTNERS' CAPITAL:
General Partners 319,429 319,429
Limited Partners 30,162,002 30,286,089
Total Partners' Capital 30,481,431 30,605,518
Total Liabilities and
Partners' Capital $33,114,400 $33,290,582
See accompanying notes to consolidated financial statements
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31,
1997 1996
INCOME
Rental $1,035,421 $1,040,396
Interest 34,953 20,684
Other 633 154
Total income 1,071,007 1,061,234
EXPENSES
General and administrative 74,951 55,070
Management fees (Note 3) 10,418 10,787
Amortization of deferred
organization costs and
other assets 300 1,382
Depreciation 175,655 180,522
Transaction costs (Note 7) 53,939 --
Valuation fees -- 43,450
Total expenses 315,263 291,211
Income before minority and
equity interests' share
of net income 755,744 770,023
Minority interest share
in net income:
Brauvin High Yield Venture (1,470) (1,419)
Brauvin Funds Joint Venture (68,575) (72,991)
Equity interest in:
Brauvin Bay County Venture's
net income 4,718 --
Net Income $ 690,417 $ 695,613
Net income allocated to the
Limited Partners $ 690,417 $ 695,613
Net income per
Unit outstanding (a) $ 17.11 $ 16.65
(a) Net income per Unit was based on the average Units
outstanding during the period since they were of varying dollar
amounts and percentages based upon the dates Limited Partners were
admitted to the Partnership and additional Units were purchased
through the distribution reinvestment plan (the "Plan").
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
For the periods from January 1, 1996 to March 31, 1997
General Limited
Partners Partners* Total
Balance January 1, 1996 $319,429 $30,261,083 $30,580,512
Contributions, net -- 30,965 30,965
Selling commissions and
other offering costs -- (15,203) (15,203)
Net income -- 1,824,011 1,824,011
Cash distributions -- (1,814,767) (1,814,767)
Balance, December 31, 1996 319,429 30,286,089 30,605,518
Net income -- 690,417 690,417
Cash distributions -- (814,504) (814,504)
Balance, March 31, 1997 $319,429 $30,162,002 $30,481,431
* Total Units outstanding at March 31, 1997 and December 31, 1996
were 40,347. Cash distributions to Limited Partners per Unit were
$20.19 and $45.00 for the three months ended March 31, 1997 and the
year ended December 31, 1996, respectively. Cash distributions to
Limited Partners per Unit are based on the average Units
outstanding during the year since they were of varying dollar
amounts and percentages based upon the dates Limited Partners were
admitted to the Partnership and additional Units were purchased
through the Plan.
See accompanying notes to consolidated financial statements.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31,
1997 1996
Cash Flows From Operating Activities:
Net income $ 690,417 $ 695,613
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 175,955 181,904
Minority interest's share of income
from Brauvin High Yield Venture 1,470 1,419
Minority interest's share of income
from Brauvin Funds Joint Venture 68,575 72,991
Equity interest share of income
from Brauvin Bay County Venture (4,718) --
Decrease in rent receivable 9,872 37,470
Increase in deferred rent receivable (16,890) (16,890)
Decrease (increase) in other assets 2,793 (2,033)
Decrease in accounts
payable and accrued expenses (10,109) (573)
Decrease in rent
received in advance (36,731) (18,838)
Decrease in due to affiliates -- 10,325
Net cash provided by operating activities 880,634 961,388
Cash Flows From Investing Activities:
Distributions from Brauvin Bay
County Venture 6,500 --
Net cash provided by investing activities 6,500 --
Cash Flows From Financing Activities:
Sale of Units, net of liquidations,
selling commissions and other
offering costs -- 18,658
Cash distributions to Limited
Partners (814,504) (907,443)
Cash distribution to minority interest -
Brauvin High Yield Venture (1,800) (1,800)
Cash distribution to minority interest -
Brauvin Funds Joint Venture (73,500) (78,400)
Net cash used in financing
activities (889,804) (968,985)
Net decrease in cash and cash
equivalents (2,670) (7,597)
Cash and cash equivalents at
beginning of period 2,413,914 1,374,779
Cash and cash equivalents at
end of period $2,411,244 $1,367,182
See accompanying notes to consolidated financial statements
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
BRAUVIN HIGH YIELD FUND L.P. II (the "Partnership") is a Delaware
limited partnership organized for the purpose of acquiring
debt-free ownership of existing, free-standing, income-producing
retail, office or industrial real estate properties predominantly
all of which will involve "triple-net" leases. The General
Partners of the Partnership are Brauvin Realty Advisors II, Inc.,
Jerome J. Brault and David M. Strosberg. Brauvin Realty Advisors
II, Inc. is owned primarily by Messrs. Brault (beneficially) (44%)
and Cezar M. Froelich (44%). Mr. Froelich resigned as a director
of Brauvin Realty Advisors II, Inc. in December 1994 and as an
Individual General Partner effective as of September 17, 1996.
Brauvin Securities, Inc., an affiliate of the General Partners, is
the selling agent of the Partnership.
The Partnership was formed on May 3, 1988 and filed a
Registration Statement on Form S-11 with the Securities and
Exchange Commission which became effective on June 17, 1988. The
minimum of $1,200,000 of limited partnership interests of the
Partnership (the "Units") necessary for the Partnership to commence
operations was achieved on July 26, 1988. The offering was
anticipated to close on June 16, 1989 but was extended until and
closed on September 30, 1989. A total of $38,923,000 of Units were
subscribed for and issued between June 17, 1988 and September 30,
1989, pursuant to the Partnership's public offering. Through March
31, 1997 and December 31, 1996, the Partnership has sold
$42,982,178 of Units. This total includes $4,059,178 of Units
purchased by Limited Partners who utilized their distributions of
Operating Cash Flow to purchase Units through the distribution
reinvestment plan (the "Plan"). Units valued at $2,886,915, have
been repurchased by the Partnership from Limited Partners
liquidating their investment in the Partnership and have been
retired as of March 31, 1997 and December 31, 1996. As of March
31, 1997 the Plan participants have acquired Units under the Plan
which approximate 9% of the total Units outstanding.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership has acquired the land and buildings underlying 14
Ponderosa restaurants, two Taco Bell restaurants, three Children's
World Learning Centers, three Hardee's restaurants, three Avis Lube
Oil Change Centers and three Chi-Chi's restaurants. Also acquired
were 99%, 51% and 26% equity interests in three joint ventures with
affiliated entities, which ventures purchased the land and
buildings underlying six Ponderosa restaurants, a Scandinavian
Health Spa and a Blockbuster Video store, respectively. In 1995,
the Partnership and Metromedia, the parent of Ponderosa
Restaurants, exchanged one of the Ponderosa restaurants for a Tony
Roma's restaurant. The Partnership's acquisition process is now
completed except to the extent funds raised through the Plan are
sufficient to purchase additional properties.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management's Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Accounting Method
The accompanying financial statements have been prepared using
the accrual method of accounting.
Rental Income
Rental income is recognized on a straight line basis over the
life of the related leases. Differences between rental income
earned and amounts due per the respective lease agreements are
credited or charged, as applicable, to deferred rent receivable.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Consolidation of Joint Ventures
The Partnership owns a 99% equity interest in a joint venture,
Brauvin High Yield Venture, which owns six Ponderosa restaurants,
and a 51% equity interest in another joint venture, Brauvin Funds
Joint Venture, which owns a Scandinavian Health Spa. The
accompanying financial statements have consolidated 100% of the
assets, liabilities, operations and partners' capital of these
ventures. All significant intercompany accounts have been
eliminated.
Investment in Joint Venture
The Partnership owns a 26% equity interest in a joint venture,
Brauvin Bay County Venture, which owns one Blockbuster Video Store.
The accompanying financial statements include the investment in
Brauvin Bay County Venture using the equity method of accounting.
Federal Income Taxes
Under the provisions of the Internal Revenue Code, the
Partnership's income and losses are reportable by the partners on
their respective income tax returns. Accordingly, no provision is
made for Federal income taxes in the financial statements.
However, in certain instances, the Partnership has been required
under applicable state law to remit directly to the tax authorities
amounts representing withholding from distributions paid to
partners.
Investment in Real Estate
The operating properties acquired by the Partnership are stated
at cost including acquisition costs, net of an allowance for
impairment. Depreciation expense is computed on a straight-line
basis over approximately 35 years.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
In 1995, the Partnership adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS
121). SFAS 121 requires the provision of an allowance for
impairment to reduce the cost basis of real estate to its estimated
fair value when the real estate is judged to have suffered an
impairment that is other than temporary. The Partnership has
performed an analysis of its long-lived assets, and the
Partnership's management determined that there were no events or
changes in circumstances that indicated that the carrying amount of
the assets may not be recoverable at March 31, 1997 and December
31, 1996, except as described in Note 5.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid debt
instruments with an original maturity within three months of
purchase.
Estimated Fair Value of Financial Instruments
Disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments." The estimated fair value amounts
have been determined by using available market information and
appropriate valuation methodologies. However, considerable
judgement is necessarily required in interpreting market data to
develop estimates of fair value.
The fair value estimates presented herein are based on
information available to management as of March 31, 1997, but may
not necessarily be indicative of the amounts that the Partnership
could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. Although management is
not aware of any factors that would significantly affect the
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements
since that date, and current estimates of fair value may differ
significantly from amounts presented herein.
The carrying amounts of the following items are a reasonable
estimate of fair value: cash and cash equivalents; rent receivable;
due from General Partners; accounts payable and accrued expenses;
and rent received in advance.
Reclassifications
Certain reclassifications have been made to the 1996 financial
statements to conform to classifications adopted in 1997.
(2) PARTNERSHIP AGREEMENT
Distributions
All Operating Cash Flow, as defined in the Partnership Agreement
(the "Agreement"), shall be distributed: (a) first, to the Limited
Partners until the Limited Partners receive an amount equal to
their 10% Current Preferred Return, as such term is defined in the
Agreement; and (b) thereafter, any remaining amounts will be
distributed 97.5% to the Limited Partners and 2.5% to the General
Partners.
The net proceeds of a sale or refinancing of a Partnership
property shall be distributed as follows:
first, to the Limited Partners until the Limited Partners have
received an amount equal to the 10% Cumulative Preferred Return,
as such term is defined in the Agreement;
second, to the Limited Partners until the Limited Partners have
received an amount equal to the amount of their Adjusted
Investment, as such term is defined in the Agreement; and
third, 95% to the Limited Partners and 5% to the General
Partners.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Profits and Losses
Net profits and losses from operations of the Partnership
[computed without regard to any allowance for depreciation or cost
recovery deductions under the Internal Revenue Code of 1986, as
amended (the "Code")] for each taxable year of the Partnership
shall be allocated between the Limited Partners and the General
Partners in accordance with the ratio of aggregate distributions of
Operating Cash Flow attributable to such tax year, although if no
distributions are made in any year, net losses (computed without
regard to any allowance for depreciation or cost recovery
deductions under the Code) shall be allocated 99% to the Limited
Partners and 1% to the General Partners. Notwithstanding the
foregoing, all depreciation and cost recovery deductions allowed
under the Code shall be allocated 2.5% to the General Partners and
97.5% to the Taxable Class Limited Partners, as defined in the
Agreement.
The net profit of the Partnership from any sale or other
disposition of a Partnership property shall be allocated (with
ordinary income being allocated first) as follows: (a) first, an
amount equal to the aggregate deficit balances of the Partners'
Capital Accounts, as such term is defined in the Agreement, shall
be allocated to each Partner who or which has a deficit Capital
Account balance in the same ratio as the deficit balance of such
Partner's Capital Account bears to the aggregate of the deficit
balances of all Partners' Capital Accounts; (b) second, to the
Limited Partners until the Limited Partners have been allocated an
amount of profits equal to their 10% Cumulative Preferred Return as
of such date; (c) third, to the Limited Partners until the Limited
Partners have been allocated an amount of profit equal to the
amount of their Adjusted Investment; and (d) thereafter, 95% to the
Limited Partners and 5% to the General Partners. The net loss of
the Partnership from any sale or other disposition of a Partnership
property shall be allocated as follows: (a) first, an amount equal
to the aggregate positive balances in the Partners' Capital
Accounts, to each Partner in the same ratio as the positive balance
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
in such Partner's Capital Account bears to the aggregate of all
Partners' positive Capital Account balances; and (b) thereafter,
95% to the Limited Partners and 5% to the General Partners.
(3) TRANSACTIONS WITH RELATED PARTIES
An affiliate of the General Partners manages the Partnership's
real estate properties for an annual property management fee equal
to up to 1% of gross revenues derived from the properties. The
property management fee is subordinated, annually, to receipt by
the Limited Partners of a 9% non-cumulative, non-compounded return
on their Adjusted Investment.
The General Partners owe the Partnership $140,000 at December 31,
1996, relating to the Distribution Guaranty Reserve.
The Partnership pays affiliates of the General Partners selling
commissions of 8-1/2% of the capital contributions received for
Units sold by the affiliates.
The Partnership pays an affiliate of the General Partners an
acquisition fee in the amount of up to 6% of the gross proceeds of
the Partnership's offering for the services rendered in connection
with the process pertaining to the acquisition of a property.
Acquisition fees related to the properties not ultimately purchased
by the Partnership are expensed as incurred.
An affiliate of one of the General Partners provided securities
and real estate counsel to the Partnership.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Fees, commissions and other expenses paid or payable to the
General Partners or its affiliates for the three months ended March
31, 1997 and 1996 were as follows:
1997 1996
Selling commissions $ -- $12,307
Management fees 10,418 10,787
Reimbursable operating
expenses 48,469 35,674
Legal fees -- 285
(4) WORKING CAPITAL RESERVES
The Partnership has made quarterly distributions to Limited
Partners for calendar years 1994, 1995 and the first quarter of
1996 and 1997 (the final payment for each year is made the
following February 15). As contemplated in the Prospectus, the
distributions prior to full property specification exceeded the
amount of Operating Cash Flow, as such term is defined in the
Agreement, available for distribution. The Partnership set aside
1% of the gross proceeds of its offering in a reserve (the
"Distribution Guaranty Reserve"). The Distribution Guaranty
Reserve was structured so as to enable the Partnership to make
quarterly distributions of Operating Cash Flow equal to at least
9.25% per annum on Adjusted Investment during the period from the
Escrow Termination Date (February 28, 1989), as such term is
defined in Section H.3 of the Agreement, through the earlier of:
(i) the first anniversary of the Escrow Termination Date (February
28, 1990); or (ii) the expenditure of 95% of the proceeds available
for investment in properties, which date was July 26, 1989. The
General Partners guaranteed payment of any amounts in excess of the
Distribution Guaranty Reserve and were entitled to receive any
amounts of the Distribution Guaranty Reserve not used to fund
distributions.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
The Partnership's acquisition process was not completed until
March 1991 due to an unusually high number of properties being
declined during the due diligence process because of the General
Partners' unwillingness to lower the Partnership's investment
standards. As a result, the Partnership had a substantial amount of
cash invested in short-term investments, as opposed to properties
and during 1990 did not generate sufficient Operating Cash Flow to
fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum
distribution through December 31, 1990, the General Partners agreed
to continue the Distribution Guaranty up to the net $140,000 of
Distribution Guaranty previously paid to them. At March 31, 1997
and December 31, 1996, $140,000 was due from the General Partners
related to the Distribution Guaranty.
(5) PROVISION FOR IMPAIRMENT
In 1996, the Partnership engaged Cushman & Wakefield Valuation
Advisory Services ("Cushman & Wakefield") to prepare an appraisal
of the Partnership's properties. As a result of this appraisal,
during the fourth quarter of 1996, the Partnership recorded an
additional provision for impairment of $550,000 related to an other
than temporary decline in real estate for the St. Johns, Michigan
and Albion, Michigan properties. This allowance has been recorded
as a reduction of the properties' cost, and allocated to the land
and buildings based on the original acquisition percentages of 30%
(land) and 70% (building).
(6) INVESTMENT IN JOINT VENTURE
The Partnership owns an equity interest in the Brauvin Bay
County Venture and reports its investment on the equity method.
The following are condensed financial statements for the Brauvin
Bay County Venture:
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
BRAUVIN BAY COUNTY VENTURE
March 31, 1997 December 31, 1996
Land and buildings, net $1,066,293 $1,069,277
Other assets 8,313 13,531
$1,074,606 $1,082,808
Liabilities $ 193 $ 1,155
Partners' capital 1,074,413 1,081,653
$1,074,606 $1,082,808
For the three months ended
March 31, 1997
Rental and other income $27,914
Expenses:
Depreciation 2,984
Management fees 292
Operating and administrative 6,493
9,769
Net income $18,145
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(7) MERGER AND LITIGATION
Merger
Pursuant to the terms of an agreement and plan of merger dated
as of June 14, 1996, as amended March 24, 1997 (the "Merger
Agreement"), the Partnership proposes to merge with and into
Brauvin Real Estate Funds, L.L.C., a Delaware limited liability
company affiliated with certain of the General Partners (the
"Purchaser") through a merger (the "Merger") of its Units. In
connection with the Merger, the Limited Partners will receive
approximately $779.22 per Unit in cash. Promptly upon consummation
of the Merger, the Partnership will cease to exist and the
Purchaser, as the surviving entity, will succeed to all of the
assets and liabilities of the Partnership. The Limited Partners
holding a majority of the Units approved the Merger on November 8,
1996. By approving the Merger, the Limited Partners also approved
an amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
Merger shall be referred to herein as the "Transaction").
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield
Valuation Advisory Services ("Cushman & Wakefield"), an independent
appraiser, the largest real estate valuation and consulting
organization in the United States, was engaged by the Partnership
to prepare an appraisal of Assets, to satisfy the Partnership's
requirements under the Employee Retirement Income Security Act of
1974, as amended. Cushman & Wakefield determined the fair market
value of the Assets to be $30,183,300, or $748.09 per Unit. The
redemption price of $779.22 per Unit also includes all remaining
cash of the Partnership, less net earnings of the Partnership from
and after August 1, 1996 through December 31, 1996, less the
Partnership's actual costs incurred and accrued through the
effective time at the filing of the certificate of merger,
including reasonable reserves in connection with: (i) the
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
proxy solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
The General Partners will not receive any payment in exchange
for the redemption of their general partnership interests nor will
they receive any fees from the Partnership in connection with the
Transaction. The Managing General Partner and his son, James L.
Brault, an executive officer of the Corporate General Partner, will
have a minority ownership interest in the Purchaser.
The Merger has not been completed primarily due to certain
litigation, as described below, that is still pending. The
Operating General Partners (as defined below) believe that these
lawsuits are without merit and, therefore, continue to vigorously
defend against them. The Purchaser is aware of these lawsuits and
is nonetheless willing to proceed with the Merger, subject to the
satisfaction of its due diligence as outlined below.
Following receipt of Limited Partner approval, the Purchaser
commenced the finalization of the Purchaser's financing and its due
diligence review of the assets of the Partnership and those of the
Affiliated Partnerships (as defined below). The due diligence process
has revealed certain concerns relating to potential environmental
problems at some of the properties of the Partnership and
the Affiliated Partnerships. Two of the Partnership's properties
may need environmental remediation. A plan for the remediation
(including the projected expenses) is currentlay being developed
by the Partnership. The due diligence review has also raised
questions regarding the interpretation of certain terms in
the leases governing some of the Partnership's and the Affiliated
Partnerships' properties. A very significant tenant is
interpreting certain purchase options contained in its leases in a
way that would cause the value of the properties leased by such
tenant to be significantly below the current appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working with the Purchaser to assess these
risks and to resolve them in a way that will allow the Merger and
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
the related transactions to be consummated without any changes to
the terms or the Merger price. The Purchaser is continuing to
assess certain lease provisions, assess the costs and risks of
the litigation discussed below, and finalize its financing in the
light of these developments.
In accordance with the terms of the Merger Agreement, the
Operating General Partners suspended all distributions to Limited
Partners; however, as a result of the unforeseen delays brought
about by the litigation and the due diligence issues highlighted
above, the Operating General Partners felt it was appropriate that
an earnings distribution be made to the Limited Partners. Although
the terms of the Merger Agreement entered into by the Partnership
and the Purchaser provide that the Assets being acquired by the
Purchaser in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
Merger as soon as possible.
A distribution of the Partnership's net earnings for the period
January 1, 1997 to March 31, 1997 was made to the Limited Partners
on March 31, 1997 in the amount of approximately $814,500. Net
earnings accruing after March 31, 1997 through the closing date
will be included with the final cash distribution to the Limited
Partners from the Merger.
Litigation
Two legal actions, as hereinafter described, were filed against
certain of the General Partners of the Partnership and affiliates
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
of such General Partners, as well as against the Partnership on a
nominal basis in connection with the Merger. Each of these actions
was brought by limited partners of the Partnership. The
Partnership and the named General Partners and their affiliates,
deny all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
merger or sale with the Purchaser, are each named as a "Nominal
Defendant" in this lawsuit. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors II, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
have been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Plaintiffs filed an amended complaint on October 8, 1996. The
amended complaint alleges a purported class action consisting of
claims for breach of fiduciary duties, fraud, breach of the
Agreement, and civil racketeering. The amended complaint seeks
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser. The
defendants have answered plaintiffs' amended complaint, and have
denied each of the plaintiffs' allegations of wrongful conduct.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
On October 2, 1996, the plaintiffs in this action requested that
the Circuit Court enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. This
motion was denied by the Circuit Court on October 8, 1996, and the
Florida appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no material
developments with respect to this lawsuit since October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault; Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
proposed transaction with the Purchaser.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
motion to preliminarily enjoin the special meetings of the limited
partners and the proposed transaction with the Purchaser. The
District Court denied plaintiffs' motion for a preliminary
injunction at the conclusion of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the Operating General
Partners filed a counterclaim against plaintiffs and their counsel,
The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the Operating General Partners
to invalidate revocations of proxies procured as a result of The
Mills Law Firm's September 27, 1996 letter. In that evidentiary
hearing, The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the Limited
Partners without filing such letter with the Commission in
violation of the Commission's requirements. At the conclusion of
the hearing on October 10 and 11, the District Court found that the
Operating General Partners have a likelihood of succeeding
on the merits with respect to their claim that the September 27,
1996 letter sent to the Limited Partners by plaintiffs and The
Mills Law Firm is false or misleading in several significant
respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
Court of Appeals subsequently dismissed this appeal on the grounds
that the appeal was rendered moot by the Limited Partners' approval
November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Partnership
Agreement does not allow the Limited Partners to vote in favor of
or against the proposed transaction with the Purchaser by proxy.
These cross-motions for partial summary judgement were taken under
advisement by the District Court, and the District Court has yet to
issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the Operating
General Partners violated certain of the Commission's rules by
making false and misleading statements in the Proxy. Plaintiffs
also allege that the Operating General Partners breached their
fiduciary duties, breached various provisions of the Agreement,
violated the Illinois Deceptive Trade Practice Act, and violated
section 17-305 of the Delaware Revised Uniform Limited Partnership
Act. The Operating General Partners deny those allegations and
will continue to vigorously defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the transaction with the
Purchaser. After conducting a lengthy hearing on May 1, 1997, the
District Court denied plaintiffs' motion to preliminarily enjoin
the closing of the transaction with the Purchaser.
Pursuant to the Agreement and Delaware law, the Partnership will
advance to the defendants their defense costs. The Corporate
General Partner has agreed to repay the Partnership for the
advances if it is ever determined that the parties were not
entitled to receive the advances. No estimate can reasonably be
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
made at this time of any potential liability from the litigation or
the costs of defense.
(8) SUBSEQUENT EVENTS
On April 23, 1997, Mr. David M. Strosberg notified the Managing
General Partner of the Partnership of his decision to resign and
withdraw as an individual General Partner of the Partnership as of
such date.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
Certain statements in this Quarterly Report that are not
historical fact constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing forward-looking statements may be found in
this section. Without limiting the foregoing, words such as
"anticipates," "expects," "intends," "plans" and similar
expressions are intended to identify forward-looking statements.
These statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those
projected in the forward-looking statements. The Partnership
undertakes no obligation to update these forward-looking statements
to reflect future events or circumstances.
Liquidity and Capital Resources
The Partnership commenced an offering to the public on June 17,
1988 of 25,000 Units (subject to increase to 40,000 units). The
offering was anticipated to close on June 16, 1989 but was extended
and closed on September 30, 1989. A total of $38,923,000 of Units
were subscribed and issued between June 17, 1988 and September 30,
1989, pursuant to the public offering.
Until the proxy solicitation process began, the Plan raised
$4,059,178 through March 31, 1997 and December 31, 1996 from
Limited Partners investing their distributions of Operating Cash
Flow in additional Units. As of March 31, 1997 and December 31,
1996, Units valued at $2,886,915 have been repurchased by the
Partnership from Limited Partners liquidating their investment in
the Partnership and have been retired.
The Partnership purchased the land and buildings underlying
seven Ponderosa restaurants in 1988, and owns a 99% equity interest
in an affiliated joint venture formed in 1988 which purchased the
land and buildings underlying six Ponderosa restaurants. In 1989,
the Partnership purchased the land and buildings underlying two
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
Taco Bell restaurants, formed a 51% equity interest in an
affiliated joint venture which purchased a Scandinavian Health Spa
and purchased the land and buildings underlying seven additional
Ponderosa restaurants. In 1990, the Partnership purchased the land
and buildings underlying three Children's World Learning Centers,
three Hardee's restaurants and three Avis Lubes. The Partnership
purchased three Chi-Chi's restaurants in 1991.
On October 31, 1996, the Partnership purchased a 26% equity
interest in a joint venture with affiliated public real estate
limited partnerships (the "Brauvin Bay County Venture"). The
Brauvin Bay County Venture purchased real property upon which a
newly constructed Blockbuster Video store is operated. The
property contains a 6,466 square foot building located on a 40,075
square foot parcel of land.
The Partnership's acquisition process is now completed.
In 1996, the Partnership engaged Cushman & Wakefield to prepare
an appraisal of the Partnership's properties. As a result of this
appraisal, the Partnership recorded an additional provision for
impairment of $550,000 related to an other than temporary decline
in real estate for the St. Johns, Michigan and Albion, Michigan
properties during the fourth quarter of 1996. This allowance has
been recorded as a reduction of the properties' cost, and allocated
to the land and building based on the original acquisition
percentages of 30% (land) and 70% (building).
The Partnership's acquisition process was not completed until
March 1991 due to an unusually high number of properties being
declined during the due diligence process because of the General
Partners' unwillingness to lower the Partnership's investment
standards. As a result, the Partnership had a substantial amount
of cash invested in short-term investments, as opposed to
properties, and during 1990 did not generate sufficient Operating
Cash Flow to fully support the distributions to Limited Partners.
In order to continue to maintain the 9.25% per annum
distribution through December 31, 1990, the General Partners agreed
to continue the Distribution Guaranty up to the net $140,000 of
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
Distribution Guaranty previously paid to them. At March 31, 1997
and December 31, 1996, $140,000 was due from the General Partners
related to the Distribution Guaranty.
Below is a table summarizing the four year historical data for
distribution rates per unit:
Distribution
Date 1997 1996 1995 1994
February 15 $20.1875(a) $22.3597 $22.3597 $22.3597
May 15 22.3597 22.3597 22.3597
August 15 -- 22.3597 22.3597
November 15 -- 22.3597 26.1121
(a) The 1997 distribution was made on March 31, 1997.
Pursuant to the terms of the Merger Agreement, the Limited
Partners will receive approximately $779.22 per Unit in cash.
Promptly upon consummation of the Merger, the Partnership will
cease to exist and the Purchaser, as the surviving entity will
succeed to all of the assets and liabilities of the Partnership.
The Limited Partners holding a majority of the Units approved the
Merger on November 8, 1996.
The Partnership drafted a proxy statement, which required
prior review and comment by the Commission, to solicit proxies for
use at the Special Meeting originally to be held at the offices of
the Partnership on September 24, 1996. As a result of the various
pending legal issues, as described in legal proceedings, the
Special Meeting was adjourned to November 8, 1996 at 9:30 a.m. The
purpose of the Special Meeting was to vote upon the Merger and
certain other matters as described in the Proxy.
By approving the Merger, the Limited Partners also approved an
amendment of the Agreement allowing the Partnership to sell or
lease property to affiliates (this amendment, together with the
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
Merger shall be referred to herein as the "Transaction"). The
Delaware Revised Uniform Limited Partnership Act (the "Act")
provides that a merger must also be approved by the general
partners of a partnership, unless the limited partnership agreement
provides otherwise. Because the Agreement did not address this
matter, at the Special Meeting, Limited Partners holding a majority
of the Units were asked to approve the adoption of an amendment to
the Agreement to allow the majority vote of the Limited Partners to
determine the outcome of the transaction with the Purchaser without
the vote of the General Partners of the Partnership. Neither the
Act nor the Agreement provides the Limited Partners not voting in
favor of the Transaction with dissenters' appraisal rights.
The redemption price to be paid to the Limited Partners in
connection with the Merger is based on the fair market value of the
properties of the Partnership (the "Assets"). Cushman & Wakefield,
an independent appraiser, the largest real estate valuation and
consulting organization in the United States, was engaged by the
Partnership to prepare an appraisal of the Assets, to satisfy the
Partnership's requirements under the Employee Retirement Income
Security Act of 1974, as amended. Cushman & Wakefield determined
the fair market value of the Assets to be $30,183,300, or $748.09
per Unit. The redemption price of $779.22 per Unit also includes
all remaining cash of the Partnership, less net earnings of the
Partnership from and after August 1, 1996 through December 31,
1996, less the Partnership's actual costs incurred and accrued
through the effective time at the filing of the certificate of
merger, including reasonable reserves in connection with: (i) the
proxy solicitation; (ii) the Transaction (as detailed in the Merger
Agreement); and (iii) the winding up of the Partnership, including
preparation of the final audit, tax return and K-1s (collectively,
the "Transaction Costs") and less all other Partnership
obligations.
Cushman & Wakefield subsequently provided an opinion as to the
fairness of the Transaction to the Limited Partners from a
financial point of view. In its opinion, Cushman & Wakefield
advised that the price per Unit reflected in the Transaction is
fair, from a financial point of view, to the Limited Partners.
Cushman & Wakefield's determination that a price is "fair" does not
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
mean that the price is the highest price which might be obtained
in the marketplace, but rather that based on the appraised values
of the Assets, the price reflected in the Transaction is believed
by Cushman & Wakefield to be reasonable.
The General Partners of the Partnership are Mr. Jerome J.
Brault, the Managing General Partner, and Brauvin Realty Advisors
II, Inc., the Corporate General Partner. Mr. Cezar M. Froelich
resigned his position as an Individual General Partner effective as
of September 17, 1996 and Mr. David M. Strosberg resigned his
position as an individual general partner of the Partnership
effective as of April 23, 1997. The General Partners will not
receive any payment in exchange for the redemption of their general
partnership interests nor will they receive any fees from the
Partnership in connection with the Transaction.
The Managing General Partner and his son, James L. Brault, an
executive officer of the Corporate General Partner, will have a
minority ownership interest in the Purchaser. Therefore, the
Messrs. Brault have an indirect economic interest in consummating
the Transaction that is in conflict with the economic interests of
the Limited Partners. Messrs. Froelich and Strosberg have no
affiliation with the Purchaser.
Although the Special Meeting was held and the necessary
approvals received, the Merger has not been completed primarily due
to the lawsuits that are still pending. The Operating General
Partners believe that these lawsuits are without merit and,
therefore, continue to vigorously defend against them. The
Purchaser is aware of these lawsuits and is nonetheless willing to
proceed with the Merger, subject to the satisfaction of its due
diligence as outlined below.
Following receipt of Limited Partner approval, representatives
of the Purchaser commenced in earnest the finalization of the
Purchaser's financing and its due diligence review of the assets of
the Partnership and those of the Affiliated Partnerships. The due
diligence process has revealed certain concerns relating to
potential environmental problems at some of the properties of the
Partnership and the Affiliated Partnerships. Two of the Partnership's
properties may need environmental remediation. A plan for the
remediation (including the projected expenses) is currently being
developed by the Partnership. The due diligence review
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
has also raised questions regarding the interpretation of
certain terms in the leases governing some of the Partnership's and
the Affiliated Partnerships' properties. A very significant tenant
is interpreting certain purchase options contained in its leases in
a way that would cause the value of the properties leased by such
tenant to be significantly below the current appraised value.
Members of management of the Partnership and the Affiliated
Partnerships have been working diligently with the Purchaser to
assess these risks and to resolve them in a way that will allow the
Merger and the related transactions to be consummated without any
changes to the terms or the Merger price. The Purchaser is
continuing to assess certain lease provisions, assess the costs and
risks of the litigation discussed below, and finalize its financing
in the light of these developments.
In accordance with the terms of the Merger Agreement, the
Operating General Partners suspended all distributions to Limited
Partners, however, as a result of the unforeseen delays brought
about by the litigation and the due diligence issues highlighted
above, the Operating General Partners felt it was appropriate that
an earnings distribution be made to the Limited Partners. Although
the terms of the Merger Agreement entered into by the Partnership
and the Purchaser provides that the Assets being acquired by the
Purchaser in connection with the Merger include all earnings of the
Partnership from and after August 1, 1996, the Purchaser has agreed
to allow the Partnership to make distributions to the Limited
Partners of net earnings for the period from and after January 1,
1997 until the Merger is consummated. In exchange, the Partnership
has agreed to extend the termination date of the Merger Agreement
to June 30, 1997 to allow the Purchaser time to complete its due
diligence. Notwithstanding the extension of the termination date,
the Partnership and the Purchaser continue to work through the due
diligence issues outlined above, with the intent of closing the
Merger as soon as possible. Net earnings accruing after March 31,
1997 through the closing date will be included with the final cash
distribution to the Limited Partners from the Merger.
A distribution of the Partnership's net earnings for the
period January 1, 1997 to March 31, 1997 was made to the Limited
Partners on March 31, 1997 in the amount of approximately $814,500.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
Results of Operations - Three months ended March 31, 1997 and 1996
Results of operations for the three months ended March 31,
1997 reflected net income of $690,417 compared to net income of
$695,613 for the three months ended March 31, 1996, a decrease of
approximately $5,200.
Total income for the three months ended March 31, 1997 was
$1,071,007 as compared to $1,061,234 for the period ended March 31,
1996, an increase of approximately $9,800. The increase in total
income is primarily due to the increase in interest income, which
was the result of higher cash balances during 1997.
Total expenses for the three months ended March 31, 1997 were
$315,263 as compared to $291,211 for the period ended March 31,
1996, an increase of approximately $24,100. The increase in
expenses was primarily due to an increase in general and
administrative expense associated with the Partnership's attempt to
resolve some of the due diligence issues and related items
associated with the Merger, as discussed above. The increase in
expenses was also due to the 1997 transaction costs expense of
$53,939 which was offset by the 1996 valuation fee of $43,450.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
Two legal actions, as hereinafter described, were filed against
certain of the General Partners of the Partnership and affiliates
of such General Partners, as well as against the Partnership on a
nominal basis in connection with the Merger. Each of these actions
was brought by limited partners of the Partnership. The
Partnership and the named General Partners and their affiliates,
deny all allegations set forth in the complaints and are vigorously
defending against such claims.
A. The Florida Lawsuit
On September 17, 1996, a lawsuit was filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,
Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J.
Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II,
Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty
Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds,
L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund
II, L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease
Program IV, L.P., Docket No. 96012807. The Partnership and the
other affiliated partnerships named in this lawsuit (the
"Affiliated Partnerships") that are proposed to be a party to a
merger or sale with the Purchaser, are each named as a "Nominal
Defendant" in this lawsuit. Jerome J. Brault, the Managing General
Partner of the Partnership, and Brauvin Realty Advisors II, Inc.,
the Corporate General Partner of the Partnership, as well as
certain corporate general partners of the Affiliated Partnerships,
have been named as defendants in this lawsuit. James L. Brault, an
officer of the Corporate General Partner and the son of Jerome J.
Brault, is also named as a defendant.
Plaintiffs filed an amended complaint on October 8, 1996. The
amended complaint alleges a purported class action consisting of
claims for breach of fiduciary duties, fraud, breach of the
Agreement, and civil racketeering. The amended complaint seeks
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
injunctive relief, as well as compensatory and punitive damages,
relating to the proposed transactions with the Purchaser. The
defendants have answered plaintiffs' amended complaint, and have
denied each of the plaintiffs' allegations of wrongful conduct.
On October 2, 1996, the plaintiffs in this action requested that
the Circuit Court enjoin the special meetings of the limited
partners and the proposed transactions with the Purchaser. This
motion was denied by the Circuit Court on October 8, 1996, and the
Florida appellate court denied plaintiffs' appeal of the Circuit
Court's October 8, 1996 ruling. There have been no material
developments with respect to this lawsuit since October 8, 1996.
B. The Illinois Lawsuit
On September 18, 1996, a class action lawsuit was filed in the
United States District Court for the Northern District of Illinois,
styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John
Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc.,
Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III,
Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault; Brauvin
Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin
High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin
Corporate Lease Program IV L.P., Docket No. 96C6025. The
Partnership and the Affiliated Partnerships are each named as a
"Nominal Defendant" in the lawsuit. Jerome J. Brault and the
Corporate General Partner of the Partnership, as well as the
corporate general partners of the Affiliated Partnerships, are
named as defendants.
The plaintiffs filed an amended complaint on October 8, 1996,
which alleges claims for breach of fiduciary duties, breaches of
the Agreement, and violation of the Illinois Deceptive Trade
Practices Act. The amended complaint seeks injunctive relief,
as well as compensatory and punitive damages, relating to the
proposed transaction with the Purchaser.
On October 2, 1996, the District Court certified plaintiffs'
proposed class as all of the limited partners of the Partnership
and of the Affiliated Partnerships, and appointed plaintiffs'
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
counsel, The Mills Law Firm, as counsel for the class. On October
2, 1996, the District Court also conducted a hearing on plaintiffs'
motion to preliminarily enjoin the special meetings of the limited
partners and the proposed transaction with the Purchaser. The
District Court denied plaintiffs' motion for a preliminary
injunction at the conclusion of the October 2, 1996 hearing.
On September 27, 1996, counsel for plaintiffs, The Mills Law
Firm, mailed a solicitation to all of the Limited Partners,
requesting that they revoke their previously-mailed proxies in
favor of the Merger. On October 11, 1996, the Operating General
Partners filed a counterclaim against plaintiffs and their counsel,
The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm
violated the federal securities laws and proxy rules by sending
their September 27, 1996 letter to the Limited Partners. The
plaintiffs and The Mills Law Firm have moved to dismiss this
counterclaim. The District Court has taken this motion under
advisement and has yet to issue a ruling.
On October 10 and 11, 1996, the District Court conducted an
evidentiary hearing on the motion of the Operating General Partners
to invalidate revocations of proxies procured as a result of The
Mills Law Firm's September 27, 1996 letter. In that evidentiary
hearing, The Mills Law Firm admitted that it violated the proxy
rules by sending its September 27, 1996 letter to the Limited
Partners without filing such letter with the Commission in
violation of the Commission's requirements. At the conclusion of
the hearing on October 10 and 11, the District Court found that the
Operating General Partners have a likelihood of succeeding
on the merits with respect to their claim that the September 27,
1996 letter sent to the Limited Partners by plaintiffs and The
Mills Law Firm is false or misleading in several significant
respects.
Notwithstanding this finding, the District Court did not
invalidate the revocations of proxies resulting from The Mills Law
Firm's September 27, 1996 letter because it did not believe it
possessed the authority to do so under present law. This ruling
was appealed to the Seventh Circuit Court of Appeals. The Seventh
Court of Appeals subsequently dismissed this appeal on the grounds
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
that the appeal was rendered moot by the Limited Partners' approval
November 8, 1996 of the Merger.
On October 16, 1996 and on November 6, 1996, the parties filed
cross-motions for partial summary judgement addressing the
allegation in plaintiffs' amended complaint that the Partnership
Agreement does not allow the Limited Partners to vote in favor of
or against the proposed transaction with the Purchaser by proxy.
These cross-motions for partial summary judgement were taken under
advisement by the District Court, and the District Court has yet to
issue a ruling.
On April 2, 1997, the Court granted plaintiffs' leave to again
amend their complaint. In their second amended complaint,
plaintiffs have named the Partnership as a "Nominal Defendant."
Plaintiffs have also added a new claim, alleging that the Operating
General Partners violated certain of the Commission's rules by
making false and misleading statements in the Proxy. Plaintiffs
also allege that the Operating General Partners breached their
fiduciary duties, breached various provisions of the Agreement,
violated the Illinois Deceptive Trade Practice Act, and violated
section 17-305 of the Delaware Revised Uniform Limited Partnership
Act. The Operating General Partners deny those allegations and
will continue to vigorously defend against these claims.
On April 2, 1997, plaintiffs again requested that the District
Court enjoin the closing of the transaction with the
Purchaser. After conducting a lengthy hearing on May 1, 1997, the
District Court denied plaintiffs' motion to preliminarily enjoin
the closing of the transaction with the Purchaser.
Pursuant to the Agreement and Delaware law, the Partnership will
advance to the defendants their defense costs. The Corporate
General Partner has agreed to repay the Partnership for the
advances if it is ever determined that the parties were not
entitled to receive the advances. No estimate can reasonably be
made at this time of any potential liability from the litigation or
the costs of defense.
<PAGE>
BRAUVIN HIGH YIELD FUND L.P. II
(a Delaware limited partnership)
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission Of Matters To a Vote of Security Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports On Form 8-K.
Exhibit 27. Financial Data Schedule
<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.
BY: Brauvin Realty Advisors II, Inc.
Corporate General Partner of
Brauvin High Yield Fund L.P. II
BY: /s/ Jerome J. Brault
Jerome J. Brault
Chairman of the Board of Directors,
President and Chief Executive Officer
DATE: May 15, 1997
BY: /s/ B. Allen Aynessazian
B. Allen Aynessazian
Chief Financial Officer and Treasurer
DATE: May 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,411,244
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 35,401,164 <F1>
<DEPRECIATION> 5,533,128
<TOTAL-ASSETS> 33,114,400
<CURRENT-LIABILITIES> 154,989
<BONDS> 2,477,980 <F2>
0
0
<COMMON> 30,481,431 <F3>
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 33,114,400
<SALES> 0
<TOTAL-REVENUES> 1,071,007 <F4>
<CGS> 0
<TOTAL-COSTS> 315,263 <F5>
<OTHER-EXPENSES> 70,045 <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 690,417
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND
BUILDING]
<F2> "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURES
<F3> "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL
<F4> "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER
INCOME
<F5> "TOTAL COSTS" REPRESENTS TOTAL EXPENSES
<F6> "OTHER EXPENSES" REPRESENTS MINORITY INTEREST SHARE OF
NET INCOME
</FN>
</TABLE>
