-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N4JD50muVNPh5xfZTL4FtOGvqXHhH9VGlORKi+Ov5HTPFsRdKeacAzLBayLzWS+F gFH2x3uMZg3KTxZrZ4uiCA== 0000853496-00-000001.txt : 20000324 0000853496-00-000001.hdr.sgml : 20000324 ACCESSION NUMBER: 0000853496-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INLAND LAND APPRECIATION FUND II LP CENTRAL INDEX KEY: 0000853496 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363664407 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19220 FILM NUMBER: 576837 BUSINESS ADDRESS: STREET 1: 2901 BUTTERFIELD RD CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7082188000 MAIL ADDRESS: STREET 1: 2901 BUTTERFIELD ROAD CITY: OAK BROOK STATE: IL ZIP: 60521 10-K 1 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 Exchange Act of 1934 For The Fiscal Year Ended December 31, 1999 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File #0-19220 Inland Land Appreciation Fund II, L.P. (Exact name of registrant as specified in its charter) Delaware 36-3664407 (State of organization) (I.R.S. Employer Identification Number) 2901 Butterfield Road, Oak Brook, Illinois 60523 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: 630-218-8000 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered: None None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP UNITS (Title of class) 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting stock held by nonaffiliates of the registrant. Not applicable. The Prospectus of the Registrant dated October 25, 1989, as supplemented and filed pursuant to Rule 424(b) and 424(c) under the Securities Act of 1933 is incorporated by reference in Parts I, II and III of this Annual Report on Form 10-K. -1- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) TABLE OF CONTENTS Part I Page ------ ---- Item 1. Business...................................................... 3 Item 2. Properties.................................................... 5 Item 3. Legal Proceedings............................................. 5 Item 4. Submission of Matters to a Vote of Security Holders........... 5 Part II ------- Item 5. Market for Partnership's Limited Partnership Units and Related Security Holder Matters.................... 6 Item 6. Selected Financial Data....................................... 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 8 Item 7(a). Quantitative and Qualitative Disclosures about Market Risk.... 11 Item 8. Financial Statements and Supplementary Data................... 12 Item 9. Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure.......................... 29 Part III -------- Item 10. Directors and Executive Officers of the Registrant............ 29 Item 11. Executive Compensation........................................ 35 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 36 Item 13. Certain Relationships and Related Transactions................ 36 Part IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 37 SIGNATURES............................................................. 38 -2- PART I Item 1. Business The Registrant, Inland Land Appreciation Fund II, L.P. (the "Partnership"), is a limited partnership formed on June 28, 1989, pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in undeveloped land on an all-cash basis and realize appreciation of such land upon resale. On October 25, 1989, the Partnership commenced an Offering of 30,000 (subject to increase to 60,000) Limited Partnership Units ("Units") at $1,000 per Unit, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On October 24, 1991, the Partnership terminated its Offering of Units, with total sales of 50,476.17 Units, at $1,000 per Unit, resulting in $50,476,170 in gross offering proceeds, not including the General Partner's capital contribution of $500. All of the holders of these Units have been admitted to the Partnership. Inland Real Estate Investment Corporation is the General Partner. The Limited Partners of the Partnership will share in their portion of benefits of ownership of the Partnership's real property investments according to the number of Units held. As of December 31, 1999, the Partnership has repurchased a total of 386.65 Units for $369,592 from various Limited Partners through the Unit Repurchase Program. Under this program, Limited Partners may, under certain circumstances, have their Units repurchased for an amount equal to their Invested Capital. The Partnership is engaged in the business of real estate investment which management considers to be a single operating segment. A presentation of information about operating segments would not be material to an understanding of the Partnership's business taken as a whole. The Partnership acquired fee ownership of the following real property investments: Gross Acres Purchase/Sales Parcel & Location Purchased/Sold Date - ----------------------------------- -------------------- ----------------- Parcel 1, McHenry County, Illinois 372.7590 04/25/90 Parcel 2, Kendall County, Illinois 41.1180 07/06/90 Parcel 3, Kendall County, Illinois 120.8170 11/06/90 Parcel 4, Kendall County, Illinois 299.0250 06/28/91 Parcel 5, Kane County, Illinois 189.0468 02/28/91 Parcel 6, Lake County, Illinois 57.3345 04/16/91 (.2580 sold 10/01/94) Parcel 7, McHenry County, Illinois 56.7094 04/22/91 (12.6506 sold Var 1997) (15.7041 sold Var 1998) (19.6296 sold Var 1999) Parcel 8, Kane County, Illinois 325.3940 06/14/91 (.8700 sold 04/03/96) Parcel 9, Will County, Illinois 9.8670 08/13/91 -3- Gross Acres Purchase/Sales Parcel & Location Purchased/Sold Date - ----------------------------------- -------------------- ----------------- Parcel 10, Will County, Illinois 150.6600 08/20/91 Parcel 11, Will County, Illinois 138.4470 08/20/91 (138.4470 sold 05/03/93) Parcel 12, Will County, Illinois 44.7320 08/20/91 Parcel 13, Will County, Illinois 6.3420 09/23/91 (6.3420 sold 05/03/93) Parcel 14, Kendall County, Illinois 44.4030 09/03/91 Parcel 15, Kendall County, Illinois 100.3640 09/04/91 (5.0000 sold 09/01/93) (11.0000 sold 12/01/94) (84.3640 sold 08/14/98) Parcel 16, McHenry County, Illinois 168.9050 09/13/91 Parcel 17, Kendall County, Illinois 3.4620 10/30/91 Parcel 18, McHenry County, Illinois 139.1697 11/07/91 Parcel 19, Kane County, Illinois 436.2360 12/13/91 Parcel 20, Kane & Kendall Counties, Illinois 400.1290 01/31/92 (21.1380 sold 06/30/99) Parcel 21, Kendall County, Illinois 15.0130 05/26/92 (1.0000 sold 03/16/99) Parcel 22, Kendall County, Illinois 391.9590 10/30/92 (10.0000 sold 01/06/94) (5.5380 sold 01/05/96) (2.4000 sold 07/27/99) Parcel 23, Kendall County, Illinois 133.4750 10/30/92 (.2676 sold 03/16/93) (11.5250 donated 07/16/93) (44.0700 sold Var 1995) (8.2500 sold Var 1996) (2.6100 sold Var 1997) (10.6624 sold Var 1998) (5.8752 sold Var 1999) Parcel 24, Kendall County, Illinois 4.3140 01/21/93 Parcel 25, Kendall County, Illinois 656.6870 01/28/93 (656.6870 sold 10/31/95) -4- Gross Acres Purchase/Sales Parcel & Location Purchased/Sold Date - ----------------------------------- -------------------- ----------------- Parcel 26, Kane County, Illinois 89.5110 03/10/93 (2.1080 sold 12/03/99) Parcel 27, Kendall County, Illinois 83.5250 03/11/93 Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) for additional descriptions of the Partnership's real property investments. The Partnership had purchased on an all-cash basis, twenty-seven parcels of undeveloped land and two buildings and is engaged in the rezoning and resale of the parcels. All of the investments were made in the Chicago metropolitan area. The anticipated holding period of the land was approximately two to seven years from the completion of the land portfolio acquisitions. As of December 31, 1999, the Partnership has had multiple sales transactions through which it has disposed of approximately 1,076 acres of the approximately 4,480 acres originally owned. The General Partner anticipates that land purchased by the Partnership will produce sufficient income to pay property taxes, insurance and other miscellaneous expenses. Income will be derived through leases to farmers or from other activities compatible with undeveloped land. A majority of the parcels purchased by the Partnership consist of land which generates revenue from farming or other leasing activities. It is not expected that the Partnership will generate cash distributions to investors from farm leases or other activities. The Partnership had no employees during 1999. The terms of transactions between the Partnership and Affiliates of the General Partner of the Partnership are set forth in Item 11 below and Note 3 of the Notes to Financial Statements (Item 8 of this Annual Report) to which reference is hereby made for a description of such terms and transactions. Item 2. Properties The Partnership owns directly the parcels of land referred to in Item 1 and in Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) to which reference is hereby made for a description of said parcels. Item 3. Legal Proceedings The Partnership is not subject to any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders during 1999. -5- PART II Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder Matters As of December 31, 1999, there were 4,847 holders of Units of the Partnership. There is no public market for Units nor is it anticipated that any public market for Units will develop. Although the Partnership has established a Unit Repurchase Program, funds for the repurchase of Units are limited. Reference is made to "Unit Repurchase Program" on pages 19-20 of the Prospectus of the Partnership dated October 25, 1989, which is incorporated herein by reference. As of December 31, 1999, the Partnership had approximately $258,040 available for the repurchase of Units. -6- Item 6. Selected Financial Data INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) For the years ended December 31, 1999, 1998, 1997, 1996 and 1995 (not covered by Independent Auditors' Report) 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Total assets.......... $40,377,846 40,923,656 43,263,842 46,763,097 46,003,464 =========== ========== ========== ========== ========== Total income.......... $ 6,065,501 6,260,631 2,174,319 2,359,290 7,995,470 =========== ========== ========== ========== ========== Net income............ $ 1,428,038 2,115,321 518,404 684,711 2,885,478 =========== ========== ========== ========== ========== Net income allocated to the one General Partner Unit........ $ 939 167,690 60 1,671 329,498 =========== ========== ========== ========== ========== Net income allocated per Limited Partnership Unit(b). $ 28.48 38.84 10.33 13.61 50.89 =========== ========== ========== ========== ========== Distributions per Limited Partnership Unit from sales (b)(c).............. $ 39.04 99.71 79.72 - 19.91 =========== ========== ========== ========== ========== Weighted average Limited Partnership Units............... 50,105.25 50,144.40 50,172.77 50,193.51 50,223.70 =========== ========== ========== ========== ========== (a) The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this Annual Report. (b) The net income per Unit and distributions per Unit data is based upon the weighted average number of Units outstanding. (c) Distributions from sales represents a return of Invested Capital, as defined in the Partnership Agreement. (d) Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) for a description of the Partnership's land acquisitions and dispositions. -7- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this annual report on Form 10-K constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward- looking statements involve known and unknown risks, uncertainties and other factors which may cause the Partnership's actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. These factors include, among other things, federal, state or local regulations; adverse changes in general economic or local conditions; uninsured losses; and potential conflicts of interest between the Partnership and its Affiliates, including the General Partner. Liquidity and Capital Resources On October 25, 1989, the Partnership commenced an Offering of 30,000 (subject to increase to 60,000) Limited Partnership Units pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On October 24, 1991, the Partnership terminated its Offering of Units, with total sales of 50,476.17 Units, at $1,000 per Unit, resulting in $50,476,170 in gross offering proceeds, not including the General Partner's capital contribution of $500. All of the holders of these Units have been admitted to the Partnership. The Limited Partners of the Partnership will share in their portion of benefits of ownership of the Partnership's real property investments according to the number of Units held. The Partnership used $41,314,301 of gross offering proceeds to purchase, on an all-cash basis, twenty-seven parcels of undeveloped land and two buildings. These investments include the payment of the purchase price, acquisition fees and acquisition costs of such properties. Three of the parcels were purchased during 1990, sixteen during 1991, four during 1992, and four during 1993. As of December 31, 1999, the Partnership has had multiple sales transactions through which it has disposed of approximately 1,076 acres of the approximately 4,480 acres originally owned. As of December 31, 1999, cumulative distributions have totaled $13,793,106 to the Limited Partners and $259,531 to the General Partner. Of the $13,793,106 distributed to the Limited Partners, $13,072,106 was net sales proceeds (which represents a return of Invested Capital, as defined in the Partnership Agreement) and $721,000 was from operations. As of December 31, 1999, the Partnership has used $12,479,189 of working capital reserve for rezoning and other activities. Such amounts have been capitalized and are included in investment properties. The Partnership's capital needs and resources will vary depending upon a number of factors, including the extent to which the Partnership conducts rezoning and other activities relating to utility access, the installation of roads, subdivision and/or annexation of land to a municipality, changes in real estate taxes affecting the Partnership's land, and the amount of revenue received from leasing. As of December 31, 1999, the Partnership owns, in whole or in part, twenty-three of its twenty-seven original parcels and one office building, the majority of which are leased to local tenants and are generating sufficient cash flow from leases to cover property taxes and insurance. -8- At December 31, 1999, the Partnership had cash and cash equivalents of $471,223, of which approximately $258,040 is reserved for the repurchase of Units through the Unit Repurchase Program. The remaining $213,183 is available to be used for the Partnership expenses and liabilities, cash distributions to partners and other activities with respect to some or all of its land parcels. The Partnership has increased its parcel sales effort in anticipation of rising land values. The Partnership plans to enhance the value of its land through pre-development activities such as rezoning, annexation and land planning. The Partnership has already been successful in, or is in the process of, pre-development activity on a majority of the Partnership's land investments. Parcel 1, annexed to the Village of Huntley and zoned for residential and commercial development, has improvements in planning stage and sites are being marketed to potential buyers. Parcel 7, the Olde Mill Ponds on Boone Creek subdivision, has all of the total 131 single-family lots under contract with a homebuilder, of which 120 have already closed. Parcel 18, zoned for multi- and single-family use, is being marketed to potential homebuilders. As of December 31, 1999, the Partnership has sold 200 of the 243 single-family lots at the Ponds of Mill Race Creek (Parcel 23) in addition to the multi-family portion, the Winding Waters of Mill Race Creek (see Note 4 of the Notes to Financial Statements for further discussion on Parcel 23). Results of Operations Income from the sale of investment properties and cost of investment properties sold recorded for the year ended December 31, 1999 is the result of the sale of approximately 52 acres, including additional lots at the Olde Mill Ponds in Boone Creek subdivision (Parcel 7), the sale of approximately 21 acres of Parcel 20, the sale of 1 acre of Parcel 21, 2.4 acres of Parcel 22, the sale of additional lots at the Ponds of Mill Race Creek subdivision (Parcel 23) and 2.1 acres of the Sugar Grove parcel (Parcel 26). Income from the sale of investment properties and cost of investment properties sold recorded for the year ended December 31, 1998 is the result of the sale of approximately 111 acres, including additional lots at the Olde Mill Ponds on Boone Creek subdivision (Parcel 7), the sale of additional lots at the Ponds of Mill Race Creek subdivision (Parcel 23) and the sale of the remaining approximately 84 acres of Parcel 15. Income from the sale of investment properties and cost of investment properties sold for the year ended December 31, 1997 is the result of the sale of approximately 15 acres, including twenty-nine lots at the Olde Mill Ponds on Boone Creek subdivision (Parcel 7) and the sale of additional lots at the Ponds at Mill Race Creek subdivision (Parcel 23). As of December 31, 1999, the Partnership owned twenty-three parcels of land consisting of approximately 3,404 acres and one office building. Of the approximately 3,404 acres owned, 2,849 acres are tillable, leased to local farmers and generate sufficient cash flow to cover property taxes, insurance and other miscellaneous expenses. Rental income increased for the year ended December 31, 1999, as compared to the years ended December 31, 1998 and 1997, due to the annual increase in lease amounts from tenants. -9- Interest income decreased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due primarily to the Partnership distributing net sales proceeds of approximately $5,000,000 on December 29, 1998 and using its working capital reserve to fund pre-development activity on the Partnership's investment properties. Interest income increased for the year ended December 31, 1998, as compared to the year ended December 31, 1997, due primarily to the interest income earned on the mortgage loan receivable the Partnership received from the sale of the remaining acreage of Parcel 15. See Note 6 of the Notes to Financial Statements for further discussion of the terms of the mortgage loan receivable received from this sale. The other income recorded for the year ended December 31, 1998 relates to a penalty charged to the homebuilders on Parcel 23. No such fees were charged in 1999. Professional services to non-affiliates increased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due primarily to a increase in legal services required. Professional services to non-affiliates decreased for the year ended December 31 1998, as compared to the year ended December 31, 1997, due primarily to a decrease in legal services. General and administrative expenses to Affiliates decreased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due primarily to a decrease in investor services which is partially offset by an increase in data processing expenses. General and administrative expenses to Affiliates decreased for the year ended December 31, 1998, as compared to the year ended December 31, 1997, due to decreases in postage, data processing and investor services expenses. General and administrative expenses to non- affiliates increased for the year ended December 31, 1999, as compared to the years ended December 31, 1998 and December 31, 1997, due primarily to an increase in the Illinois Replacement Tax. Marketing expenses to Affiliates and non-affiliates decreased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due to a decrease in non-recurring advertising and travel expenses, as well as a substantial increase in the capitalization of marketing costs to individual land parcels. Marketing expenses to Affiliates and non-affiliates increased for the year ended December 31, 1998, as compared to the year ended December 31, 1997, due to increases in expenses relating to marketing and advertising the Partnership's land investments for sale paid to Affiliates and increases in advertising and travel expenses relating to marketing the land portfolio to prospective purchasers paid to non-affiliates. Land operating expenses to Affiliates decreased for the year ended December 31, 1999, as compared to the year ended December 31, 1998 and December 31, 1997, due to a gradual decrease in tillable acres due to land sales. Land operating expenses to non-affiliates increased for the year ended December 31, 1999, as compared to the year ended December 31, 1998, due to an increase in grounds maintenance expenses. Land operating expenses to non-affiliates increased for the year ended December 31, 1998, as compared to the year ended December 31 1997, due to an increase in real estate taxes and maintenance expenses of the Partnership's land investments. -10- Year 2000 Issues As part of it's year 2000 readiness plan, the Partnership had identified three areas for compliance efforts: business computer systems, tenants and suppliers and non-information technology systems. The Partnership has not experienced any problems relating to year 2000 issues in any of these areas. Total costs associated with year 2000 readiness were not material. Inflation Inflation in future periods may cause capital appreciation of the Partnership's investments in land. Rental income levels (from leases to new tenants or renewals of existing tenants) will rise and fall in accordance with normal agricultural market conditions and may or may not be affected by inflation. Item 7(a). Quantitative and Qualitative Disclosures About Market Risk Not Applicable. -11- Item 8. Financial Statements and Supplementary Data INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Index ----- Page ---- Independent Auditors' Report............................................ 13 Financial Statements: Balance Sheets, December 31, 1999 and 1998............................ 14 Statements of Operations, for the years ended December 31, 1999, 1998 and 1997.................................... 16 Statements of Partners' Capital, for the years ended December 31, 1999, 1998 and 1997.................................... 18 Statements of Cash Flows, for the years ended December 31, 1999, 1998 and 1997.................................... 19 Notes to Financial Statements......................................... 21 Schedules not filed: All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. -12- INDEPENDENT AUDITORS' REPORT To the Partners of Inland Land Appreciation Fund II, L.P. We have audited the accompanying balance sheets of Inland Land Appreciation Fund II, L.P. (a limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1999. These statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Inland Land Appreciation Fund II, L.P. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Chicago, Illinois January 28, 2000 (March 1, 2000 as to Note 7) -13- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Balance Sheets December 31, 1999 and 1998 Assets ------ 1999 1998 Current assets: ---- ---- Cash and cash equivalents (Note 1).............. $ 471,223 340,191 Accounts and accrued interest receivable (Note 6)........................... 129,269 3,208 Other current assets............................ 2,136 2,229 ------------ ------------ Total current assets.............................. 602,628 345,628 ------------ ------------ Mortgage loan receivable (Note 6)................. 1,453,943 1,287,151 Investment properties (including acquisition fees paid to Affiliates of $1,845,438 and $1,915,424 at December 31, 1999 and 1998, respectively) (Notes 1, 3 and 4): Land and improvements........................... 38,249,783 39,216,282 Buildings....................................... 93,082 93,082 ------------ ------------ 38,342,865 39,309,364 Less accumulated depreciation................... 21,590 18,487 Total investment properties, net of accumulated ------------ ------------ depreciation.................................... 38,321,275 39,290,877 ------------ ------------ Total assets...................................... $40,377,846 40,923,656 ============ ============ See accompanying notes to financial statements. -14- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Balance Sheets (continued) December 31, 1999 and 1998 Liabilities and Partners' Capital --------------------------------- 1999 1998 ---- ---- Current liabilities: Accounts payable................................ $ 38,560 29,019 Accrued real estate taxes....................... 107,546 104,137 Due to Affiliates (Note 3)...................... 54,577 26,249 Unearned income................................. 41,674 39,233 ------------ ------------ Total current liabilities......................... 242,357 198,638 ------------ ------------ Deferred gain on sale of investment properties (Note 6)........................................ 758,342 796,203 Partners' capital (Notes 1, 2 and 3): General Partner: Capital contribution........................... 500 500 Cumulative net income.......................... 618,083 617,144 Cumulative cash distributions.................. (259,531) (259,531) ------------ ------------ 359,052 358,113 Limited Partners: ------------ ------------ Units of $1,000. Authorized 60,000 Units, 50,089.52 and 50,119.52 Units outstanding at December 31, 1999 and 1998, respectively (net of offering costs of $7,532,439, of which $2,535,445 was paid to Affiliates)............ 42,574,139 42,597,492 Cumulative net income.......................... 10,237,062 8,809,963 Cumulative cash distributions.................. (13,793,106) (11,836,753) ------------ ------------ 39,018,095 39,570,702 ------------ ------------ Total Partners' capital........................... 39,377,147 39,928,815 ------------ ------------ Total liabilities and Partners' capital........... $40,377,846 40,923,656 ============ ============ See accompanying notes to financial statements. -15- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Operations For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Income: ---- ---- ---- Sale of investment properties (Notes 1 and 3)................. $ 5,427,952 4,586,494 1,609,943 Recognition of deferred gain on sale of investment properties (Note 6)........................ 37,861 904,887 - Rental income (Note 5)............ 410,100 371,460 369,362 Interest income................... 189,588 232,214 194,994 Other income...................... - 165,576 20 ------------ ------------ ------------ 6,065,501 6,260,631 2,174,319 ------------ ------------ ------------ Expenses: Cost of investment properties sold............................ 4,131,679 3,495,314 1,097,586 Professional services to Affiliates...................... 43,426 43,599 42,021 Professional services to non-affiliates.................. 39,774 32,845 52,705 General and administrative expenses to Affiliates.......... 15,607 24,716 28,843 General and administrative expenses to non-affiliates...... 43,054 26,725 26,482 Marketing expenses to Affiliates...................... (11,396) 79,512 26,204 Marketing expenses to non-affiliates.................. 67,365 156,679 134,981 Land operating expenses to Affiliates...................... 84,392 88,412 91,270 Land operating expenses to non-affiliates.................. 220,459 194,405 152,721 Depreciation...................... 3,103 3,103 3,102 ------------ ------------ ------------ 4,637,463 4,145,310 1,655,915 ------------ ------------ ------------ Net income.......................... $ 1,428,038 2,115,321 518,404 ============ ============ ============ See accompanying notes to financial statements. -16- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Operations (continued) For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Net income allocated to (Note 2): General Partner................... $ 939 167,690 60 Limited Partners.................. 1,427,099 1,947,631 518,344 ------------ ------------ ------------ Net income.......................... $ 1,428,038 2,115,321 518,404 ============ ============ ============ Net income allocated to the one General Partner Unit.............. $ 939 167,690 60 ============ ============ ============ Net income per Unit allocated to Limited Partners per weighted average Limited Partnership Units (50,105.25, 50,144.40 and 50,172.77 for the years ended December 31, 1999, 1998 and 1997, respectively)..................... $ 28.48 38.84 10.33 ============ ============ ============ See accompanying notes to financial statements. -17- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Partners' Capital For the years ended December 31, 1999, 1998 and 1997 General Limited Partner Partners Total ------------- ------------- ------------ Balance January 1, 1997............. $ 356,860 46,162,396 46,519,256 Repurchase of Limited Partnership Units............................. - (18,361) (18,361) Distributions to Partners ($79.72 per weighted average Limited Partnership Units of 50,172.77) (Note 2)...... - (3,999,790) (3,999,790) Net income (Note 2)................. 60 518,344 518,404 ------------ ------------ ------------ Balance December 31, 1997........... 356,920 42,662,589 43,019,509 Repurchase of Limited Partnership Units............................. - (39,518) (39,518) Distributions to Partners ($99.71 per weighted average Limited Partnership Units of 50,144.40) (Note 2)...... (166,497) (5,000,000) (5,166,497) Net income (Note 2)................. 167,690 1,947,631 2,115,321 ------------ ------------ ------------ Balance December 31, 1998........... 358,113 39,570,702 39,928,815 Repurchase of Limited Partnership Units............................. - (23,353) (23,353) Distributions to Partners ($39.04 per weighted average Limited Partnership Units of 50,105.25) (Note 2)...... - (1,956,353) (1,956,353) Net income (Note 2)................. 939 1,427,099 1,428,038 ------------ ------------ ------------ Balance December 31, 1999........... 359,052 39,018,095 39,377,147 ============ ============ ============ See accompanying notes to financial statements. -18- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Cash Flows For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Cash flows from operating activities: ---- ---- ---- Net income........................ $ 1,428,038 2,115,321 518,404 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................... 3,103 3,103 3,102 Gain on sale of investment properties.................... (1,296,273) (1,091,180) (512,357) Recognition of deferred gain on sale of investment properties. (37,861) (904,887) - Changes in assets and liabilities: Accounts and accrued interest receivable................... (126,061) 21,857 3,713 Other current assets........... 93 151 97 Accounts payable............... 9,541 7,798 (44,166) Accrued real estate taxes...... 3,409 3,144 (3,066) Due to Affiliates.............. 28,328 13,799 8,143 Unearned income................ 2,441 (70,436) 39,581 Net cash provided by operating ------------ ------------ ------------ activities........................ 14,758 98,670 13,451 ------------ ------------ ------------ Cash flows from investing activities: Principal payments on mortgage loan receivable................. 61,208 1,462,849 - Additions to investment properties (3,165,180) (946,007) (2,348,964) Sale (purchase) of short-term investments, net................ - 431,682 1,801,103 Proceeds from sale of investment properties...................... 5,199,952 3,537,584 1,609,943 Net cash provided by ------------ ------------ ------------ investing activities.............. 2,095,980 4,486,108 1,062,082 ------------ ------------ ------------ Cash flows from financing activities: Repurchase of Limited Partnership Units........................... (23,353) (39,518) (18,361) Cash distributions................ (1,956,353) (5,166,497) (3,999,790) ------------ ------------ ------------ Net cash used in financing activities (1,979,706) (5,206,015) (4,018,151) Net increase (decrease) in cash ------------ ------------ ------------ and cash equivalents.............. 131,032 (621,237) (2,942,618) Cash and cash equivalents at beginning of year................. 340,191 961,428 3,904,046 Cash and cash equivalents at end of ------------ ------------ ------------ year.............................. $ 471,223 340,191 961,428 ============ ============ ============ See accompanying notes to financial statements. -19- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Cash Flows For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ---- ---- ---- Supplemental schedule of non-cash investing activities: Mortgage loan receivable funding.. $ (228,000) (2,750,000) - Reduction of investment properties 4,131,679 3,495,314 - Deferred gain on sale of investment properties...................... - 1,701,090 - Gain on sale of investment properties...................... 1,296,273 1,091,180 - Proceeds from sale of investment ------------ ------------ ------------ properties...................... $ 5,199,952 3,537,584 - ============ ============ ============ See accompanying notes to financial statements. -20- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements For the years ended December 31, 1998, 1997 and 1996 (1) Organization and Basis of Accounting The Registrant, Inland Land Appreciation Fund II, L.P. (the "Partnership"), is a limited partnership formed on June 28, 1989, pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in undeveloped land on an all-cash basis and realize appreciation of such land upon resale. On October 25, 1989, the Partnership commenced an Offering of 30,000 (subject to increase to 60,000) Limited Partnership Units pursuant to a Registration under the Securities Act of 1933. The Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") provides for Inland Real Estate Investment Corporation to be the General Partner. On October 24, 1991, the Partnership terminated its Offering of Units, with total sales of 50,476.17 Units, at $1,000 per Unit, resulting in $50,476,170 in gross offering proceeds, not including the General Partner's capital contribution of $500. All of the holders of these Units have been admitted to the Partnership. As of December 31, 1999, the Partnership has repurchased a total of 386.65 Units for $369,592 from various Limited Partners through the Unit Repurchase Program. Under this program, Limited Partners may, under certain circumstances, have their Units repurchased for an amount equal to their Invested Capital. 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 those estimates. Offering costs have been offset against the Limited Partners' capital accounts. The Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and are carried at cost, which approximates market. For vacant land parcels and parcels with insignificant buildings and improvements, the Partnership uses the area method of allocation, which approximates the relative sales method of allocation, whereby a per acre price is used as the standard allocation method for land purchases and sales. The total cost of the parcel is divided by the total number of acres to arrive at a per acre price. For parcels with significant buildings and improvements (Parcel 24, described in Note 4), the Partnership records the buildings and improvements at a cost based upon the appraised value at the date of acquisition. Buildings and improvements are depreciated using the straight-line method of depreciation over a useful life of thirty years. Repair and maintenance expenses are charged to operations as incurred. Significant improvements are capitalized and depreciated over their estimated useful lives. -21- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") requires the Partnership to record an impairment loss on its property to be held for investment whenever its carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. As of December 31, 1999 and 1998, the Partnership has not recognized any such impairment. The Partnership is required to pay a withholding tax to the Internal Revenue Service with respect to a Partner's allocable share of the Partnership's taxable net income, if the Partner is a foreign person. The Partnership will first pay the withholding tax from the distributions to any foreign partner, and to the extent that the tax exceeds the amount of distributions withheld, or if there have been no distributions to withhold, the excess will be accounted for as a distribution to the foreign partner. Withholding tax payments are made every April, June, September and December. The Partnership records are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles ("GAAP"). The Federal income tax return has been prepared from such records after making appropriate adjustments, if any, to reflect the Partnership's accounts as adjusted for Federal income tax reporting purposes. Such adjustments are not recorded in the records of the Partnership. The net effect of these items is summarized as follows: 1999 1998 ------------------------ ------------------------ Tax Tax GAAP Basis GAAP Basis Basis (unaudited) Basis (unaudited) ----------- ------------ ----------- ------------ Total assets................ $40,377,846 47,910,285 40,923,656 48,456,097 Partners' capital: General Partner........... 359,052 192,208 358,113 188,350 Limited Partners.......... 39,018,095 46,717,379 39,570,702 47,272,905 Net income (loss): General Partner........... 939 3,858 167,690 (4,027) Limited Partners.......... 1,427,099 1,424,180 1,947,631 2,119,348 Net income per Limited Partnership Unit.......... 28.48 28.42 38.84 42.26 The net income per Unit is based upon the weighted average number of Units of 50,105.25 and 50,144.40 during 1999 and 1998, respectively. -22- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) Statement of Financial Accounting Standards No. 128 "Earnings per Share" was adopted by the Partnership for the year ended December 31, 1997 and has been applied to all prior earnings periods presented in the financial statements. The Partnership has no dilutive securities. A presentation of information about operating segments as required in Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information" would not be material to an understanding of the Partnership's business taken as a whole as the Partnership is engaged in the business of real estate investment which management considers to be a single operating segment. No provision for Federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership. (2) Partnership Agreement The Partnership Agreement defines the allocation of profits and losses, and available cash. If and to the extent that real estate taxes and insurance payable with respect to the Partnership's land during a given year exceed revenues of the Partnership, the General Partner will make a Supplemental Capital Contribution of such amount to the Partnership to ensure that it has sufficient funds to make such payments. Profits and losses from operations (other than capital transactions) will be allocated 99% to the Limited Partners and 1% to the General Partner. The net gain from sales of Partnership properties is first allocated among the Partners in proportion to the negative balances, if any, in their respective capital accounts. Thereafter, except as provided below, net gain is allocated to the General Partner in an amount equal to the proceeds distributed to the General Partner from such sale and the balance of any net gain is allocated to the Limited Partners. If the amount of net gain realized from a sale is less than the amount of cash distributed to the General Partner from such sale, the Partnership will allocate income or gain to the General Partner in an amount equal to the excess of the cash distributed to the General Partner with respect to such sale as quickly as permitted by law. Any net loss from a sale will be allocated to the Limited Partners. Distributions of Net Sale Proceeds will be allocated between the General Partner and the Limited Partners based upon both an aggregate overall return to the Limited Partners and a separate return with respect to each parcel of land purchased by the Partnership. As a general rule, Net Sale Proceeds will be distributed 90% to the Limited Partners and 10% to the General Partner until the Limited Partners have received from Net Sale Proceeds (i) a return of their Original Capital plus (ii) a noncompounded Cumulative Preferred Return of 15% of their Invested Capital. However, with respect to each parcel of land, the General Partner's 10% share will be subordinated until the Limited Partners receive a return of the Original Capital attributed to such parcel ("Parcel Capital") plus a 6% per annum noncompounded Cumulative Preferred Return thereon. -23- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) After the amounts described in items (i) and (ii) above and any previously subordinated distributions to the General Partner have been paid, and the amount of any Supplemental Capital Contributions have been repaid to the General Partner, subsequent distributions shall be paid 75% to the Limited Partners and 25% to the General Partner without considering Parcel Capital. If, after all Net Sale Proceeds have been distributed, the General Partner has received more than 25% of all Net Sale Proceeds (exclusive of distributions made to the Limited Partners to return their Original Capital), the General Partner shall contribute to the Partnership for distribution to the Limited Partners an amount equal to such excess. Any distributions from Net Sales Proceeds at a time when Invested Capital is greater than zero shall be deemed applied first to reduction of such Invested Capital before application to payment of any deficiency in the 15% Cumulative Preferred Return. (3) Transactions with Affiliates The General Partner and its Affiliates are entitled to reimbursement for salaries and expenses of employees of the General Partner and its Affiliates relating to the administration of the Partnership. Such costs are included in professional services to Affiliates and general and administrative expenses to Affiliates, of which $878 and $5,473 was unpaid as of December 31, 1999 and 1998, respectively. The General Partner is entitled to receive Asset Management Fees equal to one- quarter of 1% of the original cost to the Partnership of undeveloped land annually, limited to a cumulative total over the life of the Partnership of 2% of the land's original cost to the Partnership. Such fees of $84,392, $88,412 and $91,270 have been incurred for the years ended December 31, 1999, 1998 and 1997, respectively, and are included in land operating expenses to Affiliates, of which $0 was unpaid as of December 31, 1999. An Affiliate of the General Partner performed marketing and advertising services for the Partnership and was reimbursed (as set forth under term of the Partnership Agreement) for direct costs. Such costs of $(11,396), $79,512 and $26,204 have been incurred and paid and are included in marketing expenses to Affiliates for the years ended December 31, 1999, 1998 and 1997, respectively. An Affiliate of the General Partner performed property upgrades, rezoning, annexation and other activities to prepare the Partnership's land investments for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. The Affiliate did not recognize a profit on any project. Such costs of $180,837, $90,456 and $139,696 have been incurred and paid for the years ended December 31, 1999, 1998 and 1997, respectively, and are included in investment properties. -24- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) (4) Investment Properties
Total Gross Initial Costs Costs Remaining Current Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale # County (Sold) Date Costs Costs Costs Acquisition Sold 12/31/99 Recognized - ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ---------- 1 McHenry 372.759 04/25/90 $ 2,114,295 114,070 2,228,365 533,452 - 2,761,817 - 2 Kendall 41.118 07/06/90 549,639 43,889 593,528 10,404 - 603,932 - 3 Kendall 120.817 11/06/90 1,606,794 101,863 1,708,657 35,437 - 1,744,094 - 4 Kendall 299.025 06/28/91 1,442,059 77,804 1,519,863 3,347 - 1,523,210 - 5 Kane 189.0468 02/28/91 1,954,629 94,569 2,049,198 225,578 - 2,274,776 - 6 Lake 57.3345 04/16/91 904,337 71,199 975,536 21,577 4,457 992,656 - (.258) 10/01/94 7 McHenry 56.7094 04/22/91 680,513 44,444 724,957 3,164,941 3,132,761 757,137 475,847 (12.6506) Var 1997 (15.7041) Var 1998 (19.6296) Var 1999 8 Kane 325.394 06/14/91 3,496,700 262,275 3,758,975 28,983 10,000 3,777,958 - (.870) 04/03/96 9 Will 9.867 08/13/91 217,074 988 218,062 10,447 - 228,509 - 10 Will 150.66 08/20/91 1,866,716 89,333 1,956,049 9,808 - 1,965,857 - 11 Will 138.447 08/20/91 289,914 20,376 310,290 2,700 312,990 - - (138.447) 05/03/93 12 Will 44.732 08/20/91 444,386 21,988 466,374 8,604 - 474,978 - 13 Will 6.342 09/23/91 139,524 172 139,696 - 139,696 - - (6.342) 05/03/93 14 Kendall 44.403 09/03/91 888,060 68,210 956,270 46,553 - 1,002,823 - 15 Kendall 100.364 09/04/91 1,050,000 52,694 1,102,694 117,829 1,220,523 - 37,861 (5.000) 09/01/93 (11.000) 12/01/94 (84.364) 08/14/98 16 McHenry 168.905 09/13/91 1,402,058 69,731 1,471,789 93,611 - 1,565,400 - 17 Kendall 3.462 10/30/91 435,000 22,326 457,326 17,947 - 475,273 - 18 McHenry 139.1697 11/07/91 1,160,301 58,190 1,218,491 269,533 - 1,488,024 - ------------ ------------ ------------ -------------- ------------ ------------ ------------ Subtotal $20,641,999 1,214,121 21,856,120 4,600,751 4,820,427 21,636,444 513,708 -25- -25- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) (4) Investment Properties (continued) Total Gross Initial Costs Costs Remaining Current Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale # County (Sold) Date Costs Costs Costs Acquisition Sold 12/31/99 Recognized - ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ---------- Subtotal $20,641,999 1,214,121 21,856,120 4,600,751 4,820,427 21,636,444 513,708 19 Kane 436.236 12/13/91 4,362,360 321,250 4,683,610 170,944 - 4,854,554 - 20 Kane & Kendall 400.129 01/31/92 1,692,623 101,318 1,793,941 1,199,612 1,250,469 1,743,084 14,598 (21.138) 06/30/99 21 Kendall 15.013 05/26/92 250,000 23,844 273,844 9,733 18,798 264,779 30,663 (1.000) 03/16/99 22 Kendall 391.959 10/30/92 3,870,000 283,186 4,153,186 113,112 190,683 4,075,615 269,607 (10.000) 01/06/94 (5.538) 01/05/96 (2.400) 07/27/99 23 (c) Kendall 133.2074 10/30/92 3,231,942 251,373 3,483,315 4,580,185 6,631,709 1,431,791 274,608 (11.525) 07/16/93 (44.070) Var 1995 (8.250) Var 1996 (2.610) Var 1997 (10.6624) Var 1998 (5.8752) Var 1999 23A(a) Kendall .2676 10/30/92 170,072 12,641 182,713 - 182,713 - - (.2676) 03/16/93 24 Kendall 3.908 01/21/93 645,000 56,316 701,316 6,227 - 707,543 - 24A(b) Kendall .406 01/21/93 155,000 13,533 168,533 - - 168,533 - 25 Kendall 656.687 01/28/93 1,625,000 82,536 1,707,536 22,673 1,730,209 - - (656.687) 10/31/95 26 Kane 89.511 03/10/93 1,181,555 89,312 1,270,867 1,762,507 625,617 2,407,757 230,950 (2.108) Var 1999 27 Kendall 83.525 03/11/93 984,474 54,846 1,039,320 13,445 - 1,052,765 - ------------ ------------ ------------ -------------- ------------ ------------ ----------- $38,810,025 2,504,276 41,314,301 12,479,189 15,450,625 38,342,865 1,334,134 ============ ============ ============ ============== ============ ============ ===========
-26- -26- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) (4) Investment Properties (continued) (a) Included in the purchase of Parcel 23 was a newly constructed 2,500 square foot house. The house was sold in March 1993. (b) Included in the purchase of Parcel 24 was a 2,400 square foot office building. (c) Parcel 23, annexed and zoned to Oswego, Illinois as part of the Mill Race Creek subdivision, consists of two parts: a 28-acre multi-family portion and a 105-acre single-family portion. The Partnership sold the 28-acre multi-family portion on June 7, 1995 and as of December 31, 1999, 200 of the 243 single-family lots. (d) Reconciliation of investment properties owned: 1999 1998 ---- ---- Balance at January 1,........................... $39,309,364 41,858,671 Additions during year: Improvements.................................... 3,165,180 946,007 Sales during year............................... (4,131,679) (3,495,314) ------------ ------------ Balance at December 31,......................... $38,342,865 39,309,364 ============ ============ (e) Reconciliation of accumulated depreciation: 1999 1998 ---- ---- Balance at January 1,........................... $ 18,487 15,384 Depreciation expense............................ 3,103 3,103 ------------ ------------ Balance at December 31,......................... $ 21,590 18,487 ============ ============ (f) The aggregate cost of investment properties owned at December 31, 1999 for Federal income tax purposes was approximately $38,250,000 (unaudited). (5) Rental Income The Partnership has determined that all leases relating to the farm parcels are operating leases. Accordingly, rental income is reported when earned. As of December 31, 1999, the Partnership had leases of generally one year in duration, for approximately 2,848 acres of the approximately 3,404 acres owned. -27- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) (6) Mortgage Loan Receivable As a result of the sale of the remaining approximately 84 acres of Parcel 15 for a sales price of $2,750,000 on August 14, 1998, the Partnership received a mortgage loan receivable of $2,750,000 and recorded a deferred gain on sale of $1,701,090, of which $942,748 has been recognized as of December 31, 1999. The deferred gain will be recognized over the life of the related mortgage loan receivable as principal payments are received. The mortgage loan receivable accrues interest at 9% per annum and has a maturity date of July 31, 2001, at which time all accrued interest, as well as principal, is due. On December 21, 1998, the purchaser paid down the mortgage loan receivable in the principal amount of $1,462,849 plus accrued interest, resulting in a mortgage loan receivable balance of $1,287,151 at December 31, 1998. As of December 31, 1999, the principal balance was $1,225,943 and accrued interest receivable totaled $118,376. As a result of the sale of the 18 lots of Parcel 26, the Sugar Grove parcel, on October 1, 1999, the Partnership received a purchase money note in the amount of $228,000. The note bears interest at 8% per annum with interest accruing and payable at September 30, 2002 and with principal and any remaining interest due October 1, 2004. As of December 31, 1999, the accrued interest receivable totaled $4,547. At December 31, 1999, the fair market value of the mortgage loans receivable approximated their carrying values. (7) Subsequent Events On January 7, 2000, the Partnership sold an additional 2 lots of Parcel 23, the Ponds of Mill Race Creek, to an unaffiliated third party for $80,500. The Partnership received net sales proceeds of $80,204 and recorded a gain on sale of $16,478. On January 27, 2000, the Partnership sold one additional lot of Parcel 23, the Ponds of Mill Race Creek, to an unaffiliated third party for $50,990. The Partnership received net sales proceeds of $49,209 and recorded a gain on sale of $17,346. On February 1, 2000, the Partnership sold ten additional lots of Parcel 7, Olde Mill Ponds on Boone Creek, to an unaffiliated third party for $440,815. The Partnership received net sales proceeds of $442,121 and recorded a gain on sale of $127,320. On March 1, 2000, the Partnership sold eleven additional lots of Parcel 26, Bliss Woods Club, to an unaffiliated third party for $433,000. The Partnership received net sales proceeds of $432,088 and recorded a gain on sale of $38,727. -28- Item 9. Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure There were no disagreements on accounting or financial disclosure matters during 1998. PART III Item 10. Directors and Executive Officers of the Registrant The General Partner of the Partnership, Inland Real Estate Investment Corporation, was organized in 1984 for the purpose of acting as general partner of limited partnerships formed to acquire, own and operate real properties. The General Partner is a wholly-owned subsidiary of The Inland Group, Inc. In 1990, Inland Real Estate Investment Corporation became the replacement General Partner for an additional 301 privately-owned real estate limited partnerships syndicated by Affiliates. The General Partner has responsibility for all aspects of the Partnership's operations. The relationship of the General Partner to its Affiliates is described under the caption "Conflicts of Interest" at pages 11 to 13 of the Prospectus, a copy of which description is hereby incorporated herein by reference. Officers and Directors The officers, directors, and key employees of The Inland Group, Inc. and its Affiliates ("Inland") that are likely to provide services to the Partnership are as follows: Functional Title Daniel L. Goodwin....... Chairman and Chief Executive Officer Robert H. Baum.......... Executive Vice President-General Counsel G. Joseph Cosenza....... Senior Vice President-Acquisitions Robert D. Parks......... Senior Vice President-Investments Brenda G. Gujral........ President and Chief Operating Officer-IREIC Catherine L. Lynch...... Treasurer Roberta S. Matlin....... Assistant Vice President-Investments Mark Zalatoris.......... Assistant Vice President-Due Diligence Patricia A. DelRosso.... Vice President-Asset Management Kelly Tucek............. Assistant Vice President-Partnership Accounting Venton J. Carlston...... Assistant Controller -29- DANIEL L. GOODWIN (age 56) is Chairman of the Board of Directors of The Inland Group, Inc., a billion-dollar real estate and financial organization located in Oak Brook, Illinois. Among Inland's subsidiaries is the largest property management firm in Illinois and one of the largest commercial real estate and mortgage banking firms in the Midwest. Mr. Goodwin has served as Director of the Avenue Bank of Oak Park and as a director of the Continental Bank of Oakbrook Terrace. He was Chairman of the Bank Holding Company of American National Bank of DuPage. Currently he is the Chairman of the Board of Inland Mortgage Corporation. Mr. Goodwin has been in the housing industry for more than 30 years, and has demonstrated a lifelong interest in housing-related issues. He is a licensed real estate broker and a member of the National Association of Realtors. He has developed thousands of housing units in the Midwest, New England, Florida, and the Southwest. He is also the author of a nationally recognized real estate reference book for the management of residential properties. Mr. Goodwin has served on the Board of the Illinois State Affordable Housing Trust Fund for six years. He is an advisor for the Office of Housing Coordination Services of the State of Illinois, and a member of the Seniors Housing Committee of the National Multi-Housing Council. He was appointed Chairman of the Housing Production Committee for the Illinois State Affordable Housing Conference by former Governor Edgar. He also served as a member of the Cook County Commissioner's Economic Housing Development Committee, and he was the Chairman of the DuPage County Affordable Housing Task Force. The 1992 Catholic Charities Award was presented to Mr. Goodwin for his work in addressing affordable housing needs. The City of Hope designated him as the Man of the Year for the Illinois construction industry. In 1989, the Chicago Metropolitan Coalition on Aging presented Mr. Goodwin with an award in recognition of his efforts in making housing more affordable to Chicago's Senior Citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver Shelter) presented Mr. Goodwin with an award, recognizing The Inland Group as the leading corporate provider of transitional housing for the homeless people of DuPage County. Mr. Goodwin also serves as Chairman of New Directions Housing Corporation, a provider of affordable housing. Mr. Goodwin is a product of Chicago-area schools, and obtained his Bachelor's and Master's Degrees from Illinois Universities. Following graduation, he taught for five years in the Chicago Public Schools. His commitment to education has continued through his work with the BBF Family Services' Pilot Elementary School in Chicago, and the development of the Inland Vocational Training Center for the Handicapped located at Little City in Palatine, Illinois. He personally established an endowment which funds a perpetual scholarship program for inner-city disadvantaged youth. In 1990 he received the Northeastern Illinois University President's Meritorious Service Award. Mr. Goodwin holds a Master's Degree in Education from Northern Illinois University, and in 1986, he was awarded an Honorary Doctorate from Northeastern Illinois University College of Education. More than 12 years ago, under Mr. Goodwin's direction, Inland instituted a program to educate disabled students about the workplace. Most of those original students are employed at Inland today, and Inland continues as one of the largest employers of the disabled in DuPage County. Mr. Goodwin has served as a member of the Board of Governors of Illinois State Colleges and Universities, and he is currently Vice Chairman of the Board of Trustees of Benedictine University. Since January 1996, he has been Chairman of the Northeastern Illinois University Board of Trustees. -30- In 1988 Mr. Goodwin received the Outstanding Business Leader Award from the Oak Brook Jaycees and in March 1994 he won the Excellence in Business Award from the DuPage Area Association of Business and Industry. Additionally, he was by Little Friends on May 17, 1995 for rescuing their Parent-Handicapped Infant Program. He was the recipient of the 1995 March of Dimes Life Achievement Award and was recently recognized as the 1998 Corporate Leader of the Year by the Oak Brook Area Association of Commerce and Industry. The Ray Graham Association for People with Disabilities honored Mr. Goodwin as the 1999 Employer of the Year. Also, in 1999, the YWCA DuPage District bestowed the Corporate Recognition Award for Inland's policies and practices that demonstrate a commitment to the advancement of women in the workplace. For many years, he has been Chairman of the National Football League Players Association Mackey Awards for the benefit of inner-city youth and he served as the recent Chairman of the Speakers Club of the Illinois House of Representatives. ROBERT H. BAUM (age 55) has been with The Inland Group, Inc. and its affiliates since 1968 and is one of the four original principals. Mr. Baum is Vice Chairman and Executive Vice President-General Counsel of The Inland Group, Inc. In his capacity as General Counsel, Mr. Baum is responsible for the supervision of the legal activities of The Inland Group, Inc. and its affiliates. This responsibility includes the supervision of The Inland Law Department and serving as liaison with outside counsel. Mr. Baum has served as a member of the North American Securities Administrators Association Real Estate Advisory Committee and as a member of the Securities Advisory Committee to the Secretary of State of Illinois. He is a member of the American Corporation Counsel Association and has also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has been admitted to practice before the Supreme Court of the United States, as well as the bars of several federal courts of appeals and federal district courts and the State of Illinois. He has served as a director of American National Bank of DuPage and currently serves as a director of Westbank. Mr. Baum also is a member of the Governing Council of Wellness House, a charitable organization that provides emotional support for cancer patients and their families. G. JOSEPH COSENZA (age 55) has been with The Inland Group, Inc. and its affiliates since 1968 and is one of the four original principals. Mr. Cosenza is a Director and Vice Chairman of The Inland Group, Inc. and oversees, coordinates and directs Inland's many enterprises. In addition, Mr. Cosenza immediately supervises a staff of twelve persons who engage in property acquisition. Mr. Cosenza has been a consultant to other real estate entities and lending institutions on property appraisal methods. Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and his M.S. Degree from Northern Illinois University. From 1967 to 1968, he taught in the LaGrange Illinois School District and from 1968 to 1972, he served as Assistant Principal and taught in the Wheeling, Illinois School District. Mr. Cosenza has been a licensed real estate broker since 1968 and an active member of various national and local real estate associations, including the National Association of Realtors and the Urban Land Institute. Mr. Cosenza has also been Chairman of the Board of American National Bank of DuPage, and has served on the Board of Directors of Continental Bank of Oakbrook Terrace. He is presently a Director on the Board of Westbank in Westchester and Hillside, Illinois. -31- ROBERT D. PARKS (age 55) is a Director of The Inland Group, Inc.; Chairman of Inland Real Estate Investment Corporation; President, Chief Executive Officer, Chief Operating Officer and Affiliated Director of Inland Real Estate Corporation, and Chairman, Chief Executive Officer and Affiliated Director of Inland Retail Real Estate Trust, Inc. Mr. Parks is responsible for the ongoing administration of existing investment programs, corporate budgeting and administration for Inland Real Estate Investment Corporation. He oversees and coordinates the marketing of all investments and investor relations. Prior to joining Inland, Mr. Parks was a school teacher in Chicago's public schools. He received his B.A. degree from Northeastern Illinois University and his M.A. degree from the University of Chicago. He is a member of the Real Estate Investment Association and a member of the National Association of Real Estate Investment Trusts (NAREIT). BRENDA G. GUJRAL (age 58) is President and Chief Operating Officer of Inland Real Estate Investment Corporation (IREIC), the parent company of the Advisor. She is also President and Chief Operating Officer of the Dealer- Manager, Inland Securities Corporation (ISC), a member firm of the National Association of Securities Dealers (NASD). Mrs. Gujral has overall responsibility for the operations of IREIC, including the distribution of checks to over 50,000 investors, review of periodic communications to those investors, the filing of quarterly and annual reports for Inland's publicly registered investment programs with the Securities and Exchange Commission, compliance with other SEC and NASD securities regulations both for IREIC and ISC, review of asset management activities, and marketing and communications with the independent broker/dealer firms selling Inland's current and prior programs. Mrs. Gujral works with internal and outside legal counsel in structuring and registering the prospectuses for IREIC's investment programs. Mrs. Gujral has been with Inland for 18 years, becoming an officer in 1982. Prior to joining Inland, she worked for the Land Use Planning Commission establishing an office in Portland, Oregon, to implement land use legislation for that state. She is a graduate of California State University. She holds Series 7, 22, 39 and 63 licenses from the NASD and is a member of the National Association of Real Estate Investment Trusts (NAREIT) and the National Association of Female Executives. -32- CATHERINE L. LYNCH (age 41) joined Inland in 1989 and is the Treasurer of Inland Real Estate Investment Corporation. Ms. Lynch is responsible for managing the Corporate Accounting Department. Prior to joining Inland, Ms. Lynch worked in the field of public accounting for KPMG Peat Marwick since 1980. She received her B.S. degree in Accounting from Illinois State University. Ms. Lynch is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. She is registered with the National Association of Securities Dealers as a Financial Operations Principal. ROBERTA S. MATLIN (age 55) joined Inland in 1984 as Director of Investor Administration and currently serves as Senior Vice President-Investments. Prior to that, Ms. Matlin spent 11 years with the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. She is a Director of Inland Real Estate Investment Corporation, Inland Securities Corporation, and Inland Real Estate Advisory Services, Inc. As Senior Vice President-Investments, she directs the day-to-day internal operations of the General Partner. Ms. Matlin received her B.A. degree from the University of Illinois. She is registered with the National Association of Securities Dealers, Inc. as a General Securities Principal. MARK ZALATORIS (age 42) joined Inland in 1985 and currently serves as Vice President of Inland Real Estate Investment Corporation. His responsibilities include the coordination of due diligence activities by selling broker/dealers and is also involved with limited partnership asset management, especially with regard to financing activities. Mr. Zalatoris is a graduate of the University of Illinois where he received a Bachelors degree in Finance and a Masters degree in Accounting and Taxation. He is a Certified Public Accountant and holds a General Securities License with Inland Securities Corporation. PATRICIA A. DELROSSO (age 47) joined Inland in 1985. Ms. DelRosso serves as Senior Vice President of Inland Real Estate Investment Corporation in the area of Asset Management. As head of the Asset Management Department, she develops operating and disposition strategies for all investment-owned properties. Ms. DelRosso received her Bachelor's degree from George Washington University and her Master's from Virginia Tech University. Ms. DelRosso is a licensed real estate broker, NASD registered securities sales representative and is a member of the Urban Land Institute. -33- KELLY TUCEK (age 37) joined Inland in 1989 and is an Assistant Vice President of Inland Real Estate Investment Corporation. As of August 1996, Ms. Tucek is responsible for the Investment Accounting Department which includes all public partnership accounting functions along with quarterly and annual SEC filings. Prior to joining Inland, Ms. Tucek was on the audit staff of Coopers and Lybrand since 1984. She received her B.A. Degree in Accounting and Computer Science from North Central College. VENTON J. CARLSTON (age 42) joined Inland in 1985 and is the Assistant Controller of Inland Real Estate Investment Corporation where he supervises the corporate bookkeeping staff and is responsible for financial statement preparation and budgeting for Inland Real Estate Investment Corporation and its subsidiaries. Prior to joining Inland, Mr. Carlston was a partnership accountant with JMB Realty. He received his B.S. degree in Accounting from Southern Illinois University. Mr. Carlston is a Certified Public Accountant and a member of the Illinois CPA Society. He is registered with the National Association of Securities Dealers, Inc. as a Financial Operations Principal. -34- Item 11. Executive Compensation The General Partner is entitled to receive a share of cash distributions of Net Sale Proceeds based upon both an aggregate overall return to the Limited Partners and a separate return with respect to each parcel of land purchased by the Partnership as described under the caption "Cash Distributions" and a share of profits or losses as described under the caption "Allocation of Profits or Losses" at page 39 of the Prospectus, and at pages A-8 to A-9 of the Partnership Agreement, included as an exhibit to the Prospectus, a copy of which descriptions is incorporated herein by reference. The Partnership is permitted to engage in various transactions involving affiliates of the General Partner of the Partnership, as described under the captions "Compensation and Fees" at pages 9-11 and "Conflicts of Interest" at pages 11-13 of the Prospectus, and at pages A-11 through A-18 of the Partnership Agreement, included as an exhibit to the Prospectus, a copy of which is incorporated herein by reference. The relationship of the General Partner (and its directors and officers) to its Affiliates is set forth above in Item 10. The General Partner and its Affiliates may be reimbursed for its expenses or out-of-pocket costs relating to the administration of the Partnership. For the year ended December 31, 1999, such costs were $59,033, of which $878 was unpaid as of December 31, 1999. The General Partner is entitled to receive Asset Management Fees equal to one- quarter of 1% of the original cost to the Partnership of undeveloped land annually, limited to a cumulative total over the life of the Partnership of 2% of the land's original cost to the Partnership. For the year ended December 31, 1999, the Partnership incurred $84,392 in Asset Management Fees, of which $0 was unpaid as of December 31, 1999. An Affiliate of the General Partner performed marketing and advertising services for the Partnership and was reimbursed (as set forth under terms of the Partnership Agreement) for direct costs. For the year ended December 31, 1999, the Partnership incurred and paid $0 of such costs. An Affiliate of the General Partner performed property upgrades, rezoning, annexation and other activities to prepare the Partnership's land investments for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. The Affiliate did not recognize a profit on any project. For the year ended December 31, 1999, the Partnership incurred $180,837 of such costs, of which $53,699 was unpaid as of December 31, 1999 and which are included in investment properties. -35- Item 12. Security Ownership of Certain Beneficial Owners and Management (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership. (b) The officers and directors of the General Partner of the Partnership own as a group the following Units of the Partnership: Amount and Nature of Beneficial Percent Title of Class Ownership of Class -------------- -------------------- -------------- Limited Partnership 140 Units directly Less than 1/2% Units No officer or director of the General Partner of the Partnership possesses a right to acquire beneficial ownership of Units of the Partnership. All of the outstanding shares of the General Partner of the Partnership are owned by an Affiliate or its officers and directors as set forth above in Item 10. (c) There exists no arrangement, known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership. Item 13. Certain Relationships and Related Transactions There were no significant transactions or business relationships with the General Partner, Affiliates or their management other than those described in Items 10 and 11 above. Reference is made to Note 3 of the Notes to Financial Statements (Item 8 of this Annual Report) for information regarding related party transactions. -36- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The financial statements listed in the index at page 13 of this Annual Report are filed as part of this Annual Report. (b) Exhibits. The following exhibits are filed as part of this report: 27 Financial Data Schedule The following exhibits are incorporated herein by reference: 3 Certificate of Limited Partnership and Amended and Restated Agreement of Limited Partnership, included as Exhibits A and B of the Prospectus dated October 25, 1989, as amended, are incorporated herein by reference thereto. 28 Prospectus, to Form S-11 Registration Statement, File No. 33-30110, as filed with Securities and Exchange Commission on October 25, 1989, as amended, is incorporated herein by reference thereto. (c) Financial Statement Schedules: All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (d) Reports on Form 8-K: None No Annual Report or proxy material for the year 1999 has been sent to the Partners of the Partnership. An Annual Report will be sent to the Partners subsequent to this filing and the Partnership will furnish copies of such report to the Commission when it is sent to the Partners. -37- 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. INLAND LAND APPRECIATION FUND II, L.P. Inland Real Estate Investment Corporation General Partner /s/ Robert D. Parks By: Robert D. Parks Chairman of the Board and Chief Executive Officer Date: March 22, 2000 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 dates indicated: By: Inland Real Estate Investment Corporation General Partner /s/ Robert D. Parks By: Robert D. Parks Chairman of the Board and Chief Executive Officer Date: March 22, 2000 /s/ Patricia A. DelRosso By: Patricia A. DelRosso Senior Vice President Date: March 22, 2000 /s/ Kelly Tucek By: Kelly Tucek Principal Financial Officer and Principal Accounting Officer Date: March 22, 2000 /s/ Daniel L. Goodwin By: Daniel L. Goodwin Director Date: March 22, 2000 /s/ Robert H. Baum By: Robert H. Baum Director Date: March 22, 2000 -38- EX-27 2
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 471223 0 129269 0 0 602628 38342865 21590 40377846 242357 0 0 0 0 39377147 40377846 5427952 6065501 4131679 304851 200933 0 0 1428038 0 1428038 0 0 0 1428038 28.48 28.48
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