-----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, SlyQTkN+W5zl28NqHg2bCVUioYC/SuXxhp7vZLjsDl8V3LYGbnk2zHTZNw1vTHwF cbxvJzNY87mOEYODmwObWA== 0000853496-98-000001.txt : 19980327 0000853496-98-000001.hdr.sgml : 19980327 ACCESSION NUMBER: 0000853496-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NONE 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: 98573723 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, 1997 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 8. Financial Statements and Supplementary Data................... 11 Item 9. Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure.......................... 26 Part III -------- Item 10. Directors and Executive Officers of the Registrant............ 26 Item 11. Executive Compensation........................................ 31 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................... 32 Item 13. Certain Relationships and Related Transactions................ 32 Part IV ------- Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 33 SIGNATURES............................................................. 34 -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, 1997, the Partnership has repurchased a total of 311.65 Units for $306,721 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. A presentation of information about industry 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) 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 Parcel 10, Will County, Illinois 150.6600 08/20/91 -3- Gross Acres Purchase/Sales Parcel & Location Purchased/Sold Date - ----------------------------------- -------------------- ---------------- 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) 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 Parcel 21, Kendall County, Illinois 15.0130 05/26/92 Parcel 22, Kendall County, Illinois 391.9590 10/30/92 (10.0000 sold 01/06/94) (5.5380 sold 01/05/96) 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) 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) Parcel 26, Kane County, Illinois 89.5110 03/10/93 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. -4- 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 remaining parcels. All of the investments were made in the Chicago metropolitan area. The anticipated holding period of the land is approximately two to seven years from the completion of the land portfolio acquisitions. As of December 31, 1997, the Partnership has had multiple sales transactions through which it has disposed of approximately 914 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 1997. 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. The Partnership has reviewed its current computer systems and does not anticipate any future costs or problems relating to the year 2000. 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 1997. -5- PART II Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder Matters As of December 31, 1997, there were 4,994 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, 1997, the Partnership had approximately $292,800 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, 1997, 1996, 1995, 1994 and 1993 (not covered by Independent Auditors' Report) 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Total assets.......... $43,263,842 46,763,097 46,003,464 44,168,179 43,975,368 =========== ========== ========== ========== ========== Total income.......... $ 2,174,319 2,359,290 7,995,470 943,990 1,720,922 =========== ========== ========== ========== ========== Net income............ $ 518,404 684,711 2,885,478 254,760 580,061 =========== ========== ========== ========== ========== Net income allocated to the one General Partner Unit........ $ 60 1,671 329,498 360 93,981 =========== ========== ========== ========== ========== Net income allocated per Limited Partnership Unit(b). $ 10.33 13.61 50.89 5.06 9.65 =========== ========== ========== ========== ========== Distributions per Limited Partnership Unit from sales (b)(c).............. $ 79.72 - 19.91 - 24.00 =========== ========== ========== ========== ========== Weighted average Limited Partnership Units............... 50,172.77 50,193.51 50,223.70 50,246.34 50,359.51 =========== ========== ========== ========== ========== (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, basic and diluted, 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, 1997, the Partnership has had multiple sales transactions through which it has disposed of approximately 914 acres of the approximately 4,480 acres originally owned. As of December 31, 1997, cumulative distributions have totaled $6,836,753 to the Limited Partners and $93,034 to the General Partner. Of the $6,836,753 distributed to the Limited Partners, $6,115,753 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, 1997, the Partnership has used $8,368,003 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, 1997, the Partnership owns, in whole or in part, twenty-four 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, 1997, the Partnership had cash, cash equivalents and investments in marketable securities of $1,393,110, of which approximately $292,800 is reserved for the repurchase of Units through the Unit Repurchase Program. The remaining $1,100,310 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. On July 7, 1997, the Partnership paid a distribution of $3,999,790 to the Limited Partners resulting in cumulative distributions of $6,836,753. This distribution was from net sales proceeds previously held on sales from Parcels 23 and 25. 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 sixty- five of the total 130 single-family lots under contract with a homebuilder, of which twenty-nine have already closed (see Note 4 of the Notes to Financial Statements for further discussion of Parcel 7). Parcel 18, zoned for multi- and single-family use, is being marketed to potential homebuilders. Parcel 15 has been zoned with development and sales marketing underway. Parcel 23, the Ponds at Mill Race Creek Subdivision, has 234 of the total 243 single-family lots under contract with homebuilders, of which 129 have already closed (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 for the year ended December 31, 1997 is the result of the sale of 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, 1997, the Partnership has sold 129 of the 243 single- family lots at the Ponds of Mill Race Creek, in addition to the multi-family portion, The Winding Waters of Mill Race Creek. Income from the sale of investment properties and cost of investment properties sold for the year ended December 31, 1996 is the result of the lot sales at the Mill Race Creek Subdivision (Parcel 23), 5.538 acres of Parcel 22 and .87 acres of Parcel 8. Income from the sale of investment properties and cost of investment properties sold for the year ended December 31, 1995 is the result of the sales at the Mill Race Creek Subdivision and of Parcel 25. -9- As of December 31, 1997, the Partnership owned twenty-four parcels of land consisting of approximately 3,566 acres and one office building. Of the approximately 3,566 acres owned, 3,045 acres are tillable, leased to local farmers and generate sufficient cash flow to cover property taxes, insurance and other miscellaneous expenses. The increase in rental income for the year ended December 31, 1997, as compared to the year ended December 31, 1996, is due to annual increases in lease amounts from tenants. The decrease in rental income and land operating expenses to Affiliates for the year ended December 31, 1996, as compared to the year ended December 31, 1995, is due to the decrease of the land portfolio as a result of land sales. The decrease in rental income was partially offset by the annual increase in lease amounts from tenants. Land operating expenses to non-affiliates decreased for the year ended December 31, 1997, as compared to the year ended December 31, 1996, is due to decreases in assessments and grounds maintenance relating to Parcel 23 and real estate taxes. Land operating expenses to non-affiliates increased for the year ended December 31, 1996, as compared to the year ended December 31, 1995, due to an increase in assessments fees and grounds maintenance relating to Parcel 23. This increase was partially offset by decreases in repair and maintenance, insurance and real estate taxes. Interest income decreased for the year ended December 31, 1997, as compared to the year ended December 31, 1996, due to the Partnership distributing net sales proceeds of approximately $4,000,000 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, 1996, as compared to the year ended December 31, 1995, due to the Partnership replenishing its working capital reserve from the sales at Parcels 23 and sale of Parcel 25 and an increase in interest rates on short-term investments. Professional services to Affiliates and non-affiliates increased for the year ended December 31, 1997, as compared to the year ended December 31, 1996, due to an increase in legal and accounting services related to the increase in sales activity within the Partnership. Professional services to Affiliates decreased for the year ended December 31, 1996, as compared to the year ended December 31, 1995, due to a decrease in legal and accounting services required by the Partnership. Professional services to non-affiliates increased for the years ended December 31, 1996 and 1995, as compared to the year ended December 31, 1994, due to an increase in legal and accounting fees. General and administrative expenses to Affiliates decreased for the year ended December 31, 1997, as compared to the years ended December 31, 1996 and 1995, due primarily to a decrease in investor services and data processing expenses. General and administrative expenses to non-affiliates decreased for the year ended December 31, 1997, as compared to the year ended December 31, 1996 and increased for the year ended December 31, 1996, as compared to the year ended December 31, 1995, due primarily to the Illinois Replacement Tax paid by the Partnership. Marketing expenses to Affiliates decreased for the years ended December 31, 1997 and 1996, as compared to the year ended December 31, 1995, and marketing expenses to non-affiliates increased for the years ended December 31, 1997 and 1996, as compared to the year ended December 31, 1995, due to decreases 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. -10- 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 8. Financial Statements and Supplementary Data INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Index ----- Page ---- Independent Auditors' Report............................................ 12 Financial Statements: Balance Sheets, December 31, 1997 and 1996............................ 13 Statements of Operations, for the years ended December 31, 1997, 1996 and 1995.................................... 15 Statements of Partners' Capital, for the years ended December 31, 1997, 1996 and 1995.................................... 17 Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995.................................... 18 Notes to Financial Statements......................................... 19 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. -11- 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, 1997 and 1996, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Chicago, Illinois February 4, 1998 -12- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Balance Sheets December 31, 1997 and 1996 Assets ------ 1997 1996 Current assets: ---- ---- Cash and cash equivalents (Note 1).............. $ 961,428 3,904,046 Short-term investments (Note 1)................. 431,682 2,232,785 Accounts and accrued interest receivable........ 25,065 28,778 Other current assets............................ 2,380 2,477 ------------ ------------ Total current assets.............................. 1,420,555 6,168,086 ------------ ------------ Investment properties (including acquisition fees paid to Affiliates of $1,996,952 and $2,020,973 at December 31, 1997 and 1996, respectively) (Notes 1, 3 and 4): Land and improvements........................... 41,765,589 40,514,211 Buildings....................................... 93,082 93,082 ------------ ------------ 41,858,671 40,607,293 Less accumulated depreciation................... 15,384 12,282 Total investment properties, net of accumulated ------------ ------------ depreciation.................................... 41,843,287 40,595,011 ------------ ------------ Total assets...................................... $43,263,842 46,763,097 ============ ============ See accompanying notes to financial statements. -13- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Balance Sheets (continued) December 31, 1997 and 1996 Liabilities and Partners' Capital --------------------------------- 1997 1996 ---- ---- Current liabilities: Accounts payable................................ $ 21,221 65,387 Accrued real estate taxes....................... 100,993 104,059 Due to Affiliates (Note 3)...................... 12,450 4,307 Unearned income................................. 109,669 70,088 ------------ ------------ Total current liabilities......................... 244,333 243,841 ------------ ------------ Partners' capital (Notes 1, 2 and 3): General Partner: Capital contribution........................... 500 500 Cumulative net income.......................... 449,454 449,394 Cumulative cash distributions.................. (93,034) (93,034) ------------ ------------ 356,920 356,860 Limited Partners: ------------ ------------ Units of $1,000. Authorized 60,000 Units, 50,164.52 and 50,184.52 Units outstanding at December 31, 1997 and 1996, respectively (net of offering costs of $7,532,439, of which $2,535,445 was paid to Affiliates)............ 42,637,010 42,655,371 Cumulative net income.......................... 6,862,332 6,343,988 Cumulative cash distributions.................. (6,836,753) (2,836,963) ------------ ------------ 42,662,589 46,162,396 ------------ ------------ Total Partners' capital........................... 43,019,509 46,519,256 ------------ ------------ Total liabilities and Partners' capital........... $43,263,842 46,763,097 ============ ============ See accompanying notes to financial statements. -14- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Operations For the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 Income: ---- ---- ---- Sale of investment properties (Notes 1 and 3)................. $ 1,609,943 1,691,540 7,487,687 Rental income (Note 5)............ 369,362 351,065 404,792 Interest income................... 194,994 316,685 101,691 Other income...................... 20 - 1,300 ------------ ------------ ------------ 2,174,319 2,359,290 7,995,470 ------------ ------------ ------------ Expenses: Cost of investment properties sold............................ 1,097,586 1,173,955 4,630,110 Professional services to Affiliates...................... 42,021 30,055 42,932 Professional services to non-affiliates.................. 52,705 34,418 29,497 General and administrative expenses to Affiliates.......... 28,843 38,187 39,838 General and administrative expenses to non-affiliates...... 26,482 34,413 19,582 Marketing expenses to Affiliates...................... 26,204 45,606 77,784 Marketing expenses to non-affiliates.................. 134,981 58,232 20,396 Land operating expenses to Affiliates...................... 91,270 92,022 98,391 Land operating expenses to non-affiliates.................. 152,721 164,588 148,359 Depreciation...................... 3,102 3,103 3,103 ------------ ------------ ------------ 1,655,915 1,674,579 5,109,992 ------------ ------------ ------------ Net income.......................... $ 518,404 684,711 2,885,478 ============ ============ ============ See accompanying notes to financial statements. -15- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Operations (continued) For the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 ---- ---- ---- Net income allocated to (Note 2): General Partner................... $ 60 1,671 329,498 Limited Partners.................. 518,344 683,040 2,555,980 ------------ ------------ ------------ Net income.......................... $ 518,404 684,711 2,885,478 ============ ============ ============ Net income allocated to the one General Partner Unit.............. $ 60 1,671 329,498 ============ ============ ============ Net income per Unit, basic and diluted, allocated to Limited Partners per weighted average Limited Partnership Units (50,172.77, 50,193.51 and 50,223.70 for the years ended December 31, 1997, 1996 and 1995, respectively)..................... $ 10.33 13.61 50.89 ============ ============ ============ See accompanying notes to financial statements. -16- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Partners' Capital For the years ended December 31, 1997, 1996 and 1995 General Limited Partner Partners Total ------------- ------------- ------------ Balance January 1, 1995............. $ 25,691 43,968,707 43,994,398 Repurchase of Limited Partnership Units............................. - (36,499) (36,499) Distributions to Partners ($19.91 per weighted average Limited Partnership Units of 50,223.70) (Note 2)...... - (1,000,156) (1,000,156) Net income (Note 2)................. 329,498 2,555,980 2,885,478 ------------ ------------ ------------ Balance December 31, 1995........... 355,189 45,488,032 45,843,221 Repurchase of Limited Partnership Units............................. - (8,621) (8,621) Distributions to Partners (Note 1).. - (55) (55) Net income (Note 2)................. 1,671 683,040 684,711 ------------ ------------ ------------ Balance December 31, 1996........... 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 ============ ============ ============ See accompanying notes to financial statements. -17- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Statements of Cash Flows For the years ended December 31, 1997, 1996 and 1995 1997 1996 1995 Cash flows from operating activities: ---- ---- ---- Net income........................ $ 518,404 684,711 2,885,478 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................... 3,102 3,103 3,103 Gain on sale of investment properties.................... (512,357) (517,585) (2,857,577) Changes in assets and liabilities: Accounts and accrued interest receivable................... 3,713 (8,878) (11,685) Other current assets........... 97 67 1,723 Accounts payable............... (44,166) 43,480 5,730 Accrued real estate taxes...... (3,066) 6,788 (16,483) Due to Affiliates.............. 8,143 (6,860) 3,044 Unearned income................ 39,581 40,190 (5,829) Net cash provided by operating ------------ ------------ ------------ activities........................ 13,451 245,016 7,504 ------------ ------------ ------------ Cash flows from investing activities: Additions to investment properties (2,348,964) (888,754) (2,257,644) Sale (purchase) of short-term investments, net................ 1,801,103 (2,232,785) - Proceeds from sale of investment properties...................... 1,609,943 1,691,540 7,487,687 Net cash provided by (used in) ------------ ------------ ------------ investing activities.............. 1,062,082 (1,429,999) 5,230,043 ------------ ------------ ------------ Cash flows from financing activities: Repurchase of Limited Partnership Units........................... (18,361) (8,621) (36,499) Cash distributions................ (3,999,790) (55) (1,000,156) ------------ ------------ ------------ Net cash used in financing activities (4,018,151) (8,676) (1,036,655) Net increase (decrease) in cash ------------ ------------ ------------ and cash equivalents.............. (2,942,618) (1,193,659) 4,200,892 Cash and cash equivalents at beginning of year................. 3,904,046 5,097,705 896,813 Cash and cash equivalents at end of ------------ ------------ ------------ year.............................. $ 961,428 3,904,046 5,097,705 ============ ============ ============ See accompanying notes to financial statements. -18- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements For the years ended December 31, 1997, 1996 and 1995 (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, 1997, the Partnership has repurchased a total of 311.65 Units for $306,721 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. Investments purchased with a maturity of three months or more are considered to be short-term investments 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. -19- 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, 1997 and 1996, 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: 1997 1996 ------------------------- ------------------------ Tax Tax GAAP Basis GAAP Basis Basis (unaudited) Basis (unaudited) ----------- ------------- ----------- ------------ Total assets................ $43,263,842 50,796,281 46,763,097 54,295,536 Partners' capital: General Partner........... 356,920 358,874 356,860 358,810 Limited Partners.......... 42,662,589 50,193,075 46,162,396 53,692,885 Net income: General Partner........... 60 64 1,671 1,670 Limited Partners.......... 518,344 518,340 683,040 818,332 Net income per Limited Partnership Unit, basic and diluted............... 10.33 10.33 13.61 16.30 The net income per Unit, basic and diluted, is based upon the weighted average number of Units of 50,172.77 and 50,193.51 during 1997 and 1996, respectively. -20- 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. 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. -21- 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 $3,977 and $4,307 was unpaid as of December 31, 1997 and 1996, 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 $91,270, $92,022 and $98,391 have been incurred and paid for the years ended December 31, 1997, 1996 and 1995, respectively, and are included in land operating expenses to Affiliates. 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 $26,204, $45,606 and $77,784 have been incurred and are included in marketing expenses to Affiliates for the years ended December 31, 1997, 1996 and 1995, respectively, of which $8,473 was unpaid as of December 31, 1997. 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 $139,696, $50,828 and $17,828 have been incurred and paid for the years ended December 31, 1997, 1996 and 1995, respectively, and are included in investment properties. -22- INLAND LAND APPRECIATION FUND II, L.P. (a limited partnership) Notes to Financial Statements (continued) (4) Investment Properties The following real property investments are owned by the Partnership as of December 31, 1997:
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 12/31/97 Recognized - ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ----------- 1 McHenry 372.759 04/25/90 $ 2,114,295 114,070 2,228,365 397,406 - 2,625,771 - 2 Kendall 41.118 07/06/90 549,639 43,889 593,528 8,156 - 601,684 - 3 Kendall 120.817 11/06/90 1,606,794 101,863 1,708,657 7,147 - 1,715,804 - 4 Kendall 299.025 06/28/91 1,442,059 77,804 1,519,863 2,184 - 1,522,047 - 5 Kane 189.0468 02/28/91 1,954,629 94,569 2,049,198 156,690 - 2,205,888 - 6 Lake 57.3345 04/16/91 904,337 71,199 975,536 18,215 4,457 989,294 - (.258) 10/01/94 7 McHenry 56.7094 04/22/91 680,513 44,444 724,957 2,440,914 746,179 2,419,692 387,006 (12.6506) Var 1997 8 Kane 325.394 06/14/91 3,496,700 262,275 3,758,975 26,241 10,000 3,775,216 - (.870) 04/03/96 9 Will 9.867 08/13/91 217,074 988 218,062 4,248 - 222,310 - 10 Will 150.66 08/20/91 1,866,716 89,333 1,956,049 3,560 - 1,959,609 - 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 3,235 - 469,609 - 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 3,874 - 960,144 - 15 Kendall 100.364 09/04/91 1,050,000 52,694 1,102,694 108,459 177,298 1,033,855 - (5.000) 09/01/93 (11.000) 12/01/94 16 McHenry 168.905 09/13/91 1,402,058 69,731 1,471,789 81,713 - 1,553,502 - 17 Kendall 3.462 10/30/91 435,000 22,326 457,326 2,717 - 460,043 - 18 McHenry 139.1697 11/07/91 1,160,301 58,190 1,218,491 267,891 - 1,486,382 - ------------ ------------ ------------ -------------- ------------ ------------ ------------ Subtotal $20,641,999 1,214,121 21,856,120 3,535,350 1,390,620 24,000,850 387,006 -23- -23- 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 12/31/97 Recognized - ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ----------- Subtotal $20,641,999 1,214,121 21,856,120 3,535,350 1,390,620 24,000,850 387,006 19 Kane 436.236 12/13/91 4,362,360 321,250 4,683,610 138,215 - 4,821,825 - 20 Kane & Kendall 400.129 01/31/92 1,692,623 101,318 1,793,941 104,195 - 1,898,136 - 21 Kendall 15.013 05/26/92 250,000 23,844 273,844 7,263 - 281,107 - 22 Kendall 391.959 10/30/92 3,870,000 283,186 4,153,186 91,848 164,804 4,080,230 - (10.000) 01/06/94 (5.538) 01/05/96 23 (c) Kendall 133.2074 10/30/92 3,231,942 251,373 3,483,315 4,407,768 4,355,287 3,535,796 125,351 (11.525) 07/16/93 (44.070) Var 1995 (8.250) Var 1996 (2.610) Var 1997 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 1,756 - 703,072 - 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 58,106 - 1,328,973 - 27 Kendall 83.525 03/11/93 984,474 54,846 1,039,320 829 - 1,040,149 - ------------ ------------ ------------ -------------- ------------ ------------ ----------- $38,810,025 2,504,276 41,314,301 8,368,003 7,823,633 41,858,671 512,357 ============ ============ ============ ============== ============ ============ ===========
-24- -24- 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, 1997, 129 of the 243 single-family lots. (d) Reconciliation of investment properties owned: 1997 1996 ---- ---- Balance at January 1,........................... $40,607,293 40,892,494 Additions during year: Improvements.................................... 2,348,964 888,754 ------------ ------------ 42,956,257 41,781,248 Sales during year............................... 1,097,586 1,173,955 ------------ ------------ Balance at December 31,......................... $41,858,671 40,607,293 ============ ============ (e) Reconciliation of accumulated depreciation: 1997 1996 ---- ---- Balance at January 1,........................... $ 12,282 9,179 Depreciation expense............................ 3,102 3,103 Sales during year............................... - - ------------ ------------ Balance at December 31,......................... $ 15,384 12,282 ============ ============ (f) The aggregate cost of investment properties owned at December 31, 1997 for Federal income tax purposes was approximately $41,770,000 (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, 1997, the Partnership had leases of generally one year in duration, for approximately 3,045 acres of the approximately 3,566 acres owned. -25- 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 1997. 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 Norbert J. Treonis...... Senior Vice President-Property Management Catherine L. Lynch...... Treasurer Paul J. Wheeler......... Vice President-Personal Financial Services Group Roberta S. Matlin....... Assistant Vice President-Investments Mark Zalatoris.......... Assistant Vice President-Due Diligence Patricia A. Challenger.. Vice President-Asset Management Kelly Tucek............. Assistant Vice President-Partnership Accounting Venton J. Carlston...... Assistant Controller -26- DANIEL L. GOODWIN (age 54) 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 Investment Corporation. Mr. Goodwin has been in the housing industry for more than 28 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 the past 7 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. Recently, Governor Edgar appointed him Chairman of the Housing Production Committee for the Illinois State Affordable Housing Conference. 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 leading provider of affordable housing in northern Illinois. 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 Better Boys Foundation's 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 these original students are still 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 a trustee of Benedictine University. He was elected Chairman of Northeastern Illinois University Board of Trustees in January 1996. -27- Mr. Goodwin served as a member of Governor Jim Edgar's Transition Team. In 1988 he received the Outstanding Business Leader Award from the Oak Brook Jaycees and has been the General Chairman of the National Football League Players Association Mackey Awards for the benefit of inner-city youth. He served as the recent Chairman of the Speakers Club of the Illinois House of Representatives. In March 1994, he won the Excellence in Business Award from the DuPage Area Association of Business and Industry. Additionally, he was honored by Little Friends on May 17, 1995 for rescuing their Parent-Handicapped Infant Program when they lost their lease. He was the recipient of the 1995 March of Dimes Life Achievement Award and was recently recognized as the 1997 Corporate Leader of the Year by the Oak Brook Area Association of Commerce and Industry. ROBERT H. BAUM (age 54) 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 received his B.S. Degree from the University of Wisconsin and his J.D. Degree from Northwestern University School of Law. Mr. Baum has served as a director of American National Bank of DuPage. Currently, he serves as a director of Westbank, and 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 54) 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, immediately supervises a staff of eight 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 at the LaGrange School District in Hodgkins, Illinois 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 Chairman of the Board of Westbank in Westchester and Hillside, Illinois. -28- ROBERT D. PARKS (age 54) is a Director of The Inland Group, Inc., President, Chairman and Chief Executive Officer of Inland Real Estate Investment Corporation and President, Chief Executive Officer, Chief Operating Officer and Affiliated Director of Inland Real Estate Corporation. 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 registered Direct Participation Program Principal with the National Association of Securities Dealers, Inc., and he is a member of the Real Estate Investment Association and a member of NAREIT. NORBERT J. TREONIS (age 47) joined The Inland Group, Inc. and its affiliates in 1975 and he is currently Chairman and Chief Executive Officer of The Inland Property Management Group, Inc. and a Director of The Inland Group, Inc. He serves on the Board of Directors of all Inland subsidiaries involved in the property management, acquisitions and maintenance of real estate, including Mid-America Property Management Corporation, and Metropolitan Construction Services, Inc. Mr. Treonis is charged with the responsibility of the overall management and leasing of all apartment units, retail, industrial and commercial properties nationwide. Mr. Treonis is a licensed real estate broker. He is a past member of the Board of Directors of American National Bank of DuPage, the Apartment Builders and Managers Association of Illinois, the National Apartment Association and the Chicagoland Apartment Association. Mr. Treonis has been the Chairman of the Board of Directors of Inland Commercial Property Management, Inc. since its formation in 1994. CATHERINE L. LYNCH (age 39) 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. PAUL J. WHEELER (age 45) joined Inland in 1982 and is currently the President of Inland Property Sales, Inc., the entity responsible for all corporately owned real estate. Mr. Wheeler received his B.A. degree in Economics from DePauw University and an M.B.A. in Finance/Accounting from Northwestern University. Mr. Wheeler is a Certified Public Accountant and licensed real estate broker. For three years prior to joining Inland, Mr. Wheeler was Vice President/Finance at the real estate brokerage firm of Quinlan & Tyson, Inc. -29- ROBERTA S. MATLIN (age 53) 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. 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 40) 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 including the mortgage funds. 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. CHALLENGER (age 45) joined Inland in 1985. Ms. Challenger 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. Challenger received her Bachelor's degree from George Washington University and her Master's from Virginia Tech University. Ms. Challenger was selected and served from 1980-1984 as Presidential Management Intern, where she was part of a special government-wide task force to eliminate waste, fraud and abuse in government contracting and also served as Senior Contract Specialist responsible for capital improvements in 109 government properties. Ms. Challenger is a licensed real estate broker, NASD registered securities sales representative and is a member of the Urban Land Institute. KELLY TUCEK (age 35) 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 40) 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. -30- 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, 1997, such costs were $70,864, of which $3,977 was unpaid as of December 31, 1997. 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, 1997, the Partnership incurred and paid $91,270 in Asset Management Fees. 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, 1997, such costs were $26,204, of which $8,473 was unpaid as of December 31, 1997. 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, 1997, the Partnership incurred and paid $139,696 of such costs, which are included in investment properties. -31- 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. -32- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) The financial statements listed in the index at page 11 of this Annual Report are filed as part of this Annual Report. (b) Exhibits. The following documents are filed as part of this report: 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 1997 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. -33- 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 26, 1998 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 26, 1998 /s/ Patricia A. Challenger By: Patricia A. Challenger Senior Vice President Date: March 26, 1998 /s/ Kelly Tucek By: Kelly Tucek Principal Financial Officer and Principal Accounting Officer Date: March 26, 1998 /s/ Daniel L. Goodwin By: Daniel L. Goodwin Director Date: March 26, 1998 /s/ Robert H. Baum By: Robert H. Baum Director Date: March 26, 1998 -34- EX-27 2
5 YEAR DEC-31-1997 DEC-31-1997 961428 431682 25065 0 0 1420555 41858671 15384 43263842 244333 0 0 0 0 43019509 43263842 1609943 2174319 1097586 243991 314338 0 0 518404 0 518404 0 0 0 518404 10.33 10.33
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