10-Q 1 capjun06.htm UNITED STATES




UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



X

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


FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

  

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM     TO     


COMMISSION FILE NUMBER: 0-21606



InLand Capital Fund, L.P.

(Exact name of registrant as specified in its charter)


Delaware

36-3767977

(State of Incorporation)

(I.R.S. Employer Identification No.)




2901 Butterfield Road, Oak Brook, IL  60523

(Address of principal executive offices)(Zip Code)


630-218-8000

 (Registrant’s telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days.

Yes X   No  o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act).

Large accelerated filer o           Accelerated filer  o          Non-accelerated filer  X



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes q   No  X







-1-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Balance Sheets

June 30, 2006 and December 31, 2005
(unaudited)

Assets



  

2006

2005

Current assets:

   

  Cash and cash equivalents

$

875,651

829,410

  Accrued interest and other receivables

 

738

9,079

  Other current assets

 

4,176

4,299

    

Total current assets

 

880,565

842,788

    

Other assets

 

233,074

233,074

Investment properties and improvements (including acquisition fees paid   to Affiliates of $9,918 and  $11,668 at June 30, 2006 and
  December 31, 2005)  (Note 3)

 

769,157

875,290

    

Total assets

$

1,882,796

1,951,152





























See accompanying notes to financial statements.



-2-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Balance Sheets
(continued)

June 30, 2006 and December 31, 2005
(unaudited)

Liabilities and Partners' Capital



  

2006

2005

Current liabilities:

   

  Accounts payable

$

232,500

314,452 

  Accrued real estate taxes

 

1,747

1,522 

  Due to Affiliates (Note 2)

 

12,375

29,223 

    

Total liabilities

 

246,622

345,197 

    

Partners' capital:

   

  General Partner:

   

    Capital contribution

 

500

500 

    Cumulative cash distributions

 

(9,546,406)

(9,546,406)

    Cumulative net income

 

9,557,591

9,558,547 

    
  

11,685

12,641 

    

  Limited Partners:

   

    Units of $1,000. Authorized 60,000 Units, 32,337 outstanding at       June 30, 2006 and December 31, 2005 (net of offering costs of       $4,466,765, of which $3,488,574 was paid to Affiliates)

 

27,876,265

27,876,265 

    Cumulative cash distributions

 

(78,171,193)

(78,171,193)

    Cumulative net income

 

51,919,417

51,888,242 

    
  

1,624,489

1,593,314 

    

Total Partners' capital

 

1,636,174

1,605,955 

    

Total liabilities and Partners' capital

$

1,882,796

1,951,152 














See accompanying notes to financial statements.



-3-



INLAND CAPITAL FUND, L.P.
(a limited partnership)

Statements of Operations

For the three and six months ended June 30, 2006 and 2005
(unaudited)

  

Three months

Three months

Six months

Six months

  

Ended

ended

Ended

ended

  

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

Income:

     

  Sale of investment property (Notes     1 and 3)

$

260,805

12,062,369

260,805

12,798,146

  Rental income (Note 4)

 

-    

7,401

-    

17,204

  Interest income

 

6,033

30,012

11,436

65,565

  Other income

 

700

2,036

6,155

6,799

      
  

267,538

12,101,818

278,396

12,887,714

      

Expenses:

     

  Cost of investment property sold

 

134,998

2,849,848

134,998

2,985,704

  Professional services to Affiliates

 

1,186

5,071

4,180

9,111

  Professional services to non-    affiliates

 

7,291

10,649

32,357

39,724

  General and administrative     expenses to Affiliates

 

3,715

5,173

5,675

13,425

  General and administrative     expenses to non-affiliates

 

7,879

70,172

55,585

111,418

  Marketing expenses to Affiliates

 

1,018

4,505

7,958

8,964

  Marketing expenses to non-    affiliates

 

-    

4,377

1,797

19,936

  Land operating expenses to     Affiliates

 

-    

-    

-    

1,032

  Land operating expenses to non-    affiliates

 

3,745

6,764

5,627

10,822

      
  

159,832

2,956,559

248,177

3,200,136

      

Net income

$

107,706

9,145,259

30,219

9,687,578

      












See accompanying notes to financial statements.



-4-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Statements of Operations

For the three and six months ended June 30, 2006 and 2005
(unaudited)

  

Three months

Three months

Six months

Six months

  

ended

ended

ended

Ended

  

June 30, 2006

June 30, 2005

June 30, 2006

June 30, 2005

      

Net income (loss) allocated to:

     

  General Partner

$

(181)

(673)

(956)

316,518

  Limited Partners

 

107,887

9,145,932 

31,175

9,371,060

      

Net income

$

107,706

9,145,259 

30,219

9,687,578

      

Net income (loss) allocated to the   one General Partner Unit

$

(181)

(673)

(956)

316,518

      

Net income per Unit allocated to   Limited Partners per weighted   average Limited Partnership   Units of 32,337 for the three and   six months ended June 30, 2006   and 2005

$

3.34

282.83

.96

289.79

      























See accompanying notes to financial statements.




-5-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Statements of Cash Flows

For the six months ended June 30, 2006 and 2005
(unaudited)


  

2006

2005

Cash flows from operating activities:

   

  Net income

$

30,219

9,687,578 

  Adjustments to reconcile net income to net cash used in operating
      activities:

   

    Gain on sale of investment properties

 

(125,807)

(9,812,442)

    Changes in assets and liabilities:

   

      Accrued interest and other receivables

 

8,341

87 

      Other current assets

 

123

(326)

      Other assets

 

-    

(16,839)

      Accounts payable

 

(81,952)

(111,280)

      Accrued real estate taxes

 

225

(7,224)

      Due to Affiliates

 

(16,848)

2,664 

    

Net cash used in operating activities

 

(185,699)

(257,782)

    

Cash flows from investing activities:

   

  Proceeds from sale of investment properties

 

260,805

12,798,146 

  Additions to investment properties

 

(28,865)

(53,999)

    

Net cash provided by investing activities

 

231,940

12,744,147 

    

Cash flows from financing activities:

   

  Distributions paid

 

-    

(7,317,767)

    

Net cash used in financing activities

 

-    

(7,317,767)

    

Net increase in cash and cash equivalents

 

46,241

5,168,598 

Cash and cash equivalents at beginning of period

 

829,410

7,679,088 

    

Cash and cash equivalents at end of period

$

875,651

12,847,686 

    












See accompanying notes to financial statements.



-6-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Notes to Financial Statements

June 30, 2006


Readers of this Quarterly Report should refer to the Partnership's audited financial statements for the fiscal year ended December 31, 2005, which are included in the Partnership's 2005 Annual Report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this Report.


(1)  Organization and Basis of Accounting


InLand Capital Fund, L.P. (the "Partnership") was organized on June 21, 1991 by the filing of a Certificate of Limited Partnership under the Revised Uniform Limited Partnership Act of the State of Delaware.  On December 13, 1991, the Partnership commenced an offering of 60,000 limited partnership units or Units pursuant to a registered offering under the Securities Act of 1933. Inland Real Estate Investment Corporation is the General Partner.   The offering terminated on August 23, 1993, with total sales of 32,399.28 Units, at $1,000 per Unit, resulting in $32,399,282 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. As of June 30, 2006, the Partnership has repurchased and canceled a total of 62 Units for $56,253 from various Limited Partners through the unit repurchase program.  


The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") 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 periods. Actual results could differ from those estimates.


In the opinion of management, the financial statements contain all the adjustments necessary to present fairly the financial position and results of operations for the period presented herein.  Results of interim periods are not necessarily indicative of results to be expected for the year.


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.




-7-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(unaudited)


(2)  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 and general and administrative expenses to affiliates, of which $4,250 and $7,686 was unpaid as of June 30, 2006 and December 31, 2005, 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. As of March 31, 2005, the Partnership had met the limit.  Such fees of $0 and $1,032 have been incurred for the six months ended June 30, 2006 and June 30, 2005, respectively and are reported as land operating expenses to affiliates on the statement of operations, all of which was paid as of June 30, 2006 and December 31, 2005.


An affiliate of the General Partner performed sales marketing and advertising services for the Partnership and was reimbursed (as set forth under terms of the partnership agreement) for direct costs. Such costs of $7,958 and $8,964 have been incurred and are included in marketing expenses to affiliates for the six months ended June 30, 2006 and 2005, respectively, of which $800 and $0 was unpaid as of June 30, 2006 and December 31, 2005.


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. For the six months ended June 30, 2006, the Partnership incurred $19,333 of such costs. The affiliate did not recognize a profit on any project. Such costs are included in investment properties of which $7,325 and $21,537 was unpaid at June 30, 2006 and December 31, 2005, respectively.















-8-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Notes to Financial Statements (continued)

June 30, 2006(unaudited)

(3)  Investment Properties

    

Initial Costs

Parcel

Illinois

Gross Acres Purchased

Purchase/Sales

Original

Acquisition

Total

Costs Capitalized Subsequent to

Costs of Property

Total Remaining Costs of Parcels

Current Year Gain On Sale

#

County

/(Sold)

Date

Costs

Costs

Costs

Acquisition

Sold

at 06/30/06

Recognized

1

Kendall

108.8960 

07/22/92

$   707,566

57,926

765,492

186,333

951,825

-    

-    

  

(108.8960)

01/11/02

       
           

2

McHenry

201.0000 

11/09/93

2,020,314

122,145

2,142,459

2,679,417

4,052,719

769,157

125,807 

  

(17.7420)

08/02/95

       
  

(8.6806)

Var 1997

       
  

(1.9290)

Var 1998

       
  

(13.5030)

Var 1999

       
  

(3.6400)

11/29/01

       
  

(10.1600)

Var 2002

       
  

(2.0320)

06/07/04

       
  

(114.8134)

08/12/04

       
  

(5.7000)

Var 2005

       
  

(4.0500)

06/11/2006

       
           

3

Will

34.0474 

03/04/94

1,235,830

88,092

1,323,922

37,857

1,361,779

-    

-    

  

(34.0474)

02/04/99

       
           

4

Will

86.9195 

03/30/94

1,778,820

143,817

1,922,637

416,096

2,338,733

-    

-    

  

(2.3050)

Var 1997

       
  

(3.3600)

Var 1998

       
  

(1.0331)

08/19/99

       
  

(60.1000)

Var 2001

       
  

(20.1214)

11/01/04

       
           

5

LaSalle

190.9600 

04/01/94

532,000

18,145

550,145

69,391

619,536

-    

-    

  

(2.0600)

04/08/98

       
  

(188.9000)

10/07/99

       
           

6

DeKalb

59.0800 

05/11/94

670,207

58,373

728,580

486,869

1,215,449

-    

-    

  

(4.9233)

Apr 1998

       
  

(54.1567)

07/23/98

       
           

7

Kendall

200.8210 

07/28/94

1,506,158

82,999

1,589,157

460,282

2,049,439

-    

-    

  

(168.1740)

09/18/03

       
  

(32.6470)

Var 2005

       
           

8

Kendall

133.0000 

08/17/94

1,300,000

106,949

1,406,949

44,331

1,451,280

-    

-    

  

(133.0000)

04/11/05

       



-9-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(3)  Investment Properties (continued)

     

Initial Costs

Parcel

Illinois

Gross Acres Purchased

Purchase/Sales

Original

Acquisition

Total

Costs Capitalized Subsequent to

Costs of Property

Total Remaining Costs of Parcels

Current Year Gain On Sale

#

County

/(Sold)

Date

Costs

Costs

Costs

Acquisition

Sold

at 06/30/06

Recognized

9

LaSalle

335.9600 

08/30/94

993,441

79,329

1,072,770

130,045

1,202,815

-    

-    

  

(335.9600)

04/18/03

       
           

10

Kendall

223.7470 

09/16/94

$   2,693,025

205,660

2,898,685

362,769

3,261,454

-    

-    

  

(2.9770)

11/03/99

       
  

(127.4000)

08/14/02

       
  

(84.39)

01/09/04

       
  

(8.98)

12/15/05

       
           

10A(a)

Kendall

7.0390 

09/16/94

206,975

15,806

222,781

1,327

224,108

-    

-    

  

(7.0390)

04/21/95

       
           

11

Kane

123.0000 

09/26/94

1,353,000

75,551

1,428,551

17,466

1,446,017

-    

-    

  

(123.000)

11/30/00

       
           

12

Kendall

110.2530 

09/28/94

600,001

51,220

651,221

157,198

808,419

-    

-    

  

(59.9050)

04/16/01

       
  

(50.3480)

09/18/03

       
           

13

LaSalle

352.7390 

10/06/94

1,032,666

91,117

1,123,783

22,723

1,146,506

-    

-    

 

 

(10.0000)

07/27/98

       
 

 

(342.7390)

08/31/98

       
           

14

Kendall

134.7760 

10/26/94

1,000,000

81,674

1,081,674

36,734

1,118,408

-    

-    

 

 

(10.6430)

05/21/99

       
  

(124.1330)

12/17/04

       
           

15

McHenry

169.5400 

10/31/94

2,900,000

79,196

2,979,196

332,922

3,312,118

-    

-    

  

(169.5400)

02/26/04

       
           

16

McHenry

207.0754 

11/30/94

1,760,256

101,388

1,861,644

315,664

2,177,308

-    

-    

  

(207.0754)

02/26/04

       
           

17

LaSalle

236.4400 

12/07/94

1,060,286

74,735

1,135,021

100,869

1,235,890

-    

-    

  

(236.4400)

Var 2005

       
           

18

Kendall

386.9900 

11/02/95

       
 

 

(386.9900)

08/31/98

     934,993

     126,329

    1,061,322

               501

          1,061,823

            -    

          -    

 

Total

 

 

$24,285,538

1,660,451

25,945,989

5,858,794

31,035,626

769,157

125,807




-10-


INLAND CAPITAL FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

June 30, 2006
(unaudited)


(3)  Investment Properties (continued)


(a)

Included in the purchase of Parcel 10 was a house and several outbuildings, located on approximately seven acres, which were sold on April 21, 1995.


(b)

Reconciliation of real estate owned:


  

June 30,

December 31,

  

2006

2005

    

Balance at January 1,

$

875,290 

4,207,469 

Additions during period

 

28,865 

97,457 

Sales during period

 

  (134,998)

(3,429,636)

    

Balance at end of period

$

          769,157

875,290 

    



(4)  Farm Rental Income


The Partnership determined that all prior leases relating to the farm parcels were operating leases. Accordingly, rental income was reported when earned.


As of June 30, 2006, the Partnership did not have a farm lease for the remaining 19 acres owned.









-11-


Item 2.  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 quarterly report on Form 10-Q 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 our 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, the ability to obtain annexation and zoning approvals required to develop our properties; the approval of local governing bodies to develop our properties; successful lobbying of local "no growth" or limited development homeowner groups; adverse changes in real estate, financing and general economic or local conditions; eminent domain proceedings; changes in the environmental conditions or changes in the environmental positions of governmental bodies; and potential conflicts of interest between us and our affiliates, including our general partner.


We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC).  The public may read and copy any of the reports that are filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference room by calling the SEC at (800)-SEC-0330.  The SEC maintains an Internet site at (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.


Critical Accounting Policies


The Securities and Exchange Commission issued Financial Reporting Release or FRR No. 60 "Cautionary Advice Regarding Disclosure About Critical Accounting Policies."  A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgements in certain circumstances. We believe that our most critical accounting policies relate to how we value our investment properties and mortgage loans receivable, cost allocation and revenue recognition.  These judgements often result from the need to make estimates about the effect of matters that are inherently uncertain.  The purpose of the FRR is to require companies to provide investors with an understanding of how management forms these policies.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America  or GAAP.  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  The following disclosure discusses judgements known to management pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.


Valuation of Investment Properties - On a quarterly basis, in accordance with Statement of Financial Accounting Standards No. 144, we conduct an impairment analysis to ensure that the carrying value of each property does not exceed its estimated fair value.  If this were to occur, we would be required to record an impairment loss equal to the excess of carrying value over fair value.


In determining the value of an investment property and whether the property is impaired, management considers several factors such as projected capital expenditures and sales prices. The aforementioned factors are considered by management in determining the value of any particular property.  The value of any particular property is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole.  Should the actual results differ from management's judgement, the valuation could be negatively or positively affected.







-12-


The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management's continuous process of analyzing each property. For the six months ended June 30, 2006, we had recorded no such impairment.


Cost Allocation - We use the area method of cost allocation, which approximates the relative sales method of cost 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.


Revenue Recognition - We recognize income from the sale of land parcels in accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate".


Assets Held for Sale -  In determining whether to classify an asset as held for sale, we consider whether: (i) management has committed to a plan to sell the asset; (ii) the asset is available for immediate sale, in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the asset is probable; (v) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vi) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made to the plan.


If all of the above criteria are met, we classify the asset as held for sale. The assets and liabilities associated with those assets that are held for sale are classified separately on the balance sheets for the most recent reporting period.  Additionally, the operations for the periods presented are classified on the statements of operations as discontinued operations for all periods presented.


From time to time, we may determine that a “held for sale property” no longer meets the criteria to continue to be classified as held for sale.  If this occurs, we record the property at the lower of the carrying amount before the property was classified as held for sale or the fair value at the decision date not to sell.  As of June 30, 2006, we have not classified any properties as held for sale.



Liquidity and Capital Resources

On December 13, 1991, we commenced an offering of 60,000 limited partnership units or units at $1,000 per unit, pursuant to a registered offering on Form S-11 under the Securities Act of 1933. The offering terminated on August 23, 1993, after we had sold 32,399.28 units, at $1,000 per unit, resulting in $32,399,282 in gross offering proceeds, not including our general partner's capital contribution of $500. All of the holders of these units have been admitted to our partnership.  Our limited partners share in their portion of benefits of ownership of our real property investments according to the number of units held.


We used $25,945,989 of gross offering proceeds to purchase, on an all-cash basis, 18 parcels of land and one building. These investments included the payment of the purchase price, acquisition fees and acquisition costs of such properties.  One of the parcels was purchased during 1992, one during 1993, fifteen during 1994 and one during 1995. As of June 30, 2006, we have had multiple sales transactions through which we have disposed of a building and approximately 3,283 acres, or 99%, of the 3,302 acres originally owned. As of June 30, 2006, cumulative distributions have totaled $78,171,193 to the limited partners (which exceeds the original capital) and $9,546,406 to the general partner. Through June 30, 2006, we have used $5,858,794 of working capital for rezoning and other activities and such amount is included in investment properties.


Our capital needs and resources will vary depending upon a number of factors, including the extent to which we conduct 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 our land, and the amount of revenue received from leasing. As of June 30, 2006, we own, in part, one of our original parcels.





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At June 30, 2006, we had cash and cash equivalents of $875,651, which is available to be used for our costs and liabilities, cash distributions to partners, and other activities with respect to our remaining land parcel.  Undistributed net sales proceeds will be used to fund our operations, including property upgrades. We will evaluate our cash needs throughout the year to determine future distributions.


We believe we enhanced the value of our land through pre-development activities such as rezoning, annexation and land planning.  Our remaining parcel, Parcel 2, was annexed to the village of McHenry and zoned for a business park.  There are two phases of improvements complete and sites are being marketed to potential buyers.  As of June 30, 2006, 17 lots remain to be sold.



Transactions with Related Parties


Our general partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the general partner and its affiliates relating to our administration.  Such costs of $9,855 and $22,536 for the six months ended June 30, 2006 and June 30, 2005, respectively, are included in professional services and general and administrative expenses to affiliates, of which $4,250 and $7,686 was unpaid as of June 30, 2006 and December 31, 2005, respectively.


Our general partner is entitled to receive asset management fees equal to one-quarter of 1% of the original cost  of our undeveloped parcels annually, limited to a cumulative total over the life of the partnership of 2% of the parcels' original cost to us. As of March 31, 2005, we had met this limit.  Such fees of $0 and $1,032 have been incurred for the six months ended June 30, 2006 and June 30, 2005, respectively, all of which was paid as of June 30, 2006 and December 31, 2005.


An affiliate of our general partner performed sales marketing and advertising services for us and was reimbursed for direct costs. Such costs of $7,958 and $8,964 have been incurred and are included in marketing expenses to affiliates for the six months ended June 30, 2006 and June 30, 2005, respectively, of which $800 and $0 was unpaid as of June 30, 2006 and December 31, 2005, respectively.


An affiliate of the general partner performed property upgrades, rezoning, annexation and other activities to prepare our land investments for sale and was reimbursed for salaries and direct costs. For the six months ended June 30, 2006, the Partnership incurred $19,333 of such costs. The affiliate did not recognize a profit on any project. Such costs are included in investment properties, of which $7,325 and $21,537 was unpaid at June 30, 2006 and December 31, 2005, respectively.



Results of Operations


As of June 30, 2006, we owned one parcel of land consisting of approximately 19 acres.


Sales of investment properties of $260,805 and cost of investment properties sold of $134,998 for the six months ended June 30, 2006 are the result of lot sales of Parcel 2.  Sales of investment properties of $12,798,146 and cost of investment properties sold of $2,985,704 for the six months ended June 30, 2005 are the result of the sales of Parcels 2, 7, 8 and 17. The sales activity is the result of favorable zoning and a change in our marketing approach to target homebuilders, commercial users and land developers.


Rental income was $0 and $17,204 for the six months ended June 30, 2006 and June 30, 2005, respectively. The decrease is due to decreases in tillable acres as a result of land sales and pre-development activity on our land investments.  As of June 30, 2006, we do not have a farm lease for the remaining 19 acres owned.


Professional services to non-affiliates were $32,357 and $39,724 for the six months ended June 30, 2006 and June 30, 2005, respectively.  This decrease was due to a decrease in accounting and legal fees.





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General and administrative expenses to affiliates were $5,675 and $13,425 for the six months ended June 30, 2006 and June 30, 2005, respectively. The decrease in 2006 is due to a decrease in postage expense. General and administrative expenses to non-affiliates were $55,585 and $111,418 for the six months ended June 30, 2006 and June 30, 2005, respectively. The decrease in 2006 is due to a decrease in state taxes payable as a result of the decrease in land sales.


Land operating expenses to affiliates were $0 and $1,032 for the six months ended June 30, 2006 and June 30, 2005, respectively and relate to asset management fees paid. Our general partner is entitled to receive asset management fees equal to one-quarter of 1% of the original cost  of our undeveloped parcels annually, limited to a cumulative total over the life of the partnership of 2% of the parcels' original cost to us. These amounts decrease as acres are sold. As of March 31, 2005, we had met the limit on this fee.


Land operating expenses to non-affiliates were $5,627 and $10,822 for the six months ended June 30, 2006 and June 30, 2005, respectively. These costs primarily include real estate tax expense and ground maintenance expense and insurance expense on the parcels owned.  The decrease in 2006 is the result of the decrease in acres owned as a result of the land sales.


Item 3. Quantitative and Qualitative Disclosures About Market Risk


Not Applicable.



Item 4. Controls and Procedures


Our general partner conducted, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of the end of such period, our disclosure controls and procedures were effective in timely alerting them to material information that is required to be disclosed in the periodic reports that we must file with the Securities and Exchange Commission.


There were no changes in our internal controls over financial reporting that occurred during the six months ended June 30, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





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PART II - Other Information


Items 1 through 5 are omitted because of the absence of conditions under which they are required.


Item 6: Exhibits


 Exhibits:

     31.1 Rule 13a-14(a)/15d-14(a) Certification by principal executive officer

     31.2 Rule 13a-14(a)/15d-14(a) Certification by principal financial officer


     32.1 Section 1350 Certification by principal executive officer

     32.2 Section 1350 Certification by principal financial officer




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SIGNATURES




Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




 

INLAND CAPITAL FUND, L.P.

  

By:

Inland Real Estate Investment Corporation General Partner

  
  
  

 

/S/ BRENDA G. GUJRAL

  

By:

Brenda G. Gujral

 

President and principal executive officer

Date:

July 24, 2006

  
  
  

 

/S/ GUADALUPE GRIFFIN

  

By:

Guadalupe Griffin

 

Vice President

Date:

July 24, 2006

  
  
  

 

/S/ KELLY TUCEK

  

By:

Kelly Tucek

 

Vice President and

 

principal financial officer

Date:

July 24, 2006

  




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