IR PASS-THROUGH CORPORATION
c/o CONCURRENCY MANAGEMENT CORP
411 West Putnam Avenue
Greenwich, CT 06830
(203) 862-7000
Fax: (203) 862-7461
Writer's Direct Dial:
862-7000
Integrated ARROS Fund II (the "Fund")
August 1996
Dear Unitholder:
Enclosed for your review are the Fund's unaudited financial statements as of
June 30, 1996. As you are aware, the Funds' investments are passive in nature
and consist of interest-bearing payment obligations which originated from a
series of net lease real estate partnerships. As such, the primary source of
payment for these obligations is the lease payments received from the
partnership's corporate tenants. We are pleased to report that all tenant
obligations continue to be met and, on an overall basis, the credit ratings of
these tenants have not materially changed since the initial offering of the
Units.
As previously reported, the Fund has made arrangements with Royal Alliance
Associates (212-551-5100) to act as a market maker and with DCC Securities Corp.
(212-527-0220) to facilitate trading, as a broker, between buyers and sellers of
Units. Please contact these firms directly if you have any questions regarding
such activities.
If you have any specific questions regarding your holdings in the Fund, please
call IFTC at 800-874-6205.
Sincerely,
Integrated ARROS Fund II
By: IR Pass-through Corporation, Sponsor
<PAGE>
Integrated ARROs Fund II
Statement of Assets and Liabilities
June 30, 1996
(Unaudited)
<TABLE>
<S> <C>
Assets
Investments in payment obligations,
at minimum termination value (cost $7,446,008) ............ $21,218,451
-----------
Net Assets ................................................... $21,218,451
===========
Net Asset Value per unit (based on
7,446 units outstanding) .................................. $ 2,849.64
===========
</TABLE>
See notes to financial statements
<PAGE>
Integrated ARROs Fund II
Statement of Operations
Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<S> <C>
Investment income:
Interest and discount earned........................ $1,185,443
==========
</TABLE>
See notes to financial statements
<PAGE>
Integrated ARROs Fund II
Statement of Changes in Net Assets
Six Months Ended June 30,1996
(unaudited)
Increase in net assets from operations:
Net investment income ........... $ 1,185,443
Net assets:
Beginning of period ............ 20,033,008
------------
End of period .................. $ 21,218,451
============
See notes to financial statements
<PAGE>
Integrated ARROs Fund II
Notes to Financial Statements
1. ORGANIZATION
The accompanying unaudited financial statements, notes and discussions should
be read in conjunction with the audited financial statements, related notes
and discussions contained in the Form N-SAR Semi-Annual Report for the year
ended December 31, 1995, which is herein incorporated by reference.
The financial information contained herein is unaudited; however, in the
opinion of management, all adjustments necessary for a fair presentation of
such financial information have been included. All of the aforementioned
adjustments are of a normal recurring nature and there have not been any
non-recurring adjustments included in the results reported for the current
period.
Integrated ARROS Fund II (the "Fund") is a grantor trust created under the
laws of the state of New York and registered under the Investment Company Act
of 1940 as a closed-end, nondiversified management investment company.
2. SIGNIFICANT ACCOUNTING POLICIES
Security Valuation
The Payment Obligations are valued at the lower of fair market value (as
determined by the Board of Directors of the Sponsor) or Minimum Termination
Amount (as defined in the Trust Indenture).
Federal Income Taxes
The Fund is classified as a grantor trust. As a consequence, the Fund will
not be subject to Federal Income Taxation.
3. CONFLICTS OF INTEREST
Entities directly or indirectly owned by former officers and/or directors of
IR-Pass Through Corporation (the "Sponsor"), and/or Integrated Resources,
Inc. ("Integrated") or its post bankruptcy successor, Presidio Capital Corp.
("Presidio") are the general partners of the underlying net lease
partnerships from which the payment obligations are due (the "Partnerships").
Such general partners have a fiduciary responsibility to make decisions which
are in the best interest of their respective Partnership. There may be
circumstances in which such general partners may make decisions on behalf of
the Partnerships which could conflict with or have an adverse effect on the
rights of unitholders of the Fund. Although the Partnerships must comply with
the terms of the Payment Obligations, there can be no assurance that the
decisions of the general partners on behalf of the Partnerships would not
adversely affect the value of the units and/or the ability of the
Partnerships to fulfill their obligations under the Payment Obligations.
Subject to the rights of the Unitholders under the Trust Indenture, Presidio
is responsible for the administration of the Fund through its indirect
ownership of all of the shares of the Sponsor. Wexford Management LLC
("Wexford") provides administrative services to Presidio, who provides
services for the Fund.
<PAGE>
4. COMMITMENTS AND CONTINGENCIES
The Sponsor will bear all costs of administering the Fund through the period
in which the Fund will be receiving only primary term payments. However, upon
the period when the Fund begins receiving renewal term payments, the Fund
shall bear a portion of such costs equal to the percentage of the renewal
term payments received by the Fund in such year to all of the payments
received by the Fund in such year.
The Sponsor projects, based on a present value estimate of legal, accounting,
trustee fees, and printing and mailing costs, that the $450,000 previously
received by the Sponsor from Integrated in settlement of the Sponsor's claim,
will enable the Sponsor to meet its obligations to the Fund, and its similar
obligations to Fund I, through approximately the year 2000, at which time,
the Sponsor believes, securities held by the Fund and Fund I should begin to
generate cash which could be used to administer the Fund and Fund I. There
can be no assurance that such cash will be generated or that the $450,000
paid by Integrated will be sufficient to fund the Sponsor's obligations
through the year 2000.
The general partner of Trefar Associates ("Trefar") entered into a contract
of sale as of February 1, 1995 with Xerox Corporation, the lessee of the
property owned by Trefar. Xerox has agreed to acquire the property at any
time during the period April 3, 1996 through March 4, 1997,the closing date
to be deterined by Xerox at its sole discretion. The contract is contingent
upon several events including a two-thirds approval vote by the limited
partners. As the closing of this sale can occur any time through March
4, 1997, the fund expects to realize proceeds in the range of approximately
$5,400,000 to $5,700,000 (based on the approximate Minimum Termination Amount
of the investment), depending on the closing date. If such proceeds are
received, the Fund will not recognize any material gain or loss on the
transaction as it is carrying its investment at the Minimum Termination
Amount.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule Of Portfolio Investments
JUNE 30, 1996
(Unaudited)
Discount to
Partnership/ Arrive at
Date Payment Original Simple Minimum
Obligation Property Type of Principal Interest Accrued Termination
Incurred Lessee Location Property Amount Rate Interest Amount
- ------------- ------ -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bradall Albertson's, Boise, ID Department $ 1,940,000 16.500% $ 4,337,000 $ 2,126,058
12/16/82 Inc. Snohomish, WA Stores
Las Cruces, NM
Sioux Falls, SD
Bradenton, FL
Dalhill The Kroger Houston, TX Supermarkets 1,485,000 19.625% 4,216,000 1,540,519
1/15/82 Company Dallas, TX
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Trefar Xerox Freemont, CA Manufacturing/ 3,702,463 17.00% 9,424,000 7,810,472
7/14/81 Corporation Warehouse/
(amended Distribution
3/31/84) Facility
Walmad Walgreen Windsor, WI Warehouse/ 1,500,000 18.500% 3,983,000 1,963,441
2/25/82 Company Distribution
Facility
Zebon The Dow Creole, AL Plant 2,198,000 15.125% 4,380,000 2,506,522
5/1/83 Chemical Prudhoe Bay Facilities
Company Station, AK
Mt. Pleasant, MI
Hebron, OH
Kellyville, OK
Tulsa, OK
Bryan, TX
Levelland, TX
----------- ----------- -----------
$10,825,463 $26,340,000 $15,947,012
=========== =========== ===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule Of Portfolio Investments
JUNE 30, 1996
(Unaudited)
(Continued)
Partnership/
Date Payment Periodic Minimum
Obligation Property Type of Payments During Termination
Incurred Lessee Location Property Primary Term(1) Amount
- ------------- ------ -------- -------- --------------- -------
<S> <C> <C> <C> <C> <C>
Bradall Albertson's, Boise, ID Department 7/1/98-1/1/08 $ 4,150,942
12/16/82 Inc. Snohomish, WA Stores $387,871/semi.
Las Cruces, NM
Sioux Falls, SD
Bradenton, FL
Dalhill The Kroger Houston, TX Supermarkets 1/31/97-12/31/06 4,160,481
1/15/82 Company Dallas, TX $57,242/mo.
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Trefar Xerox Freemont, CA Manufacturing/ 11/1/97-10/1/07 5,315,991
7/14/81 Corporation Warehouse/ $70,823/mo.
(amended Distribution
3/31/84) Facility
Walmad Walgreen Windsor, WI Warehouse/ 4/1/97-3/1/02 3,519,559
2/25/82 Company Distribution $23,125/mo.;
Facility 4/1/02-3/1/07
$92,551/mo.
Zebon The Dow Creole, AL Plant 12/1/98-6/1/03 4,071,478
5/1/83 Chemical Prudhoe Bay Facilities $558,719/semi.
Company Station, AK
Mt. Pleasant, MI
Hebron, OH
Kellyville, OK
Tulsa, OK
Bryan, TX
Levelland, TX
-----------
$21,218,451
===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
<PAGE>
Integrated ARROs Fund II
Schedule of Selected Per Unit Operating Performance,
Ratios and Supplemental Data
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
---------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
Per Unit Operating Performance
- ------------------------------
Net Asset Value, Beginning of Period .... $ 2,690.44 $ 2,399.26
--------- ---------
Net Investment Income ................... 159.20 291.18
--------- ---------
Net Asset Value, End of Period .......... 2,849.64 2,690.44
========= =========
Total Investment Return ................. $ 159.20 $ 291.18
========= =========
Ratios/Supplemental Data
- ------------------------
Net Assets, End of Period ............... $21,218,451 $20,033,008
Ratio of Expenses to
Average Net Assets .................... N/A N/A
Ratio of Net Investment Income to Average
Net Assets ............................ 5.75%(1) 11.44%
Portfolio Turnover Rate ................. N/A N/A
</TABLE>
(1) Not annualized
