IR PASS-THROUGH CORP.
c/o Wexford Management LLC
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, 1997
Dear Unitholder:
Enclosed for your review are the Fund's unaudited financial statements as of
June 30, 1997. 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 the Trustee, IFTC at 800-874-6205.
Sincerely,
Integrated ARROs Fund II
By: IR Pass-through Corp., Sponsor
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Statement of Assets and Liabilities
June 30, 1997
(unaudited)
<S> <C>
Assets
Cash ........................................................ $ 300,502
Investments in payment obligations, at
minimum termination value (cost $7,446,008) .......... 12,844,087
-----------
Total assets ................................................ 13,144,589
Liabilities
Distributions payable ....................................... 300,431
-----------
Net Assets .................................................. $12,844,158
===========
Net Asset Value per unit (7,446 units
outstanding) ................................................ $ 1,724.97
===========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Statement of Operations
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
Investment income:
Interest and discount earned $ 699,259
==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Statement of Changes in Net Assets
Six Months Ended June 30, 1997
(unaudited)
<S> <C>
Increase in net assets from operations:
Net investment income ...................................... $ 699,259
------------
Net increase in net assets resulting from operations ....... 699,259
Total declared as distributions to Unitholders ............. (357,975)
------------
Net increase in net assets ................................. 341,284
Net assets:
Beginning of period ........................................ 12,502,874
------------
End of period .............................................. $ 12,844,158
============
See notes to financial statements
</TABLE>
<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, 1996, 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, non-diversified 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
is not 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.
<PAGE>
3. CONFLICTS OF INTEREST (CONTINUED)
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.
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.
Based on a present value estimate of legal, accounting, trustee fees,
and printing and mailing costs, the Sponsor projected at the time of
the settlement of the Sponsor's claim in Integrated's bankruptcy in
1994, that the $450,000 received by the Sponsor would enable the
Sponsor to meet its obligations to the Fund, and its similar
obligations to Fund I, through approximately the year 2000. However, at
that time there was no assurance that the $450,000 paid by Integrated,
plus any interest accrued (the "Settlement Fund"), would in fact be
sufficient to fund the Sponsor's obligations through the year 2000. As
of June 30, 1997, approximately $70,000 remained of the original
Settlement Fund. It was also projected at the time of the settlement,
that in the year 2000 the securities held by the Fund would begin to
generate cash which could be used to administer the Fund. There can be
no assurance that such cash will be generated or that the remaining
amount of the Settlement Fund will be sufficient to fund the Sponsor's
obligations throught the year 2000.
5. DISTRIBUTION PAYABLE
The Sponsor declared a $300,431 ($40.35 per unit ) distribution payable
to unitholders of record as of June 30, 1997. Such distribution was
paid on July 15, 1997.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule of Selected Per Unit Operating Performance, Ratios and Supplemental Data
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
(unaudited) (audited)
<S> <C> <C>
Per Unit Operating Performance
Net asset value, beginning of period ............... $ 1,379.14 $ 2,690.44
Net investment income .............................. 93.91 295.66
Distributions from net investment income ........... (48.08) (1,306.96)
-------------- --------------
Net asset value, end of period ..................... $ 1,724.97 $ 1,679.14
============== ==============
Total investment return ............................ $ 93.91 $ 295.66
============== ==============
Ratios/Supplemental Data
Net assets, end of period .......................... $ 12,844,158 $ 12,502,874
Ratio of expenses to average net assets ............ N/A N/A
Ratio of net investment income to average net assets 5.50%(1) 13.53%
Portfolio turnover rate ............................ N/A N/A
- --------
(1) Not annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule of Portfolio Investments
June 30, 1997
Partnership/
Date Payment Original Simple
Obligation Property Type of Principal Interest Accrued
Incurred Lessee Location property Amount Rate Interest
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bradall Albertson's Boise, ID Department $1,940,000 16.500% $ 4,657,000
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% 4,507,000
01/15/82 Company Dallas, TX
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Trefar Xerox Freemont, CA (3) Manufacturing/ 0 17.000% 0
07/14/81 Corporation Warehouse/
(amended Distribution
03/31/84) Facility
Walmad Walgreen Windsor, WI Warehouse/ 1,500,000 18.500% 4,261,000
02/25/82 Company Distribution
Facility
Zebon (4) The Dow Creole, AL Plant 0 15.125% 0
05/01/83 Chemical Prudhoe Bay Station, AK Facilities
Company Mt. Pleasant, MI
Hebron, OH
Kellyville, OK
Tulsa, OK
Bryan, TX
Levelland, TX
========== ===========
$4,925,000 $13,425,000
========== ===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
(3) Property sold August 26, 1996 and payment obligation satisfied.
(4) All properties sold December 2, 1996 and payment obligation satisfied.
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule of Portfolio Investments -- Continued
June 30, 1997
Partnership Discount To
Date Payment Arrive at Periodic Minimum
Obligation Property Type of Minimum Termination Payment During Termination
Incurred Lessee Location property Amount Primary Term (1) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bradall Albertson's Boise, ID Department $1,957,159 7/1/98-1/1/08 $ 4,639,841
12/16/82 Inc. Snohomish, WA Stores $387,871/semi.
Las Cruces, NM
Sioux Falls, SD
Bradenton, FL
Dalhill The Kroger Houston, TX Supermarkets 1,629,819 1/31/97-12/31/06 4,362,181
01/15/82 Company Dallas, TX $57,242/mo.
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Trefar Xerox Freemont, CA (3) Manufacturing/ 0 11/1/97-10/1/07 0
07/14/81 Corporation Warehouse/ $70,823/mo.
(amended Distribution
03/31/84) Facility
Walmad Walgreen Windsor, WI Warehouse/ 1,918,935 4/1/97-3/1/02 3,842,065
02/25/82 Company Distribution $23,125/mo.;
Facility 4/1/02-3/1/07
$92,551/mo.
Zebon (4) The Dow Creole, AL Plant 0 12/1/98-6/1/03 0
05/01/83 Chemical Prudhoe Bay Station, AK Facilities $558,719/semi. (3)
Company Mt. Pleasant, MI
Hebron, OH
Kellyville, OK
Tulsa, OK
Bryan, TX
Levelland, TX
========== ===========
$5,505,913 $12,844,087
========== ===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
(3) Property sold August 26, 1996 and payment obligation satisfied.
(4) All properties sold December 2, 1996 and payment obligation satisfied.
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED ARROS II -- SCHEDULE OF ACCRUED INTEREST ON OUTSTANDING PAYMENT OBLIGATIONS
JANUARY 1, 1997 THROUGH JUNE 30, 1997
DATE AMOUNT DATE AMOUNT DATE AMOUNT DATE AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C>
01-Jan-97 12,986,359 23-Feb-97 13,114,747 16-Apr-97 13,243,137 08-Jun-97 13,371,526
02-Jan-97 12,988,782 24-Feb-97 13,117,171 17-Apr-97 13,245,559 09-Jun-97 13,373,948
03-Jan-97 12,991,204 25-Feb-97 13,119,593 18-Apr-97 13,247,982 10-Jun-97 13,376,370
04-Jan-97 12,993,627 26-Feb-97 13,122,015 19-Apr-97 13,250,404 11-Jun-97 13,378,793
05-Jan-97 12,996,049 27-Feb-97 13,124,438 20-Apr-97 13,252,827 12-Jun-97 13,381,215
06-Jan-97 12,998,472 28-Feb-97 13,126,860 21-Apr-97 13,255,249 13-Jun-97 13,383,638
07-Jan-97 13,000,894 29-Feb-97 13,129,283 22-Apr-97 13,257,671 14-Jun-97 13,386,060
08-Jan-97 13,003,316 01-Mar-97 13,131,705 23-Apr-97 13,260,094 15-Jun-97 13,388,483
09-Jan-97 13,005.739 02-Mar-97 13,134,128 24-Apr-97 13,262,516 16-Jun-97 13,390,905
10-Jan-97 13,008,161 03-Mar-97 13,136,550 25-Apr-97 13,264,939 17-Jun-97 13,393,327
11-Jan-97 13,010,584 04-Mar-97 13,138,972 26-Apr-97 13,267,361 18-Jun-97 13,395,750
12-Jan-97 13,013,006 05-Mar-97 13,141,395 27-Apr-97 13,269,784 19-Jun-97 13,398,172
13-Jan-97 13,015,429 06-Mar-97 13,143,817 28-Apr-97 13,272,206 20-Jun-97 13,400,595
14-Jan-97 13,017,851 07-Mar-97 13,146,240 29-Apr-97 13,274,628 21-Jun-97 13,403,017
15-Jan-97 13,020,273 08-Mar-97 13,148,662 30-Apr-97 13,277,051 22-Jun-97 13,405,440
16-Jan-97 13,022,696 09-Mar-97 13,151,085 01-May-97 13,279,473 23-Jun-97 13,407,862
17-Jan-97 13,025,118 10-Mar-97 13,153,507 02-May-97 13,281,896 24-Jun-97 13,410,284
18-Jan-97 13,027,541 11-Mar-97 13,155,929 03-May-97 13,284,318 25-Jun-97 13,412,707
19-Jan-97 13,029,963 12-Mar-97 13,158,352 04-May-97 13,286,741 26-Jun-97 13,415,129
20-Jan-97 13,032,386 13-Mar-97 13,160,774 05-May-97 13,289,163 27-Jun-97 13,417,552
21-Jan-97 13,034,808 14-Mar-97 13,163,197 06-May-97 13,291,585 28-Jun-97 13,419,974
22-Jan-97 13,037,230 15-Mar-97 13,165,619 07-May-97 13,294,008 29-Jun-97 13,422,397
23-Jan-97 13,039,653 16-Mar-97 13,168,042 08-May-97 13,296,430 30-Jun-97 13,424,819
24-Jan-97 13,042,075 17-Mar-97 13,170,464 09-May-97 13,298,853
25-Jan-97 13,044,498 18-Mar-97 13,172,886 10-May-97 13,301,275
26-Jan-97 13,046,920 19-Mar-97 13,175,309 11-May-97 13,303,698
27-Jan-97 13,049,343 20-Mar-97 13,177,731 12-May-97 13,306,120
28-Jan-97 13,051,765 21-Mar-97 13,180,154 13-May-97 13,308,542
29-Jan-97 13,054,187 22-Mar-97 13,182,576 14-May-97 13,310,965
30-Jan-97 13,056,610 23-Mar-97 13,184,999 15-May-97 13,313,387
31-Jan-97 13,059,032 24-Mar-97 13,187,421 16-May-97 13,315,810
01-Feb-97 13,061,455 25-Mar-97 13,189,843 17-May-97 13,318,232
02-Feb-97 13,063,877 26-Mar-97 13,192,266 18-May-97 13,320,655
03-Feb-97 13,066,300 27-Mar-97 13,194,688 19-May-97 13,323,077
04-Feb-97 13,068,722 28-Mar-97 13,197,111 20-May-97 13,325,499
05-Feb-97 13,071,144 29-Mar-97 13,199,533 21-May-97 13,327,922
06-Feb-97 13,073,567 30-Mar-97 13,201,956 22-May-97 13,330,344
07-Feb-97 13,075,989 31-Mar-97 13,204,378 23-May-97 13,332,767
08-Feb-97 13,078,412 01-Apr-97 13,206,800 24-May-97 13,335,189
09-Feb-97 13,080,834 02-Apr-97 13,209,223 25-May-97 13,337,612
10-Feb-97 13,083,257 03-Apr-97 13,211,645 26-May-97 13,340,034
11-Feb-97 13,085,679 04-Apr-97 13,214,068 27-May-97 13,342,456
12-Feb-97 13,088,101 05-Apr-97 13,216,490 28-May-97 13,344,879
13-Feb-97 13,090,524 06-Apr-97 13,218,913 29-May-97 13,347,301
14-Feb-97 13,092,946 07-Apr-97 13,221,335 30-May-97 13,349,724
15-Feb-97 13,095,369 08-Apr-97 13,223,757 31-May-97 13,352,146
16-Feb-97 13,097,791 09-Apr-97 13,226,180 01-Jun-97 13,354,569
17-Feb-97 13,100,214 10-Apr-97 13,228,602 02-Jun-97 13,356,991
18-Feb-97 13,102,636 11-Apr-97 13,231,025 03-Jun-97 13,359,413
19-Feb-97 13,105,058 12-Apr-97 13,233,447 04-Jun-97 13,361,836
20-Feb-97 13,107,481 13-Apr-97 13,235,870 05-Jun-97 13,364,258
21-Feb-97 13,109,903 14-Apr-97 13,238,292 06-Jun-97 13,366,681
22-Feb-97 13,112,326 15-Apr-97 13,240,714 07-Jun-97 13,369,103
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 12,844
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13,145
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<OTHER-ITEMS-LIABILITIES> 300
<TOTAL-LIABILITIES> 300
<SENIOR-EQUITY> 0
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<SHARES-COMMON-STOCK> 7
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<PER-SHARE-NAV-END> 1,724.97
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
