IR PASS-THROUGH CORP.
c/o NorthStar Presidio Management Company LLC
411 West Putnam Avenue, Suite 270
Greenwich, CT 06830
Integrated ARROS Fund II (the "Fund")
October, 1998
Dear Unitholder:
Enclosed for your review are the Fund's unaudited financial statements as of
June 30, 1998. As you are aware, the Fund's investments are passive in nature
and consist of interest-bearing payment obligations that 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 at (800) 735-7777.
Sincerely,
Integrated ARROS Fund I
By: IR Pass-through Corporation, Sponsor
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Statement of Assets and Liabilities
June 30, 1998
(unaudited)
<S> <C>
Assets
Cash ......................................................... $ 242,888
Investment in payment obligations, at
minimum termination value (cost $7,446,008) ............... 12,968,386
-----------
Total Assets ................................................. 13,211,274
===========
Liabilities
Distributions payable ........................................ 242,888
-----------
Net Assets ................................................... $12,968,386
===========
Net Asset Value per unit (7,446 units outstanding) ........... $ 1,741.66
===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Statement of Operations
Six Months Ended June 30, 1998
(unaudited)
Investment income:
<S> <C>
Interest and discount earned $ 386,805
=========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
<PAGE>
Integrated ARROs Fund II
Statement of Changes in Net Assets
June 30, 1998
(unaudited)
<S> <C>
Decrease in net assets from operations:
Net investment income ....................................... $ 386,805
------------
Net increase in net assets resulting from operations ........ 386,805
Total declared as distributions to Unitholders .............. (510,071)
------------
Net decrease in net assets .................................. (123,266)
Net Assets:
Beginning of period ......................................... 13,091,652
------------
End of period ............................................... $ 12,968,386
============
</TABLE>
See notes to financial statements.
<PAGE>
1. GENERAL
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, 1997, 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
IR Pass-through Corporation is the Sponsor of the Fund and was/is a
wholly owned subsidiary of Integrated Resources, Inc. ("Integrated")
and its post-bankruptcy successor, Presidio Capital Corp. ("Presidio").
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. NorthStar
Presidio Management Company LLC, as successor to Wexford Management
LLC, provides administrative services to Presidio, who in turn provides
services to the Fund.
4. COMMITMENTS AND CONTINGENCIES
The original prospectus of the Fund contemplated the Sponsor bearing
all costs of administering the Fund only through the period in which
the Fund will be receiving primary term payments. However, upon the
period when the Fund will be receiving renewal term payments, the Fund
was to bear a portion of such equal 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.
<PAGE>
Based on a present value estimate of legal, accounting, trustee fees,
and printing and mailing costs, the Sponsor filed a claim in
Integrated's bankruptcy in 1994 and received $450,000 (the "Settlement
Fund") in settlement of such claim. It was projected at the time of the
settlement that such amount would be sufficient to enable the Sponsor
to meet its obligations to the Fund, and its similar obligations to
ARROs Fund I, through approximately the year 2000. However, there was
no assurance given at the time of the settlement that the Settlement
Fund, together with interest earned, would in fact be sufficient to
fund the Sponsor's obligations through the year 2000. As of June 30,
1998, the Settlement Fund has been fully depleted. As a result of the
full depletion of the Settlement Fund during the first six months of
1998, the Fund has had to pay administrative expenses from current
payment obligations received. Consequently, the Fund paid $12,449 in
expenses from the proceeds of July 1998 payment obligations received.
5. DISTRIBUTION PAYABLE
The Sponsor declared a $242,888 ($32.62 per unit) distribution payable
to unitholders of record as of June 30, 1998. Such distribution was
paid on July 15, 1998.
6. SIGNIFICANT TRANSACTION
The Trust Indenture provides for the acceptance of involuntary sale
(such as in an economic discontinuance) proceeds in prepayment of a
payment obligation in which the underlying partnership has a single
property (lease). However, it does not specifically provide for
acceptance of involuntary sale proceeds in partial prepayment of a
payment obligation where the underlying partnership has more than one
property (lease) comprising the payment obligation. The Sponsor
believes that the original intent of the Trust Indenture was to allow
for such partial prepayment. However, the Trustee that received sale
proceeds from a multi-property partnership on behalf of ARROs Fund I in
1996 did not agree to allow such payment in partial satisfaction of the
associated payment obligation and placed such sale proceeds in an
interest-bearing account separate from that of the ARROs Fund I,
pending resolution of the issue.
Effective March 29, 1998, the Sponsor arranged for the replacement of
the Trustee for both ARROs Fund I and the Fund with a new trustee (the
"Successor Trustee") which had a broader interpretation of the Trust
Indenture with regard to partial prepayments received from a
multi-property partnership. On April 1, 1998, a supplemental agreement
to the original Trust Indenture was entered into between the Successor
Trustee for the Fund, the Sponsor of the Fund, and the Partnerships
that have Payment Obligations to the Fund. Such agreement allows for,
among other things, the partial prepayment of a multi-property
Partnership's Payment Obligation in the event of an involuntary sale of
one of its properties.
<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, 1998 December 31, 1997
Per Unit Operating Performance (unaudited) (audited)
- ------------------------------ -------------- --------------
<S> <C> <C>
Net asset value, beginning of period .... $ 1,758.21 $ 1,679.14
Net investment income ................... 51.95 189.13
Distributions from net investment income
and partial prepayments .............. (68.50) (110.06)
-------------- --------------
Net asset value, end of period .......... $ 1,741.66 $ 1,758.21
============== ==============
Total investment return ................. $ 51.95 $ 189.13
============== ==============
Ratios/Supplemental Data
- ------------------------
Net assets, end of period ............... $ 12,968,386 $ 13,091,652
Ratio of expenses to average net assets . N/A N/A
Ratio of net investment income to
average net assets ................... 2.97%(1) 11.00%
Portfolio turnover rate ................. N/A N/A
</TABLE>
(1) Not annualized
<PAGE>
<TABLE>
<CAPTION>
Integrated ARROs Fund II
Schedule of Portfolio Investments
June 30, 1998
Partnership/ Discount To
Date Payment Original Simple Arrive at 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% $ 4,976,897 $2,116,626
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% 4,798,635 2,122,572
01/15/82 Company Dallas, TX
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Walmad Walgreen Windsor, WI Warehouse/ 1,500,000 18.500% 4,538,075 2,031,023
02/25/82 Company Distribution
Facility
---------- ------------ ----------
$4,925,000 $ 14,313,608 $6,270,222
========== ============ ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Partnership/
Date Payment Periodic Minimum
Obligation Property Payment During Termination
Incurred Lessee Location Primary Term (1) Amount
- -------- ------ -------- ---------------- ------
<S> <C> <C> <C> <C>
Bradall Albertson's Boise, ID 7/1/98-1/1/08 $ 4,800,271
12/16/82 Inc. Snohomish, WA $387,871/semi.
Las Cruces, NM
Sioux Falls, SD
Bradenton, FL
Dalhill The Kroger Houston, TX 1/31/97-12/31/06 4,161,063
01/15/82 Company Dallas, TX $57,242/mo.
Columbus, OH
Cincinnati, OH
Louisville, KY (2)
Walmad Walgreen Windsor, WI 4/1/97-3/1/02 4,007,052
02/25/82 Company $23,125/mo.;
4/1/02-3/1/07
$92,551/mo.
-----------
$12,968,386
===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
<PAGE>
<TABLE>
<CAPTION>
INTEGRATED ARROS FUND I INTEGRATED ARROS FUND I
SCHEDULE OF ACCRUED INTEREST ON OUTSTANDING PAYMENT OBLIGATIONS - JANUARY 1, 1998 THROUGH JUNE 30, 1998
ACCRUED ACCRUED ACCRUED ACCRUED
DATE INTEREST DATE INTEREST DATE INTEREST DATE INTEREST
<S> <C> <C> <C> <C> <C> <C> <C>
01-Jan-98 18,566,162 23-Feb-98 18,735,324 17-Apr-98 18,904,487 09-Jun-98 19,073,649
02-Jan-98 18,569,353 24-Feb-98 18,738,516 18-Apr-98 18,907,678 10-Jun-98 19,076,841
03-Jan-98 18,572,545 25-Feb-98 18,741,708 19-Apr-98 18,910,870 11-Jun-98 19,080,033
04-Jan-98 18,575,737 26-Feb-98 18,744,899 20-Apr-98 18,914,062 12-Jun-98 19,083,224
05-Jan-98 18,578,929 27-Feb-98 18,748,091 21-Apr-98 18,917,254 13-Jun-98 19,086,416
06-Jan-98 18,582,120 28-Feb-98 18,751,283 22-Apr-98 18,920,445 14-Jun-98 19,089,608
07-Jan-98 18,585,312 01-Mar-98 18,754,475 23-Apr-98 18,923,637 15-Jun-98 19,092,800
08-Jan-98 18,588,504 02-Mar-98 18,757,666 24-Apr-98 18,926,829 16-Jun-98 19,095,991
09-Jan-98 18,591,696 03-Mar-98 18,760,858 25-Apr-98 18,930,021 17-Jun-98 19,099,183
10-Jan-98 18,594,887 04-Mar-98 18,764,050 26-Apr-98 18,933,212 18-Jun-98 19,102,375
11-Jan-98 18,598,079 05-Mar-98 18,767,242 27-Apr-98 18,936,404 19-Jun-98 19,105,567
12-Jan-98 18,601,271 06-Mar-98 18,770,433 28-Apr-98 18,939,596 20-Jun-98 19,108,758
13-Jan-98 18,604,463 07-Mar-98 18,773,625 29-Apr-98 18,942,788 21-Jun-98 19,111,950
14-Jan-98 18,607,654 08-Mar-98 18,776,817 30-Apr-98 18,945,979 22-Jun-98 19,115,142
15-Jan-98 18,610,846 09-Mar-98 18,780,009 01-May-98 18,949,171 23-Jun-98 19,118,334
16-Jan-98 18,614,038 10-Mar-98 18,783,200 02-May-98 18,952,363 24-Jun-98 19,121,525
17-Jan-98 18,617,230 11-Mar-98 18,786,392 03-May-98 18,955,555 25-Jun-98 19,124,717
18-Jan-98 18,620,421 12-Mar-98 18,789,584 04-May-98 18,958,746 26-Jun-98 19,127,909
19-Jan-98 18,623,613 13-Mar-98 18,792,776 05-May-98 18,961,938 27-Jun-98 19,131,100
20-Jan-98 18,626,805 14-Mar-98 18,795,967 06-May-98 18,965,130 28-Jun-98 19,134,292
21-Jan-98 18,629,997 15-Mar-98 18,799,159 07-May-98 18,968,322 29-Jun-98 19,137,484
22-Jan-98 18,633,188 16-Mar-98 18,802,351 08-May-98 18,971,513 30-Jun-98 19,140,676
23-Jan-98 18,636,380 17-Mar-98 18,805,543 09-May-98 18,974,705
24-Jan-98 18,639,572 18-Mar-98 18,808,734 10-May-98 18,977,897
25-Jan-98 18,642,764 19-Mar-98 18,811,926 11-May-98 18,981,088
26-Jan-98 18,645,955 20-Mar-98 18,815,118 12-May-98 18,984,280
27-Jan-98 18,649,147 21-Mar-98 18,818,310 13-May-98 18,987,472
28-Jan-98 18,652,339 22-Mar-98 18,821,501 14-May-98 18,990,664
29-Jan-98 18,655,531 23-Mar-98 18,824,693 15-May-98 18,993,855
30-Jan-98 18,658,722 24-Mar-98 18,827,885 16-May-98 18,997,047
31-Jan-98 18,661,914 25-Mar-98 18,831,077 17-May-98 19,000,239
01-Feb-98 18,665,106 26-Mar-98 18,834,268 18-May-98 19,003,431
02-Feb-98 18,668,298 27-Mar-98 18,837,460 19-May-98 19,006,622
03-Feb-98 18,671,489 28-Mar-98 18,840,652 20-May-98 19,009,814
04-Feb-98 18,674,681 29-Mar-98 18,843,843 21-May-98 19,013,006
05-Feb-98 18,677,873 30-Mar-98 18,847,035 22-May-98 19,016,198
06-Feb-98 18,681,065 31-Mar-98 18,850,227 23-May-98 19,019,389
07-Feb-98 18,684,256 01-Apr-98 18,853,419 24-May-98 19,022,581
08-Feb-98 18,687,448 02-Apr-98 18,856,610 25-May-98 19,025,773
09-Feb-98 18,690,640 03-Apr-98 18,859,802 26-May-98 19,028,965
10-Feb-98 18,693,832 04-Apr-98 18,862,994 27-May-98 19,032,156
11-Feb-98 18,697,023 05-Apr-98 18,866,186 28-May-98 19,035,348
12-Feb-98 18,700,215 06-Apr-98 18,869,377 29-May-98 19,038,540
13-Feb-98 18,703,407 07-Apr-98 18,872,569 30-May-98 19,041,732
14-Feb-98 18,706,598 08-Apr-98 18,875,761 31-May-98 19,044,923
15-Feb-98 18,709,790 09-Apr-98 18,878,953 01-Jun-98 19,048,115
16-Feb-98 18,712,982 10-Apr-98 18,882,144 02-Jun-98 19,051,307
17-Feb-98 18,716,174 11-Apr-98 18,885,336 03-Jun-98 19,054,499
18-Feb-98 18,719,365 12-Apr-98 18,888,528 04-Jun-98 19,057,690
19-Feb-98 18,722,557 13-Apr-98 18,891,720 05-Jun-98 19,060,882
20-Feb-98 18,725,749 14-Apr-98 18,894,911 06-Jun-98 19,064,074
21-Feb-98 18,728,941 15-Apr-98 18,898,103 07-Jun-98 19,067,266
22-Feb-98 18,732,132 16-Apr-98 18,901,295 08-Jun-98 19,070,457
</TABLE>
