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")
- -------------------------------------
September, 1999
Dear Unitholder:
Enclosed for your review are the Fund's unaudited financial statements as of
June 30, 1999. 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.
(800-945-0440) 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>
Integrated ARROs Fund II
Statement of Assets and Liabilities
June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash $ 208,975
Investment in payment obligations, at
minimum termination value (cost $7,446,008) 12,713,044
-----------
Total Assets 12,922,019
===========
Liabilities
Distributions payable 208,975
-----------
Net Assets $12,713,044
===========
Net Asset Value per unit (7,446 units outstanding) $ 1,707.37
===========
</TABLE>
<PAGE>
Integrated ARROs Fund II
Statement of Operations
Six Months Ended June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Investment income:
<S> <C>
Interest and discount earned $ 746,491
=========
</TABLE>
<PAGE>
Integrated ARROs Fund II
Statement of Changes in Net Assets
June 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Decrease in net assets from operations:
<S> <C>
Net investment income $ 746,491
-----------
Net increase in net assets resulting from operations 746,491
Total declared as distributions to Unitholders (875,561)
-----------
Net decrease in net assets (129,070)
Net Assets:
Beginning of period 12,842,114
-----------
End of period $12,713,044
===========
</TABLE>
<PAGE>
Integrated ARROs Fund II
Notes to Financial Statements
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,
1998, 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
<PAGE>
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.
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 $35,254 in expenses from the proceeds of the
January 1999 through July 1999 payment obligations received.
5. DISTRIBUTION PAYABLE
The Sponsor declared a $208,975 ($28.07 per unit) distribution
payable to unitholders of record as of June 30, 1999. Such
distribution was paid on July 15, 1999.
<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, 1999 December 31, 1998
Per Unit Operating Performance (unaudited) (audited)
- ------------------------------ ----------- -----------
<S> <C> <C>
Net asset value, beginning of period $1,724.70 $1,758.21
Net investment income 100.25 150.91
Distributions from net investment
income and partial prepayments (117.59) (184.42)
----------- -----------
Net asset value, end of period $1,707.37 $1,724.70
=========== ===========
Total investment return $100.25 $150.91
=========== ===========
Ratios/Supplemental Data
- ------------------------
Net assets, end of period $12,713,044 $12,842,114
Ratio of expenses to average net assets 0.28% 0.11%
Ratio of net investment income to
average net assets 5.84(1) 8.67%
Portfolio turnover rate N/A N/A
</TABLE>
<PAGE>
Integrated ARROs Fund II
Schedule of Portfolio Investments
June 30, 1999
<TABLE>
<CAPTION>
Discount To
Partnership/ Arrive
Date Payment Original Simple at Minimum Periodic Minimum
Obligation Property Type of Principal Interest Accrued Termination Payment During Termination
Incurred Lessee Location Property Amount Rate Interest Amount Primary Term (1) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bradall Albertson's Boise, ID Department $1,940,000 16.500% $4,521,255 $1,886,610 7/1/98-1/1/08 $4,574,645
12/16/82 Inc. Snohomish, WA Stores $387,871/semi.
Las Cruces, NM
Sioux Falls, SD
Bradenton, FL
Dalhill The Kroger Houston, TX Supermarkets 1,485,000 19.625% 3,430,048 $972,027 1/31/97-12/31/06 3,943,021
01/15/82 Company Dallas, TX $57,242/mo.
Columbus, OH
Cincinnati, OH
Louisville, KY(2)
Walmad Walgreen Windsor, WI Warehouse/ 1,500,000 18.500% 4,191,200 $1,495,823 4/1/97-3/1/02 4,195,378
02/25/82 Company Distribution $23,125/mo.;
Facility 4/1/02-3/1/07
$92,551/mo.
---------- ----------- ---------- -----------
$4,925,000 $12,142,504 $4,354,460 $12,713,044
========== =========== ========== ===========
</TABLE>
(1) Primary Term of the applicable net lease.
(2) Two properties.
<PAGE>
INTEGRATED ARROS FUND II
SCHEDULE OF ACCRUED INTEREST ON OUTSTANDING PAYMENT OBLIGATIONS
JANUARY 1, 1999 THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
ACCRUED ACCRUED ACCRUED ACCRUED
DATE INTEREST DATE INTEREST DATE INTEREST DATE INTEREST
--------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
01-Jan-99 12,105,913 23-Feb-99 12,154,638 17-Apr-99 12,122,996 09-Jun-99 12,091,354
02-Jan-99 12,108,348 24-Feb-99 12,157,073 18-Apr-99 12,125,432 10-Jun-99 12,093,790
03-Jan-99 12,110,784 25-Feb-99 12,159,509 19-Apr-99 12,127,867 11-Jun-99 12,096,226
04-Jan-99 12,113,220 26-Feb-99 12,161,945 20-Apr-99 12,130,303 12-Jun-99 12,098,661
05-Jan-99 12,115,655 27-Feb-99 12,164,381 21-Apr-99 12,132,739 13-Jun-99 12,101,097
06-Jan-99 12,118,091 28-Feb-99 12,166,816 22-Apr-99 12,135,175 14-Jun-99 12,103,533
07-Jan-99 12,120,527 01-Mar-99 12,088,885 23-Apr-99 12,137,610 15-Jun-99 12,105,968
08-Jan-99 12,122,963 02-Mar-99 12,091,321 24-Apr-99 12,140,046 16-Jun-99 12,108,404
09-Jan-99 12,125,398 03-Mar-99 12,093,756 25-Apr-99 12,142,482 17-Jun-99 12,110,840
10-Jan-99 12,127,834 04-Mar-99 12,096,192 26-Apr-99 12,144,917 18-Jun-99 12,113,276
11-Jan-99 12,130,270 05-Mar-99 12,098,628 27-Apr-99 12,147,353 19-Jun-99 12,115,711
12-Jan-99 12,132,705 06-Mar-99 12,101,064 28-Apr-99 12,149,789 20-Jun-99 12,118,147
13-Jan-99 12,135,141 07-Mar-99 12,103,499 29-Apr-99 12,152,224 21-Jun-99 12,120,583
14-Jan-99 12,137,577 08-Mar-99 12,105,935 30-Apr-99 12,154,660 22-Jun-99 12,123,018
15-Jan-99 12,140,012 09-Mar-99 12,108,371 01-May-99 12,076,729 23-Jun-99 12,125,454
16-Jan-99 12,142,448 10-Mar-99 12,110,806 02-May-99 12,079,165 24-Jun-99 12,127,890
17-Jan-99 12,144,884 11-Mar-99 12,113,242 03-May-99 12,081,600 25-Jun-99 12,130,325
18-Jan-99 12,147,320 12-Mar-99 12,115,678 04-May-99 12,084,036 26-Jun-99 12,132,761
19-Jan-99 12,149,755 13-Mar-99 12,118,113 05-May-99 12,086,472 27-Jun-99 12,135,197
20-Jan-99 12,152,191 14-Mar-99 12,120,549 06-May-99 12,088,907 28-Jun-99 12,137,633
21-Jan-99 12,154,627 15-Mar-99 12,122,985 07-May-99 12,091,343 29-Jun-99 12,140,068
22-Jan-99 12,157,062 16-Mar-99 12,125,421 08-May-99 12,093,779 30-Jun-99 12,142,504
23-Jan-99 12,159,498 17-Mar-99 12,127,856 09-May-99 12,096,214
24-Jan-99 12,161,934 18-Mar-99 12,130,292 10-May-99 12,098,650
25-Jan-99 12,164,369 19-Mar-99 12,132,728 11-May-99 12,101,086
26-Jan-99 12,166,805 20-Mar-99 12,135,163 12-May-99 12,103,522
27-Jan-99 12,169,241 21-Mar-99 12,137,599 13-May-99 12,105,957
28-Jan-99 12,171,677 22-Mar-99 12,140,035 14-May-99 12,108,393
29-Jan-99 12,174,112 23-Mar-99 12,142,470 15-May-99 12,110,829
30-Jan-99 12,176,548 24-Mar-99 12,144,906 16-May-99 12,113,264
31-Jan-99 12,178,984 25-Mar-99 12,147,342 17-May-99 12,115,700
01-Feb-99 12,101,052 26-Mar-99 12,149,778 18-May-99 12,118,136
02-Feb-99 12,103,488 27-Mar-99 12,152,213 19-May-99 12,120,571
03-Feb-99 12,105,924 28-Mar-99 12,154,649 20-May-99 12,123,007
04-Feb-99 12,108,359 29-Mar-99 12,157,085 21-May-99 12,125,443
05-Feb-99 12,110,795 30-Mar-99 12,159,520 22-May-99 12,127,879
06-Feb-99 12,113,231 31-Mar-99 12,161,956 23-May-99 12,130,314
07-Feb-99 12,115,667 01-Apr-99 12,084,025 24-May-99 12,132,750
08-Feb-99 12,118,102 02-Apr-99 12,086,460 25-May-99 12,135,186
09-Feb-99 12,120,538 03-Apr-99 12,088,896 26-May-99 12,137,621
10-Feb-99 12,122,974 04-Apr-99 12,091,332 27-May-99 12,140,057
11-Feb-99 12,125,409 05-Apr-99 12,093,768 28-May-99 12,142,493
12-Feb-99 12,127,845 06-Apr-99 12,096,203 29-May-99 12,144,928
13-Feb-99 12,130,281 07-Apr-99 12,098,639 30-May-99 12,147,364
14-Feb-99 12,132,716 08-Apr-99 12,101,075 31-May-99 12,149,800
15-Feb-99 12,135,152 09-Apr-99 12,103,510 01-Jun-99 12,071,869
16-Feb-99 12,137,588 10-Apr-99 12,105,946 02-Jun-99 12,074,304
17-Feb-99 12,140,024 11-Apr-99 12,108,382 03-Jun-99 12,076,740
18-Feb-99 12,142,459 12-Apr-99 12,110,817 04-Jun-99 12,079,176
19-Feb-99 12,144,895 13-Apr-99 12,113,253 05-Jun-99 12,081,611
20-Feb-99 12,147,331 14-Apr-99 12,115,689 06-Jun-99 12,084,047
21-Feb-99 12,149,766 15-Apr-99 12,118,125 07-Jun-99 12,086,483
22-Feb-99 12,152,202 16-Apr-99 12,120,560 08-Jun-99 12,088,919
</TABLE>
