UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For The Fiscal Year Ended December 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file #0-16780
Inland Real Estate Growth Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3547165
(State of organization) (I.R.S. Employer Identification Number)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 630-218-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP UNITS
(Title of class)
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 such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant. Not applicable.
The Prospectus of the Registrant dated September 21, 1987, as supplemented to
date and filed pursuant to Rule 424(b) and 424(c) under the Securities Act of
1933 is incorporated by reference in Parts I, II and III of this Annual Report
on Form 10-K.
-1-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
TABLE OF CONTENTS
Part I Page
------ ----
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 4
Item 4. Submission of Matters to a Vote of Security Holders........... 4
Part II
-------
Item 5. Market for the Partnership's Limited Partnership
Units and Related Security Holder Matters..................... 5
Item 6. Selected Financial Data....................................... 5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
Item 8. Financial Statements and Supplementary Data................... 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 24
Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 24
Item 11. Executive Compensation........................................ 29
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 30
Item 13. Certain Relationships and Related Transactions................ 30
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................... 31
SIGNATURES............................................................. 32
-2-
PART I
Item 1. Business
The Registrant, Inland Real Estate Growth Fund II, L.P. (the "Partnership"),
was formed in June 1987, pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in improved residential, retail, industrial and
other income producing properties. On September 21, 1987, the Partnership
commenced an Offering of 25,000 Limited Partnership Units (the "Units")
pursuant to a Registration Statement on Form S-11 under the Securities Act of
1933. The Partnership terminated the Offering on September 21, 1989. A total
of 4,038.25 Units were sold to the public at $1,000 per Unit, yielding gross
offering proceeds of $4,038,250, not including the General Partner's
contribution, of which $3,077,513 was invested in two properties. In addition,
offering proceeds were used to repay advances from the General Partner, pay
offering and organization costs and make distributions to the Limited Partners.
All of the holders of these Units have been admitted to the Partnership. As of
December 31, 1997, the Partnership has repurchased through the Unit Repurchase
Program a total of 34 Units ($33,993) from various Limited Partners. The
Limited Partners of the Partnership share in their portion of benefits of
ownership of the Partnership's real property investments according to the
number of Units held. Inland Real Estate Investment Corporation is the General
Partner.
The Partnership is engaged solely in the business of real estate investment. A
presentation of information about industry segments is not applicable and would
not be material to an understanding of the Partnership's business taken as a
whole.
The Partnership has made real property investments as set forth in the
following table:
Name of Number Purchase Type of
property and location of Units Date Ownership(a)
--------------------- -------- ---------- -------------
Wellington Place Fee ownership
Apartments 108 04/19/88 of land and
Carol Stream, Illinois (Sold 1991) improvements
Scandinavian Health Fee ownership
Club N/A 04/21/89 of land and
Columbus, Ohio improvements
(a) Reference is made to Notes (2) and (3) of the Notes to Financial Statements
filed with this Annual Report for the current outstanding principal balance
and a description of the mortgage indebtedness secured by the Partnership's
real property investment.
-3-
As of December 31, 1991, the Partnership had sold all of the eighteen buildings
comprising the Wellington Place apartment complex for a total gross sales price
of approximately $4,472,000. Of the total gross sales proceeds, $80,000
remains to be received through installment contracts receivable with final
balloon payment due June 30, 1998. Management believes these receivables will
be collected. Reference is made to Note (2) of the Notes to Financial
Statements filed with this Annual Report for a description of the remaining
installment contracts receivable.
The Partnership's remaining real property investment is located in Columbus,
Ohio and is subject to competition from similar types of properties in the
vicinity in which it is located. This property is fully leased to Scandinavian
Health Club. The Partnership has no real property investments located outside
the United States. The Partnership does not segregate revenues or assets by
geographic region, and as such a presentation is not applicable and would not
be material to an understanding of the Partnership's business taken as a whole.
The Partnership had no employees during 1997.
The terms of transactions between the Partnership and Affiliates of the General
Partner of the Partnership are set forth in Item 11 and Note (5) of the Notes
to Financial Statements (Item 8 of this Annual Report) to which reference is
hereby made.
The Partnership has reviewed its current computer systems and does not
anticipate any future problems relating to the year 2000.
Item 2. Properties
The Partnership owns directly the properties referred to under Item 1 above to
which reference is hereby made for a description of the properties.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during 1997.
-4-
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1997, there were 334 holders of Units of the Partnership.
There is no public market for Units nor is it anticipated that any public
market for Units will develop. Reference is made to Item 6 below for a
discussion of cash distributions made to the Limited Partners.
Although the Partnership has established a Unit Repurchase Program, funds for
repurchase of Units are limited. Reference is made to "Unit Repurchase
Program" on page 18 of the Prospectus of the Partnership dated September 21,
1987, incorporated herein by reference. The Partnership has approximately
$14,000 restricted for the repurchase of Units at December 31, 1997.
Item 6. Selected Financial Data
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1997, 1996, 1995, 1994 and 1993
(not covered by Independent Auditors' Report)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Total assets........... $1,509,987 1,576,248 1,566,598 1,605,345 2,102,637
=========== ========== ========== ========== ==========
Long-term debt(a)...... $ 786,015 851,755 - 935,998 949,279
=========== ========== ========== ========== ==========
Total income........... $ 219,784 224,555 222,952 242,879 538,846
=========== ========== ========== ========== ==========
(a) Reference is made to Notes (2) and (3) of the Notes to Financial
Statements filed with this Annual Report for further discussion of long-
term debt.
-5-
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operating income....... $ 58,989 58,003 44,837 78,526 292,863
Gain on sale of
investment property.. - - - 31,118 503,529
----------- ---------- ---------- ---------- ----------
Net income............. $ 58,989 58,003 44,837 109,644 796,392
=========== ========== ========== ========== ==========
Net income allocated
to the one General
Partner Unit:
Operating income....... 590 580 448 785 2,929
Gain on sale of
investment property.. - - - 311 5,035
----------- ---------- ---------- ---------- ----------
$ 590 580 448 1,096 7,964
=========== ========== ========== ========== ==========
Net income allocated
per Limited
Partnership Unit (b):
Operating income....... 14.58 14.34 11.09 19.41 72.41
Gain on sale of
investment property.. - - - 7.69 124.49
----------- ---------- ---------- ---------- ----------
$ 14.58 14.34 11.09 27.10 196.90
=========== ========== ========== ========== ==========
Cash distributions
to Limited Partners.. $ 64,671 16,850 69,690 553,096 2,453,208
=========== ========== ========== ========== ==========
Cash distributions
to Limited Partners
per Unit (b)......... $ 16.15 4.21 17.40 138.13 612.65
=========== ========== ========== ========== ==========
Weighted Average of
Limited Partnership
Units outstanding.... 4,004.25 4,004.25 4,004.25 4,004.25 4,004.25
=========== ========== ========== ========== ==========
(a) The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.
(b) The net income per Unit, basic and diluted, and cash distribution per
Limited Partner Unit data are based upon the weighted average number of
such Units.
-6-
Item 7. 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 annual report on
Form 10-K 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 the Partnership's 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, competition for tenants; federal,
state, or local regulations; adverse changes in general economic or local
conditions; uninsured losses; and potential conflicts of interest between the
Partnership and its Affiliates, including the General Partner.
Liquidity and Capital Resources
On September 21, 1987, the Partnership commenced an Offering of 25,000 Limited
Partnership Units pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933. The Offering terminated on September 21, 1989 with a
total of 4,038.25 Units being sold to the public at $1,000 per Unit resulting
in $4,038,250 in gross offering proceeds, not including the General Partner's
contribution, of which $3,077,513 was invested in two properties (as described
in Note (2) of the Notes to Financial Statements filed with this Annual
Report). In addition, proceeds were used to repay advances from the General
Partner, pay offering and organization costs and make distributions to the
Limited Partners. As of December 31, 1997, the Partnership has repurchased 34
Units ($33,993) from various Limited Partners through the Unit Repurchase
Program.
At December 31, 1997, the Partnership had cash and cash equivalents of $128,545
which includes approximately $14,000 restricted for the repurchase of Units
through the Unit Repurchase Program. The Partnership intends to use available
cash for working capital requirements and cash distributions.
As of December 31, 1991, the Partnership had sold all of the eighteen buildings
comprising the Wellington Place apartment complex for a total gross sales price
of approximately $4,472,000. Reference is made to Note (2) of the Notes to
Financial Statements filed with this Annual Report for a description of the
sale of buildings in this complex during 1991 and the prepayments of the
related installment contracts receivable.
The Partnership is generating sufficient cash flow to cover operating expenses
and debt service. To the extent that these sources are insufficient to meet
the Partnership's needs, the Partnership may rely on advances from Affiliates
of the General Partner, other short-term financing or may sell this property.
The General Partner has agreed to make, if necessary, a Supplemental Capital
Contribution. The Supplemental Capital Contribution shall be in an amount
which will enable the Partnership to pay a liquidating distribution to the
Limited Partners equal to their Adjusted Invested Capital plus a noncompounded
Minimum Return of 2% per annum on their Invested Capital. After consideration
of the Supplemental Capital Contribution, the Partnership believes that it has
sufficient funds to satisfy its obligations.
-7-
Results of Operations
As of December 31, 1991, the Partnership had sold all of the eighteen buildings
comprising the Wellington Place apartment complex. The remaining property
owned by the Partnership, a health club, is leased until October 2001 to
Scandinavian Health Spa Inc., a wholly owned subsidiary of Bally's Health and
Tennis Corporation on a "triple-net" basis, which means that in addition to
paying base rent, the tenant is also responsible for the payment of insurance,
taxes and maintenance. The General Partner does not anticipate an early
termination of this lease.
The mortgage loan collateralized by the Scandinavian Health Club property
ballooned in May 1996. A modification and extension agreement was entered into
on January 30, 1997, effective May 1, 1996. The maturity date is extended to
February 1, 1999. The payments of principal and interest for the period May 1,
1996 through January 1, 1997 remain consistent with the original terms of the
note. Monthly principal and interest payments beginning February 1, 1997 will
be calculated on the unpaid principal balance at January 1, 1997 with an
interest rate of 8.25%, adjusted annually on May 1st of each subsequent year
beginning May 1, 1997. The amortization period of this two year extension is
ten years.
The gain on the sale of investment properties is the result of the installment
sales of the eighteen buildings comprising the Wellington Place apartment
complex. The total gain from these sales of $616,858 will be recognized as
cash is received over the life of the related installment contracts. As of
December 31, 1997, $9,950 of gain remains to be recognized.
The decrease in professional services to Affiliates for the year ended December
31, 1997, as compared to the years ended December 31, 1996 and 1995, is due to
a decrease in accounting services required by the Partnership.
The increase in professional services to non-affiliates for the year ended
December 31, 1996, as compared to the years ended December 31, 1997 and 1995,
is due to an increase in accounting fees.
-8-
The decrease in general and administrative expenses to Affiliates for the year
ended December 31, 1997, as compared to the year ended December 31, 1996, is
due to a decrease in investor service charges offset by an increase in postage
and data processing.
The decrease in general and administrative expenses to Affiliates for the year
ended December 31, 1996, as compared to the year ended December 31, 1995, is
due to a decrease in postage, investor service charges and mortgage servicing
fees.
The decrease in general and administrative expenses to non-affiliates for the
year ended December 31, 1997, as compared to the year ended December 31, 1996,
is due to a decrease in bank charges offset by an increase in postage and
printing.
The decrease in general and administrative expenses to non-affiliates for the
year ended December 31, 1996, as compared to the year ended December 31, 1995
is due to a decrease in postage and printing.
The decrease in mortgage interest for the years ended December 31, 1997 and
1996, as compared to the year ended December 31, 1995, is due to a decrease in
the adjustable rate mortgage on the health club property from 9.625% to 8.250%
in May 1996.
Inflation
The health club's triple-net lease offsets any inflationary effect on the
property operating expenses relating to that property.
Continued inflation may cause capital appreciation of the Partnership's
investment property over a period of time as rental rates and replacement cost
of this property continue to increase.
-9-
Item 8. Financial Statements and Supplementary Data
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Index Page
----- ----
Independent Auditors' Report............................................. 11
Financial Statements:
Balance Sheets, December 31, 1997 and 1996............................. 12
Statements of Operations, for the years ended
December 31, 1997, 1996 and 1995..................................... 14
Statements of Partners' Capital, for the years ended
December 31, 1997, 1996 and 1995..................................... 16
Statements of Cash Flows, for the years ended
December 31, 1997, 1996 and 1995..................................... 17
Notes to Financial Statements.......................................... 18
Schedules not filed:
All schedules have been omitted as the required information is inapplicable or
the information is presented in the financial statements or related notes.
-10-
Independent Auditors' Report
The Partners
Inland Real Estate Growth Fund II, L.P.
We have audited the financial statements of Inland Real Estate Growth Fund II,
L.P. (a limited partnership) as listed in the accompanying index. These
financial statements are the responsibility of the General Partner of the
Partnership. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the General Partner of the Partnership, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Inland Real Estate Growth Fund
II, L.P. as of December 31, 1997 and 1996 and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
January 30, 1998
-11-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
December 31, 1997 and 1996
Assets
------
1997 1996
---- ----
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1)............. $ 128,545 152,259
Accrued interest receivable..................... 274 247
------------ ------------
Total current assets.......................... 128,819 152,506
------------ ------------
Investment property (including acquisition
fees paid to Affiliates of $59,500 at
December 31, 1997 and 1996 (Notes 1 and 2):
Land............................................ 438,389 438,389
Building and improvements....................... 1,096,872 1,096,872
------------ ------------
1,535,261 1,535,261
Less accumulated depreciation................... 320,115 283,553
Total investment property, net of ------------ ------------
accumulated depreciation.................... 1,215,146 1,251,708
------------ ------------
Installment contracts receivable (Note 2)......... 80,000 80,000
Accrued rents receivable (Notes l and 5).......... 63,724 79,374
Deferred loan costs (net of accumulated amortization
of $10,165 at December 31, 1997) (Note 1)....... 12,303 -
Deferred leasing fees to Affiliates (net of
accumulated amortization of $15,991 and $13,326
at December 31, 1997 and 1996, respectively)
(Note 1)........................................ 9,995 12,660
------------ ------------
Total assets...................................... $ 1,509,987 1,576,248
============ ============
See accompanying notes to financial statements.
-12-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
December 31, 1997 and 1996
Liabilities and Partners' Capital
---------------------------------
1997 1996
Current liabilities: ---- ----
Current portion of long-term debt............... $ 65,740 59,021
Accrued interest payable........................ 5,856 6,275
Due to Affiliates (Note 4)...................... 533 1,159
------------ ------------
Total current liabilities..................... 72,129 66,455
------------ ------------
Commission payable to Affiliates (Note 4)......... 135,000 135,000
Long-term debt, less current portion
(Notes 2 and 3)................................. 786,015 851,755
------------ ------------
Total liabilities............................. 993,144 1,053,210
------------ ------------
Deferred gain on sale of investment property
(Note 2)........................................ 9,950 9,950
Partners' capital (Notes 1, 3 and 4):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 15,650 15,060
Cumulative cash distributions................. (9,374) (8,861)
------------ ------------
6,776 6,699
Limited Partners: ------------ ------------
Units of $1,000. Authorized 25,000 Units,
4,004.25 Units outstanding at December 31,
1997 and 1996 (net of offering costs of
$462,849, of which $59,476 was paid to
Affiliates)................................. 3,541,408 3,541,408
Cumulative net income......................... 1,549,411 1,491,012
Cumulative cash distributions................. (4,590,702) (4,526,031)
------------ ------------
500,117 506,389
------------ ------------
Total Partners' capital..................... 506,893 513,088
------------ ------------
Commitments and contingencies (Notes 2 and 5).....
Total liabilities and Partners' capital........... $ 1,509,987 1,576,248
============ ============
See accompanying notes to financial statements.
-13-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Income:
Rental income (Note 5)............ $ 206,640 211,696 206,644
Interest income................... 13,144 12,859 11,677
Other income...................... - - 4,631
------------ ------------ ------------
219,784 224,555 222,952
------------ ------------ ------------
Expenses:
Professional services to
Affiliates...................... 4,189 6,882 12,065
Professional services to
non-affiliates.................. 17,575 18,955 15,885
General and administrative
expenses to Affiliates.......... 13,002 13,445 15,337
General and administrative
expenses to non-affiliates...... 1,862 3,442 4,311
Property operating expenses
to Affiliates................... 2,223 2,071 2,020
Property operating expenses
to non-affiliates............... - - 1,533
Mortgage interest................. 72,552 81,360 83,709
Depreciation...................... 36,562 36,563 36,562
Amortization...................... 12,830 3,834 6,693
------------ ------------ ------------
160,795 166,552 178,115
------------ ------------ ------------
Net income.................... $ 58,989 58,003 44,837
============ ============ ============
See accompanying notes to financial statements.
-14-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Net income allocated to (Note 3):
General Partner................... $ 590 580 448
Limited Partners.................. 58,399 57,423 44,389
------------ ------------ ------------
Net income.................... $ 58,989 58,003 44,837
============ ============ ============
Net income allocated to the one
General Partner Unit.............. $ 590 580 448
============ ============ ============
Net income per 4,004.25 weighted
average Limited Partnership
Units, basic and diluted.......... $ 14.58 14.34 11.09
============ ============ ============
See accompanying notes to financial statements.
-15-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Partners' Capital
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partner Partners Total
----------- ----------- ------------
Balance January 1, 1995............. $ 12,401 491,117 503,518
Net income (Note 3)................. 448 44,389 44,837
Cash distributions ($17.40 per
weighted average Limited
Partnership Units of 4,004.25).... (6,580) (69,690) (76,270)
------------ ------------ ------------
Balance December 31, 1995........... 6,269 465,816 472,085
Net income (Note 3)................. 580 57,423 58,003
Cash distributions ($4.21 per
weighted average Limited
Partnership Units of 4,004.25).... (150) (16,850) (17,000)
------------ ------------ ------------
Balance December 31, 1996........... 6,699 506,389 513,088
Net income (Note 3)................. 590 58,399 58,989
Cash distributions ($16.15 per
weighted average Limited
Partnership Units of 4,004.25).... (513) (64,671) (65,184)
------------ ------------ ------------
Balance December 31, 1997........... $ 6,776 500,117 506,893
============ ============ ============
See accompanying notes to financial statements.
-16-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income........................ $ 58,989 58,003 44,837
Adjustments to reconcile net income
to net cash provided by
operating activities:
Accrued rents receivable........ 15,650 (4,562) (4,562)
Depreciation.................... 36,562 36,563 36,562
Amortization.................... 12,830 3,834 6,693
Accrued interest payable........ (419) (1,253) 1,687
Due to Affiliates............... (626) (1,447) 2,431
Changes in other assets and
liabilities................... (27) (1,132) 516
Net cash provided by operating ------------ ------------ ------------
activities........................ 122,959 90,006 88,164
------------ ------------ ------------
Cash flows from financing activities:
Principal payments of long-term
debt............................ (59,021) (27,727) (11,934)
Deferred loan costs............... (22,468) - -
Distributions..................... (65,184) (17,000) (76,270)
Net cash used in financing ------------ ------------ ------------
activities........................ (146,673) (44,727) (88,204)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. (23,714) 45,279 (40)
Cash and cash equivalents at
beginning of year................. 152,259 106,980 107,020
Cash and cash equivalents at ------------ ------------ ------------
end of year....................... $ 128,545 152,259 106,980
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other
interest........................ $ 72,971 82,613 82,022
============ ============ ============
See accompanying notes to financial statements.
-17-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
For the years ended December 31, 1997, 1996 and 1995
(1) Organization and Basis of Accounting
Inland Real Estate Growth Fund II, L.P. (the "Partnership"), was formed in June
1987, pursuant to the Delaware Revised Uniform Limited Partnership Act, to
invest in improved residential, retail, industrial and other income producing
properties. On September 21, 1987, the Partnership commenced an Offering of
25,000 Limited Partnership Units (the "Units") pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Partnership
terminated the Offering on September 21, 1989. A total of 4,038.25 Units were
sold to the public at $1,000 per Unit, yielding gross offering proceeds of
$4,038,250, not including the General Partner's contribution. All of the
holders of these Units have been admitted to the Partnership. As of December
31, 1997, the Partnership has repurchased a total of 34 units ($33,993) from
various Limited Partners. At December 31, 1997, included in cash and cash
equivalents, is approximately $14,000 restricted for use by the Unit Repurchase
Program. The Limited Partners of the Partnership share in their portion of
benefits of ownership of the Partnership's real property investment according
to the number of Units held. Inland Real Estate Investment Corporation is the
General Partner.
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Offering costs have been offset against the Limited Partners' capital
accounts.
Deferred loan costs are amortized on a straight-line basis over the life of the
loan. Deferred leasing fees are amortized on a straight-line basis over the
term of the related lease.
Installment contracts receivable origination fees received were deferred as
unearned income and amortized as yield adjustments on a straight-line basis
over the life of the related installment contracts receivable.
Statement of Financial Accounting Standards No. 121 requires the Partnership to
record an impairment loss on its property to be held for investment whenever
its carrying value cannot be fully recovered through estimated undiscounted
future cash flows from their operations and sale. The amount of the impairment
loss to be recognized would be the difference between the property's carrying
value and the property's estimated fair value. As of December 31, 1997, the
Partnership has not recognized any such impairment on its property.
-18-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
The Partnership uses the straight-line method of depreciation with a useful
life of thirty years for buildings and improvements. Maintenance and repair
expenses are charged to operations as incurred. Significant improvements are
capitalized and depreciated over their estimated useful lives.
Rental income is recognized on a straight-line basis over the term of the
lease. The excess of rental income earned over the cash rent due under the
provisions of the lease agreement is recorded as accrued rent receivable.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
Statement of Financial Accounting Standards No. 128 "Earnings per share" was
adopted by the Partnership for the year ended December 31, 1997 and has been
applied to all prior earnings periods presented in the financial statements.
the Partnership has no dilutive securities.
The Partnership's records are maintained on the accrual basis of accounting in
accordance with generally accepted accounting principles ("GAAP"). The Federal
income tax return has been prepared from such records after making appropriate
adjustments to reflect the Partnership's accounts as adjusted for Federal
income tax reporting purposes. Such adjustments are not recorded on the
records of the Partnership. The net effect of these items is summarized as
follows:
1997 1996
------------------------- ------------------------
Tax Tax
GAAP Basis GAAP Basis
Basis (unaudited) Basis (unaudited)
----------- ------------- ----------- ------------
Total assets.............. $1,509,987 1,934,297 1,576,248 1,983,963
Partner's capital:
General Partner......... 6,776 6,389 6,699 6,146
Limited Partners........ 500,117 924,347 506,389 914,190
Net income:
General Partner......... 590 756 580 544
Limited Partners........ 58,399 74,828 57,423 53,841
Net income per Limited
Partnership Unit, basic
and diluted............. 14.58 18.69 14.34 13.45
-19-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(2) Investment Properties
(a) Wellington Place, Carol Stream, Illinois
During 1991, the Partnership sold all of the eighteen buildings comprising the
Wellington Place apartment complex to unaffiliated third parties. The
Partnership had recorded wrap around installment contracts receivable of
$3,988,999 as a result of these sales, with interest rates ranging from 10.5%
to 10.9% due over seven to ten years. At the time of the sale, these
receivables were subject to existing mortgage notes amounting to $1,505,558.
The gain of $616,858 was to be recognized as cash was received over the life of
the related installment contracts.
The Partnership has received complete prepayments on all of the eighteen
installment contracts receivable amounting to $3,609,589, which included
prepayment penalties of $10,830, less credit to the borrowers for prepaid
interest. In conjunction with five of the prepayments, the Partnership
provided a single borrower with five second mortgages, in the amount of $16,000
each, which require interest-only payments at the rate of 10% per annum with a
final balloon payment due June 30, 1998, collateralized by five of the
buildings previously sold.
(b) Scandinavian Health Club, Columbus, Ohio
On April 21, 1989, the Partnership purchased an existing 20,000 square-foot
health and racquet club known as Scandinavian Health Club located in Columbus,
Ohio. The property was purchased from an unaffiliated party. The total costs
were $1,529,171, which included the purchase price of $1,442,000, acquisition
costs of $87,171, including the acquisition fee paid to the General Partner of
$59,500 and closing costs.
At closing, the Partnership obtained a $1,000,000 loan secured by the property
from an unaffiliated lender. The loan has a current interest rate of 8.25% and
requires monthly principal and interest payments. The interest rate adjusts
annually to 3% over the one-year Treasury constant maturity average and
payments are adjusted concurrently with the interest rates. The Partnership
paid a $20,000 loan fee to the lender and incurred $8,188 of other costs
associated with funding the loan. The mortgage loan ballooned in May 1996 and
a modification and extension agreement was entered into on January 30, 1997.
The Partnership paid a $18,149 loan fee to the lender and incurred $3,332 of
legal fees in connection with this extension. The maturity date was extended to
February 1, 1999. The payments of principal and interest for the period May 1,
1996 through January 1, 1997 remain consistent with the original terms of the
note. Monthly principal and interest payments beginning February 1, 1997 will
be calculated on the unpaid principal balance at January 1, 1997 with an
interest rate of 8.25%, adjusted annually, based on a ten year amortization
period. At December 31, 1997, the principal balance outstanding was $851,755.
-20-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
An Affiliate of the General Partner receives a management fee pursuant to a
management agreement of a percentage of gross receipts.
As of December 31, 1997, the required future principal payments on the
Partnership's long-term debt are as follows:
1998.......................................... $ 65,740
1999.......................................... 786,015
(3) Partnership Agreement
Pursuant to the terms of the Partnership Agreement, net profits or losses of
the Partnership from operations are generally allocated 99% to the Limited
Partners and 1% to the General Partner. Gains from the sale or other
disposition of the Partnership's properties will generally be allocated to the
General and Limited Partners in relation to the distributions of proceeds from
such transactions.
Cash available for distribution from operations will be distributed 99% to the
Limited Partners and 1% to the General Partner. Net sale or refinancing
proceeds will generally be distributed first to the Limited Partners up to an
amount equal to their Invested Capital plus any deficiency in a 10% cumulative
annual return. Next, to the General Partner in an amount equal to any
Supplemental Capital Contributions, as defined, made by it. Any remaining
proceeds will be distributed 80% to the Limited Partners and 20% to the General
Partner.
The General Partner has agreed to make, if necessary, a Supplemental Capital
Contribution. The Supplemental Capital Contribution shall be in an amount
which will enable the Partnership to pay a liquidating distribution to the
Limited Partners equal to their Adjusted Invested Capital plus a noncompounded
Minimum Return of 2% per annum on their Invested Capital. After consideration
of the Supplemental Capital Contribution, the Partnership believes that it has
sufficient funds to satisfy its obligations.
-21-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(4) 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, of which $533 and $1,159
remained unpaid at December 31, 1997 and 1996, respectively.
In connection with the sales at Wellington Place apartment complex, the
Partnership has recorded $135,000 of sales commissions payable to Affiliates of
the General Partner. Such commissions will be deferred until the Limited
Partners have received their Original Capital plus a return as specified in the
Partnership Agreement.
An Affiliate of the General Partner is entitled to receive Property Management
Fees for management and leasing services. Management fees of $2,223, $2,071
and $2,020 for the years ended December 31, 1997, 1996 and 1995, respectively
have been incurred and paid to an Affiliate and are included in the
Partnership's property operating expenses to Affiliates.
(5) Leases
At December 31, 1997, the Partnership's principal asset consists of a health
club which is occupied by one tenant, Scandinavian Health Spa Inc. which is a
wholly owned subsidiary of Bally's Health and Tennis Corporation, under a
triple net lease which requires that in addition to paying base rent, the
tenant is also responsible for the payment of insurance, taxes and maintenance.
The property is subject to a lease which expires in October 2001 and required
an initial base rent per annum of $183,710. The rent increased to $202,082 in
October 1991 and $222,288 in October 1996. The General Partner does not
anticipate an early termination of this lease.
The Partnership has determined that the lease relating to this property is
properly classified as an operating lease; therefore, rental income is reported
when earned and the cost of the property, excluding the cost of land, is
depreciated over the estimated useful life.
-22-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Minimum lease payments to be received in the future for the health club lease
are as follows:
1998............................................. $ 222,288
1999............................................. 222,288
2000............................................. 222,288
2001............................................. 166,716
-----------
Total............................................ $ 833,580
===========
The lease contains provisions providing for stepped rent increases. Generally
accepted accounting principles require that rental income be recorded for the
period of occupancy using the effective monthly rent, which is the average
monthly rent for the entire period of occupancy during the term of the lease.
The accompanying financial statements include a decrease of $15,650 in 1997 and
an increase of $4,562 in 1996 and 1995, respectively, of rental income for the
period of occupancy for which stepped rent increases apply and $63,724 and
$79,374 in related accrued rents receivable as of December 31, 1997 and 1996,
respectively. Those amounts are expected to be collected over the terms of the
related lease as scheduled rent payments are made.
(6) Subsequent Events
During January 1998, the Partnership paid a distribution of $25,559, of which
$236 was distributed to the General Partner and $25,323 was distributed to the
Limited Partners. The Limited Partners distribution included $2,000 of
repayment proceeds which represents a return of capital and $23,323 of
operating cash flow which represents a return on capital.
-23-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements on accounting or financial disclosure during 1997.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership, Inland Real Estate Investment
Corporation, was organized in 1984 for the purpose of acting as general partner
of limited partnerships formed to acquire, own and operate real properties.
The General Partner is a wholly-owned subsidiary of The Inland Group, Inc. In
1990, Inland Real Estate Investment Corporation became the replacement General
Partner for an additional 301 privately-owned real estate limited partnerships
syndicated by Affiliates. The General Partner has responsibility for all
aspects of the Partnership's operations. The relationship of the General
Partner to its Affiliates is described under the caption "Conflicts of
Interest" at pages 11 to 13 of the Prospectus, a copy of which description is
hereby incorporated herein by reference.
Officers and Directors
The officers, directors, and key employees of The Inland Group, Inc. and its
Affiliates ("Inland") that are likely to provide services to the Partnership
are as follows:
Functional Title
Daniel L. Goodwin....... Chairman and Chief Executive Officer
Robert H. Baum.......... Executive Vice President-General Counsel
G. Joseph Cosenza....... Senior Vice President-Acquisitions
Robert D. Parks......... Senior Vice President-Investments
Norbert J. Treonis...... Senior Vice President-Property Management
Catherine L. Lynch...... Treasurer
Paul J. Wheeler......... Vice President-Personal Financial Services Group
Roberta S. Matlin....... Assistant Vice President-Investments
Mark Zalatoris.......... Assistant Vice President-Due Diligence
Patricia A. Challenger.. Vice President-Asset Management
Kelly Tucek............. Assistant Vice President-Partnership Accounting
Venton J. Carlston...... Assistant Controller
-24-
DANIEL L. GOODWIN (age 54) is Chairman of the Board of Directors of The
Inland Group, Inc., a billion-dollar real estate and financial organization
located in Oak Brook, Illinois. Among Inland's subsidiaries is the largest
property management firm in Illinois and one of the largest commercial real
estate and mortgage banking firms in the Midwest.
Mr. Goodwin has served as Director of the Avenue Bank of Oak Park and as a
Director of the Continental Bank of Oakbrook Terrace. He was Chairman of the
Bank Holding Company of American National Bank of DuPage. Currently he is the
Chairman of the Board of Inland Mortgage Investment Corporation.
Mr. Goodwin has been in the housing industry for more than 28 years, and has
demonstrated a lifelong interest in housing-related issues. He is a licensed
real estate broker and a member of the National Association of Realtors. He
has developed thousands of housing units in the Midwest, New England, Florida,
and the Southwest. He is also the author of a nationally recognized real
estate reference book for the management of residential properties.
Mr. Goodwin has served on the Board of the Illinois State Affordable Housing
Trust Fund for the past 7 years. He is an advisor for the Office of Housing
Coordination Services of the State of Illinois, and a member of the Seniors
Housing Committee of the National Multi-Housing Council. Recently, Governor
Edgar appointed him Chairman of the Housing Production Committee for the
Illinois State Affordable Housing Conference. He also served as a member of
the Cook County Commissioner's Economic Housing Development Committee, and he
was the Chairman of the DuPage County Affordable Housing Task Force. The 1992
Catholic Charities Award was presented to Mr. Goodwin for his work in
addressing affordable housing needs. The City of Hope designated him as the
Man of the Year for the Illinois construction industry. In 1989, the Chicago
Metropolitan Coalition on Aging presented Mr. Goodwin with an award in
recognition of his efforts in making housing more affordable to Chicago's
Senior Citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver Shelter)
presented Mr. Goodwin with an award, recognizing The Inland Group as the
leading corporate provider of transitional housing for the homeless people of
DuPage County. Mr. Goodwin also serves as Chairman of New Directions Housing
Corporation, a leading provider of affordable housing in northern Illinois.
Mr. Goodwin is a product of Chicago-area schools, and obtained his Bachelor's
and Master's Degrees from Illinois Universities. Following graduation, he
taught for five years in the Chicago Public Schools. His commitment to
education has continued through his work with the Better Boys Foundation's
Pilot Elementary School in Chicago, and the development of the Inland
Vocational Training Center for the Handicapped located at Little City in
Palatine, Illinois. He personally established an endowment which funds a
perpetual scholarship program for inner-city disadvantaged youth. In 1990 he
received the Northeastern Illinois University President's Meritorious Service
Award. Mr. Goodwin holds a Master's Degree in Education from Northern Illinois
University, and in 1986, he was awarded an Honorary Doctorate from Northeastern
Illinois University College of Education. More than 12 years ago, under Mr.
Goodwin's direction, Inland instituted a program to educate disabled students
about the workplace. Most of these original students are still employed at
Inland today, and Inland continues as one of the largest employers of the
disabled in DuPage County. Mr. Goodwin has served as a member of the Board of
Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Benedictine University. He was elected Chairman of Northeastern
Illinois University Board of Trustees in January 1996.
-25-
Mr. Goodwin served as a member of Governor Jim Edgar's Transition Team. In
1988 he received the Outstanding Business Leader Award from the Oak Brook
Jaycees and has been the General Chairman of the National Football League
Players Association Mackey Awards for the benefit of inner-city youth. He
served as the recent Chairman of the Speakers Club of the Illinois House of
Representatives. In March 1994, he won the Excellence in Business Award from
the DuPage Area Association of Business and Industry. Additionally, he was
honored by Little Friends on May 17, 1995 for rescuing their Parent-Handicapped
Infant Program when they lost their lease. He was the recipient of the 1995
March of Dimes Life Achievement Award and was recently recognized as the 1997
Corporate Leader of the Year by the Oak Brook Area Association of Commerce and
Industry.
ROBERT H. BAUM (age 54) has been with The Inland Group, Inc. and its
affiliates since 1968 and is one of the four original principals. Mr. Baum is
Vice Chairman and Executive Vice President-General Counsel of The Inland Group,
Inc. In his capacity as General Counsel, Mr. Baum is responsible for the
supervision of the legal activities of The Inland Group, Inc. and its
affiliates. This responsibility includes the supervision of The Inland Law
Department and serving as liaison with outside counsel. Mr. Baum has served as
a member of the North American Securities Administrators Association Real
Estate Advisory Committee and as a member of the Securities Advisory Committee
to the Secretary of State of Illinois. He is a member of the American
Corporation Counsel Association and has also been a guest lecturer for the
Illinois State Bar Association. Mr. Baum has been admitted to practice before
the Supreme Court of the United States, as well as the bars of several federal
courts of appeals and federal district courts and the State of Illinois. He
received his B.S. Degree from the University of Wisconsin and his J.D. Degree
from Northwestern University School of Law. Mr. Baum has served as a director
of American National Bank of DuPage. Currently, he serves as a director of
Westbank, and is a member of the Governing Council of Wellness House, a
charitable organization that provides emotional support for cancer patients and
their families.
G. JOSEPH COSENZA (age 54) has been with The Inland Group, Inc. and its
affiliates since 1968 and is one of the four original principals. Mr. Cosenza
is a Director and Vice Chairman of The Inland Group, Inc. and oversees,
coordinates and directs Inland's many enterprises. In addition, immediately
supervises a staff of eight persons who engage in property acquisition. Mr.
Cosenza has been a consultant to other real estate entities and lending
institutions on property appraisal methods.
Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and
his M.S. Degree from Northern Illinois University. From 1967 to 1968, he
taught at the LaGrange School District in Hodgkins, Illinois and from 1968 to
1972, he served as Assistant Principal and taught in the Wheeling, Illinois
School District. Mr. Cosenza has been a licensed real estate broker since 1968
and an active member of various national and local real estate associations,
including the National Association of Realtors and the Urban Land Institute.
Mr. Cosenza has also been Chairman of the Board of American National Bank of
DuPage, and has served on the Board of Directors of Continental Bank of
Oakbrook Terrace. He is presently Chairman of the Board of Westbank in
Westchester and Hillside, Illinois.
-26-
ROBERT D. PARKS (age 54) is a Director of The Inland Group, Inc.,
President, Chairman and Chief Executive Officer of Inland Real Estate
Investment Corporation and President, Chief Executive Officer, Chief Operating
Officer and Affiliated Director of Inland Real Estate Corporation.
Mr. Parks is responsible for the ongoing administration of existing investment
programs, corporate budgeting and administration for Inland Real Estate
Investment Corporation. He oversees and coordinates the marketing of all
investments and investor relations.
Prior to joining Inland, Mr. Parks was a school teacher in Chicago's public
schools. He received his B.A. degree from Northeastern Illinois University and
his M.A. degree from the University of Chicago. He is a registered Direct
Participation Program Principal with the National Association of Securities
Dealers, Inc., and he is a member of the Real Estate Investment Association and
a member of NAREIT.
NORBERT J. TREONIS (age 47) joined The Inland Group, Inc. and its
affiliates in 1975 and he is currently Chairman and Chief Executive Officer of
The Inland Property Management Group, Inc. and a Director of The Inland Group,
Inc. He serves on the Board of Directors of all Inland subsidiaries involved
in the property management, acquisitions and maintenance of real estate,
including Mid-America Property Management Corporation, and Metropolitan
Construction Services, Inc. Mr. Treonis is charged with the responsibility of
the overall management and leasing of all apartment units, retail, industrial
and commercial properties nationwide.
Mr. Treonis is a licensed real estate broker. He is a past member of the Board
of Directors of American National Bank of DuPage, the Apartment Builders and
Managers Association of Illinois, the National Apartment Association and the
Chicagoland Apartment Association.
Mr. Treonis has been the Chairman of the Board of Directors of Inland
Commercial Property Management, Inc. since its formation in 1994.
CATHERINE L. LYNCH (age 39) joined Inland in 1989 and is the Treasurer of
Inland Real Estate Investment Corporation. Ms. Lynch is responsible for
managing the Corporate Accounting Department. Prior to joining Inland, Ms.
Lynch worked in the field of public accounting for KPMG Peat Marwick since
1980. She received her B.S. degree in Accounting from Illinois State
University. Ms. Lynch is a Certified Public Accountant and a member of the
American Institute of Certified Public Accountants and the Illinois CPA
Society. She is registered with the National Association of Securities Dealers
as a Financial Operations Principal.
PAUL J. WHEELER (age 45) joined Inland in 1982 and is currently the
President of Inland Property Sales, Inc., the entity responsible for all
corporately owned real estate. Mr. Wheeler received his B.A. degree in
Economics from DePauw University and an M.B.A. in Finance/Accounting from
Northwestern University. Mr. Wheeler is a Certified Public Accountant and
licensed real estate broker. For three years prior to joining Inland, Mr.
Wheeler was Vice President/Finance at the real estate brokerage firm of Quinlan
& Tyson, Inc.
-27-
ROBERTA S. MATLIN (age 53) joined Inland in 1984 as Director of Investor
Administration and currently serves as Senior Vice President-Investments.
Prior to that, Ms. Matlin spent 11 years with the Chicago Region of the Social
Security Administration of the United States Department of Health and Human
Services. As Senior Vice President-Investments, she directs the day-to-day
internal operations of the General Partner. Ms. Matlin received her B.A.
degree from the University of Illinois. She is registered with the National
Association of Securities Dealers, Inc. as a General Securities Principal.
MARK ZALATORIS (age 40) joined Inland in 1985 and currently serves as Vice
President of Inland Real Estate Investment Corporation. His responsibilities
include the coordination of due diligence activities by selling broker/dealers
and is also involved with limited partnership asset management including the
mortgage funds. Mr. Zalatoris is a graduate of the University of Illinois
where he received a Bachelors degree in Finance and a Masters degree in
Accounting and Taxation. He is a Certified Public Accountant and holds a
General Securities License with Inland Securities Corporation.
PATRICIA A. CHALLENGER (age 45) joined Inland in 1985. Ms. Challenger
serves as Senior Vice President of Inland Real Estate Investment Corporation in
the area of Asset Management. As head of the Asset Management Department, she
develops operating and disposition strategies for all investment-owned
properties. Ms. Challenger received her Bachelor's degree from George
Washington University and her Master's from Virginia Tech University. Ms.
Challenger was selected and served from 1980-1984 as Presidential Management
Intern, where she was part of a special government-wide task force to eliminate
waste, fraud and abuse in government contracting and also served as Senior
Contract Specialist responsible for capital improvements in 109 government
properties. Ms. Challenger is a licensed real estate broker, NASD registered
securities sales representative and is a member of the Urban Land Institute.
KELLY TUCEK (age 35) joined Inland in 1989 and is an Assistant Vice
President of Inland Real Estate Investment Corporation. As of August 1996, Ms.
Tucek is responsible for the Investment Accounting Department which includes
all public partnership accounting functions along with quarterly and annual SEC
filings. Prior to joining Inland, Ms. Tucek was on the audit staff of Coopers
and Lybrand since 1984. She received her B.A. Degree in Accounting and
Computer Science from North Central College.
VENTON J. CARLSTON (age 40) joined Inland in 1985 and is the Assistant
Controller of Inland Real Estate Investment Corporation where he supervises the
corporate bookkeeping staff and is responsible for financial statement
preparation and budgeting for Inland Real Estate Investment Corporation and its
subsidiaries. Prior to joining Inland, Mr. Carlston was a partnership
accountant with JMB Realty. He received his B.S. degree in Accounting from
Southern Illinois University. Mr. Carlston is a Certified Public Accountant
and a member of the Illinois CPA Society. He is registered with the National
Association of Securities Dealers, Inc. as a Financial Operations Principal.
-28-
Item 11. Executive Compensation
The General Partner is entitled to receive a share of cash distributions, when
and as cash distributions are made to the Limited Partners, and a share of
profits or losses as described under the caption "Cash Distributions" on page
44 and "Allocation of Profits or Losses" on page 43 of the Prospectus, and on
pages A-7 to A-10 of the Partnership Agreement, included as an exhibit to the
Prospectus. Reference is also made to Note (3) of the Notes to Financial
Statements filed with this Annual Report for a description of such
distributions and allocations. The General Partner received a share of
Partnership income in 1997.
The Partnership is permitted to engage in various transactions involving
Affiliates of the General Partner of the Partnership, as described under the
captions "Compensation and Fees" on pages 8 to 10 and "Conflicts of Interest"
on pages 10 to 13 of the Prospectus, and on pages A-12 through A-22 of the
Partnership Agreement, included as an exhibit to the Prospectus. The
relationship of the General Partner (and its directors and officers) to its
Affiliates is set forth above in Item 10.
In connection with the sales at Wellington Place, the Partnership has recorded
$135,000 of sales commissions payable to Affiliates of the General Partner.
Such commissions will be deferred until the Limited Partners have received
their Original Capital plus a return as specified in the Partnership Agreement.
The General Partner of the Partnership and its Affiliates may be reimbursed for
their out-of-pocket expenses relating to the administration of the Partnership.
In 1997, the General Partner of the Partnership was due reimbursement for such
expenses in the amount of $17,191, of which $533 was unpaid at December 31,
1997.
An Affiliate of the General Partner earned management fees of $2,223 in 1997,
in connection with managing the Partnership's investment property, all of which
was paid at December 31, 1997.
-29-
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) No person or group is known by the Partnership to own beneficially
more than 5% of the outstanding Units of the Partnership.
(b) The officers and directors of the General Partner of the Partnership
own, as a group, the following Units of the Partnership:
Amount and Nature
of Beneficial Percent
Title of Class Ownership of Class
------------------- ----------------- -------------
Limited Partnership One Unit directly less than 1%
Units
No officer or director of the General Partner of the Partnership
possesses a right to acquire beneficial ownership of Units of the
Partnership.
All of the outstanding shares of the General Partner of the
Partnership are owned by an Affiliate of its officers and directors as
set forth above in Item 10.
(c) There exists no arrangement, known to the Partnership, the operation
of which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions
There were no significant transactions or business relationships with the
General Partner, Affiliates or their management other than those described in
Items 10 and 11 above. Reference is made to Note (4) of the Notes to Financial
Statements (Item 8 of this annual report) for information regarding related
party transactions.
-30-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The financial statements listed in the index on page 10 of this Annual
Report are filed as part of this Annual Report.
(b) Exhibits. The following documents are filed as part of this Report:
3 Amended and Restated Agreement of Limited Partnership and
certificate of Limited Partnership included as Exhibits A and B to the
Prospectus dated September 21, 1988, as supplemented, are incorporated
herein by reference thereto.
4 Form of Certificate of Ownership representing interest in the
registrant filed as Exhibit 4 to Registration Statement on S-11, File
No. 33-15334, is incorporated herein by reference thereto.
28 Prospectus dated September 21, 1988, as supplemented, included in
Post-Effective Amendment No. 4 to Form S-11 Registration Statement,
File No. 33-15334, is incorporated herein by reference thereto.
(c) Financial Statement Schedules
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(d) Reports on Form 8-K:
None
No Annual Report or proxy material for the year 1997 has been sent to the
Partners of the Partnership. An Annual Report will be sent to the Partners
subsequent to this filing and the Partnership will furnish copies of such
report to the Commission when it is sent to the Partners.
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 REAL ESTATE GROWTH FUND II, L.P.
Inland Real Estate Investment Corporation
General Partner
/s/ Robert D. Parks
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
By: Inland Real Estate Investment Corporation
General Partner
/s/ Robert D. Parks
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 26, 1998
/s/ Patricia A. Challenger
By: Patricia A. Challenger
Senior Vice President
Date: March 26, 1998
/s/ Kelly Tucek
By: Kelly Tucek
Asst. Vice President
Date: March 26, 1998
/s/ Daniel L. Goodwin
By: Daniel L. Goodwin
Director
Date: March 26, 1998
/s/ Robert H. Baum
By: Robert H. Baum
Director
Date: March 26, 1998
-32-
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