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, 1998
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 7a. Quantitative and Qualitative Disclosure About Market Risk..... 10
Item 8. Financial Statements and Supplementary Data................... 11
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........................................ 30
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................................ 31
Item 13. Certain Relationships and Related Transactions................ 31
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................... 32
SIGNATURES............................................................. 33
-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, 1998, 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.
The Partnership currently owns one property, Scandinavian Health Club, which
represents their industry segment. The results of the segment are presented in
the financial statements of the Partnership.
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 Club Fee ownership
Columbus, Ohio N/A 04/21/89 of land and
improvements
(a) Reference is made to Note 2 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
remained to be received through installment contracts receivable with final
balloon payment due June 30, 1998. As of December 31, 1998, these receivables
have been paid in full.
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 1998.
The terms of transactions between the Partnership and Affiliates of the General
Partner of the Partnership are set forth in Item 11 and Note 4 of the Notes to
Financial Statements (Item 8 of this Annual Report) to which reference is
hereby made.
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 1998.
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1998, there were 338 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
$14,800 restricted for the repurchase of Units at December 31, 1998.
-4-
Item 6. Selected Financial Data
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1998, 1997, 1996, 1995 and 1994
(not covered by Independent Auditors' Report)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total assets........... $ 1,430,187 1,509,987 1,576,248 1,566,598 1,605,345
=========== ========== ========== ========== ==========
Long-term debt (b)..... $ - 786,015 851,755 - 935,998
=========== ========== ========== ========== ==========
Total income........... $ 217,292 219,784 224,555 222,952 242,879
=========== ========== ========== ========== ==========
Net operating income... $ 61,971 58,989 58,003 44,837 78,526
Gain on sale of
investment property.. 9,950 - - - 31,118
----------- ---------- ---------- ---------- ----------
Net income............. $ 71,921 58,989 58,003 44,837 109,644
=========== ========== ========== ========== ==========
Net income allocated
to the one General
Partner Unit:
Net operating income... 620 590 580 448 785
Gain on sale of
investment property.. 99 - - - 311
----------- ---------- ---------- ---------- ----------
$ 719 590 580 448 1,096
=========== ========== ========== ========== ==========
Net income allocated
per Limited
Partnership Unit (c):
Net operating income... 15.32 14.58 14.34 11.09 19.41
Gain on sale of
investment property.. 2.46 - - - 7.69
----------- ---------- ---------- ---------- ----------
$ 17.78 14.58 14.34 11.09 27.10
=========== ========== ========== ========== ==========
-5-
Item 6. Selected Financial Data, continued
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1998, 1997, 1996, 1995 and 1994
(not covered by Independent Auditors' Report)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Cash distributions
to Limited Partners.. $ 63,710 64,671 16,850 69,690 553,096
=========== ========== ========== ========== ==========
Cash distributions
to Limited Partners
per Unit (c)......... $ 15.91 16.15 4.21 17.40 138.13
=========== ========== ========== ========== ==========
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) Reference is made to Note 2 of the Notes to Financial Statements filed with
this Annual Report for further discussion of long-term debt.
(c) 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, 1998, the Partnership has repurchased 34 Units ($33,993)
from various Limited Partners through the Unit Repurchase Program.
At December 31, 1998, the Partnership had cash and cash equivalents of $185,913
which includes approximately $14,800 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 payments 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 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 on May 1st of each subsequent year
beginning May 1, 1997. The amortization period of this two year extension is
ten years. As of February 1, 1999, the General Partner of the Partnership
advanced funds on a short-term basis to the Partnership to pay off its mortgage
payable balance of $780,288 plus accrued interest through the maturity date.
The mortgage payable to the General Partner of $786,081 has a current interest
rate of 9.5% and requires monthly interest only payments. A final balloon
payment of all outstanding principal and all accrued and unpaid interest, if
any, is due on December 31, 1999. This loan may be extended at the
Partnership's option.
As of September 23, 1998, the Partnership listed and began actively marketing
the Scandinavian Health Club property for sale at an amount in excess of its
carrying value. The listing agreement expired on January 31, 1999, however,
the Partnership is continuing to market the property for sale. The Partnership
ceased depreciation as of September 23, 1998.
As of December 31, 1998, the Partnership received payment in full on the five
second mortgages from the sale of the Wellington Place apartments and has
recognized the remaining gain from the sale.
The decrease in professional services to Affiliates for the years ended
December 31, 1998 and 1997, as compared to the year ended December 31, 1996, is
due to a decrease in accounting services and legal services required by the
Partnership.
The increase in professional services to non-affiliates for the year ended
December 31, 1998, as compared to the years ended December 31, 1997 and 1996,
is due to an increase in accounting fees required by the Partnership.
The increase in general and administrative expenses to Affiliates for the year
ended December 31, 1998, as compared to the years ended December 31, 1997 and
1996, is due to an increase in postage costs and investor services.
The lower general and administrative expenses to non-affiliates for the year
ended December 31, 1997, as compared to the years ended December 31, 1998 and
1996, are due to lower bank charges offset by higher postage and printing
costs.
-8-
Year 2000 Issues
GENERAL
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Partnership relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The
Partnership has assessed its vulnerability to the so-called "Year-2000 Issue"
with respect to its equipment and computer systems.
STATE OF READINESS
The Partnership has identified the following three areas for "Year-2000"
compliance efforts:
Business Computer Systems: The majority of the Partnership's information
technology systems were developed internally and include accounting, lease
management, investment portfolio tracking, and tax return preparation. The
Partnership has rights to the source code for these applications and employs
programmers who are knowledgeable regarding these systems. The process of
testing these internal systems to determine year 2000 compliance is nearly
complete. The Partnership does not anticipate any material costs relating to
its business computer systems regarding year 2000 compliance since the
Partnership's critical hardware and software systems use four digits to
represent the applicable year. The Partnership does use various computers, so-
called "PC's", that may run software that may not use four digits to represent
the applicable year. The Partnership is in the process of testing the PC
hardware and software to determine year 2000 compliance, but it must be noted
that such PC's are incidental to the Partnership's critical systems. The
Partnership is considering independent testing of its critical systems.
Tenants and Suppliers: The Partnership is in the process of surveying tenants,
suppliers and other parties with whom the Partnership does a significant amount
of business to identify the Partnership's potential exposure in the event such
parties are not year 2000 compliant in a timely manner. At this time, the
Partnership is not aware of any party that is anticipating a material Year 2000
compliance issue. However, since this area involves some parties over which
the Partnership has no control, such as public utility companies, it is
difficult, at best, to judge the status of the outside companies' year 2000
compliance. The Partnership is working closely with all suppliers of goods and
services in an effort to minimize the impact of the failure of any supplier to
become year 2000 compliant by December 31, 1999. The Partnership's
investigations and assessments of possible year 2000 issues are in a
preliminary stage, and currently the Partnership is not aware of any material
impact on its business, operations or financial condition even if one or more
parties is not Year 2000 compliant in a timely manner, due to the number and
nature of the Partnership's diverse tenant base.
Non-Information Technology Systems: In the operation of its properties, the
Partnership has acquired equipment with embedded technology such as
microcontrollers, which operate heating, ventilation, and air conditioning
systems, fire alarms, security systems, telephones and other equipment
utilizing time-sensitive technology. The Partnership is in the process of
evaluating its potential exposure and costs if such non-information technology
systems are not year 2000 compliant and expects to be able to complete its
assessment during the second quarter of 1999.
-9-
YEAR 2000 RISKS
The most reasonable likely worst case scenario for the Partnership with respect
to the year 2000 non-compliance of its business computer systems would be the
inability to access information which could result in the failure to issue
financial reports. The most reasonable likely worst case scenario for the
Partnership with respect to the year 2000 non-compliance of its tenants is
failure to receive rental income which could result in the Partnership being
unable to meet cash requirements for monthly expenses. The most reasonable
likely worst case scenario for the Partnership with respect to the year 2000
non-compliance of its suppliers is the failure to supply necessary utilities;
including, but not limited to heating, as a result of a malfunctioning of non-
information technology systems in the Partnership's property.
YEAR 2000 COSTS
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $100,000. However, only
approximately 1% of these costs will be directly allocated to and paid by the
Partnership. The balance of the year 2000 compliance costs, approximately 99%,
will be paid by the General Partner and its Affiliates. Total year 2000
compliance costs incurred through December 31, 1998 are estimated at
approximately $5,000.
CONTINGENCY PLAN
The Partnership is expects to be Year 2000 compliant in advance of the year
2000. The Partnership will continue to monitor its progress and state of
readiness, and is in the process of formulating a contingency plan which the
Partnership will be prepared to adopt with respect to areas in which evidence
arises that it may not become Year 2000 compliant in sufficient time. With
respect to its tenants, suppliers and other parties with whom the Partnership
conducts business, the Partnership does not yet have sufficient information to
identify the types of problems it may encounter in the event these third
parties are not Year 2000 compliant. As information is obtained that may
indicate such parties may not become Year 2000 compliant in sufficient time,
the Partnership is prepared to develop contingency plans, accordingly.
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
property held for sale over a period of time as rental rates and replacement
cost of this property continue to increase.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is winding up its affairs in 1998. As a result, there is no
meaningful disclosure for this item.
-10-
Item 8. Financial Statements and Supplementary Data
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Index Page
Independent Auditors' Report............................................. 12
Financial Statements:
Balance Sheets, December 31, 1998 and 1997............................. 13
Statements of Operations, for the years ended
December 31, 1998, 1997 and 1996..................................... 15
Statements of Partners' Capital, for the years ended
December 31, 1998, 1997 and 1996..................................... 16
Statements of Cash Flows, for the years ended
December 31, 1998, 1997 and 1996..................................... 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.
-11-
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, 1998 and 1997 and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 1, 1999
-12-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
December 31, 1998 and 1997
Assets
1998 1997
---- ----
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1)............. $ 185,913 128,545
Accrued interest receivable..................... 202 274
------------ ------------
Total current assets.............................. 186,115 128,819
------------ ------------
Property held for sale (Note 2)................... 1,187,723 -
Investment property (including acquisition
fees paid to Affiliates of $59,500 at
December 31, 1997 (Notes 1 and 2):
Land............................................ - 438,389
Building and improvements....................... - 1,096,872
------------ ------------
- 1,535,261
Less accumulated depreciation................... - 320,115
Total investment property, net of ------------ ------------
accumulated depreciation.................... - 1,215,146
------------ ------------
Installment contracts receivable (Note 2)......... - 80,000
Accrued rents receivable (Notes l and 5).......... 48,074 63,724
Deferred loan costs (net of accumulated amortization
of $21,522 and $10,165 at December 31, 1998 and
1997, respectively) (Note 1).................... 946 12,303
Deferred leasing fees to Affiliates (net of
accumulated amortization of $18,656 and $15,990
at December 31, 1998 and 1997, respectively)
(Note 1)........................................ 7,329 9,995
------------ ------------
Total assets...................................... $ 1,430,187 1,509,987
============ ============
See accompanying notes to financial statements.
-13-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
December 31, 1998 and 1997
Liabilities and Partners' Capital
1998 1997
Current liabilities: ---- ----
Current portion of long-term debt (Note 2)...... $ 780,288 65,740
Accrued interest payable........................ - 5,856
Due to Affiliates (Note 4)...................... 360 533
------------ ------------
Total current liabilities......................... 780,648 72,129
------------ ------------
Commission payable to Affiliates (Note 4)......... 135,000 135,000
Long-term debt, less current portion
(Notes 2 and 3)................................. - 786,015
------------ ------------
Total liabilities................................. 915,648 993,144
------------ ------------
Deferred gain on sale of investment property
(Note 2)........................................ - 9,950
Partners' capital (Notes 1, 3 and 4):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 16,369 15,650
Cumulative cash distributions................. (9,939) (9,374)
------------ ------------
6,930 6,776
Limited Partners: ------------ ------------
Units of $1,000. Authorized 25,000 Units,
4,004.25 Units outstanding at December 31,
1998 and 1997 (net of offering costs of
$462,849, of which $59,476 was paid to
Affiliates)................................. 3,541,408 3,541,408
Cumulative net income......................... 1,620,613 1,549,411
Cumulative cash distributions................. (4,654,412) (4,590,702)
------------ ------------
507,609 500,117
------------ ------------
Total Partners' capital........................... 514,539 506,893
------------ ------------
Total liabilities and Partners' capital........... $ 1,430,187 1,509,987
============ ============
See accompanying notes to financial statements.
-14-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Income:
Rental income (Note 5)............ $ 206,640 206,640 211,696
Interest income................... 10,652 13,144 12,859
------------ ------------ ------------
217,292 219,784 224,555
Expenses: ------------ ------------ ------------
Professional services to
Affiliates...................... 3,508 4,189 6,882
Professional services to
non-affiliates.................. 20,945 17,575 18,955
General and administrative
expenses to Affiliates.......... 16,032 13,002 13,445
General and administrative
expenses to non-affiliates...... 3,798 1,862 3,442
Property operating expenses
to Affiliates................... 2,223 2,223 2,071
Mortgage interest................. 67,369 72,552 81,360
Depreciation...................... 27,423 36,562 36,563
Amortization...................... 14,023 12,830 3,834
------------ ------------ ------------
155,321 160,795 166,552
------------ ------------ ------------
Net operating income................ 61,971 58,989 58,003
Gain on sale of investment property
(Note 2).......................... 9,950 - -
------------ ------------ ------------
Net income.......................... $ 71,921 58,989 58,003
============ ============ ============
Net income allocated to (Note 3):
General Partner................... 719 590 580
Limited Partners.................. 71,202 58,399 57,423
------------ ------------ ------------
Net income.......................... $ 71,921 58,989 58,003
============ ============ ============
Net income allocated to the one
General Partner Unit.............. $ 719 590 580
============ ============ ============
Net income per 4,004.25 weighted
average Limited Partnership
Units, basic and diluted.......... $ 17.78 14.58 14.34
============ ============ ============
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, 1998, 1997 and 1996
General Limited
Partner Partners Total
----------- ----------- ------------
Balance January 1, 1996............. $ 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
Net income (Note 3)................. 719 71,202 71,921
Cash distributions ($15.91 per
weighted average Limited
Partnership Units of 4,004.25).... (565) (63,710) (64,275)
------------ ------------ ------------
Balance December 31, 1998........... $ 6,930 507,609 514,539
============ ============ ============
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, 1998, 1997 and 1996
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income........................ $ 71,921 58,989 58,003
Adjustments to reconcile net income
to net cash provided by
operating activities:
Gain on sale.................... (9,950) - -
Accrued rents receivable........ 15,650 15,650 (4,562)
Depreciation.................... 27,423 36,562 36,563
Amortization.................... 14,023 12,830 3,834
Accrued interest payable........ (5,856) (419) (1,253)
Due to Affiliates............... (173) (626) (1,447)
Changes in other assets and
liabilities................... 72 (27) (1,132)
Net cash provided by operating ------------ ------------ ------------
activities........................ 113,110 122,959 90,006
------------ ------------ ------------
Cash flows from investing activities:
Principal payments received on
installment contracts
receivable...................... 80,000 - -
Net cash provided by investing ------------ ------------ ------------
activities........................ 80,000 - -
------------ ------------ ------------
Cash flows from financing activities:
Principal payments of long-term
debt............................ (71,467) (59,021) (27,727)
Deferred loan costs............... - (22,468) -
Distributions..................... (64,275) (65,184) (17,000)
Net cash used in financing ------------ ------------ ------------
activities........................ (135,742) (146,673) (44,727)
Net increase (decrease) in cash and ------------ ------------ ------------
cash equivalents.................. 57,368 (23,714) 45,279
Cash and cash equivalents at
beginning of year................. 128,545 152,259 106,980
Cash and cash equivalents at ------------ ------------ ------------
end of year....................... $ 185,913 128,545 152,259
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other
interest........................ $ 73,225 72,971 82,613
============ ============ ============
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, 1998, 1997 and 1996
(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, 1998, the Partnership has repurchased a total of 34 units ($33,993) from
various Limited Partners. At December 31, 1998, included in cash and cash
equivalents, is approximately $14,800 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.
-18-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
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. The Partnership's policy is to
consider a property to be held for sale or disposition when the Partnership has
committed to sell such property and active marketing activity has commenced or
is expected to commence in the near term. Effective September 23, 1998, the
Partnership began to actively market its investment property which was then
classified as held for sale and depreciation was suspended. In accordance with
SFAS 121, any property identified as "held for sale or disposition" is no
longer depreciated. Adjustments for impairment loss for such a property are
made in each period as necessary to report the property at the lower of
carrying value or fair value less cost to sell. As of December 31, 1998, the
Partnership has not recognized any such impairment on its property.
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 believes that the interest rate associated with the mortgage
payable approximates the market interest rate for this type of debt instrument,
and as such, the carrying amount of the mortgage payable approximates their
fair value.
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 and has been applied to all prior earnings periods
presented in the financial statements. The Partnership has no dilutive
securities.
-19-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
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:
1998 1997
Tax Tax
GAAP Basis GAAP Basis
Basis (unaudited) Basis (unaudited)
Total assets.............. $1,430,187 1,861,951 1,509,987 1,934,297
Partner's capital:
General Partner......... 6,930 6,633 6,776 6,389
Limited Partners........ 507,609 940,522 500,117 924,347
Net income:
General Partner......... 719 806 590 756
Limited Partners........ 71,202 79,886 58,399 74,828
Net income per Limited
Partnership Unit, basic
and diluted............. 17.78 19.95 14.58 18.69
(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. As of December 31, 1998, all of the gain
has been recognized.
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. As of December 31, 1998, these second mortgages
have been repaid in full.
-20-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(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 remained consistent with the original terms of the
note. Monthly principal and interest payments beginning February 1, 1997 are
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, 1998, the principal balance outstanding was $780,288 (Note 6).
An Affiliate of the General Partner receives a management fee pursuant to a
management agreement of a percentage of gross receipts.
As of September 23, 1998, the Partnership listed and began actively marketing
the Scandinavian Health Club property for sale at an amount in excess of its
carrying value. The listing agreement expired on January 31, 1999, however,
the Partnership is continuing to market the property for sale. The Partnership
ceased depreciation as of September 23, 1998.
(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.
-21-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
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.
(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 $360 and $533
remained unpaid at December 31, 1998 and 1997, 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, $2,223
and $2,071 for the years ended December 31, 1998, 1997 and 1996, 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, 1998, 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.
-22-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
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.
Minimum lease payments to be received in the future for the health club lease
are as follows:
1999............................................. $ 222,288
2000............................................. 222,288
2001............................................. 166,716
-----------
Total............................................ $ 611,292
===========
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 1998 and
1997 and an increase of $4,562 in 1996, of rental income for the period of
occupancy for which stepped rent increases apply and $48,074 and $63,724 in
related accrued rents receivable as of December 31, 1998 and 1997,
respectively. Those amounts are expected to be collected over the terms of the
related lease as scheduled rent payments are made.
(6) Subsequent Events
As of February 1, 1999, the General Partner of the Partnership advanced funds
on a short-term basis to the Partnership to pay off its mortgage payable
balance of $780,288 plus accrued interest through the maturity date. The
mortgage payable to the General Partner of $786,081 has a current interest rate
of 9.5% and requires monthly interest only payments. A final balloon payment
of all outstanding principal and all accrued and unpaid interest, if any, is
due on December 31, 1999. This loan may be extended at the Partnership's
option.
-23-
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements on accounting or financial disclosure during 1998.
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
Brenda G. Gujral........ President and Chief Operating Officer-IREIC
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 55) 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. Mr.
Goodwin 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 six 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 Mr. Goodwin as 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 BBF Family Services' 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 the Northeastern
Illinois University Board of Trustees in January 1996.
-25-
In 1988 he received the Outstanding Business Leader Award from the Oak Brook
Jaycees and in March 1994, he won the Excellence in Business Award from the
DuPage Area Association of Business and Industry. Additionally, he was honored
with a dinner sponsored 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 1998 Corporate Leader of the Year by the Oak Brook Area
Association of Commerce and Industry. The Ray Graham Association for People
with Disabilities honored Mr. Goodwin as the 1999 Employer of the Year. For
many years, he has been Chairman of the National Football League Players
Association Mackey Awards for the benefit of inner-city youth and he served as
the recent Chairman of the Speakers Club of the Illinois House of
Representatives.
ROBERT H. BAUM (age 55) 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 and currently serves as a director of
Westbank. Mr. Baum also 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 55) 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, Mr. Cosenza
immediately supervises a staff of nine 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 a Director on the Board of Westbank in
Westchester and Hillside, Illinois.
-26-
ROBERT D. PARKS (age 55) 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 member of the Real
Estate Investment Association and a member of NAREIT.
NORBERT J. TREONIS (age 48) 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, Metropolitan
Construction Services, Inc. and Inland Commercial Property Management, 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 Building Owners
and Managers Association, the National Apartment Association and the
Chicagoland Apartment Association.
BRENDA G. GUJRAL (age 56) is President and Chief Operating Officer of
Inland Real Estate Investment Corporation (IREIC), the parent company of the
Advisor. She is also President and Chief Operating Officer of the Dealer-
Manager, Inland Securities Corporation (ISC), a member firm of the National
Association of Securities Dealers (NASD).
Mrs. Gujral has overall responsibility for the operations of IREIC, including
the distribution of checks to over 50,000 investors, review of periodic
communications to those investors, the filing of quarterly and annual reports
for Inland's publicly registered investment programs with the Securities and
Exchange Commission, compliance with other SEC and NASD securities regulations
both for IREIC and ISC, review of asset management activities, and marketing
and communications with the independent broker/dealer firms selling Inland's
current and prior programs. Mrs. Gujral works with internal and outside legal
counsel in structuring and registering the prospectuses for IREIC's investment
programs.
Mrs. Gujral has been with Inland for 18 years, becoming an officer in 1982.
Prior to joining Inland, she worked for the Land Use Planning Commission
establishing an office in Portland, Oregon, to implement land use legislation
for that state.
She is a graduate of California State University. She holds Series 7, 22, 39
and 63 licenses from the NASD and is a member of the National Association of
Real Estate Investment Trusts (NAREIT) and the National Association of Female
Executives.
-27-
CATHERINE L. LYNCH (age 40) 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 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 46) joined Inland in 1982 and is currently the
President of Inland Real Estate Equities, 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.
ROBERTA S. MATLIN (age 54) 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. She is a Director of Inland Real Estate Investment Corporation,
Inland Securities Corporation, and Inland Real Estate Advisory Services, Inc.
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 41) 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 46) 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.
-28-
KELLY TUCEK (age 36) 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 41) 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.
-29-
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 1998.
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 1998, the General Partner of the Partnership was due reimbursement for such
expenses in the amount of $19,540, of which $360 was unpaid at December 31,
1998.
An Affiliate of the General Partner earned management fees of $2,223 in 1998,
in connection with managing the Partnership's investment property, all of which
was paid at December 31, 1998.
As of February 1, 1999, the General Partner of the Partnership advanced funds
on a short-term basis to the Partnership to pay off its mortgage payable
balance of $780,288 plus accrued interest through the maturity date. The
mortgage payable to the General Partner of $786,081 has a current interest rate
of 9.5% and requires monthly interest only payments. A final balloon payment
of all outstanding principal and all accrued and unpaid interest, if any, is
due on December 31, 1999. This loan may be extended at the Partnership's
option.
-30-
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.
-31-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The financial statements listed in the index on page 11 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 1998 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.
-32-
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 29, 1999
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 29, 1999
/s/ Patricia A. Challenger
By: Patricia A. Challenger
Senior Vice President
Date: March 29, 1999
/s/ Kelly Tucek
By: Kelly Tucek
Asst. Vice President
Date: March 29, 1999
/s/ Daniel L. Goodwin
By: Daniel L. Goodwin
Director
Date: March 29, 1999
/s/ Robert H. Baum
By: Robert H. Baum
Director
Date: March 29, 1999
-33-
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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