INLAND LAND APPRECIATION FUND LP, 10-K, 1998-03-26

INLAND LAND APPRECIATION FUND LP
10-K, 1998-03-26
REAL ESTATE

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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

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

Commission file #0-18431

Inland Land Appreciation Fund, L.P.
(Exact name of registrant as specified in its charter)

Delaware 36-3544798
(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 October 12, 1988, as supplemented 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 LAND APPRECIATION FUND, L.P.
(a limited partnership)

TABLE OF CONTENTS

Part I Page
------ ----

Item 1. Business....................................................... 3

Item 2. Properties..................................................... 5

Item 3. Legal Proceedings.............................................. 5

Item 4. Submission of Matters to a Vote of Security Holders............ 5

Part II
-------

Item 5. Market for Partnership's Limited Partnership Units
and Related Security Holder Matters........................... 6

Item 6. Selected Financial Data........................................ 7

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8

Item 8. Financial Statements and Supplementary Data.................... 11

Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure........................... 29

Part III
--------
Item 10. Directors and Executive Officers of the Registrant............. 29

Item 11. Executive Compensation......................................... 34

Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 35

Item 13. Certain Relationships and Related Transactions................. 35

Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K................................................... 36

SIGNATURES.............................................................. 37

-2-

PART I

Item 1. Business

The Registrant, Inland Land Appreciation Fund, L.P. (the "Partnership"), was
formed in October 1987, pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in undeveloped land on an all-cash basis and realize
appreciation of such land upon resale. On October 12, 1988, the Partnership
commenced an Offering of 10,000 (subject to increase to 30,000) Limited
Partnership Units ("Units") pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933. The Offering terminated on October 6, 1989,
with total sales of 30,000 Units, at $1,000 per Unit, resulting in gross
offering proceeds of $30,000,000, which does not include the General Partner or
the Initial Limited Partner. All of the holders of these Units have been
admitted to the Partnership. Inland Real Estate Investment Corporation is the
General Partner. The Partnership used $25,187,069 of gross offering proceeds to
purchase on an all-cash basis twenty-five parcels of undeveloped land and an
option to purchase undeveloped land. 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. As of December 31,
1997, the Partnership has repurchased a total of 371.75 Units for $332,490 from
various Limited Partners through the Unit Repurchase Program. Under this
program Limited Partners may under certain circumstances have their Units
repurchased for an amount equal to their Invested Capital.

The Partnership is engaged in the business of real estate investment. A
presentation of information about industry segments would not be material to an
understanding of the Partnership's business taken as a whole.

The Partnership acquired fee ownership of the following real property
investments:
Gross Acres Purchase/Sales
Parcel & Location Purchased/Sold Date
- ----------------------------------- -------------------- -----------------
Parcel 1, Kendall County, Illinois 84.7360 01/19/89
(3.5200 sold 12/24/96)
(.3520 sold 11/25/97)
(80.8640 sold 12/29/97)

Parcel 2, McHenry County, Illinois 223.4121 01/19/89
(183.3759 sold 12/27/90)

Parcel 3, Kendall County, Illinois 20.0000 02/09/89
(20.0000 sold 05/08/90)

Parcel 4, Kendall County, Illinois 69.2760 04/18/89
(.4860 sold 02/28/91)
(27.5750 sold 08/25/95)

Parcel 5, Kendall County, Illinois 372.2230 (a) 05/03/89
(Option sold 04/06/90)

(a) Included in the purchase agreement of this parcel was a condition that
required the Partnership to buy an option to purchase an additional 243
acres immediately to the west of this parcel.

-3-

Gross Acres Purchase/Sales
Parcel & Location Purchased/Sold Date
- ----------------------------------- -------------------- -----------------
Parcel 6, Kendall County, Illinois 78.3900 06/21/89

Parcel 7, Kendall County, Illinois 77.0490 06/21/89

Parcel 8, Kendall County, Illinois 5.0000 06/21/89
(5.0000 sold 10/06/89)

Parcel 9, McHenry County, Illinois 51.0300 08/07/89

Parcel 10, McHenry County, Illinois 123.9400 08/07/89
(123.9400 sold 12/06/89)

Parcel 11, McHenry County, Illinois 30.5920 08/07/89

Parcel 12, Kendall County 90.2710 10/31/89
(.7090 sold 04/26/91)

Parcel 13, McHenry County, Illinois 92.7800 11/07/89
(2.0810 sold 09/18/97)

Parcel 14, McHenry County, Illinois 76.2020 11/07/89

Parcel 15, Lake County, Illinois 84.5564 01/03/90
(10.5300 sold Var 1996)
(5.4680 sold Var 1997)

Parcel 16, Kane/Kendall Counties, 72.4187 01/29/90
Illinois

Parcel 17, McHenry County, Illinois 99.9240 01/29/90

Parcel 18, McHenry County, Illinois 71.4870 01/29/90
(1.0000 sold Var 1990)
(.5200 sold 03/11/93)

Parcel 19, McHenry County, Illinois 63.6915 02/23/90

Parcel 20, Kane County, Illinois 224.1480 02/28/90
(.2790 sold 10/17/91)

Parcel 21, Kendall County, Illinois 172.4950 03/08/90

Parcel 22, McHenry County, Illinois 254.5250 04/11/90

Parcel 23, Kendall County, Illinois 140.0210 05/08/90
(4.4100 sold Var 1993)
(35.8800 sold Var 1994)
(3.4400 sold Var 1995)

-4-

Gross Acres Purchase/Sales
Parcel & Location Purchased/Sold Date
- ----------------------------------- -------------------- -----------------
Parcel 24, Kendall County, Illinois 298.4830 05/23/90
(12.4570 sold 05/25/90)
(4.6290 sold 04/01/96)

Parcel 25, Kane County, Illinois 225.0000 06/01/90

Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of
this Annual Report) for additional descriptions of the Partnership's real
property investments.

The Partnership purchased on an all-cash basis, twenty-five parcels of
undeveloped land and is engaged in the rezoning and resale of the parcels. All
of the investments were made in the Chicago metropolitan area. The anticipated
holding period of the land is approximately two to seven years from the
completion of the land portfolio acquisitions. As of December 31, 1997, the
Partnership has had multiple sales transactions, through which it has disposed
of approximately 527 acres of the approximately 3,102 acres originally owned.

The General Partner anticipates that land purchased by the Partnership will
produce sufficient income to pay property taxes, insurance and other
miscellaneous expenses. Income will be derived through leases to farmers or
from other activities compatible with undeveloped land. The majority of the
parcels purchased by the Partnership consist of land which generates revenue
from farming or other leasing activities. It is not expected that the
Partnership will generate cash distributions to investors from farm leases or
other activities.

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 below and Note 3 of the
Notes to Financial Statements (Item 8 of this Annual Report) to which reference
is hereby made for a description of such terms and transactions.

The Partnership has reviewed its current computer systems and does not
anticipate any future costs or problems relating to the year 2000.

Item 2. Properties

The Partnership owns directly the parcels of land referred to in Item 1 and in
Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) to
which reference is hereby made for a description of said parcels.

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.

-5-

PART II

Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters

As of December 31, 1997, there were 3,313 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.

Although the Partnership has established a Unit Repurchase Program, funds for
repurchase of Units are limited. Reference is made to "Unit Repurchase
Program" on pages 17-18 of the Prospectus of the Partnership dated October 12,
1988, which is incorporated herein by reference. As of December 31, 1997, the
Partnership had approximately $62,200 allocated for the repurchase of Units.

-6-

Item 6. Selected Financial Data

INLAND LAND APPRECIATION FUND, 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........... $28,057,898 28,788,243 25,575,833 25,507,940 26,490,788
=========== ========== ========== ========== ==========

Total income........... $ 6,438,303 1,348,095 1,017,740 1,649,345 525,180
=========== ========== ========== ========== ==========

Net income............. $ 171,674 451,249 354,647 396,656 95,938
=========== ========== ========== ========== ==========

Net income (loss)
allocated to the one
General Partner Unit.. $ (1,726) (822) (82) 624 245
=========== ========== ========== ========== ==========
Net income allocated
per Limited
Partnership Unit (b). $ 5.85 15.20 11.90 13.27 3.20
=========== ========== ========== ========== ==========

Distributions per
Limited Partnership
Unit from sales
(b)(c)............... $ 62.41 - 12.36 45.89 -
=========== ========== ========== ========== ==========

Weighted average Limited
Partnership Units.... 29,639.10 29,738.54 29,802.51 29,843.92 29,900.61
=========== ========== ========== ========== ==========

(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 distributions per Unit
data is based upon the weighted average number of Units outstanding.

(d) Reference is made to Note 4 of the Notes to Financial Statements (Item 8
of this Annual Report) for a description of the Partnership's land
acquisitions and dispositions.

-7-

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, 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 October 12, 1988, the Partnership commenced an Offering of 10,000 (subject
to increase to 30,000) Limited Partnership Units pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. On October 6, 1989,
the Offering terminated with a total of 30,000 Units sold to the public at
$1,000 per Unit resulting in $30,000,000 in gross offering proceeds, which does
not include the Initial Limited Partner and the General Partner. All of the
holders of these Units have been admitted to the Partnership. 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.

The Partnership used $25,187,069 of gross offering proceeds to purchase on an
all-cash basis twenty-five parcels of undeveloped land and an option to
purchase undeveloped land. These investments include the payment of the
purchase price, acquisition fees and acquisition costs of such properties.
Fourteen of the parcels were purchased during 1989 and eleven during 1990. As
of December 31, 1997, the Partnership has had multiple sales transactions,
through which it has disposed of approximately 527 acres of the approximately
3,102 acres originally owned. As of December 31, 1997, cumulative distributions
to the Limited Partners have totaled $5,996,219 (which represents a return of
Invested Capital, as defined in the Partnership Agreement) and $153,743 to the
General Partner. Through December 31, 1997, the Partnership has used
$9,730,419 of working capital reserve for rezoning and other activities. Such
amounts have been capitalized and are included in investments in land.

The Partnership's capital needs and resources will vary depending upon a number
of factors, including the extent to which the Partnership conducts rezoning and
other activities relating to utility access, the installation of roads,
subdivision and/or annexation of land to a municipality, changes in real estate
taxes affecting the Partnership's land, and the amount of revenue received from
leasing. As of December 31, 1997, the Partnership owns, in whole or in part,
twenty-one of its twenty-five original parcels, the majority of which are
leased to local farmers and are generating sufficient cash flow from farm
leases to cover property taxes and insurance.

-8-

At December 31, 1997, the Partnership had cash and cash equivalents of $15,502.
The Unit Repurchase Program has approximately $62,200 allocated for the
repurchase of Units. There are currently no requests for repurchase, but the
Partnership plans to replenish cash available for this program through future
parcel sales. The Partnership has increased its parcel sales effort in
anticipation of rising land values.

Net sales proceeds totaling $1,849,826 from Parcels 1, 4, 12, 15, 20, 23 and 24
were previously retained and used to fund pre-development activity on certain
of the Partnership's land investments. In July 1997, the Partnership
replenished these net sales proceeds by obtaining a loan from the General
Partner. This note accrues interest at 10% and will be repaid with future net
sales proceeds as parcels are sold. On July 7, 1997, the Partnership
distributed these net sales proceeds to the Limited Partners resulting in
cumulative distributions of $5,996,219.

The Partnership plans to enhance the value of its land through pre-development
activities such as rezoning annexation and land planning. The Partnership has
already been successful in, or is in the process of pre-development activity on
a majority of the Partnership's land investments. Parcels 4, 6 and 7 have
completed improvements for an industrial park and sites are being marketed.
Parcel 15, zoned and annexed to the Village of Hawthorn Woods, also has
improvements underway and sites are being marketed. Of the forty lots, eleven
lots were sold to individuals during 1996 and 1997 (see Note 4 of the Notes to
Financial Statements.) Parcels 16, 21 and 23 have been zoned with development
and sales marketing underway. The Partnership sold the remaining acres of
Parcel 1 on December 29, 1997 to an unaffiliated third-party (see Note 4 of the
Notes to Financial Statements.)

Results of Operations

As of December 31, 1997, the Partnership owned twenty-one parcels of land
consisting of approximately 2,575 acres. Of the 2,575 acres owned,
approximately 2,110 acres are tillable, leased to local farmers and generate
sufficient cash flow to cover property taxes, insurance and other miscellaneous
expenses. Land sales income and cost of land sold for the year ended December
31, 1997 is a result of the sale of the remaining acres of Parcel 1, the sale
of five additional lots of Parcel 15 and the sale of 2.081 acres of Parcel 13.
Land sales income and cost of land sold for the year ended December 31, 1996 is
a result of the sale of 4.629 acres of Parcel 24, the sale of six lots of
Parcel 15 totaling 10.53 acres, the sale of 15 lots of Parcel 1 totaling 3.52
acres, and the prepayments of the remaining mortgage loans receivable and
recognition of deferred gain relating to the 1994 lot sales of Parcel 23. Land
sales income and cost of land sold for the year ended December 31, 1995 is a
result of the sale of the remaining three lots of Parcel 23 totaling 3.44 acres
and the sale of 27.575 acres of Parcel 4.

As a result of the sale of the remaining approximately 81 acres of Parcel 1 for
a sales price of $5,750,000 on December 29, 1997, the purchaser assumed the
note payable to an Affiliate on this parcel totaling $3,325,515 and the
interest payable to the Affiliate of $254,396. The Partnership received
mortgage loans receivable totaling $2,170,089 and recorded deferred gain on
sale of $106,905. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received. See Note
6 of the Notes to Financial Statements for further discussion of the terms of
the mortgage loans receivable received from this sale.

-9-

The decrease in rental income for the years ended December 31, 1997 and 1996,
as compared to the year ended December 31, 1995, is due to the decrease of
tillable acres and an overall decrease of the land portfolio as a result of
land sales and pre-development. This decrease was partially offset by the
annual increase in lease amounts from tenants. The decrease in land operating
expenses to Affiliates for the years ended December 31, 1997 and 1996, as
compared to the year ended December 31, 1995, is due to the decrease in asset
management fees due to the General Partner as a result of land sales. The
increase in land operating expenses to non-affiliates for the year ended
December 31, 1997, as compared to the year ended December 31, 1996, is due to
an increase in maintenance expenses of the Partnership's land investments. The
decrease in land operating expenses to non-affiliates for the year ended
December 31, 1996, as compared to the year ended December 31, 1995, is
primarily due to decreases in real estate taxes and insurance.

Interest income decreased for the years ended December 31, 1997 and 1996, as
compared to the year ended December 31, 1995, due primarily to the Partnership
utilizing its working capital reserve to fund pre-development activity on the
Partnership's land investments.

Professional services to Affiliates and non-affiliates increased for the years
ended December 31, 1997 and 1996, as compared to the year ended December 31,
1995, due to increases in legal and accounting services related to the increase
in sales activity within the Partnership.

General and administrative expenses to Affiliates decreased for the year ended
December 31, 1996, as compared to the year ended December 31, 1995, due to
decreases in postage and data processing expenses. General and administrative
expenses to non-affiliates increased for the year ended December 31, 1997, as
compared to the year ended December 31, 1996, due to an increase in the
Illinois Replacement Tax paid in 1997. General and administrative expenses to
non-affiliates had decreased for the year ended December 31, 1996, as compared
to the year ended December 31, 1995, due to a decrease in the Illinois
Replacement Tax paid in 1996.

Marketing expenses to Affiliates increased for the year ended December 31,
1997, as compared to the year ended December 31, 1996, and decreased for the
year ended December 31, 1996, as compared to the year ended December 31, 1995,
due to the timing of expenses relating to marketing and advertising the
Partnership's land investments for sale. Marketing expenses to non-affiliates
decreased for the year ended December 31, 1997, as compared to the year ended
December 31, 1996, and increased for the year ended December 31, 1996, as
compared to the year ended December 31, 1995, due to the timing of advertising
and travel expenses relating to marketing the land portfolio to prospective
purchasers.

Inflation

Inflation in future periods may cause capital appreciation of the Partnership's
investments in land. Rental income levels (from leases to new tenants or
renewals of existing tenants) will rise and fall in accordance with normal
agricultural market conditions and may or may not be affected by inflation.

-10-

Item 8. Financial Statements and Supplementary Data

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Index
-----

Page
----
Independent Auditors' Report............................................. 12

Financial Statements:

Balance Sheets, December 31, 1997 and 1996............................. 13

Statements of Operations, for the years ended
December 31, 1997, 1996 and 1995..................................... 15

Statements of Partners' Capital, for the years ended
December 31, 1997, 1996 and 1995..................................... 17

Statements of Cash Flows, for the years ended
December 31, 1997, 1996 and 1995..................................... 18

Notes to Financial Statements.......................................... 20

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

To the Partners of
Inland Land Appreciation Fund, L.P.

We have audited the accompanying balance sheets of Inland Land Appreciation
Fund, L.P. (a limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. 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 management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Inland Land Appreciation Fund, L.P. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Chicago, Illinois
February 4, 1998

-12-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Balance Sheets

December 31, 1997 and 1996

Assets
------

1997 1996
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 15,502 89,672
Accounts and accrued interest receivable........ 1,361 -
Current portion of mortgage loans
receivable (Note 6)........................... 575,000 -
Other current assets............................ 2,241 2,330
------------ ------------
Total current assets.............................. 594,104 92,002
------------ ------------
Other assets...................................... 19,915 19,915
Mortgage loans receivable, less current
portion (Note 6).............................. 1,595,089 -
Investments in land and improvements, at cost
(including acquisition fees paid to Affiliates
of $1,430,329 and $1,464,852 at December 31,
1997 and 1996, respectively) (Notes 3 and 4).... 25,848,790 28,676,326
------------ ------------
Total assets...................................... $28,057,898 28,788,243
============ ============

See accompanying notes to financial statements.

-13-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Balance Sheets
(continued)
December 31, 1997 and 1996

Liabilities and Partners' Capital
---------------------------------

1997 1996
---- ----
Current liabilities:
Accounts payable................................ $ 25,185 82,373
Accrued real estate taxes....................... 47,889 48,117
Due to Affiliates (Notes 3 and 7)............... 595,655 149,376
Notes payable to Affiliate (Note 7)............. 3,283,471 2,801,635
Unearned income................................. 19,278 23,239
------------ ------------
Total current liabilities......................... 3,971,478 3,104,740

Deferred gain on sale (Note 6).................... 106,905 -

Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 165,949 167,675
Cumulative cash distributions................. (153,743) (153,743)
------------ ------------
12,706 14,432
Limited Partners: ------------ ------------
Units of $1,000. Authorized 30,001 Units,
29,629.25 and 29,659.25 outstanding at
December 31, 1997 and 1996, respectively
(net of offering costs of $3,768,113, of
which $1,069,764 was paid to Affiliates).... 25,900,396 25,926,243
Cumulative net income......................... 4,062,632 3,889,232
Cumulative cash distributions................. (5,996,219) (4,146,404)
------------ ------------
23,966,809 25,669,071
------------ ------------
Total Partners' capital........................... 23,979,515 25,683,503
------------ ------------
Total liabilities and Partners' capital........... $28,057,898 28,788,243
============ ============

See accompanying notes to financial statements.

-14-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Statements of Operations

For the years ended December 31, 1997, 1996 and 1995

1997 1996 1995
---- ---- ----
Income:
Land sales (Note 4)............... $ 6,190,802 1,101,329 691,990
Rental income (Note 5)............ 241,853 235,458 255,956
Interest income................... 348 11,129 69,794
Other income...................... 5,300 179 -
------------ ------------ ------------
6,438,303 1,348,095 1,017,740
------------ ------------ ------------
Expenses:
Cost of land sold................. 5,846,535 567,886 329,165
Professional services to
Affiliates...................... 47,558 45,673 31,791
Professional services to
non-affiliates.................. 46,652 32,627 25,549
General and administrative
expenses to Affiliates.......... 29,694 29,644 32,144
General and administrative
expenses to non-affiliates...... 19,838 15,674 18,997
Marketing expenses
to Affiliates................... 123,333 57,870 84,033
Marketing expenses to
non-affiliates.................. 19,797 35,228 21,664
Land operating expenses to
Affiliates...................... 55,279 56,774 57,216
Land operating expenses to
non-affiliates.................. 77,943 55,470 62,534
------------ ------------ ------------
6,266,629 896,846 663,093
------------ ------------ ------------
Net income.......................... $ 171,674 451,249 354,647
============ ============ ============

See accompanying notes to financial statements.

-15-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Statements of Operations
(continued)

For the years ended December 31, 1997, 1996 and 1995

1997 1996 1995
---- ---- ----
Net income (loss) allocated (Note 2):
General Partner................... $ (1,726) (822) (82)
Limited Partners.................. 173,400 452,071 354,729
------------ ------------ ------------
Net income.......................... $ 171,674 451,249 354,647
============ ============ ============

Net loss allocated to
the one General Partner Unit...... $ (1,726) (822) (82)
============ ============ ============

Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units
(29,639.10, 29,738.54 and 29,802.51
for the years ended December 31,
1997, 1996 and 1995, respectively) $ 5.85 15.20 11.90
============ ============ ============

See accompanying notes to financial statements.

-16-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Statements of Partners' Capital

For the years ended December 31, 1996, 1995 and 1994

General Limited
Partner Partners Total
------------ ------------ ------------
Balance at January 1, 1995.......... $ 15,336 25,362,698 25,378,034

Net income (loss)................... (82) 354,729 354,647
Distributions to Partners ($12.36 per
weighted average Limited Partnership
Units of 29,802.51) (Note 2)...... - (368,325) (368,325)
Repurchase of Limited Partnership
Units............................. - (17,516) (17,516)
------------ ------------ ------------
Balance at December 31, 1995........ 15,254 25,331,586 25,346,840

Net income (loss)................... (822) 452,071 451,249
Distributions to Partners (Note 1).. - (9) (9)
Repurchase of Limited Partnership
Units............................. - (114,577) (114,577)
------------ ------------ ------------
Balance at December 31, 1996........ 14,432 25,669,071 25,683,503

Net income (loss)................... (1,726) 173,400 171,674
Distributions to Partners ($62.41 per
weighted average Limited Partnership
Units of 29,639.10) (Note 2)...... - (1,849,815) (1,849,815)
Repurchase of Limited Partnership
Units............................. - (25,847) (25,847)
------------ ------------ ------------
Balance at December 31, 1997........ $ 12,706 23,966,809 23,979,515
============ ============ ============

See accompanying notes to financial statements.

-17-

INLAND LAND APPRECIATION FUND, 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........................ $ 171,674 451,249 354,647
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities:
Gain on sale of land............ (344,267) (533,443) (362,825)
Changes in assets and liabilities:
Accounts and accrued interest
receivable................... (1,361) 7,224 10,708
Other current assets.......... 89 (1,165) (89)
Other assets.................. - - (19,915)
Accounts payable.............. (57,188) (49,399) (172)
Accrued real estate taxes..... (228) 384 4,704
Due to Affiliates............. 446,279 135,521 13,289
Unearned income............... (3,961) 2,532 (2,274)
Other current liabilities..... - - (300)
Net cash provided by (used in) ------------ ------------ ------------
operating activities.............. 211,037 12,903 (2,227)
------------ ------------ ------------
Cash flows from investing activities:
Principal payments collected on
mortgage loans receivable....... - 73,614 40,997
Additions to investments in land
and improvements................ (3,018,999) (4,397,239) (975,495)
Proceeds from disposition of
investments in land and
improvements.................... 802,103 1,086,403 681,566
Net cash flow used in investing ------------ ------------ ------------
activities........................ (2,216,896) (3,237,222) (252,932)
------------ ------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership
Units........................... (25,847) (114,577) (17,516)
Proceeds from notes payable to
Affiliate, net.................. 3,807,351 2,801,635 -
Cash distributions................ (1,849,815) (9) (368,325)
Net cash flow provided by (used in) ------------ ------------ ------------
financing activities.............. 1,931,689 2,687,049 (385,841)
------------ ------------ ------------

See accompanying notes to financial statements.

-18-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Statements of Cash Flows
(continued)

For the years ended December 31, 1997, 1996 and 1995

1997 1996 1995
---- ---- ----
Net decrease in cash and cash
equivalents....................... $ (74,170) (537,270) (641,000)
Cash and cash equivalents at
beginning of year................. 89,672 626,942 1,267,942
Cash and cash equivalents at end ------------ ------------ ------------
of year........................... $ 15,502 89,672 626,942
============ ============ ============

Supplemental schedule of non-cash investing and financing activities:

1997 1996 1995
---- ---- ----
Mortgage loans receivable......... $(2,170,089) - -
Reduction in investments in land
and improvements................ 5,846,535 - -
Gain on sale of land.............. 344,267 - -
Assumption of note payable to
Affiliate....................... (3,325,515) - -
Deferred gain on sale............. 106,905 - -
Proceeds from disposition of ------------ ------------ ------------
investments in land and
improvements.................... $ 802,103 - -
============ ============ ============

See accompanying notes to financial statements.

-19-

INLAND LAND APPRECIATION FUND, 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

The Registrant, Inland Land Appreciation Fund, L.P. (the "Partnership"), was
formed in October 1987, pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in undeveloped land on an all-cash basis and realize
appreciation of such land upon resale. On October 12, 1988, the Partnership
commenced an Offering of 10,000 (subject to increase to 30,000) Limited
Partnership Units ("Units") pursuant to a Registration Statement on Form S-11
under the Securities Act of 1933. Inland Real Estate Investment Corporation is
the General Partner. The Offering terminated on October 6, 1989, with total
sales of 30,000 Units, at $1,000 per Unit, not including the General Partner or
the Initial Limited Partner. All of the holders of these Units have been
admitted to this Partnership. 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. As of December 31, 1997,
the Partnership has repurchased a total of 371.75 Units for $332,490 from
various Limited Partners through the Unit Repurchase Program. Under this
program Limited Partners may under certain circumstances have their Units
repurchased for an amount equal to their Invested Capital.

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 period.
Actual results could differ from those estimates.

Offering costs have been offset against the Limited Partners' capital accounts.

The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents and are carried at
cost, which approximates market.

Except as described in footnote (b) to Note 4 of these notes, the Partnership
uses the area method of allocation, which approximates the relative sales
method of allocation, whereby a per acre price is used as the standard
allocation method for land purchases and sales. The total cost of the parcel
is divided by the total number of acres to arrive at a per acre price.

Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 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 and 1996, the Partnership has
not recognized any such impairment.

-20-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

The Partnership is required to pay a withholding tax to the Internal Revenue
Service with respect to a Partner's allocable share of the Partnership's
taxable net income, if the Partner is a foreign person. The Partnership will
first pay the withholding tax from the distributions to any foreign partner,
and to the extent that the tax exceeds the amount of distributions withheld, or
if there have been no distributions to withhold, the excess will be accounted
for as a distribution to the foreign partner. Withholding tax payments are made
every April, June, September and December.

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.

No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.

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, if any, to reflect the Partnership's accounts as adjusted for
Federal income tax reporting purposes. Such adjustments are not recorded in
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.............. $28,057,898 31,826,012 28,788,243 32,556,357

Partners' capital:
General Partner......... 12,706 15,259 14,432 16,094
Limited Partners........ 23,966,809 27,732,370 25,669,071 29,435,522

Net income (loss):
General Partner......... (1,726) (836) (822) 527
Limited Partners........ 173,400 172,510 452,071 689,992

Net income per Limited
Partnership Unit, basic
and diluted............. 5.85 5.82 15.20 23.20

The net income per Unit, basic and diluted, is based upon the weighted average
number of Units of 29,639.10 and 29,738.54 during 1997 and 1996, respectively.

-21-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(2) Partnership Agreement

The Partnership Agreement defines the allocation of profits and losses, and
available cash. If and to the extent that real estate taxes and insurance
payable with respect to the Partnership's land during a given year exceed
revenues of the Partnership, the General Partner will make a Supplemental
Capital Contribution of such amount to the Partnership to ensure that it has
sufficient funds to make such payments.

Profits and losses from operations (other than capital transactions) will be
allocated 99% to the Limited Partners and 1% to the General Partner. The net
gain from a sale of Partnership properties is first allocated among the
Partners in proportion to the negative balances, if any, in their respective
capital accounts. Thereafter, except as provided below, net gain is allocated
to the General Partner in an amount equal to the proceeds distributed to the
General Partner from such sale and the balance of any net gain is allocated to
the Limited Partners. If the amount of net gain realized from a sale is less
than the amount of cash distributed to the General Partner from such sale, the
Partnership will allocate income or gain to the General Partner in an amount
equal to the excess of the cash distributed to the General Partner with respect
to such sale as quickly as permitted by law. Any net loss from a sale will be
allocated to the Limited Partners.

Distributions of Net Sale Proceeds will be allocated between the General
Partner and the Limited Partners based upon both an aggregate overall return to
the Limited Partners and a separate return with respect to each parcel of land
purchased by the Partnership.

As a general rule, Net Sale Proceeds will be distributed 90% to the Limited
Partners and 10% to the General Partner until the Limited Partners have
received from Net Sale Proceeds (i) a return of their Original Capital plus
(ii) a noncompounded Cumulative Preferred Return of 15% of their Invested
Capital. However, with respect to each parcel of land, the General Partner's
10% share will be subordinated until the Limited Partners receive a return of
the Original Capital attributed to such parcel ("Parcel Capital") plus a 6% per
annum noncompounded Cumulative Preferred Return thereon.

After the amounts described in items (i) and (ii) above and any previously
subordinated distributions to the General Partner have been paid, and the
amount of any Supplemental Capital Contributions have been repaid to the
General Partner, subsequent distributions shall be paid 75% to the Limited
Partners and 25% to the General Partner without considering Parcel Capital.
If, after all Net Sale Proceeds have been distributed, the General Partner has
received more than 25% of all Net Sale Proceeds (exclusive of distributions
made to the Limited Partners to return their Original Capital), the General
Partner shall contribute to the Partnership for distribution to the Limited
Partners an amount equal to such excess.

-22-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

Any distributions from Net Sale Proceeds at a time when Invested Capital is
greater than zero shall be deemed applied first as a reduction of such Invested
Capital before application to payment of any deficiency in the 15% Cumulative
Preferred Return.

(3) 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. Such costs are included in
professional services and general and administrative expenses to Affiliates, of
which $90,278 and $40,569 was unpaid as of December 31, 1997 and 1996,
respectively.

The General Partner is entitled to receive Asset Management Fees equal to one-
quarter of 1% of the original cost to the Partnership of undeveloped land
annually, limited to a cumulative total over the life of the Partnership of 2%
of the land's original cost to the Partnership. Such fees of $55,279, $56,774
and $57,216 have been incurred for the years ended December 31, 1997, 1996 and
1995, respectively, of which $55,279 and $14,066 was unpaid as of December 31,
1997 and 1996, respectively.

An Affiliate of the General Partner performed marketing and advertising
services for the Partnership and was reimbursed (as set forth under terms of
the Partnership Agreement) for direct costs. Such costs of $123,333, $57,870
and $84,033 have been incurred and are included in marketing expenses to
Affiliates for the years ended December 31, 1997, 1996 and 1995, respectively,
of which $151,908 and $30,091 was unpaid as of December 31, 1997 and 1996,
respectively.

-23-

<TABLE>
INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(4) Investments in Land and Improvements
<CAPTION>

Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 12/31/97 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Kendall 84.7360 01/19/89 $ 423,680 61,625 485,305 5,462,589 5,947,894 - 6,032
(3.5200) 12/24/96
(.3520) 11/25/97
(80.8640) 12/29/97

2 McHenry 223.4121 01/19/89 650,000 95,014 745,014 21,538 611,505 155,047 -
(183.3759) 12/27/90

3 Kendall 20.0000 02/09/89 189,000 13,305 202,305 - 202,305 - -
(20.0000) 05/08/90

4 Kendall 69.2760 04/18/89 508,196 38,126 546,322 49,408 235,275 360,455 -
(.4860) 02/28/91
(27.5750) 08/25/95

5 Kendall 372.2230 05/03/89 2,532,227 135,943 2,668,170 26,288 160,313 2,534,145 -
(a) (Option) 04/06/90

6 Kendall 78.3900 06/21/89 416,783 31,691 448,474 187,301 - 635,775 -
(b)
7 Kendall 77.0490 06/21/89 84,754 8,163 92,917 172,438 - 265,355 -
(b)
8 Kendall 5.0000 06/21/89 60,000 5,113 65,113 - 65,113 - -
(b) (5.0000) 10/06/89

9 McHenry 51.0300 08/07/89 586,845 22,482 609,327 1,893 - 611,220 -
(b)
10 McHenry 123.9400 08/07/89 91,939 7,224 99,163 600 99,763 - -
(b) (123.9400) 12/06/89

11 McHenry 30.5920 08/07/89 321,216 22,641 343,857 6,292 - 350,149 -
(b)
12 Kendall 90.2710 10/31/89 907,389 41,908 949,297 1,034 7,456 942,875 -
(.7090) 04/26/91

13 McHenry 92.7800 11/07/89 251,306 19,188 270,494 4,105 6,136 268,463 19,674
(2.0810) 09/18/97

14 McHenry 76.2020 11/07/89 419,111 23,402 442,513 43,470 - 485,983 -

15 Lake 84.5564 01/03/90 1,056,955 85,283 1,142,238 1,486,450 437,606 2,191,082 318,561
(10.5300) Var 1996
(5.4680) Var 1997 ------------ ------------ ------------ -------------- ------------ ------------ ------------

Subtotal $ 8,499,401 611,108 9,110,509 7,463,406 7,773,366 8,800,549 344,267

-24-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(4) Investments in Land and Improvements (continued)
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 12/31/97 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Subtotal $ 8,499,401 611,108 9,110,509 7,463,406 7,773,366 8,800,549 344,267

16 Kane/Kendall 72.4187 01/29/90 1,273,537 55,333 1,328,870 88,431 - 1,417,301 -

17 McHenry 99.9240 01/29/90 739,635 61,038 800,673 298,509 - 1,099,182 -

18 McHenry 71.4870 01/29/90 496,116 26,259 522,375 20,418 11,109 531,684 -
(1.0000) Var 1990
(.5200) 03/11/93

19 McHenry 63.6915 02/23/90 490,158 29,158 519,316 7,646 - 526,962 -

20 Kane 224.1480 02/28/90 2,749,800 183,092 2,932,892 352,185 3,651 3,281,426 -
(.2790) 10/17/91

21 Kendall 172.4950 03/08/90 1,327,459 75,822 1,403,281 864,077 - 2,267,358 -

22 McHenry 254.5250 04/11/90 2,608,881 136,559 2,745,440 29,430 - 2,774,870 -

23 Kendall 140.0210 05/08/90 1,480,000 116,240 1,596,240 573,801 1,196,909 973,132 -
(4.4100) Var 1993
(35.8800) Var 1994
(3.4400) Var 1995

24 Kendall 298.4830 05/23/90 1,359,774 98,921 1,458,695 19,068 83,663 1,394,100 -
(12.4570) 05/25/90
(4.6290) 04/01/96

25 Kane 225.0000 06/01/90 2,600,000 168,778 2,768,778 13,448 - 2,782,226 -
------------ ------------ ------------ -------------- ------------ ------------ ----------
$23,624,761 1,562,308 25,187,069 9,730,419 9,068,698 25,848,790 344,267
============ ============ ============ ============== ============ ============ ==========

</TABLE>

-25-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(4) Investments in Land and Improvements (continued)

(a) Included in the purchase agreement of Parcel 5 was a condition that
required the Partnership to buy an option to purchase an additional 243
acres immediately to the west of this parcel. The sale transaction relates
to the sale of this option.

(b) The Partnership purchased from two third parties, two sets of three
contiguous parcels of land (Parcels 6, 7 and 8; and Parcels 9, 10 and 11).
The General Partner believes that the total value of this land will be
maximized if it is treated and marketed to buyers as six separate parcels
and closed the transactions as six separate purchases to facilitate this.
Parcels 6, 7 and 8 will be treated as one parcel and Parcels 9, 10 and 11
will be treated as one parcel for purposes of computing Parcel Capital (as
defined) and distributions to the Partners.

1997 1996
---- ----
Balance at January 1,........... $28,676,326 24,846,973
Additions during year........... 3,018,999 4,397,239
Sales during year............... 5,846,535 567,886
------------ ------------
Balance at December 31,......... $25,848,790 28,676,326
============ ============

(d) The aggregate cost of investments in land and improvements owned at
December 31, 1997 for Federal income tax purposes was approximately
$25,850,000 (unaudited).

(5) Rental Income

The Partnership has determined that all leases relating to the farm parcels are
operating leases. Accordingly, rental income is reported when earned.

As of December 31, 1997, the Partnership had farm leases of generally one year
in duration, for approximately 2,110 acres of the approximately 2,575 acres
owned.

-26-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(6) Mortgage Loans Receivable

As a result of the sale of the remaining approximately 81 acres of Parcel 1 for
a sales price of $5,750,000 on December 29, 1997, the purchaser assumed the
note payable to an Affiliate on this parcel totaling $3,325,515 and the
interest payable to the Affiliate of $254,396. The Partnership received
mortgage loans receivable totaling $2,170,089 and recorded deferred gain on
sale of $106,905. The deferred gain will be recognized over the life of the
related mortgage loans receivable as principal payments are received. Of the
$2,170,089 mortgage loan receivable received, $575,000 accrues interest at 9%
per annum and has a maturity date of July 1, 1998, at which time all accrued
interest, as well as principal, is due. The remaining $1,595,089 accrues
interest at 9% per annum and has a maturity date of December 30, 2000, at which
time all accrued interest, as well as principal, is due.

(7) Notes Payable to Affiliate

On May 1, 1996, the Partnership obtained a line of credit from the General
Partner, Inland Real Estate Investment Corporation, in the aggregate amount of
$1,000,000 to be used specifically for the pre-development improvements on
Parcel 15. The Partnership is required to pay a 1% loan fee to the General
Partner as money is funded. The note accrues interest at 10.9%, and required a
principal paydown of $150,000 on October 1, 1996, and thereafter Net Sales
Proceeds from Parcel 15 are being applied first to paydown the note. This note
had an original maturity date of May 1, 1997, but has been extended to February
1, 1998 at the same interest rate. As of December 31, 1997, the balance of this
note was $201,778. For the years ended December 31, 1997 and 1996, interest of
$36,579 and $26,817 was capitalized, of which $20,292 and $3,942 was unpaid as
of December 31, 1997 and 1996, respectively. For the year ended December 31,
1997, loan fees incurred and paid to the General Partner totaled $791 and are
included in investment in land and improvements. For the year ended December
31, 1997, loan extension fees incurred and paid to the General Partner totaled
$1,250 and are included in investment in land and improvements.

On June 1, 1996, the Partnership obtained a line of credit from the General
Partner, Inland Real Estate Investment Corporation, in the aggregate amount of
$3,000,000 to be used specifically for the pre-development improvements on
Parcel 1. The Partnership is required to pay a 1% loan fee to the General
Partner as money is funded. The note accrues interest at 10.9%, and Net Sales
Proceeds from Parcel 1 are being applied first to paydown the note. This note
had an original maturity date of May 1, 1997, but had been extended to February
1, 1998 at the same interest rate. With the sale of the remaining acres of
Parcel 1 on December 29, 1997, the buyer assumed this note which had a balance
of $3,325,515 at that time. For the years ended December 31, 1997 and 1996,
interest of $288,866 and $44,092 was capitalized, none of which is unpaid. For
the year ended December 31, 1997, loan fees incurred and paid to the General
Partner totaled $13,790 and are included in investment in land and
improvements. For the year ended December 31, 1997, loan extension fees
incurred and paid to the General Partner totaled $21,280 and are included in
investment in land and improvements.

-27-

INLAND LAND APPRECIATION FUND, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

On May 12, 1997, the Partnership obtained a line of credit from the General
Partner, Inland Real Estate Investment Corporation, in the aggregate amount of
$744,000 to be used specifically for the pre-development improvements on Parcel
21. The note accrues interest at 9.625% and has a maturity date of May 12,
1998. Interest-only payments on this note are due quarterly and the loan may be
prepaid at any time without penalty. As of December 31, 1997, the balance of
this note was $601,293. For the year ended December 31, 1997, interest of
$29,170 was capitalized, of which $29,170 was unpaid as of December 31, 1997.

As of December 31, 1997, Inland Real Estate Investment Corporation has made
loans to the Partnership totaling $2,480,400. Net sales proceeds totaling
$1,849,815 from Parcels 1, 4, 12, 15, 20, 23, and 24 were previously retained
and used to fund pre-development activity on certain of the Partnership's land
investments. In July 1997, the Partnership replenished these net sales proceeds
by obtaining a loan from the General Partner. The remainder of funds loaned to
the Partnership were for Partnership operations. The note accrues interest at
10% per annum and has a maturity date of January 1, 1999. For the year ended
December 31, 1997 and 1996, interest of $135,859 and $2,361 was capitalized, of
which $134,850 and $2,361 was unpaid as of December 31, 1997 and December 31,
1996, respectively.

-28-

Item 9. Changes in and Disagreements with Independent Auditors on Accounting
and Financial Disclosure

There were no disagreements on accounting or financial disclosure matters
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

-29-

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.

-30-

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.

-31-

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.

-32-

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.

-33-

Item 11. Executive Compensation

The General Partner is entitled to receive a share of cash distributions of Net
Sales Proceeds based upon both an aggregate overall return to the Limited
Partners and a separate return with respect to each parcel of land purchased by
the Partnership as described under the caption "Cash Distributions" and a share
of profits or losses as described under the caption "Allocation of Profits or
Losses" at page 38 of the Prospectus, and at pages A-6 to A-9 of the
Partnership Agreement, included as an exhibit to the Prospectus, a copy of
which descriptions is incorporated herein by reference.

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" at pages 7-9 and "Conflicts of Interest" at
pages 9-11 of the Prospectus, and at pages A-10 through A-19 of the Partnership
Agreement, included as an exhibit to the Prospectus, a copy of which is
incorporated herein by reference. The relationship of the General Partner (and
its directors and officers) to its Affiliates is set forth above in Item 10.

The General Partner and its Affiliates may be reimbursed for their expenses or
out-of-pocket costs relating to the administration of the Partnership. For the
year ended December 31, 1997, such costs were $77,252, of which $90,278 was
unpaid as of December 31, 1997.

The General Partner is entitled to receive an Asset Management Fee equal to
one-quarter of 1% of the original cost to the Partnership of undeveloped land
annually, limited to a cumulative total over the life of the Partnership of 2%
of the land's original cost to the Partnership. For the year ended December
31, 1997, the Partnership incurred $55,279 in Asset Management Fees, of which
$55,279 was unpaid.

An Affiliate of the General Partner performed property upgrades, rezoning,
annexation and other activities to prepare the Partnership's land investments
for sale and was reimbursed (as set forth under terms of the Partnership
Agreement) for salaries and direct costs. For the year ended December 31, 1997,
the Partnership incurred $233,540 of such costs, of which $113,878 was unpaid,
and included in the investments in land and improvements. As of December 31,
1997, notes payable to Affiliate totaled $3,283,471. For the year ended
December 31, 1997, interest of $490,474 was capitalized, of which $184,312 was
unpaid as of December 31, 1997. The Partnership is required to pay a 1% loan
fee to the General Partner on lines of credit as money is funded. For the year
ended December 31, 1997, loan fees paid to the General Partner totaled $13,572,
all of which have been paid and included in investment in land and
improvements.

-34-

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 267 Units 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 or 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 3 of the Notes to Financial
Statements (Item 8 of this Annual Report) for information regarding related
party transactions.

-35-

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The financial statements listed in the index at 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 Restated Certificate of Limited Partnership and amended and restated
Agreement of Limited Partnership, included as Exhibits A and B of the
Prospectus dated October 12, 1988 as supplemented, are incorporated
herein by reference thereto.

4 Form of Certificate of Ownership representing interests in the
registrant filed as Exhibits 4(a) and 4(b) to Registration Statement on
Form S-11, File No. 33-18607, is incorporated herein by reference
thereto.

28 Prospectus, to Form S-11 Registration Statement, File No. 33-18607, as
filed with Securities Exchange Commission on October 12, 1988, as
supplemented to date, is incorporated herein by reference thereto.

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.

-36-

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 LAND APPRECIATION FUND, 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
Principal Financial Officer
and Principal Accounting Officer
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

-37-

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