<PAGE>
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, 1995
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File #0-17593
Inland Monthly Income Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 36-3587209
(State of organization) (I.R.S. Employer Identification Number)
2901 Butterfield Road, Oak Brook, Illinois 60521
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 708-218-8000
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 August 4, 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-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I Page
------ ----
<S> <C>
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 4
Item 3. Legal Proceedings............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders........... 7
Part II
-------
Item 5. Market for the Partnership's Limited Partnership
Units and Related Security Holder Matters.................... 7
Item 6. Selected Financial Data....................................... 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 9
Item 8. Financial Statements and Supplementary Data................... 12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 27
Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 27
Item 11. Executive Compensation........................................ 32
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 33
Item 13. Certain Relationships and Related Transactions................ 33
Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.......................................... 34
SIGNATURES............................................................. 35
</TABLE>
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<PAGE>
PART I
Item 1. Business
The Registrant, Inland Monthly Income Fund II, L.P. (the "Partnership"), was
formed on June 20, 1988 pursuant to the Delaware Revised Uniform Limited
Partnership Act, to invest in improved residential, retail, industrial and
other income producing properties. On August 4, 1988, the Partnership commenced
an Offering of 50,000 Limited Partnership Units (subject to an increase of up
to 30,000 additional Units) pursuant to a Registration under the Securities Act
of 1933. The Offering terminated on August 4, 1990, with total sales of
50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of
$25,323,569, not including the General Partner's contribution of $500. All of
the holders of these Units were admitted to the Partnership. Inland Real Estate
Investment Corporation is the General Partner. The Partnership has acquired
five properties utilizing $21,224,542 of capital proceeds collected. On January
8, 1991, the Partnership sold one of its properties, The Wholesale Club. 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 has repurchased 551.64 Units for $260,285
from various Limited Partners through the Unit Repurchase Program. There are no
funds remaining for the repurchase of Units through this program.
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 made the following real property investments:
<TABLE>
<CAPTION>
Date of Type of
Property and Location Square Feet Purchase Ownership
- - --------------------- ----------- --------- -------------
<S> <C> <C> <C>
Scandinavian Health Spa 26,040 10/19/88 Fee ownership
Health & Racquet Club of land &
Broadview Heights, Ohio improvements
Wholesale Club 103,000 12/6/88 Fee ownership
Commercial Warehouse (sold of land &
Fort Wayne, Indiana 1/8/91) improvements
Colonial Manor 107,867 6/7/89 Fee ownership
Nursing Home Facility of land &
LaGrange, Illinois improvements
K mart 84,146 12/29/89 Fee ownership
Retail Store of land &
Chandler, Arizona improvements
Water Tower Market Plaza 52,475 12/31/90 Fee ownership
Shopping Center of land &
Palatine, Illinois improvements
</TABLE>
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.
-3-
<PAGE>
The Partnership's real property investments are subject to competition from
similar types of properties in the vicinity in which each is located.
Approximate occupancy levels for the properties are set forth on a year-end
basis in the table in Item 2 below to which reference is hereby made. The
Partnership's real property investments are located in Arizona, Illinois and
Ohio. The Partnership has no real property investments located outside the
United States. The Partnership does not segregate revenues or assets by
geographic region, and such a presentation would not be material to an
understanding of the Partnership's business taken as a whole.
The Partnership currently has significant net operating leases with Elite Care
Corporation ("Elite"), K mart Corporation ("K mart") and Scandinavian Health
Spa, Inc. ("SHS"). Revenues from the Elite lease for the Colonial Manor Nursing
Home, the K mart lease for the K mart store and the SHS lease for the
Scandinavian Health Spa represents approximately 41%, 22% and 17%,
respectively, of the Partnership's income as of December 31, 1995.
The Partnership has utilized its proceeds for investment to acquire properties.
The leases at certain of the Partnership's properties entitle the Partnership
to participate in gross receipts of lessees above fixed minimum amounts. The
Partnership's receipt of such amounts will depend in part on the ability of
those lessees to compete with similar businesses in their respective
vicinities.
The Partnership also competes with many other entities engaged in real estate
investment activities in the disposition of property. The ability to locate
purchasers for the properties will depend primarily on the operations of the
properties and the desirability of the locations of the operating properties.
The Partnership had no employees during 1995.
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.
Item 2. Properties
The Partnership owns directly the properties referred to in Item 1 above 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 properties.
-4-
<PAGE>
The following is a list of approximate occupancy levels for the Partnership's
investment properties as of the end of each of the last five years:
<TABLE>
<CAPTION>
Properties 1995 1994 1993 1992 1991
---------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Scandinavian Health Spa 100% 100% 100% 100% 100%
Health & Racquet Club
Broadview Heights, Ohio
Colonial Manor 100% 100% 100% 100% 100%
Nursing Home Facility
LaGrange, Illinois
K mart 100% 100% 100% 100% 100%
Retail Store
Chandler, Arizona
Water Tower Market Plaza 89%* 89% 97% 97% 100%
Shopping Center
Palatine, Illinois
* Certified Grocers Midwest, Inc. vacated Water Tower Market Plaza in August
1995. Certified occupied 29,317 square feet, or approximately 56%, of the
shopping center. This occupancy reflects the payment of guaranteed rental
income received under the original lease. (See Liquidity and Capital
Resources.)
The following is a list of average effective annual rents per square foot for
the Partnership's investment properties for each of the last five years:
Properties 1995 1994 1993 1992 1991
---------- ---- ---- ---- ---- ----
Scandinavian Health Spa $13.79 12.54 12.54 12.54 12.54
Health & Racquet Club
Broadview Heights, Ohio
Colonial Manor 8.00 8.00 8.00 8.00 8.00
Nursing Home Facility
LaGrange, Illinois
K mart 5.37 5.37 5.37 5.37 5.37
Retail Store
Chandler, Arizona
Water Tower Market Plaza 4.18 4.92 5.71 5.67 7.28
Shopping Center
Palatine, Illinois
</TABLE>
-5-
<PAGE>
The following tables set forth certain information with respect to the amount of
and expiration of leases for the Partnership's investment properties:
<TABLE>
<CAPTION>
Square
Feet Renewal Current Rent Per
Lessee Leased Lease Ends Options Annual Rent Square Foot
------ ------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Scandinavian Health Spa, 26,040 12/2004 2/5 years $359,094 $13.79
Inc.
Elite Care Corporation 107,867 1/2001 1/10 years 868,552 8.05
K Mart Corporation 84,146 6/2013 4/5 years 452,000 5.37
Water Tower Market Plaza:
Certified Grocers 29,317 11/1998 None 78,600 2.68
Top of the Line Hair Design 1,246 4/1996 None 12,656 10.16
Edelweiss Delicatessen 2,000 10/1996 None 15,780 7.89
Land of Pets Pet Shop 4,000 4/1997 1/5 years 38,652 9.66
Jackson Hewitt Tax Service 1,500 12/1999 2/5 years 11,970 7.98
Lim's Dry Cleaners 1,500 12/1997 None 18,072 12.05
Ohlson World Travel Agency 2,000 3/1996 None 20,283 10.14
TLC Medical Center 1,275 11/2003 None 8,925 7.00
* TLC Medical Center 1,700 7/2003 None 12,563 7.39
TLC Medical Center 2,294 11/2003 None 19,683 8.58
Phase II Resale Shop 1,018 3/1997 None 10,686 10.50
Vacant 4,625
</TABLE>
* This lease started 1/1/96.
<TABLE>
<CAPTION>
Approx. Annual Average Base % of Total % of Annual
Number Gross Leasable Base Total Rent Per GLA Base Rent
Year of Area ("GLA") of Rent of Annual Sq. Ft Under Represented Represented
Ending Leases Expiring Leases Expiring Base Expiring By Expiring By Expiring
Property Dec 31, Expiring (square feet) Leases Rent(1) Leases Leases Leases
-------- ------ -------- --------------- -------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Scandinavian Health Spa 1996- - - $ - $359,094 $ - - -
2003
2004 1 26,040 359,094 359,094 13.79 100% 100%
Colonial Manor Living Center 1996 - - - 868,552 - - -
1997 - - - 888,151 - - -
1998 - - - 907,749 - - -
1999 - - - 927,348 - - -
2000 - - - 946,947 - - -
2001 1 107,867 970,139 970,139 8.99 100% 100%
K Mart 1996- - - - 452,000 - - -
2005
Water Tower Market Plaza 1996 3 5,246 48,719 246,694 9.29 10.00% 19.75%
1997 3 6,518 67,998 200,338 10.43 12.42% 33.94%
1998 1 29,317 78,600 132,968 2.68 55.87% 59.11%
1999 1 1,500 13,893 57,770 9.26 2.86% 24.05%
2000- - - - 43,877 - - -
2002
2003 3 5,269 43,877 43,877 8.33 10.04% 100%
</TABLE>
(1) No assumptions have been made regarding the releasing of expired leases. It
is the opinion of the General Partner that the space will be released at
market prices.
-6-
<PAGE>
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 1995.
PART II
Item 5. Market for the Partnership's Limited Partnership Units and Related
Security Holder Matters
As of December 31, 1995, there were 2,206 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 had established a Unit Repurchase Program, there are
no funds remaining for the repurchase of Units through this program.
Item 6. Selected Financial Data
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1995, 1994, 1993, 1992 and 1991
(not covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets........... $16,720,422 17,242,725 17,654,173 18,076,459 18,602,503
=========== ========== ========== ========== ==========
Total income........... $ 2,072,835 2,109,593 2,109,623 2,092,927 2,190,136
=========== ========== ========== ========== ==========
Income from operations. 1,250,956 1,297,389 1,331,635 1,224,356 1,390,615
Gain on sale of
investment property.. - - - - 847,467
Net income............. $ 1,250,956 1,297,389 1,331,635 1,224,356 2,238,082
=========== ========== ========== ========== ==========
</TABLE>
-7-
<PAGE>
Item 6. Selected Financial Data, continued.
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
For the years ended December 31, 1995, 1994, 1993, 1992 and 1991
(not covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net income (loss) per the
one General Partner Unit:
Operating loss............. (4,316) (4,316) (4,313) (4,300) (4,286)
Gain on sale of
investment property...... - - - - 102,206
----------- --------- --------- --------- ---------
$ (4,316) (4,316) (4,313) (4,300) 97,920
=========== ========= ========= ========= =========
Net income allocated per
Limited Partnership
Unit (b):
Operating income........... 25.06 25.98 26.67 24.53 27.79
Gain on sale of
investment property...... - - - - 14.85
----------- --------- --------- --------- ---------
$ 25.06 25.98 26.67 24.53 42.64
=========== ========= ========= ========= =========
Distributions to
Limited Partners from:
Operations................. 1,703,356 1,756,765 1,734,389 1,653,417 1,686,591
Sales proceeds............. - - - - 4,395,565
----------- --------- --------- --------- ---------
$ 1,703,356 1,756,765 1,734,389 1,653,417 6,082,156
=========== ========= ========= ========= =========
Distributions per
Limited Partnership
Unit from (b)(c):
Operations................. 34.00 35.07 34.62 33.01 33.60
Sales proceeds............. - - - - 87.57
----------- --------- --------- --------- ---------
$ 34.00 35.07 34.62 33.01 121.17
=========== ========= ========= ========= =========
</TABLE>
(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 and distributions per Unit data are based upon the weighted
average number of Units outstanding (50,095.50 for the years 1995 through
1992 and 50,195.60 for 1991).
(c) The distributions from sales proceeds per Limited Partnership Unit in 1991
are from the sale of The Wholesale Club on January 8, 1991 and represents a
return of Invested Capital, as defined in the Partnership Agreement.
-8-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
On August 4, 1988, the Partnership commenced an Offering of 50,000 (subject to
increase to 80,000) Limited Partnership Units pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Offering
terminated on August 4, 1990, with total sales of 50,647.14 Units at $500 per
Unit, resulting in gross offering proceeds of $25,323,569, not including the
General Partner's contribution of $500. All of the holders of these Units have
been admitted to the Partnership. The Partnership has acquired five properties
utilizing $21,224,542 of capital proceeds collected. On January 8, 1991, the
Partnership sold one of its properties, The Wholesale Club. As of December 31,
1995, cumulative distributions to Limited Partners totaled $16,279,471, of
which $4,395,565 represents proceeds from the sale of The Wholesale Club and
$11,883,906 represents distributable cash flow from the properties. The
Partnership has repurchased 551.64 Units for $260,285 from various Limited
Partners through the Unit Repurchase Program. There are no funds remaining for
the repurchase of Units through this program.
As of December 31, 1995, the Partnership had cash and cash equivalents of
$981,562, which includes approximately $311,000 held in an unrestricted escrow
account for the payment of real estate taxes for Colonial Manor Living Center.
The Partnership intends to use such remaining funds for distributions and for
working capital requirements.
The properties owned by the Partnership are generating cash flow in excess of
the 8% annualized distributions to the Limited Partners (paid monthly), in
addition to covering all the operating expenses of the Partnership. In 1993,
1994 and 1995, the Partnership distributed $50,529, $103,339 and $50,000,
respectively, in addition to the 8% annualized return to the Limited Partners
from excess cash flow from the previous year. 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 a property.
During August 1995, Certified Grocers Midwest, Inc. ("Certified") vacated the
anchor store of Water Tower Market Plaza in Palatine, Illinois. Eagle Foods had
assigned the lease on February 4, 1994 to Certified, which occupied the store
since March 1, 1994. Certified is currently performing approximately $500,000
in renovation of the space for Euro-Fresh Markets ("Euro-Fresh"), which is
anticipated to occupy the space in April 1996. Under the original lease, as
well as the assignment of the lease, Eagle Foods has guaranteed payments until
November 1998. At December 31, 1995, there were three additional vacant units
totaling 6,325 square feet at Water Tower Market Plaza. Subsequent to December
31, 1995, the Partnership executed two leases totaling 3,400 square feet of
this space. Currently, Water Tower Market Plaza has a 95% financial occupancy
rate.
-9-
<PAGE>
Results of Operations
At December 31, 1995, the Partnership owns four operating properties. Two out
of the Partnership's four operating properties, Scandinavian Health Spa and
Colonial Manor Living Center, are leased on a "triple-net" basis which means
that all expenses of the property are passed through to the tenant. The leases
of the other two properties owned by the Partnership, K mart and Water Tower
Market Plaza, provide that the Partnership be responsible for maintenance of
the structure and the parking lot and the tenants are required to reimburse the
Partnership for portions of insurance, real estate taxes and common area
maintenance. The Partnership sold one of its properties, The Wholesale Club, on
January 8, 1991.
Rental income decreased slightly for the year ended December 31, 1995, as
compared to the year ended December 31, 1994, due to a decrease in rental
income at Water Tower Market Plaza. The shopping center continues to have three
spaces vacant within the multi-tenant commercial building. These three spaces,
with a total of 5,900 square feet, represent 11% of the total of 52,475 square
feet of Water Tower Market Plaza. The General Partner is currently in the
process of making improvements to the shopping center, such as painting and
improved signage, in order to attract new tenants. The decrease in rental
income was partially offset by a scheduled rental increase at Scandinavian
Health Spa during 1995. Rental income decreased for the year ended December 31,
1994, as compared to the year ended December 31, 1993, due primarily to a non-
recurring adjustment in rental income recorded for Colonial Manor Living Center
in 1993 as a result of the settlement with Adventist Living Centers, Inc.
Interest income increased for the years ended December 31, 1995 and 1994, as
compared to the year ended December 31, 1993, due to increases in interest
rates.
The other income recorded for the year ended December 31, 1994 is primarily a
result of non-operating income relating to Water Tower Market Plaza.
Professional services to Affiliates were higher for the year ended December 31,
1994, as compared to the years ended December 31, 1995 and 1993, due to
increases in in-house legal and accounting services required by the
Partnership.
General and administrative expenses to Affiliates increased for the years ended
December 31, 1995 and 1994, as compared to the year ended December 31, 1993,
due to increases in postage, supplies and investor services expenses. This
increase was partially offset by a decrease in data processing expense. General
and administrative expenses to non-affiliates increased for the year ended
December 31, 1994, as compared to the year ended December 31, 1993, due to an
increase in the Illinois Replacement Tax paid in 1994.
Property operating expenses to Affiliates decreased for the years ended
December 31, 1995 and 1994, as compared to the year ended December 31, 1993,
due to a decrease in property maintenance performed by an Affiliate on the
Partnership's investment properties. Property operating expenses to non-
affiliates increased for the years ended December 31, 1995 and 1994, as
compared to the year ended December 31, 1993, due to increases in real estate
taxes, maintenance, painting and marketing at Water Tower Market Plaza.
-10-
<PAGE>
Inflation
In general, rental income and operating expenses for those Partnership
properties operated under triple-net leases, Scandinavian Health Spa and
Colonial Manor Living Center, are not likely to be directly affected by future
inflation, since rents are fixed under the leases and property expenses are the
responsibility of tenants. The capital appreciation of triple-net-leased
properties is likely to be influenced by interest rate fluctuations. To the
extent that inflation affects interest rates, future inflation may have an
effect on the capital appreciation of triple-net-leased properties.
Both the K mart and Water Tower Market Plaza properties are subject to net
leases containing rental escalation clauses which take effect when specified
sales volumes are achieved by the tenants. If inflation, over time, increases
the prices of goods sold by these tenants, this may result in increased rental
income for the Partnership. In addition to the grocery store which is its
anchor tenant, Water Tower Market Plaza also includes smaller commercial spaces
which are subject to renewal under short-term leases. For these spaces,
inflation is likely to increase rental escalation income from leases to new
tenants and lease renewals, subject to normal market conditions.
Impact of Accounting Pronouncements Not Yet Adopted
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995.
This pronouncement is not expected to have a material effect on the financial
position or results of operations of the Partnership.
-11-
<PAGE>
Item 8. Financial Statements and Supplementary Data
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
<TABLE>
<CAPTION>
Index Page
----- ----
<S> <C>
Independent Auditors' Report............................................. 13
Financial Statements:
Balance Sheets, December 31, 1995 and 1994............................. 14
Statements of Operations, for the years ended
December 31, 1995, 1994 and 1993..................................... 16
Statements of Partners' Capital, for the years ended
December 31, 1995, 1994 and 1993..................................... 17
Statements of Cash Flows, for the years ended
December 31, 1995, 1994 and 1993..................................... 18
Notes to Financial Statements.......................................... 19
Real Estate and Accumulated Depreciation (Schedule III).................. 26
</TABLE>
Schedules not filed:
All schedules other than those indicated in the index have been omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
-12-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Inland Monthly Income Fund II, L.P.
We have audited the accompanying balance sheets of Inland Monthly Income Fund
II, L.P. (a limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1995. Our audits included the
financial statement schedule listed in item 14(c). These statements and
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule 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 Monthly Income Fund II, L.P. as of
December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 2, 1996
-13-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
December 31, 1995 and 1994
Assets
------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents (Note 1).............. $ 981,562 1,043,893
Accounts and rents receivable................... 159,975 168,705
Current portion of deferred rent
receivable (Note 5)........................... 2,968 19,280
Other assets.................................... 670 354
----------- ----------
Total current assets.......................... 1,145,175 1,232,232
----------- ----------
Investment properties (including acquisition
fees paid to Affiliates of $1,430,682)
(Notes 1, 3 and 4):
Land............................................ 3,998,149 3,998,149
Buildings and improvements...................... 13,814,185 13,814,185
----------- ----------
17,812,334 17,812,334
Less accumulated depreciation................. 2,754,691 2,323,104
----------- ----------
Net investment properties................... 15,057,643 15,489,230
----------- ----------
Other assets:
Deferred leasing fees to Affiliates (net of
accumulated amortization of $88,728 and $70,635
for 1995 and 1994, respectively) (Notes
1 and 3)...................................... 139,004 157,097
Deferred rent receivable, less current portion
(Notes 1 and 5)............................... 378,600 364,166
----------- ----------
Total other assets.......................... 517,604 521,263
----------- ----------
Total assets...................................... $16,720,422 17,242,725
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-14-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
December 31, 1995 and 1994
Liabilities and Partners' Capital
---------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable................................ $ 5,494 34,654
Accrued real estate taxes....................... 180,025 172,194
Distributions payable (Note 7).................. 140,426 140,426
Due to Affiliates (Note 3)...................... 7,398 680
Deposits held for others........................ 321,855 352,147
Other current liabilities....................... 26,925 51,925
----------- ----------
Total current liabilities..................... 682,123 752,026
Commission payable to Affiliate (Note 3).......... 132,000 132,000
----------- ----------
Total liabilities................................. 814,123 884,026
----------- ----------
Partners' capital (Notes 1, 2 and 3):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 72,906 77,222
----------- ----------
73,406 77,722
----------- ----------
Limited Partners:
Units of $500. Authorized 80,000 Units,
50,095.50 Units outstanding (net of offering
costs of $3,148,734, of which $653,165
was paid to Affiliates)..................... 21,916,510 21,916,510
Cumulative net income......................... 10,195,854 8,940,582
Cumulative distributions...................... (16,279,471) (14,576,115)
----------- ----------
15,832,893 16,280,977
----------- ----------
Total Partners' capital..................... 15,906,299 16,358,699
----------- ----------
Total liabilities and Partners' capital........... $16,720,422 17,242,725
=========== ==========
</TABLE>
See accompanying notes to financial statements.
-15-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Rental income (Notes 1, 4 and 5).. $1,892,936 1,899,150 1,940,813
Additional rental income.......... 144,535 155,593 149,897
Interest income................... 32,707 22,499 17,536
Other income...................... 2,657 32,351 1,377
---------- --------- ---------
2,072,835 2,109,593 2,109,623
---------- --------- ---------
Expenses:
Professional services to
Affiliates...................... 19,466 22,892 18,401
Professional services to
non-affiliates.................. 24,550 25,626 23,221
General and administrative
expenses to Affiliates.......... 35,026 36,549 33,823
General and administrative
expenses to non-affiliates...... 13,641 13,493 8,174
Property operating expenses
to Affiliates................... 31,068 33,969 35,488
Property operating expenses
to non-affiliates............... 248,448 229,996 209,225
Depreciation...................... 431,587 431,587 431,326
Amortization...................... 18,093 18,092 18,330
---------- --------- ---------
821,879 812,204 777,988
---------- --------- ---------
Net income.......................... $1,250,956 1,297,389 1,331,635
========== ========= =========
Net income (loss) allocated to
(Note 2):
General Partner................... $ (4,316) (4,316) (4,313)
Limited Partners.................. 1,255,272 1,301,705 1,335,948
---------- --------- ---------
Net income...................... $1,250,956 1,297,389 1,331,635
========== ========= =========
Net loss allocated to the
one General Partner Unit.......... $ (4,316) (4,316) (4,313)
========== ========= =========
Net income allocated to Limited
Partners per weighted average
Limited Partnership Units of
50,095.50......................... $ 25.06 25.98 26.67
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Partners' Capital
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- ---------- ----------
<S> <C> <C> <C>
Balance January 1, 1993............. 86,351 17,134,478 17,220,829
Net income (loss)................... (4,313) 1,335,948 1,331,635
Repayment of Supplemental Capital
Contribution to General Partner... - (30,155) (30,155)
Distributions ($34.62 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,704,234) (1,704,234)
------ ---------- ----------
Balance December 31, 1993........... 82,038 16,736,037 16,818,075
Net income (loss)................... (4,316) 1,301,705 1,297,389
Distributions ($35.07 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,756,765) (1,756,765)
------ ---------- ----------
Balance December 31, 1994........... 77,722 16,280,977 16,358,699
Net income (loss)................... (4,316) 1,255,272 1,250,956
Distributions ($34.00 per weighted
average of Limited Partnership
Units of 50,095.50)............... - (1,703,356) (1,703,356)
------ ---------- ----------
Balance December 31, 1995........... $73,406 15,832,893 15,906,299
======= ========== ==========
</TABLE>
See accompanying notes to financial statements.
-17-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................ $ 1,250,956 1,297,389 1,331,635
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation.................... 431,587 431,587 431,326
Amortization.................... 18,093 18,092 18,330
Deferred rent receivable........ 1,878 (12,901) (27,651)
Changes in assets and liabilities:
Accounts and rents receivable. 8,730 (43,992) (10,488)
Other assets.................. (316) (69) 44
Accounts payable.............. (29,160) 30,914 840
Accrued real estate taxes..... 7,831 9,055 5,732
Due to Affiliates............. 6,718 (579) (56,311)
Other current liabilities..... (25,000) (2,466) 21,231
---------- ---------- ----------
Net cash provided by operating
activities........................ 1,671,317 1,727,030 1,714,688
---------- ---------- ----------
Cash flows from investing activities:
Additions to investment properties - - (2,620)
---------- ---------- ----------
Net cash used in investing
activities........................ - - (2,620)
---------- ---------- ----------
Cash flows from financing activities:
Deposits held for others.......... (30,292) 11,004 8,594
Repayment of Supplemental Capital
Contribution.................... - - (30,155)
Cash distributions ............... (1,703,356) (1,756,765) (1,703,852)
---------- ---------- ----------
Net cash used in financing
activities...................... (1,733,648) (1,745,761) (1,725,413)
---------- ---------- ----------
Net decrease in cash and cash
equivalents....................... (62,331) (18,731) (13,345)
Cash and cash equivalents at
beginning of year................. 1,043,893 1,062,624 1,075,969
---------- ---------- ----------
Cash and cash equivalents at end
of year........................... $ 981,562 1,043,893 1,062,624
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
For the years ended December 31, 1995, 1994 and 1993
(1) Organization and Basis of Accounting
Inland Monthly Income Fund II, L.P. (the "Partnership") was organized on June
20, 1988 by filing a Certificate of Limited Partnership under the Revised
Uniform Limited Partnership Act of the State of Delaware. On August 4, 1988,
the Partnership commenced an Offering of 50,000 (subject to increase to 80,000)
Limited Partnership Units pursuant to a Registration under the Securities Act
of 1933. The Offering terminated on August 4, 1990, with total sales of
50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of
$25,323,569, not including the General Partner's contribution for $500. All of
the holders of these Units have been admitted to the Partnership. Inland Real
Estate Investment Corporation is the General Partner. The Limited Partners of
the Partnership share in the benefits of ownership of the Partnership's real
property investments in proportion to the number of Units held. The Partnership
had repurchased 551.64 Units for $260,285 from various Limited Partners through
the Unit Repurchase Program. There are no funds remaining for the repurchase of
Units through this program.
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.
The Partnership's policy is to reduce the cost basis of investment properties,
including deferred leasing fees and deferred rent receivable, to its estimated
net realizable value when the investment properties are judged to have suffered
an impairment in value that is other than temporary. Estimated net realizable
value is measured by the recoverability of the Partnership's investment through
expected future cash flows on an undiscounted basis. Net realizable value is
inherently subjective and is based on management's best estimate of current
conditions and assumptions about expected future conditions, including lease-up
periods, rental rates, interest rates and capitalization rates. As of December
31, 1995, no reduction to the cost basis of the investment properties has been
recorded as the estimated net realizable value of the investment properties
exceeds their cost basis.
Depreciation expense is computed using the straight-line method. Buildings and
improvements are based upon estimated useful lives of 30 to 40 years, while
furniture and fixtures are based upon estimated useful lives of 5 to 12 years.
Repair and maintenance expenses are charged to operations as incurred.
Significant improvements are capitalized and depreciated over their estimated
useful lives.
-19-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Deferred leasing fees are amortized on a straight-line basis over the term of
the related lease.
Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned and the cash rent due under
the provisions of the lease agreements is recorded as deferred rent receivable.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. For the years ended
December 31, 1995 and 1994, included in cash and cash equivalents is
approximately $311,000 and $341,000, respectively, held in an unrestricted
escrow account for the payment of real estate taxes for Colonial Manor Living
Center. The carrying amount of cash, cash equivalents and distributions payable
approximates fair value because of the short maturity of those instruments.
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 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 on the
records of the Partnership. The net effect of these items is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
------------------------ ----------------------
Tax Tax
GAAP Basis GAAP Basis
Basis (unaudited) Basis (unaudited)
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Total assets................ $16,720,422 19,922,977 17,242,725 20,435,673
Partners' capital:
General Partner........... 73,406 23,595 77,722 27,911
Limited Partners.......... 15,832,893 19,333,868 16,280,977 19,761,146
Net income (loss):
General Partner........... (4,316) (3,987) (4,316) (3,990)
Limited Partners.......... 1,255,272 1,275,748 1,301,705 1,328,938
Net income per Limited
Partnership Unit.......... 25.06 25.47 25.98 26.53
</TABLE>
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995. This
pronouncement is not expected to have a material effect on the financial
position or results of operations of the Partnership.
-20-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(2) Partnership Agreement
The Partnership Agreement defines the allocation of distributable available
cash and profits and losses. Limited Partners will receive 100% of cash
available for distribution until the Limited Partners have received a
Cumulative Preferred Return of 8% per annum through August 4, 1993 and a
Preferential Return of 10% of Cash Available for Distribution per annum for the
period after August 4, 1993. Thereafter, the General Partner shall be allocated
an amount equal to any Supplemental Capital Contributions outstanding at the
time of the distribution and then 95% of cash available for distribution will
be allocated to the Limited Partners and 5% will be allocated to the General
Partner. Net Sale Proceeds will be distributed to the Limited Partners until
they have received an amount equal to their Invested Capital and any deficiency
in the 10% Preferential Return. Thereafter, any remaining Net Sale Proceeds
will be distributed 85% to the Limited Partners and 15% to the General Partner.
Distributions of Net Sale Proceeds to the Limited Partners represent a return
of Invested Capital.
Pursuant to the terms of the Partnership Agreement, the profits and losses from
operations are allocated as follows:
(a) Depreciation deductions shall be allocated 99% to the taxable Limited
Partners and 1% to the General Partner.
(b) To the extent the minimum distribution of 8% per annum through August 4,
1993 to the Limited Partners is funded by Supplemental Capital
Contributions, the distribution shall be treated as a guaranteed payment,
and the resulting deduction shall be allocated to the General Partner.
(c) The remaining net profits shall be allocated 100% to the Limited Partners
until the Limited Partners have been allocated an amount equal to the
distribution required to provide them a Cumulative Preferred Return of 8%
per annum through August 4, 1993 and a Preferential Return of 10% per annum
for the period after August 4, 1993.
(d) The remainder, if any, shall be allocated 95% to the Limited Partners and
5% to the General Partner
The General Partner was required to make Supplemental Capital Contributions, if
necessary, in sufficient amounts to allow the Partnership to make distributions
to the Limited Partners to provide a non-compounded return on their invested
capital equal to 8% per annum through August 4, 1993. The amount of such
Supplemental Capital Contributions was $30,155. The entire amount was paid to
the Partnership in April of 1990. The General Partner was repaid on August 4,
1993, after the Limited Partners received a Cumulative Preferred Return of 8%
per annum through August 4, 1993.
-21-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(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 to Affiliates and general and administrative expenses to
Affiliates, of which $7,398 and $680 was unpaid as of December 31, 1995 and
1994, respectively.
An Affiliate of the General Partner earned Property Management Fees of $31,068,
$32,107 and $32,553 for the years ended December 31, 1995, 1994 and 1993,
respectively, in connection with managing the Partnership's properties. Such
costs are included in property operating expenses to Affiliates, all of which
has been paid as of December 31, 1995. In addition, an Affiliate of the General
Partner performed property maintenance on the Partnership's investment
properties and was reimbursed (as set forth under terms of the Partnership
Agreement) for direct costs. Such costs of $1,862 and $2,935 for the years
ended December 31, 1994 and 1993, respectively, are included in property
operating expenses to Affiliates, all of which has been paid. No such costs
were incurred for the year ended December 31, 1995.
In connection with the sale of The Wholesale Club on January 8, 1991, the
Partnership recorded $132,000 of sales commission payable to an Affiliate of
the General Partner. Such commission has been deferred until the Limited
Partners receive their Original Capital plus a return as specified in the
Partnership Agreement. Due to the terms and the nature of the sales commission
payable to the Affiliate, it is not practicable for the Partnership to estimate
the fair value of such amount.
Through the Partnership's participation in an insurance program, claims from
the Partnership's properties, as well as properties owned by other limited
partnerships syndicated by Affiliates, were managed through a loss reserve
trust. In June 1995, this program was terminated. The Partnership paid $428 and
$599 to the loss reserve trust for K mart for the years ended December 31, 1995
and 1994, respectively.
(4) Investments in Property
Scandinavian Health Spa, Inc., Broadview Heights, Ohio
On October 19, 1988, the Partnership took title to this property which an
Affiliate of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $2,760,000. The property consists of a 26,040 net
rentable square-foot, two-story masonry building including a pool, whirlpool,
two saunas, suspended running track, two racquet ball courts, extensive locker
room areas, a nursery and offices. The total cost of this property to the
Partnership was $3,016,527, which includes acquisition fees of $241,500 and
acquisition costs of $15,027. The lease expires in December 2004 and the tenant
has the option to extend the lease for two additional five-year periods. The
tenant has leased 100% of the rentable space on a triple-net basis for a
current monthly amount of $29,925.
-22-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Colonial Manor Living Center, LaGrange, Illinois
On June 7, 1989, the Partnership took title to this property which an Affiliate
of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $6,787,232. The property consists of a 107,867
square-foot nursing care facility located in LaGrange, Illinois. The total cost
of this property to the Partnership was $7,521,881, which includes acquisition
fees of $601,675 and acquisition costs of $132,974. The center is currently
100% leased to Elite Care Corporation. The lease is a triple-net lease and
expires January 2001. The tenant has the right to extend the lease for an
additional ten-year term. The rent per annum is $850,586 and adjusts annually.
In 1992, the current operator of this facility negotiated with a new operator
to sublease the facility. The General Partner approved the transaction with no
significant changes to the terms of the lease.
K mart Retail Store, Chandler, Arizona
On December 29, 1989, the Partnership took title to this property which an
Affiliate of the General Partner purchased on behalf of the Partnership from an
unaffiliated third party for $4,568,000. The property consists of an 84,146
square-foot retail building. The total cost of this property to the Partnership
was $5,072,473, which includes acquisition fees of $406,862 and related
acquisition costs of $97,611. The tenant has a lease for 100% of the rentable
space on a net basis and is responsible for payment of the real estate taxes,
insurance and all utilities. The Partnership will be responsible for
maintenance of the structure and the parking lot. The lease requires a base
rent of $452,000 per annum and additional rent equal to 1% of gross sales in
excess of $14,000,000. The lease expires in July 2013 and the tenant has the
option to extend the lease for four additional five-year periods.
Water Tower Market Plaza Shopping Center, Palatine, Illinois
On December 31, 1990, the Partnership took title to this property from an
unaffiliated third party for $2,000,000. The property consists of two buildings
aggregating 52,475 square feet. One of the buildings is a food store and the
other is a multi-tenant building containing twelve commercial units. The total
cost of this property to the Partnership was $2,186,383, which includes
acquisition fees of $180,645 and related acquisition costs of $5,738. The
property is 89% leased on a net basis with the tenants responsible for their
portion of real estate taxes and common area maintenance. The Partnership is
responsible for its share of real estate taxes and common area maintenance plus
the maintenance of the structures and the parking lot. The anchor tenant, Eagle
Food Store, had a lease through May 1997 with an annual rent of $78,600. The
current tenants in the 12-unit building have leases ranging from one to five
years at an average monthly rent of $1,445. On January 21, 1994, the anchor
tenant at the shopping center, Eagle Foods, closed its store. On February 4,
1994, with the approval of the General Partner, Eagle Foods assigned its lease
to Certified Grocers Midwest, Inc. ("Certified"). Certified occupied the store
from March 1, 1994 until August 1995. Certified is currently improving the
space for Euro-Fresh Markets ("Euro-Fresh"), which is anticipated to occupy the
space in April 1996. Under the original lease, as well as the assignment of the
lease, Eagle Foods has guaranteed payments until November 1998.
-23-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Cost and accumulated depreciation of the above properties are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Health and Racquet Club:
Cost.............................. $ 3,016,527 3,016,527
Less accumulated depreciation..... 523,422 451,225
----------- ----------
2,493,105 2,565,302
----------- ----------
Retail Store:
Cost.............................. 5,072,473 5,072,473
Less accumulated depreciation..... 639,163 534,095
----------- ----------
4,433,310 4,538,378
----------- ----------
Nursing Home:
Cost.............................. 7,521,881 7,521,881
Less accumulated depreciation..... 1,352,563 1,147,110
----------- ----------
6,169,318 6,374,771
----------- ----------
Shopping Center:
Cost.............................. 2,201,453 2,201,453
Less accumulated depreciation..... 239,543 190,674
----------- ----------
1,961,910 2,010,779
----------- ----------
Total............................. $15,057,643 15,489,230
=========== ==========
</TABLE>
(5) Operating Leases
Certain tenant leases contain provisions providing for stepped rent increases.
Generally accepted accounting principles require that rental income be recorded
for the period of occupancy using the straight-line basis. The accompanying
financial statements include a decrease of $1,878, and increases of $12,901 and
$27,651 in 1995, 1994 and 1993, respectively, of rental income for the period
of occupancy for which stepped rent increases apply and $381,568 and $383,446
in related deferred rent receivable as of December 31, 1995 and 1994,
respectively. These amounts will be collected over the terms of the related
leases as scheduled rent payments are made.
-24-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
Minimum lease payments to be received in the future from operating leases are
as follows:
<TABLE>
<S> <C>
1996.......................................... $ 1,859,667
1997.......................................... 1,823,838
1998.......................................... 1,803,917
1999.......................................... 1,754,643
2000.......................................... 1,760,349
Thereafter.................................... 7,132,603
-----------
Total......................................... $16,135,017
===========
</TABLE>
Pursuant to the lease agreements, tenants of Water Tower Market Plaza Shopping
Center are required to reimburse the Partnership for their prorata share of the
real estate taxes and operating expenses of the property. Such amounts are
included in additional rental income.
The Partnership currently has significant net operating leases with Elite Care
Corporation ("Elite"), K mart Corporation ("K mart") and Scandinavian Health
Spa, Inc. ("SHS"). Revenues from the Elite lease for the Colonial Manor Nursing
Home, the K mart lease for the K mart store and the SHS lease for the
Scandinavian Health Spa represents approximately 41%, 22% and 17%,
respectively, of the Partnership's income as of December 31, 1995.
(6) Legal Proceedings
On March 10, 1995, the Partnership settled a claim with regards to the
reorganization plan of Adventist Living Centers, Inc. ("ALC"), a former tenant
of the Partnership's nursing home. The Partnership received $81,082 from ALC in
connection with their lease termination agreement. The Partnership paid $36,941
as its portion of the settlement but received $5,906 from its share of a co-
defendant's contribution.
(7) Subsequent Events
During January 1996, the Partnership paid a distribution of $140,426 to the
Limited Partners.
-25-
<PAGE>
INLAND MONTHLY INCOME FUND II, L.P.
(a limited partnership)
Schedule III
Real Estate and Accumulated Depreciation
December 31, 1995
<TABLE>
<CAPTION>
Initial cost
to Partnership Gross amount at which carried
(A) Costs at end of period (B)
------------------------ capitalized -------------------------------------------------
Buildings subsequent Buildings Accumulated
and to and Total Depreciation
Land improvements acquisition Land improvements (C) (D)
---------- ------------ ----------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Health & Racquet Club:
Scandinavian Health
Spa, Inc.
Broadview Hts., OH $ 850,609 2,165,039 879 850,609 2,165,918 3,016,527 523,422
Nursing Home Facility:
Colonial Manor
LaGrange, IL 416,390 7,105,491 - 416,390 7,105,491 7,521,881 1,352,563
Retail Store:
K mart
Chandler, AZ 1,920,439 3,152,034 - 1,920,439 3,152,034 5,072,473 639,163
Shopping Center:
Water Tower Market
Plaza
Palatine, IL 810,711 1,375,672 15,070 810,711 1,390,742 2,201,453 239,543
---------- ---------- ------ --------- ---------- ---------- ---------
Totals $3,998,149 13,798,236 15,949 3,998,149 13,814,185 17,812,334 2,754,691
========== ========== ====== ========= ========== ========== =========
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Life on which
depreciation
in latest statement
Date Date of Operations
Constructed Acquired is computed
----------- ---------- -------------------
<S> <C> <C> <C>
Health & Racquet Club:
Scandinavian Health
Spa, Inc.
Broadview Hts., OH 1984 10/19/1988 30 years
Nursing Home Facility:
Colonial Manor
LaGrange, IL 1924 06/07/1989 40 years
Retail Store:
K mart
Chandler, AZ 1986 12/29/1989 30 years
Shopping Center:
Water Tower Market
Plaza
Palatine, IL 1973 12/31/1990 30 years
- - --------------------------------------------------------------------
</TABLE>
Notes:
(A) The initial cost to the Partnership represents the original purchase price
of the properties, including amounts incurred subsequent to acquisition
which were contemplated at the time the property was acquired.
(B) The aggregate cost of real estate owned at December 31, 1995 for Federal
income tax purposes was approximately $17,812,334, unaudited.
(C) Reconciliation of real estate owned:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year.. $17,812,334 17,812,334 17,809,714
Additions..................... - - 2,620
Sales......................... - - -
----------- ---------- ----------
Balance at end of year........ $17,812,334 17,812,334 17,812,334
=========== ========== ==========
</TABLE>
(D) Reconciliation of accumulated depreciation:
<TABLE>
<S> <C> <C> <C>
Balance at beginning of year.. $ 2,323,104 1,891,517 1,460,191
Depreciation expense.......... 431,587 431,587 431,326
----------- ---------- ----------
Balance at end of year........ $ 2,754,691 2,323,104 1,891,517
=========== ========== ==========
</TABLE>
-26-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements on accounting or financial disclosures during 1995.
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:
<TABLE>
<CAPTION>
Functional Title
<S> <C>
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
Cynthia M. Hassett...... Assistant Vice President-Partnership Accounting
Venton J. Carlston...... Assistant Controller
</TABLE>
-27-
<PAGE>
DANIEL L. GOODWIN (age 52) 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 also Chairman of
the Bank Holding Company of American National Bank of DuPage. Currently he is
the President of Inland Mortgage Investment Corporation.
Mr. Goodwin has been in the housing industry for more than 25 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 reference
book for the management of residential properties.
Mr. Goodwin serves on the Board of the Illinois State Affordable Housing Trust
Fund for the past 6 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
1980's 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 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 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. He served as a member of the Board
of Governors of Illinois State Colleges and Universities, and he is currently a
trustee of Illinois Benedictine College. He was elected Chairman of
Northeastern Illinois University Board of Trustees in January 1996.
-28-
<PAGE>
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. He also serves as the Chairman of the Illinois Speaker of the House
of Representatives Club, and has been the General Chairman of the National
Football League Players Association Mackey Awards for the benefit of inner-city
youth. 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 last year, and on June 9, he received the
1995 March of Dimes Birth Defects Foundation Life Achievement Award.
ROBERT H. BAUM (age 52) has been with Inland 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 all
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, as
well as a member of several bar associations. Mr. Baum has been admitted to
practice before the Supreme Courts of the United States and the State of
Illinois, as well as the bars of several federal courts of appeals and federal
district courts. 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 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 52) joined Inland in 1968. Mr. Cosenza, is a
director, Vice Chairman and Chief Executive Officer of the Inland Group Inc.
Mr. Cosenza oversees, coordinates and directs Inland's many enterprises and, in
addition, immediately supervises a staff of five 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, Mr. Cosenza taught at the
LaGrange School District in Hodgkins, and from 1968 to 1972, he served as
Assistant Principal and teacher in the Wheeling School District. He 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 part owner of American
National Bank of DuPage and Burbank State Bank, and has served on the Board of
Directors of Continental Bank of Oakbrook Terrace.
-29-
<PAGE>
ROBERT D. PARKS (age 52) joined Inland in 1968. He is Director of The
Inland Group, Inc. and is President, Chairman and Chief Executive Officer of
Inland Real Estate Investment Corporation and is Director of Inland Securities
Corporation. Mr. Parks is responsible for the ongoing administration of
existing partnerships, corporate budgeting and administration for Inland Real
Estate Investment Corporation. He oversees and coordinates the marketing of
all limited partnership interests nationwide and has overall responsibility for
the portfolio management of all partnership investments and investor relations.
Mr. Parks received his B.A. degree from Northeastern Illinois University and
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 a licensed real estate broker. He is a member of the Real
Estate Investment Association and a member of NAREIT.
NORBERT J. TREONIS (age 45) joined Inland in 1975 and is currently a
director of The Inland Group, Inc. and Chairman and Chief Executive Officer of
Inland Property Management Group, Inc. He serves on the board of directors of
all Inland subsidiaries involved in property management and construction,
including Mid-America Property Management Corporation, Inland Commercial
Property Management, Inc., Community Property Management, Inc. and Metropolitan
Construction Services, Inc. Mr. Treonis is responsible for the overall
management and leasing of all Inland apartment units. In addition, he is
Executive Vice President of Inland Real Estate Acquisitions, Inc. and has been
involved in the acquisition of thousands of apartment units. Mr. Treonis is a
licensed real estate broker and has served as a board member of American
National Bank of DuPage, the National Apartment Association, The Chicagoland
Apartment Association and The Apartment Building Owners and Managers
Association of Illinois.
CATHERINE L. LYNCH (age 37) 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. She is registered with the
National Association of Securities Dealers as a Financial Operations Principal.
PAUL J. WHEELER (age 43) joined Inland in 1982 and is currently the
President of Inland Property Sales, Inc. and President of Inland Securities
Corporation, Inland's broker/dealer. 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, a
licensed real estate broker and is registered with the National Association of
Securities Dealers, Inc. as a General Securities Principal. For three years
prior to joining Inland, Mr. Wheeler was Vice President/Finance at the real
estate brokerage firm of Quinlan & Tyson, Inc.
-30-
<PAGE>
ROBERTA S. MATLIN (age 51) 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 38) 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 43) 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 salesperson, NASD
registered securities sales representative and is a member of the Urban Land
Institute.
CYNTHIA M. HASSETT (age 37) joined Inland in 1983 and is a Vice President
of Inland Real Estate Investment Corporation. Ms. Hassett 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. Hassett was on the audit staff of Altschuler, Melvoin and
Glasser since 1980. She received her B.S. degree in Accounting from Illinois
State University. Ms. Hassett is a Certified Public Accountant and a member of
the American Institute of Certified Public Accountants.
VENTON J. CARLSTON (age 38) 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 American Institute of Certified Public Accountants and the
Illinois CPA Society. He is registered with the National Association of
Securities Dealers, Inc. as a Financial Operations Principal.
-31-
<PAGE>
Item 11. Executive Compensation
The General Partner is entitled to receive a share of cash distributions when a
Preferential Return of 10% of Cash Available for Distribution has been made to
the Limited Partners, and a share of profits or losses as described under the
caption "Cash Distributions" at page 42 and "Allocation of Profits and Losses"
at pages 41 and 42 of the Prospectus, and at pages A-6 to A-10 of the
Partnership Agreement, included as an exhibit to the Prospectus, which is
incorporated herein by reference. Reference is also made to Note 2 of the Notes
to Financial Statements (Item 8 of this Annual Report) for a description of
such distributions and allocations for 1995.
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-12 through A-20 of the Partnership
Agreement, included as an exhibit to the Prospectus, 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 of the Partnership and its Affiliates may be reimbursed for
their expenses or out-of-pocket expenses relating to administration of the
Partnership and salaries and direct expenses of employees of the General
Partner and its Affiliates for the administration of the Partnership. Such
costs for 1995 were $54,492, of which $7,398 was unpaid as of December 31,
1995.
During 1995, Affiliates of the General Partner earned $31,068 in management
fees in connection with managing the Partnership's properties, all of which is
paid as of December 31, 1995.
-32-
<PAGE>
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 58.76 Units directly Less than 1/2%
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.
-33-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The Financial Statements listed in the index at page 12 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 of the Prospectus dated
August 4, 1988, as supplemented, are incorporated herein by reference
thereto.
4 Form of Certificate of Ownership representing interests in the registrant
filed as Exhibit 4 to Registration Statement on Form S-11, File No. 33-
22513, is incorporated herein by reference thereto.
28 Prospectus dated August 4, 1988, as supplemented, included in Post-
effective Amendment No. 2 to Form S-11 Registration Statement, File No. 33-
22513, is incorporated herein by reference thereto.
(c) Financial Statement Schedules.
Financial statement schedules for the years ended December 31, 1995, 1994
and 1993 are submitted herewith:
Page
----
Real Estate and Accumulated Depreciation, (Schedule III)........ 26
All schedules other than those indicated in the index 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 1995 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.
-34-
<PAGE>
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 MONTHLY INCOME FUND II, L.P.
Inland Real Estate Investment Corporation
General Partner
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 28, 1996
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
By: Robert D. Parks
Chairman of the Board
and Chief Executive Officer
Date: March 28, 1996
By: Patricia A. Challenger
Senior Vice President
Date: March 28, 1996
By: Cynthia M. Hassett
Principal Financial Officer
and Principal Accounting Officer
Date: March 28, 1996
By: Daniel L. Goodwin
Director
Date: March 28, 1996
By: Robert H. Baum
Director
Date: March 28, 1996
-35-
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<PAGE>
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 981,562
<SECURITIES> 0
<RECEIVABLES> 163,613
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,145,175
<PP&E> 17,812,334
<DEPRECIATION> 2,754,691
<TOTAL-ASSETS> 16,720,422
<CURRENT-LIABILITIES> 682,123
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,906,299
<TOTAL-LIABILITY-AND-EQUITY> 16,720,422
<SALES> 0
<TOTAL-REVENUES> 2,072,835
<CGS> 0
<TOTAL-COSTS> 279,516
<OTHER-EXPENSES> 110,776
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1,250,956
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,250,956
<EPS-PRIMARY> 25.06
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