UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended September 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File #0-21606
InLand Capital Fund, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3767977
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 630-218-8000
N/A
(Former name, former address and former fiscal
year, if changed since last report)
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
-1-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Balance Sheets
September 30, 1998 and December 31, 1997
(unaudited)
Assets
------
1998 1997
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 3,522,910 304,452
Investments in marketable securities (Note 1)... - 174,800
Accrued interest and other receivables.......... 96,742 1,018
Current portion of mortgage loans
receivable (Note 5)........................... 683,366 -
Other current assets............................ 3,816 2,632
------------ ------------
Total current assets.............................. 4,306,834 482,902
------------ ------------
Other assets...................................... 116,574 169,139
Mortgage loans receivable, less current
portion (Note 5)................................ 400,000 -
Investment properties and improvements
(including acquisition fees paid to
Affiliates of $1,190,773 and $1,409,967 at
September 30, 1998 and December 31, 1997,
respectively) (Notes 1, 3 and 4)................ 25,013,871 28,301,315
------------ ------------
Total assets...................................... $29,837,279 28,953,356
============ ============
See accompanying notes to financial statements.
-2-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1998 and December 31, 1997
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1998 1997
Current liabilities: ---- ----
Accounts payable................................ $ 3,707 8,590
Accrued real estate taxes....................... 61,082 73,097
Due to Affiliates (Note 2)...................... 30,084 10,343
Unearned income................................. 3,748 20,802
------------ ------------
Total current liabilities......................... 98,621 112,832
------------ ------------
Deferred gain on sale (Note 5).................... 7,597 -
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 13,651 13,675
------------ ------------
14,151 14,175
Limited Partners: ------------ ------------
Units of $1,000. Authorized 60,000 Units,
32,352.11 Units outstanding at September 30,
1998 and December 31, 1997, respectively
(net of offering costs of $4,466,765, of
which $3,488,574 was paid to Affiliates).... 27,886,551 27,886,551
Cumulative cash distributions................. (1,646,334) (1,646,334)
Cumulative net income......................... 3,476,693 2,586,132
------------ ------------
29,716,910 28,826,349
------------ ------------
Total Partners' capital........................... 29,731,061 28,840,524
------------ ------------
Total liabilities and Partners' capital........... $29,837,279 28,953,356
============ ============
See accompanying notes to financial statements.
-3-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Operations
For the three and nine months ended September 30, 1998 and 1997
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
Income: ---- ---- ---- ----
Sale of investment property
(Notes 1 and 3)................ $4,124,129 650,724 4,435,750 779,900
Rental income.................... 74,450 81,048 220,734 227,554
Interest income.................. 45,938 13,370 60,749 42,390
Other income..................... - 25 - 28,025
---------- ---------- ---------- ----------
4,244,517 745,167 4,717,233 1,077,869
Expenses: ---------- ---------- ---------- ----------
Cost of investment property sold. 3,376,178 104,075 3,542,808 125,537
Professional services to
Affiliates..................... 12,197 9,500 24,788 29,074
Professional services to
non-affiliates................. 500 841 23,602 44,612
General and administrative
expenses to Affiliates......... 2,117 2,815 12,850 15,902
General and administrative
expenses to non-affiliates..... 2,333 1,924 17,645 11,610
Marketing expenses to Affiliates. 12,131 25,313 25,260 75,044
Marketing expenses to
non-affiliates................. 7,076 7,444 31,428 42,458
Land operating expenses to
Affiliates..................... 15,698 15,924 47,421 47,838
Land operating expenses to
non-affiliates................. 26,494 26,121 100,894 64,779
---------- ---------- ---------- ----------
3,454,724 193,957 3,826,696 456,854
---------- ---------- ---------- ----------
Net income......................... $ 789,793 551,210 890,537 621,015
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and nine months ended September 30, 1998 and 1997
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
Net income (loss) allocated to: ---- ---- ---- ----
General Partner.................. $ 418 46 (24) (333)
Limited Partners................. 789,375 551,164 890,561 621,348
---------- ---------- ---------- ----------
Net income......................... $ 789,793 551,210 890,537 621,015
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ 418 46 (24) (333)
========== ========== ========== ==========
Net income per Unit, basic and
diluted, allocated to Limited
Partners per weighted average
Limited Partnership Units
(32,352.11 and 32,372.11 for
the three months ended September
30, 1998 and 1997, and 32,352.11
and 32,373.19 for the nine months
ended September 30, 1998 and
1997, respectively).............. $ 24.40 17.02 27.53 19.19
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
(unaudited)
1998 1997
Cash flows from operating activities: ---- ----
Net income...................................... $ 890,537 621,015
Adjustments to reconcile net income to net
cash used in operating activities:
Gain on sale of land.......................... (892,942) (654,363)
Changes in assets and liabilities:
Accrued interest and other receivables...... (95,724) (67,796)
Other current assets........................ (1,184) (1,472)
Accounts payable............................ (4,883) (471,574)
Accrued real estate taxes................... (12,015) (18,142)
Due to Affiliates........................... 19,741 46,295
Unearned income............................. (17,054) (24,478)
Deferred gain on sale....................... (292) -
------------ ------------
Net cash used in operating activities............. (113,816) (570,515)
------------ ------------
Cash flows from investing activities:
Sale (purchase) of marketable securities, net... 174,800 903,002
Additions to investment properties.............. (255,364) (491,925)
Principal payments collected on mortgage loans
receivable.................................... 41,634 -
Other assets.................................... 52,565 (130,856)
Proceeds from sale of investment properties..... 3,318,639 779,900
------------ ------------
Net cash provided by investing activities......... 3,332,274 1,060,121
------------ ------------
Cash flows from financing activities:
Repurchase of Limited Partnership Units......... - (14,702)
Distributions paid.............................. - (194)
------------ ------------
Net cash used in financing activities............. - (14,896)
------------ ------------
Net increase in cash and cash equivalents......... 3,218,458 474,710
Cash and cash equivalents at beginning of period.. 304,452 581,693
------------ ------------
Cash and cash equivalents at end of period........ $ 3,522,910 1,056,403
============ ============
Supplemental schedule of non-cash investing activities:
Mortgage loans receivable......................... $(1,125,000) -
Reduction of investment properties................ 3,542,808 -
Deferred gain on sale............................. 7,889 -
Gain on sale of land.............................. 892,942 -
------------ ------------
Proceeds from sale of investment properties....... $ 3,318,639 -
============ ============
See accompanying notes to financial statements.
-6-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1998
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1997, which are
included in the Partnership's 1997 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.
(1) Organization and Basis of Accounting
InLand Capital Fund, L.P. (the "Partnership") was organized on June 21, 1991 by
the filing of a Certificate of Limited Partnership under the Revised Uniform
Limited Partnership Act of the State of Delaware. On December 13, 1991, the
Partnership commenced an Offering of 60,000 Limited Partnership Units pursuant
to a Registration under the Securities Act of 1933. The Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement") provides for
Inland Real Estate Investment Corporation to be the General Partner. The
Offering terminated on August 23, 1993, with total sales of 32,399.28 Units, at
$1,000 per Unit, resulting in $32,399,282 in gross offering proceeds, not
including the General Partner's capital contribution of $500. All of the
holders of these Units have been admitted to the Partnership. The Limited
Partners of the Partnership will share in their portion of benefits of
ownership of the Partnership's real property investments according to the
number of Units held. As of September 30, 1998, the Partnership has repurchased
and canceled a total of 47.17 Units for $45,967 from various Limited Partners
through the Units 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 periods.
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 an
original maturity of three months or less to be cash equivalents.
Investments purchased with an original maturity of three months or more are
considered to be investments in marketable securities.
-7-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
For vacant land parcels and parcels with insignificant buildings and
improvements, 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. Repair and maintenance expenses are charged to operations as
incurred.
Statement of Financial Accounting Standards No. 121 ("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. The
adoption of SFAS 121 did not have any effect on the Partnership's financial
position, results of operations or liquidity. As of September 30, 1998, the
Partnership has not recognized any such impairment.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership for the year ended December 31, 1997 and has been
applied to all prior earnings periods presented in the financial statements.
The Partnership has no dilutive securities.
The Partnership 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 person, 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 person. Future withholding tax payments will
be made every April, June, September and December.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations for the period
presented herein. Results of interim periods are not necessarily indicative of
results to be expected for the year.
-8-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(2) 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 $12,614 and $3,822 was unpaid as of September 30, 1998 and December 31,
1997, 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 $47,421 and
$47,838 have been incurred and paid and are included in land operating expenses
to Affiliates for the nine months ended September 30, 1998 and 1997,
respectively.
An Affiliate of the General Partner performed sales 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 $25,260 and $75,044
have been incurred and are included in marketing expenses to Affiliates for the
nine months ended September 30, 1998 and 1997, respectively, of which $11,744
and $6,521 was unpaid as of September 30, 1998 and December 31, 1997,
respectively.
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. The Affiliate did not take a profit
on any project. Such costs are included in investment properties, of which
$5,726 was unpaid as of September 30, 1998.
-9-
<TABLE> INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(3) Investment Properties (continued)
<CAPTION>
Total
Gross Initial Costs Costs Cumulative Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Parcel Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at On Sale
# County /(Sold) Date Costs Costs Costs Acquisition Sold 9/30/98 Recognized
- ------ --------- --------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Kendall 108.8960 07/22/92 $ 707,566 57,926 765,492 80,217 - 845,709 -
2 McHenry 201.0000 11/09/93 2,020,314 122,145 2,142,459 1,614,945 509,825 3,247,579 77,589
(17.7420) 08/02/95
(8.6806) Var 1997
(1.9290) Var 1998
3 Will 34.0474 03/04/94 1,235,830 88,092 1,323,922 34,936 - 1,358,858 -
4 Will 86.9195 03/30/94 1,778,820 143,817 1,922,637 337,308 124,067 2,135,878 255,274
(2.3050) Var 1997
(1.5000) 08/13/98
5 LaSalle 190.9600 04/01/94 532,000 18,145 550,145 62,950 6,655 606,440 56,765
(2.0600) 04/08/98
6 DeKalb 59.0800 05/11/94 670,207 58,373 728,580 486,869 1,215,449 - 10,929
(4.9233) Apr 1998
(54.1567) 07/23/98
7 Kendall 200.8210 07/28/94 1,506,158 82,999 1,589,157 23,932 - 1,613,089 -
8 Kendall 133.0000 08/17/94 1,300,000 106,949 1,406,949 5,598 - 1,412,547 -
9 LaSalle 335.9600 08/30/94 993,441 79,329 1,072,770 110,830 - 1,183,600 -
10 Kendall 223.7470 09/16/94 2,693,025 205,660 2,898,685 28,394 - 2,927,079 -
10A(a) Kendall 7.0390 09/16/94 206,975 15,806 222,781 1,327 221,078 - -
(7.0390) 04/21/95
11 Kane 123.0000 09/26/94 1,353,000 75,551 1,428,551 6,202 - 1,434,753 -
12 Kendall 110.2530 09/28/94 600,001 51,220 651,221 54,886 - 706,107 -
13 LaSalle 352.7390 10/06/94 1,032,666 91,117 1,123,783 22,723 1,146,506 - 143,987
(10.0000) 07/27/98
(342.7390) 08/31/98
14 Kendall 134.7760 10/26/94 1,000,000 81,674 1,081,674 5,971 - 1,087,645 -
15 McHenry 169.5400 10/31/94 2,900,000 79,196 2,979,196 240,206 - 3,219,402 -
16 McHenry 207.0754 11/30/94 1,760,256 101,388 1,861,644 237,536 - 2,099,180 -
17 LaSalle 236.4400 12/07/94 1,060,286 74,735 1,135,021 984 - 1,136,005 -
18 Kendall 386.9900 11/02/95 934,993 126,329 1,061,322 501 1,061,823 - 348,398
(386.9900) 08/31/98 ------------ ------------ ------------ -------------- ------------ ------------ ------------
$24,285,539 1,660,450 25,945,989 3,356,315 4,285,403 25,013,871 892,942
============ ============ ============ ============== ============ ============ ============
</TABLE>
-10-
-10-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(3) Investment Properties (continued)
(a) Included in the purchase of Parcel 10 was a house and several outbuildings,
located on approximately seven acres, which was sold on April 21, 1995.
(b) Reconciliation of real estate owned:
September 30, December 31,
1998 1997
------------- ------------
Balance at January 1,........................... $28,301,315 27,714,600
Additions during period......................... 255,364 911,759
------------ ------------
28,556,679 28,626,359
Sales during period............................. 3,542,808 325,044
------------ ------------
Balance at end of period........................ $25,013,871 28,301,315
============ ============
(4) Farm 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 September 30, 1998, the Partnership had farm leases of generally one year
in duration, for approximately 2,381 acres of the approximately 2,462 acres
owned.
(5) Mortgage Loans Receivable
As a result of the sale of the remaining acres of Parcel 6 for a sales price of
$1,125,000 on July 7, 1998, the Partnership received a mortgage loan receivable
of $1,125,000 and recorded a deferred gain on sale of $7,889. The deferred
gain will be recognized over the life of the related mortgage loan receivable
as principal payments are received, of which $292 has been recognized as of
September 30, 1998. Of the $1,125,000 mortgage loan receivable received,
$725,000 accrues interest at 9% per annum and has a maturity date of November
30, 1998 (extended from September 30, 1998), at which time all principal is
due. The remaining $400,000 accrues interest at 9% per annum and has a
maturity date of July 7, 2001, at which time all accrued interest, as well as
principal, is due. As of September 30, 1998, the remaining mortgage loan
receivable balance was $1,083,366 and accrued interest totaled $22,973.
-11-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1998
(unaudited)
(6) Subsequent Events
On October 16, 1998, the Partnership sold approximately 1.8 acres of Parcel 4
to an unaffiliated third party for $385,000. The Partnerhsip received net
sales proceeds of $372,322 and recorded a gain on sale of $305,389.
-12-
Item 2. 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 quarterly report on
Form 10-Q 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; inability of borrower
to meet financial obligations; uninsured losses; and potential conflicts of
interest between the Partnership and its Affiliates, including the General
Partner.
Liquidity and Capital Resources
On December 13, 1991, the Partnership commenced an Offering of 60,000 Limited
Partnership Units ("Units") at $1,000 per Unit, pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Offering
terminated on August 23, 1993, with total sales of 32,399.28 Units, at $1,000
per Unit, resulting in $32,399,282 in gross offering proceeds, not including
the General Partner's capital contribution of $500. All of the holders of these
Units have been admitted to the Partnership. The Limited Partners of the
Partnership will 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 $25,945,989 of gross offering proceeds to purchase, on an
all-cash basis, eighteen parcels of land and one building. These investments
include the payment of the purchase price, acquisition fees and acquisition
costs of such properties. One of the parcels was purchased during 1992, one
during 1993, fifteen during 1994 and one during 1995. As of September 30,
1998, the Partnership has had multiple sales transactions through which it has
disposed of the building and approximately 840 acres of the 3,302 acres
originally owned. As of September 30, 1998, cumulative distributions to the
Limited Partners have totaled $1,646,334 (which represents a return of Invested
Capital, as defined the Partnership Agreement). Through September 30, 1998,
the Partnership has used $3,356,315 of working capital reserve for rezoning and
other activities and such amount is included in investment properties.
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 September 30, 1998, the Partnership owns, in whole or in part,
fifteen of its original eighteen 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.
-13-
At September 30, 1998, the Partnership had cash and cash equivalents of
$3,522,910 of which approximately $159,300 is reserved for the repurchase of
Units through the Unit Repurchase Program. The remaining $3,363,610 is
available to be used for Partnership expenses and liabilities, cash
distributions to partners, and other activities with respect to some or all of
its land parcels. The Partnership plans to maximize its parcel sales effort in
anticipation of rising land values.
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. Parcel 2, annexed to the
village of McHenry and zoned for a business park, has one phase of improvements
complete and sites are being marketed to potential buyers, of which eleven of
the 190 lots were sold as of September 30, 1998. (See Note 3 of the Notes to
Financial Statements.) Parcel 4, zoned for a variety of business uses, has
improvements underway and sites are being marketed to potential buyers, of
which one site consisting of .87 acres was sold to a hotel chain on June 6,
1997, another site consisting of 1.435 acres was sold to a combination gas
station/convenient store on August 12, 1997 and a third site consisting of 1.5
acres was sold to a national fast-food chain on August 13, 1998. (See Note 3 of
the Notes to Financial Statements.) Parcels 15 and 16 have been annexed to the
village of Huntley and zoned for residential and commercial development. The
Partnership sold Parcels 13 and 18 and the remaining acres of Parcel 6 to
unaffiliated third-parties. (See Note 3 of the Notes to Financial Statements.)
Results of Operations
As of September 30, 1998, the Partnership owned fifteen parcels of land
consisting of approximately 2,462 acres. Of the 2,462 acres owned,
approximately 2,381 acres are tillable and leased to local farmers and are
generating sufficient cash flow to cover property taxes, insurance and other
miscellaneous property expenses. The sale of investment property income and
the cost of investment property sold recorded for the nine months ended
September 30, 1998 is the result of the sale of Parcels 6, 13 and 18,
additional sales at Parcels 2 and 4 and an easement sale on Parcel 5. (See
Note 3 of the Notes to Financial Statements.) Rental income decreased for the
three and nine months ended September 30, 1998, as compared to the three and
nine months ended September 30, 1997, due to the decrease in tillable acres due
to land sales and pre-development activity on the Partnership's land
investments. This decrease was partially offset by the annual increase in
lease amounts from tenants.
Interest income increased for the three and nine months ended September 30,
1998, as compared to the three and nine months ended September 30, 1997, due
primarily as a result of the interest income earned on the mortgage loan
receivable the Partnership received from the sale of the remaining acreage of
Parcel 6. See Note 5 of the Notes to Financial Statements for further
discussion of the terms of the mortgage loan receivable received from this
sale.
The other income recorded for the nine months ended September 30, 1997 is
primarily the result of the Partnership receiving a non-refundable deposit on a
land sale which did not occur.
-14-
Professional services to Affiliates decreased for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997,
due primarily to a decrease in legal services required by the Partnership.
Professional services to non-affiliates decreased for the three and nine months
ended September 30, 1998, as compared to the three and nine months ended
September 30, 1997, due to a decrease in legal services. This decrease was
partially offset by an increase in accounting fees.
General and administrative expenses to Affiliates decreased for the three and
nine months ended September 30, 1998, as compared to the three and nine months
ended September 30, 1997, due primarily to decreases in investor services
expenses. General and administrative expenses to non-affiliates increased for
the three and nine months ended September 30, 1998, as compared to the three
and nine months ended September 30, 1997, due primarily to an increase in the
Illinois Replacement tax.
Marketing expenses to Affiliates decreased for the three and nine months ended
September 30, 1998, as compared to the three and nine months ended September
30, 1997, due to the identification of such costs which are specific to a
particular parcel, and accordingly, have been capitalized and are included in
investments in land. Marketing expenses to non-affiliates decreased for the
three and nine months ended September 30, 1998, as compared to the three and
nine months ended September 30, 1997, due to a decrease in advertising and
travel expenses relating to marketing the land portfolio to prospective
purchasers.
Land operating expenses to non-affiliates increased for the nine months ended
September 30, 1998, as compared to the nine months ended September 30, 1997,
due to an increase in real estate taxes and maintenance expenses of the
Partnership's land investments.
Year 2000 Issues
GENERAL
Many computer operating systems and software applications were designed such
that the year 1999 is the maximum date that can be processed accurately. In
conducting business, the Partnership relies on computers and operating systems
provided by equipment manufacturers, and also on application software developed
internally and, to a limited extent, by outside software vendors. The
Partnership has assessed its vulnerability to the so-called "Year-2000 Issue"
with respect to its equipment and computer systems.
-15-
STATE OF READINESS
The Partnership has identified the following two areas for "Year-2000"
compliance efforts:
Business Computer Systems: The majority of the Partnership's information
technology systems were developed internally and include accounting, lease
management, investment portfolio tracking, and tax return preparation. The
Partnership has rights to the source code for these applications and employs
programmers who are knowledgeable regarding these systems. The process of
testing these internal systems to determine year 2000 compliance is nearly
complete. The Partnership does not anticipate any material costs relating to
its business computer systems regarding year 2000 compliance since the
Partnership's critical hardware and software systems use four digits to
represent the applicable year. The Partnership does use various computers, so-
called "PC's", that may run software that may not use four digits to represent
the applicable year. The Partnership is in the process of testing the PC
hardware and software to determine year 2000 compliance, but it must be noted
that such PC's are incidental to the Partnership's critical systems. The
Partnership is considering independent testing of its critical systems.
Tenants and Suppliers: The Partnership is in the process of surveying tenants,
suppliers and other parties with whom the Partnership does a significant amount
of business to identify the Partnership's potential exposure in the event such
parties are not year 2000 compliant in a timely manner. Since this area
involves some parties over which the Partnership has no control, such as public
utility companies, it is difficult, at best, to judge the status of the outside
companies' year 2000 compliance. The Partnership is working closely with all
suppliers of goods and services in an effort to minimize the impact of the
failure of any supplier to become year 2000 compliant by December 31, 1999. The
Partnership's investigations and assessments of possible year 2000 issues are
in a preliminary stage, and currently the Partnership is not aware of any
material impact on its business, operations or financial condition due to year
2000 non-compliance by any of the Partnership's tenants or suppliers.
YEAR 2000 COSTS
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $50,000. However, only
approximately 1% of these costs will be directly allocated to and paid by the
Partnership. The balance of the year 2000 compliance costs, approximately 99%,
will be paid by the General Partner and its Affiliates. Total year 2000
compliance costs incurred through September 30, 1998 are estimated at
approximately $5,000.
YEAR 2000 RISKS
The most reasonable likely worst case scenario for the Partnership with respect
to the year 2000 non-compliance of its business computer systems would be the
inability to access information which could result in the failure to issue
financial reports. The most reasonable likely worst case scenario for the
Partnership with respect to the year 2000 non-compliance of its tenants is
failure to receive rental income which could result in the Partnership being
unable to meet cash requirements for monthly expenses.
CONTINGENCY PLAN
The Partnership is in the process of formulating a contingency plan which will
be developed by July of 1999.
-16-
PART II - Other Information
Items 1 through 6(b) are omitted because of the absence of conditions under
which they are required.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
-17-
SIGNATURES
Pursuant to the requirements 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 CAPITAL FUND, L.P.
By: Inland Real Estate Investment Corporation
General Partner
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chairman
Date: November 12, 1998
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 12, 1998
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 12, 1998
-18-
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