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 June 30, 1999
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
June 30, 1999 and December 31, 1998
(unaudited)
Assets
------
1999 1998
Current assets: ---- ----
Cash and cash equivalents (Note 1).............. $ 3,511,313 569,663
Accounts and accrued interest receivable
(Note 5)...................................... 64,722 44,801
Other current assets............................ - 2,406
------------ ------------
Total current assets.............................. 3,576,035 616,870
------------ ------------
Other assets...................................... 25,330 3,074
Mortgage loan receivable (Note 5)................. 400,000 400,000
Investment properties and improvements
(including acquisition fees paid to Affiliates
of $1,092,664 and $1,187,120 at June 30, 1999
and December 31, 1998, respectively)
(Notes 1 and 3)................................. 23,483,019 24,946,536
------------ ------------
Total assets...................................... $27,484,384 25,966,480
============ ============
See accompanying notes to financial statements.
-2-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Balance Sheets
(continued)
June 30, 1999 and December 31, 1998
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1999 1998
Current liabilities: ---- ----
Accounts payable................................ $ 17,286 18,124
Accrued real estate taxes....................... 55,308 80,989
Due to Affiliates (Note 2)...................... 17,471 19,796
Unearned income................................. 16,191 15,012
------------ ------------
Total current liabilities......................... 106,256 133,921
------------ ------------
Deferred gain on sale of investment properties
(Note 5)........................................ 2,805 2,805
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 13,985 13,719
------------ ------------
14,485 14,219
Limited Partners: ------------ ------------
Units of $1,000. Authorized 60,000 Units,
32,352.11 Units outstanding (net of offering
costs of $4,466,765, of which $3,488,574
was paid to Affiliates)....................... 27,886,551 27,886,551
Cumulative net income......................... 5,338,908 3,793,605
Cumulative cash distributions................. (5,864,621) (5,864,621)
------------ ------------
27,360,838 25,815,535
------------ ------------
Total Partners' capital........................... 27,375,323 25,829,754
------------ ------------
Total liabilities and Partners' capital........... $27,484,384 25,966,480
============ ============
See accompanying notes to financial statements.
-3-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Operations
For the three and six months ended June 30, 1999 and 1998
(unaudited)
Three months Six months
ended ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
Income: ---- ---- ---- ----
Sale of investment property
(Notes 1 and 3).................. $ 372,425 311,621 3,119,357 311,621
Rental income (Note 4)........... 59,850 73,776 116,056 146,284
Interest income.................. 49,340 8,700 83,091 14,811
---------- ---------- ---------- ----------
481,615 394,097 3,318,504 472,716
---------- ---------- ---------- ----------
Expenses:
Cost of investment property sold. 177,630 166,630 1,600,379 166,630
Professional services to
Affiliates..................... 6,815 6,250 18,563 12,591
Professional services to
non-affiliates................. 875 1,527 23,465 23,102
General and administrative
expenses to Affiliates......... 5,758 2,240 16,887 10,733
General and administrative
expenses to non-affiliates..... 6,203 6,043 16,191 15,312
Marketing expenses to Affiliates. 2,463 8,666 10,070 13,129
Marketing expenses to
non-affiliates................. 6,927 18,560 28,875 24,352
Land operating expenses to
Affiliates..................... 12,780 15,861 25,560 31,723
Land operating expenses to
non-affiliates................. 12,277 52,155 32,945 74,400
---------- ---------- ---------- ----------
231,728 277,932 1,772,935 371,972
---------- ---------- ---------- ----------
Net income......................... $ 249,887 116,165 1,545,569 100,744
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and six months ended June 30, 1999 and 1998
(unaudited)
Three months Six months
ended ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
Net income allocated to: ---- ---- ---- ----
General Partner.................. $ 551 (288) 266 (442)
Limited Partners................. 249,336 116,453 1,545,303 101,186
---------- ---------- ---------- ----------
Net income......................... $ 249,887 116,165 1,545,569 100,744
========== ========== ========== ==========
Net income (loss) allocated to the
one General Partner Unit......... $ 551 (288) 266 (442)
========== ========== ========== ==========
Net income per Unit allocated to
Limited Partners per weighted
average Limited Partnership
Units of 32,352.11............... $ 7.71 3.60 47.77 3.13
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Statements of Cash Flows
For the six months ended June 30, 1999 and 1998
(unaudited)
1999 1998
Cash flows from operating activities: ---- ----
Net income...................................... $ 1,545,569 100,744
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain on sale of investment properties......... (1,518,978) (144,991)
Changes in assets and liabilities:
Accrued interest and other receivables...... (19,921) (13,775)
Other current assets........................ 2,406 2,632
Accounts payable............................ (838) 61,680
Accrued real estate taxes................... (25,681) 19,364
Due to Affiliates........................... (2,325) (9,984)
Unearned income............................. 1,179 (5,754)
Net cash provided by (used in) operating ------------ ------------
activities...................................... (18,589) 9,916
------------ ------------
Cash flows from investing activities:
Sale of marketable securities................... - 174,800
Additions to investment properties.............. (136,862) (173,902)
Other assets.................................... (22,256) (27,367)
Proceeds from sale of investment properties..... 3,119,357 311,621
------------ ------------
Net cash provided by investing activities......... 2,960,239 285,152
------------ ------------
Net increase in cash and cash equivalents......... 2,941,650 295,068
Cash and cash equivalents at beginning of period.. 569,663 304,452
------------ ------------
Cash and cash equivalents at end of period........ $ 3,511,313 599,520
============ ============
See accompanying notes to financial statements.
-6-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
June 30, 1999
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1998, which are
included in the Partnership's 1998 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 June 30, 1999, 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 and are
carried at cost, which approximates market.
A presentation of information about operating segments as required in Statement
of Financial Accounting Standards No. 131 "Disclosures About Segments of an
Enterprise and Related Information" would not be material to an understanding
of the Partnership's business taken as a whole as the Partnership is engaged in
the business of real estate investment which management considers to be a
single operating segment.
-7-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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. As of
June 30, 1999, the Partnership has not recognized any such impairment.
Statement of Financial Accounting Standards No. 128 "Earnings per Share" was
adopted by the Partnership and has been applied to all prior earnings periods
presented in the financial statements. The Partnership has no dilutive
securities.
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)
June 30, 1999
(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 $7,471 and $2,772 was unpaid as of June 30, 1999 and December 31, 1998,
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 $25,560 and
$31,723 have been incurred and are included in land operating expenses to
Affiliates for the six months ended June 30, 1999 and 1998, respectively, of
which $0 and $14,024 was unpaid as of June 30, 1999 and December 31, 1998,
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 $10,070 and $13,129
have been incurred and are included in marketing expenses to Affiliates for the
six months ended June 30, 1999 and 1998, respectively, of which $10,000 and
$3,000 was unpaid as of June 30, 1999 and December 31, 1998, 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 of $47,297 and $19,766 have been incurred for the
six months ended June 30, 1999 and 1998, respectively, and are included in
investment properties, all of which have been paid.
-9-
<TABLE> INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investment Properties
<CAPTION>
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 06/30/99 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 81,935 - 847,427 -
2 McHenry 201.0000 11/09/93 2,020,314 122,145 2,142,459 1,633,949 662,465 3,113,943 197,416
(17.7420) 08/02/95
(8.6806) Var 1997
(1.9290) Var 1998
(4.8200) Var 1999
3 Will 34.0474 03/04/94 1,235,830 88,092 1,323,922 37,856 1,361,778 - 1,232,402
(34.0474) 02/04/99
4 Will 86.9195 03/30/94 1,778,820 143,817 1,922,637 367,658 191,001 2,099,294 -
(2.3050) Var 1997
(3.3600) Var 1998
5 LaSalle 190.9600 04/01/94 532,000 18,145 550,145 68,077 6,655 611,567 -
(2.0600) 04/08/98
6 DeKalb 59.0800 05/11/94 670,207 58,373 728,580 486,869 1,215,449 - -
(4.9233) Apr 1998
(54.1567) 07/23/98
7 Kendall 200.8210 07/28/94 1,506,158 82,999 1,589,157 25,571 - 1,614,728 -
8 Kendall 133.0000 08/17/94 1,300,000 106,949 1,406,949 7,670 - 1,414,619 -
9 LaSalle 335.9600 08/30/94 993,441 79,329 1,072,770 112,487 - 1,185,257 -
10 Kendall 223.7470 09/16/94 2,693,025 205,660 2,898,685 30,453 - 2,929,138 -
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 8,284 - 1,436,835 -
12 Kendall 110.2530 09/28/94 600,001 51,220 651,221 64,070 - 715,291 -
------------ ------------ ------------ -------------- ------------ ------------ ------------
Subtotal 15,597,338 1,106,011 16,703,349 2,926,206 3,658,426 15,968,099 1,429,818
-10-
-10-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
(3) Investment Properties (continued)
Total
Gross Initial Costs Costs Remaining Current
Acres Purchase/ -------------------------------------- Capitalized Costs of Costs of Year Gain
Location: Purchased Sales Original Acquisition Total Subsequent to Property Parcels at on Sale
Parcel County (Sold) Date Costs Costs Costs Acquisition Sold 06/30/99 Recognized
- ------ --------- ---------- ---------- ------------ ------------ ------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal 15,597,338 1,106,011 16,703,349 2,926,206 3,658,426 15,968,099 1,429,818
13 LaSalle 352.7390 10/06/94 1,032,666 91,117 1,123,783 22,723 1,146,506 - -
(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 7,228 85,960 1,002,942 89,160
(10.6430) 05/21/99
15 McHenry 169.5400 10/31/94 2,900,000 79,196 2,979,196 253,954 - 3,233,150 -
16 McHenry 207.0754 11/30/94 1,760,256 101,388 1,861,644 246,623 - 2,108,267 -
17 LaSalle 236.4400 12/07/94 1,060,286 74,735 1,135,021 35,540 - 1,170,561 -
18 Kendall 386.9900 11/02/95 934,993 126,329 1,061,322 501 1,061,823 - -
(386.9900) 08/31/98
------------ ------------ ------------ -------------- ------------ ------------ ------------
$24,285,539 1,660,450 25,945,989 3,492,775 5,952,715 23,483,019 1,518,978
============ ============ ============ ============== ============ ============ ============
</TABLE>
-11-
-11-
INLAND CAPITAL FUND, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
June 30, 1999
(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 in April 1995.
(b) Reconciliation of investment properties and improvements owned:
June 30, December 31,
1999 1998
------------ ------------
Balance at January 1,........................... $24,946,536 28,301,315
Additions during period......................... 136,862 254,963
Sales during period............................. 1,600,379 3,609,742
------------ ------------
Balance at end of period........................ $23,483,019 24,946,536
============ ============
(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 June 30, 1999, the Partnership had farm leases of generally one year in
duration, for approximately 2,058 acres of the approximately 2,411 acres owned.
(5) Mortgage Loan 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 $5,084 has been recognized as of
June 30, 1999. Of the $1,125,000 mortgage loan receivable received, $725,000
accrued interest at 9% per annum and had a maturity date of November 30, 1998
(extended from September 30, 1998). 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 June 30, 1999, accrued interest
receivable totaled $62,597.
(6) Subsequent Events
On July 16, 1999, the Partnership distributed $2,966,503 of net sales proceeds
relating to Parcels 3 and 4. Of the $2,966,503, $2,707,085 was distributed to
the Limited Partners and $259,418 was distributed to the General Partner.
-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 June 30, 1999, the
Partnership has had multiple sales transactions through which it has disposed
of the building and approximately 891 acres of the 3,302 acres originally
owned. As of June 30, 1999, cumulative distributions to the Limited Partners
have totaled $5,864,621 (which represents a return of Invested Capital, as
defined in the Partnership Agreement). Through June 30, 1999, the Partnership
has used $3,492,775 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 June 30, 1999, the Partnership owns, in whole or in part,
fourteen 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 June 30, 1999, the Partnership had cash and cash equivalents of $3,511,313
of which approximately $165,000 is reserved for the repurchase of Units through
the Unit Repurchase Program. The remaining approximately $3,300,000 is
available, upon maturity, 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 sixteen of
the 190 lots were sold as of June 30, 1999. (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, a third site consisting of 1.5
acres was sold to a national fast-food chain on August 13, 1998, and a fourth
site consisting of 1.86 acres was sold to a different national fast-food chain
on October 6, 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 3, 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
Income from the sale of investment properties and the cost of investment
properties sold for the six months ended June 30, 1999 is the result of the
sale of approximately 50 acres, including the sale of Parcel 3, five additional
lots of Parcel 2, and eleven acres of Parcel 14. (See Note 3 of the Notes to
Financial Statements.)
As of June 30, 1999, the Partnership owned fourteen parcels of land consisting
of approximately 2,411 acres. Of the 2,411 acres owned, approximately 2,058
acres are tillable and leased to local farmers and are generating sufficient
cash flow to cover property taxes, insurance and other miscellaneous property
expenses. Rental income decreased for the three and six months ended June 30,
1999, as compared to the three and six months ended June 30, 1998, 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 six months ended June 30, 1999, as
compared to the three and six months ended June 30, 1998, due primarily to
interest income earned on the mortgage loan receivable the Partnership received
from the sale of the remaining acres 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.
-14-
Professional services to Affiliates increased for the three and six months
ended June 30, 1999, as compared to the three and six months ended June 30,
1998, due to increases in legal and accounting services required by the
Partnership to transact sales.
General and administrative expenses to Affiliates increased for the three and
six months ended June 30, 1999, as compared to the three and six months ended
June 30, 1998, due to increases in data processing and investor services
expenses. General and administrative expenses to non-affiliates increased for
the three and six months ended June 30, 1999, as compared to the three and six
months ended June 30, 1998, due primarily to an increase in the Illinois
Replacement Tax.
Marketing expenses to Affiliates decreased and marketing expenses to non-
affiliates increased for the six months ended June 30, 1999, as compared to the
six months ended June 30, 1998, due to activity in marketing, advertising and
travel expenses relating to marketing the land portfolio to prospective
purchasers. Marketing expenses to non-affiliates decreased for the three months
ended June 30, 1999, as compared to the three months ended June 30, 1998, due
to a decrease in non recurring advertising and travel expenses relating to
marketing the land portfolio to prospective purchasers.
Land operating expenses to Affiliates decreased for the three and six months
ended June 30, 1999, as compared to the three and six months ended June 30,
1998, due to a decrease in tillable acres due to land sales. Land operating
expenses to non-affiliates decreased for the three and six months ended June
30, 1999, as compared to the three and six months ended June 30, 1998, due to
decreases in utilities and real estate tax expenses.
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.
Suppliers and other Parties: The Partnership is in the process of surveying
suppliers and other parties with whom the Partnership does a significant amount
of business to identify the Partnership's potential exposure in the event such
parties are not year 2000 compliant in a timely manner. At this time, the
Partnership is not aware of any party that is anticipating a material Year 2000
compliance issue. However, since this area involves some parties over which
the Partnership has no control, such as public utility companies, it is
difficult, at best, to judge the status of the outside companies' year 2000
compliance. The Partnership is working closely with all suppliers of goods and
services in an effort to minimize the impact of the failure of any supplier to
become year 2000 compliant by December 31, 1999. The Partnership's
investigations and assessments of possible year 2000 issues are in a
preliminary stage, and currently the Partnership is not aware of any material
impact on its business, operations or financial condition even if one or more
parties is not Year 2000 compliant in a timely manner, due to the number and
nature of the Partnership's diverse supplier base.
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.
YEAR 2000 COSTS
- ---------------
The Partnership's General Partner and its Affiliates estimate that costs to
achieve year 2000 compliance will not exceed $100,000. However, only
approximately 1% of these costs will be directly allocated to and paid by the
Partnership. The balance of the year 2000 compliance costs, approximately 99%,
will be paid by the General Partner and its Affiliates. Total year 2000
compliance costs incurred through December 31, 1998 were approximately $5,000.
-16-
CONTINGENCY PLAN
- ----------------
The Partnership expects to be Year 2000 compliant in advance of the year 2000.
The Partnership will continue to monitor its progress and state of readiness,
and is in the process of formulating a contingency plan which the Partnership
will be prepared to adopt with respect to areas in which evidence arises that
it may not become Year 2000 compliant in sufficient time. With respect to its
suppliers and other parties with whom the Partnership conducts business, the
Partnership does not yet have sufficient information to identify the types of
problems it may encounter in the event these third parties are not Year 2000
compliant. As information is obtained that may indicate such parties may not
become Year 2000 compliant in sufficient time, the Partnership is prepared to
develop contingency plans, accordingly.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. 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: August 11, 1999
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: August 11, 1999
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: August 11, 1999
-18-
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