INLAND REAL ESTATE CORP, 10-K, 1999-03-31

INLAND REAL ESTATE CORP
10-K, 1999-03-31
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For The Fiscal Year Ended December 31, 1998

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

Commission File #33-79012

Inland Real Estate Corporation
(Exact name of registrant as specified in its charter)

Maryland 36-3953261
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

2901 Butterfield Road, Oak Brook, Illinois 60523
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: 630-218-8000

Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
None None

Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $.01 par value None

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]

As of March 30, 1999, the aggregate market value of the Shares of Common Stock
held by non-affiliates of the registrant was approximately $594,611,347.

As of March 30, 1999, there were 54,075,577 Shares of Common Stock outstanding.

Documents Incorporated by Reference: The Prospectus of the Registrant dated
April 7, 1998 as amended, are incorporated by reference in Parts I, II and III
of this Annual Report on Form 10-K.

-1-

INLAND REAL ESTATE CORPORATION
(A Maryland corporation)

TABLE OF CONTENTS

Part I Page
------ ----
Item 1. Business...................................................... 3

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

Item 3. Legal Proceedings............................................. 12

Item 4. Submission of Matters to a Vote of Security Holders........... 12

Part II
-------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.............................. 12

Item 6. Selected Financial Data....................................... 13

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 16

Item 7(a) Quantitative and Qualitative Disclosures About Market Risk.... 23

Item 8. Financial Statements and Supplementary Data................... 24

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 54

Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 54

Item 11. Executive Compensation........................................ 57

Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 58

Item 13. Certain Relationships and Related Transactions................ 58

Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 59

SIGNATURES............................................................. 62

-2-

PART I

Item 1. Business

The Company

Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. On
October 14, 1994, the Company commenced an initial public offering, on a best
effort basis, ("Initial Offering") of 5,000,000 shares of common stock
("Shares") at $10.00 per share. As of July 24, 1996, the Company had received
subscriptions for a total of 5,000,000 Shares, thereby completing the Initial
Offering. On July 24, 1996, the Company commenced an offering of an additional
10,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Second
Offering"). As of July 10, 1997, the Company had received subscriptions for a
total of 10,000,000 Shares, thereby completing the Second Offering. On July 14,
1997, the Company commenced an offering of an additional 20,000,000 Shares at
$10.00 per Share, on a best efforts basis, (the "Third Offering"). As of March
19, 1998, the Company had received subscriptions for a total of 20,000,000
Shares, thereby completing the Third Offering. On April 7, 1998, the Company
commenced an offering of an additional 27,000,000 Shares at $11.00 per Share, on
a best efforts basis, (the "Fourth Offering"). In order to maximize the
Company's flexibility in evaluating strategic alternatives, the Board of
Directors decided to terminate the Fourth Offering on December 31, 1998. As of
December 31, 1998, the Company had received subscriptions for a total of
16,642,397 Shares in the Fourth Offering. In addition, as of December 31,
1998, the Company has distributed 2,212,934 Shares through the Company's
Distribution Reinvestment Program ("DRP). As of December 31, 1998, the Company
has repurchased 198,375 Shares through its Share Repurchase Program. As a
result, as of December 31, 1998, Gross Offering Proceeds total $539,331,413, net
of Shares repurchased through the Share Repurchase program. Inland Real Estate
Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, is the
advisor to the Company.

On September 28, 1998, the Company engaged Everen Securities, Inc. to advise the
Company on strategic alternatives designed to increase stockholder value. These
alternatives include, but are not limited to, evaluating whether: (1) the
Company should become internally advised and managed by acquiring the Advisor
and the Property Manager; (2) the Company should list its common stock on an
exchange or other trading system; and (3) the Company should seek to merge with
a third party that is already listed on an exchange or other trading system.
Everen Securities, Inc. is expected to complete its advisor engagement by the
third quarter 1999.

The Company had no employees during 1998, 1997 and 1996.

-3-

Description of Business

The Company is in the business of acquiring Neighborhood Retail Centers, with
gross leasable area ranging from approximately 5,000 to 150,000 square feet, and
Community Centers, with gross leasable area ranging from 150,000 to 300,000
square feet, located primarily within an approximate 400-mile radius of its
headquarters in Oak Brook, Illinois. The Company may also acquire single-user
retail properties located throughout the United States. The Company is also
permitted to construct or develop properties, or render services in connection
with such development or construction, subject to the Company's compliance with
the rules governing real estate investment trusts under the Internal Revenue
Code of 1986, ("Code"), as amended.

The Company anticipates that aggregate borrowings secured by all of the
Company's properties will not exceed 50% of their combined fair market values,
however, the maximum amount of borrowings in the absence of the consent of a
majority of the Stockholders, may not exceed 300% of Net Assets. The Company
has incurred mortgage indebtedness subsequent to acquisition on properties
initially acquired on an all cash basis. The proceeds from such loans were used
to acquire additional properties. The Company may also incur indebtedness to
finance improvements to the properties it acquires. In certain instances, where
the terms were more favorable than those that could be obtained by the Company
or prepayment of the debt was not allowed, the Company has acquired properties
subject to existing debt.

The Company'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 in the table set forth in Item 2 below
to which reference is hereby made. The Company's real property investments are
all currently located within 400 miles of the Company's headquarters in
Illinois. The Company does not segregate revenues or assets by geographic
region, and such a presentation would not be material to an understanding of the
Company's business taken as a whole.

Certain risks exist due to a concentration of any single tenant within the
portfolio. Currently the largest single tenant is Dominick's Finer Foods, which
has eight leases totaling 543,977 square feet, or approximately 8.46% of the
total gross leasable area owned by the Company. Annualized base rental income
of these eight leases is projected to be $6,554,003 for the year ended December
31, 1999, or approximately 10.52% of the total annualized base rental income
based on the current portfolio.

Qualification as a Real Estate Investment Trust

The Company qualified as a real estate investment trust ("REIT") under the Code
for federal income tax purposes commencing with the tax year ending December 31,
1995. Since the Company qualified for taxation as a REIT, the Company generally
will not be subject to federal income tax to the extent it distributes its REIT
taxable income to its stockholders. If the Company fails to qualify as a REIT
in any taxable year, the Company will be subject to federal income tax on its
taxable income at regular corporate tax rates. Even if the Company qualifies
for taxation as a REIT, the Company may be subject to certain state and local
taxes on its income and property and federal income and excise taxes on its
undistributed income.

-4-

Item 2. Properties

As of December 31, 1998, the Company has acquired fee ownership of eighty-five
properties, including fifteen single-user retail properties, fifty-seven
Neighborhood Retail Centers and thirteen Community Centers. The Company owns
property in Illinois, Wisconsin, Indiana, Minnesota and Ohio. Tenants of the
properties are responsible for the payment of some or all of the real estate
taxes, insurance and common area maintenance.

<TABLE>
<CAPTION> Gross Mortgages
Leasable Year Payable Current
Area Date Built/ at No. of Anchor
Property (Sq Ft) Acq. Renovated 12/31/98 Tenants Tenants*
- - ---------------------------- -------- ------ --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>

Single-User Retail Property
- - ---------------------------
Walgreens, Decatur, IL 13,500 01/95 1988 $ 714,443 1 Walgreens Pharmacy

Zany Brainy, Wheaton, IL 12,499 07/96 1995 1,245,000 1 Zany Brainy

Ameritech, Joliet, IL 4,505 05/97 1995 522,375 1 Ameritech

Dominicks-Schaumburg
Schaumburg, IL 71,400 05/97 1996 5,345,500 1 Dominick's Finer Foods

Dominicks-Highland Park
Highland Park, IL 71,442 06/97 1996 6,400,000 1 Dominick's Finer Foods

Dominicks-Glendale Heights
Glendale Heights, IL 68,923 09/97 1997 4,100,000 1 Dominick's Finer Foods

Party City Store
Oak Brook Terrace, IL 10,000 11/97 1985 987,500 1 Party City

Eagle Country Market,
Roselle, IL 42,283 11/97 1990 1,450,000 1 Eagle Foods

Dominicks-West Chicago
West Chicago, IL 78,158 01/98 1990 3,150,000 1 Dominick's Finer Foods

Walgreens-Woodstock 15,856 06/98 1973 569,610 1 Walgreen's Pharmacy
Woodstock, IL

Bakers Shoes
Chicago, IL 20,000 09/98 1891 - 1 Bakers Shoes

Staples
Freeport, IL 24,049 12/98 1998 - 1 Staples

Carmax-Schaumburg
Schaumburg, IL 93,333 12/98 1998 - 1 Carmax

Carmax-Tinley Park
Tinley Park, IL 94,518 12/98 1998 - 1 Carmax

Hollywood Video-Hammond
Hammond, IN 7,488 12/98 1998 - 1 Hollywood Video

-5-

Gross Mortgages
Leasable Year Payable Current
Area Date Built/ at No. of Anchor
Property (Sq Ft) Acq. Renovated 12/31/98 Tenants Tenants*
- - ---------------------------- -------- ------ --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>

Neighborhood Retail Centers
- - ---------------------------
Eagle Crest Shopping Center
Naperville, IL 67,650 03/95 1991 2,350,000 12 Eagle Foods

Montgomery-Goodyear 12,903 09/95 1991 630,000 2 Goodyear Tire & Rubber
Montgomery, IL Merlin Corp.

Hartford/Naperville Plaza 43,862 09/95 1995 2,310,000 8 Blockbuster Video
Naperville, IL Sears Hardware
Keller/Williams Realty

Nantucket Square
Shopping Center 56,981 09/95 1980 2,200,000 20 Hallmark
Schaumburg, IL Trak Auto
The Dental Store Ltd.

Antioch Plaza, Antioch, IL 19,810 12/95 1995 875,000 5 Blockbuster Video
Radio Shack

Mundelein Plaza,
Mundelein, IL 68,056 03/96 1990 2,810,000 8 Sears

Regency Point, Lockport, IL 49,826 04/96 1993 4,312,036 18 Walgreens Pharmacy
5,050 04/96 1995 Ace Hardware

Prospect Heights, 28,080 06/96 1985 1,095,000 5 Walgreens Pharmacy
Prospect Hts., IL Blockbuster Video

Montgomery-Sears,
Montgomery, IL 34,600 06/96 1990 1,645,000 6 Sears Paint & Hardware
Blockbuster Video

Salem Square,
Countryside, IL 112,310 08/96 1973/ $3,130,000 5 TJ Maxx
1985 Marshalls

Hawthorn Village,
Vernon Hills,IL 98,686 08/96 1979 4,280,000 22 Dominick's Finer Foods
Walgreens Pharmacy

Six Corners, Chicago, IL 80,650 10/96 1966 3,100,000 7 Chicago Health Club
Illinois Masonic
Medical Center

Spring Hill Fashion Corner
West Dundee, IL 125,198 11/96 1985 4,690,000 20 TJ Maxx
Michaels Crafts

Crestwood Plaza,
Crestwood, IL 20,044 12/96 1992 904,380 2 Entenmann's
Pet Supplies Plus

Park St. Claire,
Schaumburg, IL 11,859 12/96 1994 762,500 2 Ameritech
Hallmark Showcase
Summit of Park Ridge
Park Ridge, IL 33,252 12/96 1986 1,600,000 14 LePeep Rest.
Giappos Pizza

Grand and Hunt Club,
Gurnee, IL 21,222 12/96 1996 1,796,000 2 Jewelry 3
Super Crown Books

Quarry Outlot, Hodgkins, IL 9,650 12/96 1996 900,000 3 Dunkin Donuts/
Baskin Robbins
The Casual Male
Jewelry 3

Aurora Commons, Aurora,IL 127,292 01/97 1988 9,205,252 24 Jewel/Osco

-6-

Neighborhood Retail Centers (cont.)
- - -----------------------------------
Lincoln Park Place,
Chicago, IL 10,678 01/97 1990 1,050,000 1 Lechters Housewares

Niles Shopping Center,
Niles, IL 26,117 04/97 1982 1,617,500 7 Jennifer Convertibles
Acel Cellular
Wolf Camera & Video

Mallard Crossing,
Elk Grove Village, IL 82,949 05/97 1993 4,050,000 11 Eagle Foods

Cobblers Crossing, Elgin, IL 102,643 05/97 1993 5,476,500 13 Jewel Food Store

Calumet Square,
Calumet City, IL 39,936 06/97 1967/ 1,032,920 3 Aronson Furniture
1994 Super Trak Warehouse

Sequoia Shopping Center
Milwaukee, WI 35,407 06/97 1988 1,505,000 13 Kinko's
U.S. Post Office
Play It Again Sports
Wong's Palace

Riversquare Shopping Center
Naperville, IL 58,158 06/97 1988 3,050,000 20 Salon Suites Limited
Harbour Contractors, Inc.

Shorecrest Plaza, Racine, WI 91,176 07/97 1977 2,978,000 13 Piggly Wiggly Grocery
Wisconsin Health & Fitness

Dominicks-Countryside
Countryside, IL 62,344 12/97 1975 1,150,000 1 Dominick's Finer Foods

Terramere Plaza,
Arlington Heights, IL 40,965 12/97 1980 2,202,500 20 None

Wilson Plaza, Batavia, IL 11,160 12/97 1986 650,000 7 White Hen Pantry
Dimples Donuts
Riverside Liquors

Iroquois Center,
Naperville, IL 140,981 12/97 1983 5,950,000 25 Total Beverage
Sears

Fashion Square, Skokie, IL 83,959 12/97 1984 6,200,000 19 Cost Plus
Designer Shoe Outlet

Shops at Coopers Grove
Country Club Hills, IL 72,518 01/98 1991 2,900,000 10 Eagle Foods

Maple Plaza
Downers Grove, IL 31,298 01/98 1988 1,582,500 12 J.C. Licht Co.
Goodyear Tire & Rubber

Orland Park Retail
Orland Park, IL 8,500 02/98 1997 625,000 3 Video Update
All Cleaners
Gianni's Pizza

Wisner/Milwaukee Plaza
Chicago, IL 14,677 02/98 1994 974,725 4 Blockbuster Video
Giordano's Restaurant
Spincycle Coin Laundry

Homewood Plaza
Homewood, IL 19,000 02/98 1993 1,013,201 3 Blockbuster Video
Trak Auto

-7-

Neighborhood Retail Centers (cont.)
- - -----------------------------------
Elmhurst City Center
Elmhurst, IL 39,117 02/98 1994 2,513,765 12 Walgreen's Pharmacy
Famous Footwear
Ruby's

Shoppes of Mill Creek
Palos Park, IL 102,443 03/98 1989 9,500,000 23 Jewel Food Store

Prairie Square
Sun Prairie, WI 35,755 03/98 1995 1,550,000 13 Famous Footwear
Blockbuster Video

Oak Forest Commons
Oak Forest, IL 108,360 03/98 1998 6,617,871 13 Dominick's Finer Foods

Downers Grove Market
Downers Grove, IL 104,445 03/98 1998 10,600,000 14 Dominick's Finer Foods

St. James Crossing
Westmont, IL 49,992 03/98 1990 3,847,599 21 Nevada Bob's
Luciano's

High Point Center
Madison, WI 86,204 04/98 1984 5,360,988 28 Pier 1 Imports

Western & Howard
Chicago, IL 12,784 04/98 1985 992,681 3 Pearle Vision
Payless Shoe Source
Super Gap
Wauconda Shopping Center
Wauconda, IL 31,157 05/98 1988 1,333,834 4 Sears Hardware
Spasso, Ltd.

Berwyn Plaza
Berwyn, IL 18,138 05/98 1983 708,638 5 Walgreens
Radio Shack

Woodland Heights
Streamwood, IL 120,436 06/98 1956 3,940,009 10 Jewel Food Store
U.S. Post Office

Schaumburg Shopping Center
Schaumburg, IL 61,485 06/98 1994 3,908,081 6 Sears Hardware
Trak Auto
Ulta 3

Winnetka Shopping Center
New Hope, MN 42,415 07/98 1990 2,233,744 16 Walgreen's
Big Wheel Auto Store

Eastgate Shopping Center
Lombard, IL 132,519 07/98 1959 - 40 Ace Hardware
Secretary of State

Orland Greens Shopping Center
Orland Park, IL 45,031 09/98 1984 - 14 Walgreen's
MacFrugals

Two Rivers Plaza
Bolingbrook, IL 57,900 10/98 1994 - 11 Kay-Bee Toy Store
Sizes Unlimited
Marshalls

Edinburgh Festival
Brooklyn Park, MN 91,613 10/98 1997 4,625,000 12 Knowlan's Super Markets

Riverplace Center
Noblesville, IN 74,414 11/98 1992 - 12 Fashion Bug
Kroger

Rose Plaza
Elmwood Park, IL 18,264 11/98 1997 - 1 Binny's

Marketplace at Six Corners
Chicago, IL 117,000 11/98 1997 11,200,000 6 Jewel Food Store
Marshalls

-8-

Community Centers
- - -----------------
Lansing Square,
Lansing, IL 233,508 12/96 1991 8,150,000 16 Sam's Club
Baby Superstore
Office Max

Maple Park Place,
Bolingbrook, IL 215,662 01/97 1992 7,650,000 19 K-Mart Corporation
Eagle Foods

Rivertree Court,
Vernon Hills, IL 299,055 07/97 1988 17,547,999 42 Best Buy
Plitt Theaters

Naper West,
Naperville, IL 165,311 12/97 1985 7,695,199 25 Douglas TV
TJ Maxx

Woodfield Plaza
Schaumburg, IL 177,163 01/98 1992 9,600,000 10 Kohl's
Linens 'N Things
Barnes & Noble

Lake Park Plaza
Michigan City, IN 229,639 02/98 1990 6,489,618 15 Walmart

Chestnut Court
Darien, IL 170,027 03/98 1987 8,618,623 22 Just Ducky
Stein Mart

Bergen Plaza
Oakdale, MN 270,283 04/98 1978 9,141,896 39 Rainbow Foods
K-Mart

Fairview Heights Plaza
Fairview Heights, IL 167,491 08/98 1991 - 8 1/2 Price Store
Michaels
The Sports Authority
Sears Homelife

Woodfield Commons-East/West
Schaumburg, IL 207,106 10/98 1973 13,500,000 16 Toys R Us
1975 Tower Records
1997 Comp USA
Cost Plus
Party City

Joliet Commons
Joliet, IL 159,184 10/98 1995 14,569,482 11 Barnes and Noble
Old Navy
M.C. Sports

Springboro Plaza
Springboro, OH 154,034 11/98 1992 - 4 K-Mart
Kroger

Park Center Plaza
Tinley Park, IL 193,179 12/98 1988 - 24 Cub Foods

* Anchor tenants include tenants leasing more than 10% of the gross leasable area of a property.

</TABLE>

-9-

The following table lists the approximate physical occupancy levels for the
Company's investment properties as of the end of each year during 1998, 1997 and
1996. N/A indicates the property was not owned by the Company at the end of the
year.
As of December 31,
---------------------
Properties 1998 1997 1996
---------- -------- -------- --------
Walgreens, Decatur, IL ......................... 100% 100% 100%
Eagle Crest, Naperville, IL..................... 100% 97% 100%
Montgomery-Goodyear, Montgomery, IL............. 77% 77% 100%
Hartford/Naperville Plaza, Naperville, IL....... 100% 100% 100%
Nantucket Square, Schaumburg, IL................ 100% 96% 85%
Antioch Plaza, Antioch, IL...................... 68% 68% 57%
Mundelein Plaza, Mundelein, IL.................. 100% 100% 100%
Regency Point, Lockport, IL..................... 97% 97% 97%
Prospect Heights, Prospect Heights, IL.......... 92% 83% 100%
Montgomery-Sears, Montgomery, IL................ 100% 95% 85%
Zany Brainy, Wheaton, IL........................ 100% 100% 100%
Salem Square, Countryside, IL................... 97% 97% 97%
Hawthorn Village, Vernon Hills, IL.............. 100% 99% 98%
Six Corners, Chicago, IL........................ 82%* 90% 92%
Spring Hill Fashion Ctr., West Dundee, IL....... 95% 100% 95%
Crestwood Plaza, Crestwood, IL.................. 100% 100% 100%
Park St. Claire, Schaumburg, IL................. 100% 100% 100%
Lansing Square, Lansing, IL..................... 98% 90% 89%
Summit of Park Ridge, Park Ridge, IL............ 87% 83% 81%
Grand and Hunt Club, Gurnee, IL................. 100% 100% 100%
Quarry Outlot, Hodgkins, IL..................... 100% 100% 100%
Maple Park Place, Bolingbrook, IL............... 99% 98% N/A
Aurora Commons, Aurora, IL...................... 95% 98% N/A
Lincoln Park Place, Chicago, IL................. 60% 60% N/A
Ameritech, Joliet, IL........................... 100% 100% N/A
Dominicks-Schaumburg, Schaumburg, IL............ 100% 100% N/A
Dominicks-Highland Park, Highland Park, IL...... 100% 100% N/A
Niles Shopping Center, Niles, IL................ 100% 60% N/A
Mallard Crossing, Elk Grove Village, IL......... 97% 95% N/A
Cobblers Crossing, Elgin, IL.................... 91% 89% N/A
Calumet Square, Calumet City, IL................ 100% 100% N/A
Sequoia Shopping Center, Milwaukee, WI.......... 100% 93% N/A
Riversquare Shopping Ctr., Naperville, IL....... 97% 95% N/A
Rivertree Court, Vernon Hills, IL............... 99%* 99% N/A
Shorecrest Plaza, Racine, WI.................... 87% 96% N/A
Dominicks-Glendale Hts., Glendale Hts., IL...... 100% 100% N/A
Party City Store, Oak Brook Terrace, IL......... 100% 100% N/A
Eagle Country Market, Roselle, IL............... 100% 100% N/A
Dominicks-Countryside, Countryside, IL.......... 100% 100% N/A
Terramere Plaza, Arlington Heights, IL.......... 95% 80% N/A
Wilson Plaza, Batavia, IL....................... 100% 100% N/A
Iroquois Center, Naperville, IL................. 73%* 81% N/A
Fashion Square, Skokie, IL...................... 100% 88% N/A
Naper West, Naperville, IL...................... 83%* 86% N/A
Dominicks-West Chicago, West Chicago, IL........ 100% N/A N/A
Shops at Coopers Grove, Country Club Hills, IL.. 100% N/A N/A
Maple Plaza, Downers Grove, IL.................. 100% N/A N/A
Orland Park Retail, Orland Park, IL............. 100% N/A N/A
Wisner/Milwaukee Plaza, Chicago, IL............. 100% N/A N/A

-10-

As of December 31,
---------------------
Properties 1998 1997 1996
---------- -------- -------- --------

Homewood Plaza, Homewood, IL.................... 100% N/A N/A
Elmhurst City Center, Elmhurst, IL.............. 100% N/A N/A
Shoppes of Mill Creek, Palos Park, IL........... 98%* N/A N/A
Oak Forest Commons, Oak Forest, IL.............. 100% N/A N/A
Prairie Square, Sun Prairie, WI................. 90%* N/A N/A
Downers Grove Plaza, Downers Grove, IL.......... 100% N/A N/A
St. James Crossing, Westmont, IL................ 91%* N/A N/A
Woodfield Plaza, Schaumburg, IL................. 97%* N/A N/A
Lake Park Plaza, Michigan City, IN.............. 74%* N/A N/A
Chestnut Court, Darien, IL...................... 98%* N/A N/A
Western & Howard, Chicago, IL................... 100% N/A N/A
High Point Center, Madison, WI.................. 90%* N/A N/A
Wauconda Shopping Center, Wauconda, IL.......... 100% N/A N/A
Berwyn Plaza, Berwyn, IL........................ 100% N/A N/A
Woodland Heights, Streamwood, IL................ 81%* N/A N/A
Schaumburg Shopping Center, Schaumburg, IL...... 93%* N/A N/A
Bergen Plaza, Oakdale, MN....................... 98%* N/A N/A
Walgreens-Woodstock, Woodstock, IL.............. 100% N/A N/A
Winnetka Commons, New Hope, MN.................. 100% N/A N/A
Eastgate Shopping Center, Lombard, IL........... 91%* N/A N/A
Fairview Heights Plaza, Fairview Heights, IL.... 78%* N/A N/A
Orland Greens, Orland Park, IL.................. 100% N/A N/A
Bakers Shoes, Chicago, IL....................... 100% N/A N/A
Staples, Freeport, IL........................... 100% N/A N/A
Two Rivers Plaza, Bolingbrook, IL............... 100% N/A N/A
Edinburgh Festival, Brooklyn Park, MN........... 97%* N/A N/A
Woodfield Commons-East/West, Schaumburg, IL..... 89%* N/A N/A
Riverplace Center, Noblesville, IN.............. 100% N/A N/A
Rose Plaza, Elmwood Park, IL.................... 100% N/A N/A
Marketplace at Six Corners, Chicago, IL......... 100% N/A N/A
Joliet Commons, Joliet, IL...................... 97% N/A N/A
Springboro Plaza, Springboro, OH................ 100% N/A N/A
Carmax-Schaumburg, Schaumburg, IL............... 100% N/A N/A
Carmax-Tinley Park, Tinley Park, IL............. 100% N/A N/A
Hollywood Video-Hammond, Hammond, IN............ 100% N/A N/A
Park Center Plaza, Tinley Park, IL.............. 71%* N/A N/A

* As part of the purchase of these properties the Company receives rent under
master lease agreements on the space which was vacant at the time of the
purchase, resulting in 100% economic occupancy at December 31, 1998 for each
of these centers, except Six corners, Iroquois Center, Naper West, Prairie
Square, Lake Park Plaza and Woodland Heights where the master lease
agreement and collection of rent on spaces vacated results in economic
occupancy of 86%, 90%, 96%, 97%, 98% and 95%, respectively.

The master lease agreements are for periods ranging from one to two years
from the purchase date or until the spaces are leased.

-11-

Item 3. Legal Proceedings

The Company 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 the fourth
quarter of 1998.

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

Market Information

As of December 31, 1998, there were 19,286 stockholders of the Company. There is
no public market for the shares.

Distributions

The Company declared distributions to Stockholders totaling $.88 per weighted
average share outstanding during the year ended December 31, 1998. Of this
amount, $.67 qualifies as distributions taxable as ordinary income for 1998 and
the remainder constitutes a return of capital for tax purposes.

Sales of Unregistered Securities

On October 24, 1996, Roland Burris, a Director of the Company, exercised
options to purchase 1,000 shares at a price equal to $9.05 per share. Both the
option and the shares were issued pursuant to the exemption from registration
set forth in Section 4(2) of the Securities Act of 1993, as amended.

-12-

Item 6. Selected Financial Data

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

For the years ended December 31, 1998, 1997, 1996 and 1995

(not covered by the Independent Auditors' Report)

1998 1997 1996 1995
---- ---- ---- ----
Total assets......... $ 787,608,547 333,590,131 104,508,686 18,750,877

Mortgages payable.... $ 288,982,470 106,589,710 30,838,233 750,727

Total income......... $ 73,302,278 29,421,585 6,327,734 1,180,422

Net income........... $ 24,085,871 8,647,221 2,452,221 496,514

Net income per
share, basic and
diluted (b)........ $ .60 .57 .55 .53

Distributions
declared........... $ 35,443,213 13,127,597 3,704,943 736,627

Distributions per
share (b).......... $ .88 .86 .82 .78

Funds from Operations
(b)(c)............. $ 35,474,823 13,203,666 3,391,365 666,408

Funds available for
distribution (c)... $ 35,698,975 13,141,242 3,680,824 787,011

Cash flows provided
by operating
activities......... $ 42,774,744 15,923,839 5,529,709 978,350

Cash flows used
by investing
activities......... $(344,384,056) (146,994,619) (68,976,841) (6,577,843)

Cash flows provided
by financing
activities........ $ 373,520,427 173,724,632 71,199,936 6,327,490

Weighted average
number of common
shares outstanding. 40,359,796 15,225,983 4,494,620 943,156

(a) The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this Annual
Report.

-13-

(b) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.88 per share
distributions for the year ended December 31, 1998, represented 99.6% of
the Company's Funds From Operations ("FFO") and 99.0% of funds available
for distribution for that period. See Footnote (c) below for information
regarding the Company's calculation of FFO. Distributions by the Company
to the extent of its current and accumulated earnings and profits for
federal income tax purposes are taxable to stockholders as ordinary
income. Distributions in excess of these earnings and profits generally
are treated as a non-taxable reduction of the stockholder's basis in the
shares to the extent thereof, and thereafter as taxable gain (a return of
capital). These Distributions in excess of earnings and profits will have
the effect of deferring taxation of the amount of the Distribution until
the sale of the stockholder's shares. For the year ended December 31,
1998, $8,428,070 (or 23.78% of the $35,443,213 Distribution declared for
1998) represented a return of capital. The balance of the Distribution
constitutes ordinary income. In order to maintain its qualification as a
REIT, the Company must make annual Distributions to stockholders of at
least 95% of its REIT taxable income, or approximately $25,265,000 for
1998. REIT taxable income does not include net capital gains. Under
certain circumstances, the Company may be required to make Distributions
in excess of cash available for distribution in order to meet the REIT
distribution requirements. Distributions are determined by the Company's
Board of Directors and are dependent on a number of factors, including the
amount of funds available for distribution, the Company's financial
condition, any decision by the Board of Directors to reinvest funds rather
than to distribute the funds, the Company's capital expenditures, the
annual distribution required to maintain REIT status under the Code and
other factors the Board of Directors may deem relevant.

(c) One of the Company's objectives is to provide cash distributions to its
Stockholders from cash generated by the Company's operations. Cash
generated from operations is not equivalent to the Company's net operating
income as determined under GAAP. Due to certain unique operating
characteristics of real estate companies, the National Association of Real
Estate Investment Trusts ("NAREIT"), an industry trade group, has
promulgated a standard known as "Funds from Operations" or "FFO" for
short, which it believes more accurately reflects the operating
performance of a REIT such as the Company. As defined by NAREIT, FFO
means net income computed in accordance with GAAP, less extraordinary,
unusual and non-recurring items, excluding gains (or losses) from debt
restructuring and sales of property plus depreciation on real property and
amortization and after adjustments for unconsolidated partnership and
joint ventures in which the REIT holds an interest. The Company has
adopted the NAREIT definition for computing FFO because management
believes that, subject to the following limitations, FFO provides a basis
for comparing the performance and operations of the Company to those of
other REITs. The calculation of FFO may vary from entity to entity since
capitalization and expense policies tend to vary from entity to entity.
Items which are capitalized do not impact FFO, whereas items that are
expensed reduce FFO.

-14-

Consequently, the presentation of FFO by the Company may not be comparable
to other similarly titled measures presented by other REITs. FFO is not
intended to be an alternative to "Net Income" as an indicator of the
Company's performance nor to "Cash Flows from Operating Activities" as
determined by GAAP as a measure of the Company's capacity to pay
distributions. FFO and funds available for distribution are calculated as
follows:

Year ended December 31,
1998 1997
---- ----
Net income........................... $ 24,085,871 8,647,221
Depreciation, net of minority interest 11,388,952 4,556,445
------------- ------------
Funds from operations(1)........... 35,474,823 13,203,666

Principal amortization of debt....... (74,454) (67,300)
Straight line rental income (2)...... (2,120,951) (654,978)
Acquisition cost expenses (3)........ 437,783 249,493
Rental income received under
master lease agreements (4)........ 1,981,774 410,361
------------- ------------
Funds available for distribution... $ 35,698,975 13,141,242
============= ============

(1) FFO does not represent cash generated from operating activities
calculated in accordance with GAAP and is not necessarily indicative
of cash available to fund cash needs. FFO should not be considered
as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure
of liquidity.

(2) Certain tenant leases contain provisions providing for stepped rent
increases. GAAP requires the Company to record rental income for the
period of occupancy using the effective monthly rent, which is the
average monthly rent for the entire period of occupancy during the
term of the lease.

(3) Acquisition cost expenses include costs and expenses relating to the
acquisition of properties. These costs were estimated to be up to
.5% of the Gross Offering Proceeds and were paid from the Proceeds of
the Offering, thereby increasing funds available for distribution.

(4) As part of several purchases, the Company will receive rent under
master lease agreements on some of the spaces currently vacant for
periods ranging from one to two years or until the spaces are leased.
GAAP requires that as these payments are received, they be recorded
as a reduction in the purchase price of the properties rather than as
rental income.

-15-

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

Certain statements in this annual report that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Discussions containing forward-
looking statements may be found throughout this report and particularly in the
sections headed "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Without limiting the foregoing,
words such as "anticipates," "expects," "intends," "plans" and similar
expressions are intended to identify forward-looking statements. These
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those expressed or implied in the forward-looking
statements. For a discussion of the factors that may impact our ability to
achieve these results, see the section headed "Risk Factors" contained in our
registration statement dated April 7, 1998, as amended.

Liquidity and Capital Resources

Cash and cash equivalents consists of cash and short-term investments. Cash and
cash equivalents, at December 31, 1998 and December 31, 1997, were $123,056,702
and $51,145,587, respectively. The increase in cash and cash equivalents since
December 31, 1997 resulted primarily from the sale of Shares and loan proceeds
from financing secured by the Company's properties. Partially offsetting the
increase in cash and cash equivalents was the use of cash resources to purchase
additional properties since December 31, 1997 and the payment of Offering Costs
associated with the sale of Shares. The Company intends to use cash and cash
equivalents to purchase additional properties, to pay distributions and for
working capital requirements.

As of December 31, 1998, the Company had acquired eighty-five properties. The
properties owned by the Company are currently generating sufficient cash flow to
cover operating expenses of the Company plus pay a monthly distribution on
weighted average shares. Beginning June 1, 1998, the Company increased the
distribution paid to stockholders from $.87 per annum to $.88 per annum on
weighted average shares. Distributions declared for the year ended December 31,
1998 were $35,443,213, of which $8,428,070 represents a return of capital for
federal income tax purposes.

The Company monitors the various qualification tests it must meet to maintain
its status as a real estate investment trust. Large ownership of the Company's
stock is tested upon purchase to determine that no more than 50% in value of the
outstanding stock is owned directly, or indirectly, by five or fewer persons or
entities at any time. The Company also determines, on a quarterly basis, that
the Gross Income, Asset and Distribution Tests imposed by the REIT requirements
are met. On an ongoing basis, as due diligence is performed by the Advisor on
potential real estate purchases or temporary investment of uninvested capital,
the Company determines that the income from the new asset will qualify for REIT
purposes. Beginning with the tax year ended December 31, 1995, the Company has
qualified as a REIT.

-16-

Cash Flows From Operating Activities

Net cash provided by operating activities increased from $5,529,709 for the year
ended December 31, 1996 to $15,923,839 for the year ended December 31, 1997 to
$42,774,744 for the year ended December 31, 1998. These increases are due
primarily to increases in net income, depreciation and accrued real estate taxes
all resulting from an increase in the number of properties owned by the Company.
As of December 31, 1998 the Company had acquired eighty-five properties, as
compared to forty-four properties as of December 31, 1997, and twenty-one
properties as of December 31, 1996.

Cash Flows From Investing Activities

The Company used approximately $344 million in cash for investing activities
during the year ended December 31, 1998 compared to approximately $147 million
and $69 million for the years ended December 31, 1997 and 1996, respectively.
Substantially all of the cash was used to purchase properties during each year.

Cash Flows From Financing Activities

For the year ended December 31, 1998, the Company generated $373,520,427 of cash
flows from financing activities as compared to $173,724,632 of cash flows
generated from financing activities for the year ended December 31, 1997 and
$71,199,936 for the year ended December 31, 1996. These increases are due
primarily to the increase in proceeds raised of $290,099,616 from the sale of
shares, net of shares repurchased for the year ended December 31, 1998, as
compared to $168,138,616 from the sale of shares, net of shares repurchased for
the year ended December 31, 1997 and $61,116,826 from the sale of shares, net of
shares repurchased for the year ended December 31, 1996. These increases are
also due to the Company obtaining $166,352,000 in financing secured by thirty-
seven of the Company's properties for the year ended December 31, 1998, as
compared to $43,926,176 in financing secured by fifteen of the Company's
properties for the year ended December 31, 1997, and $25,670,000 in financing
secured by twelve of the Company's properties for the year ended December 31,
1996. The weighted annual average interest rate on the mortgages payable
outstanding at December 31, 1998 was approximately 7.00%. See Note (7) of the
Notes to Consolidated Financial Statements (Item 8 of the Annual Report) for a
description of the terms of the mortgages payable. These increases are partially
offset by an increase in the cash used to pay costs associated with selling
shares for the year ended December 31, 1998 as compared to the years ended
December 31, 1997 and 1996. For the year ended December 31, 1998, the Company
paid offering costs totaling $28,881,991, as compared to $17,563,326 paid for
the year ended December 31, 1997 and $7,305,153 paid for the year ended December
31, 1996. These increases are also partially offset by an increase in the amount
of distributions paid for the year ended December 31, 1998 of $33,297,236 as
compared to the distributions paid for the year ended December 31, 1997 of
$11,899,431 and distributions paid for the year ended December 31 ,1996 of
$3,285,528.

-17-

The Advisor has guaranteed payment of all public offering expenses (excluding
selling commissions, the marketing contribution and the due diligence expense
allowance fee) in excess of 5.5% of the Gross Offering Proceeds of the Offering
(the "Gross Offering Proceeds") or all organization and offering expenses
(including such selling expenses) which together exceed 15% of the Gross
Offering Proceeds. As of December 31, 1998, organizational and offering costs
totaling $57,572,899 did not exceed these limitations.

Results of Operations

At December 31, 1998, the Company owned fifteen single-user retail properties,
fifty-seven Neighborhood Retail Centers and thirteen Community Centers.

Total income for the years ended December 31, 1998, 1997 and 1996 was
$73,302,278, $29,421,585 and $6,327,734 respectively. These increases are due
primarily to increases in rental income resulting from an increase in the number
of properties owned by the Company and a full twelve months of operations on
properties acquired during 1997 and 1996. As of December 31, 1998, the Company
had acquired eighty-five properties, as compared to forty-four properties as of
December 31, 1997 and twenty-one properties as of December 31, 1996. The
purchase of additional properties also resulted in increases in property
operating expenses including depreciation expense.

The increase in mortgage interest to Affiliates and non-affiliates for the year
ended December 31, 1997, as compared to the year ended December 31, 1996, is due
to an increase in mortgages payable from approximately $30,800,000 to
approximately $106,600,000.

Similarly, the increase in mortgage interest to non-affiliates for the year
ended December 31, 1998, as compared to the year ended December 31, 1997, is due
to an increase in mortgages payable from approximately $106,600,000 to
approximately $289,000,000.

Interest income is the result of cash and cash equivalents being invested in
short-term investments until a property is purchased.

The increases in professional services to Affiliates and non-affiliates and
general and administrative expenses to Affiliates and non-affiliates for the
year ended December 31, 1998, as compared to the year ended December 31, 1997
and 1996, is due to an increase in the number of properties owned by the Company
and an increase in the number of stockholders.

-18-

The increase in general and administrative expenses to Affiliates and non-
affiliates for the year ended December 31, 1998, as compared to the years ended
December 31, 1997 and 1996 is due primarily to an increase in the number of
stockholders.

The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. The Company paid an Advisor
Asset Management Fee which represented .20%, .45% and .56% of the 1% of the
Average Invested Assets for the years ended December 31, 1998, 1997 and 1996,
respectively.

The increase in acquisition cost expenses to Affiliates and non-affiliates is
due to the increased number of properties considered for acquisition by the
Company and not purchased.

The consolidated financial statements include the accounts of the Company and
the limited liability company ("LLC") which owns the Joliet Commons Shopping
Center. The Company entered into an LLC with an unaffiliated third party (the
"Seller") for the purchase of Joliet Commons. The transaction was structured
such that the Company contributed approximately $52,000 for a 1% interest in an
LLC and the Seller contributed a property with a value of approximately
$19,733,000 and debt of approximately $14,569,000 to the LLC for a 99% interest.
The Company is the managing member of the LLC. Due to the Company's ability as
managing member to directly control the LLC, it is consolidated for financial
reporting purposes. The Seller's interest is reflected as a minority interest
in the accompanying consolidated financial statements.

-19-

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 Company 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 Company
has assessed its vulnerability to the so-called "Year-2000 Issue" with respect
to its equipment and computer systems.

State of Readiness

The Company has identified the following three areas for "Year-2000" compliance
efforts:

Business Computer Systems: The majority of the Advisor's information technology
systems were developed internally and include accounting, lease management,
investment portfolio tracking, and tax return preparation. The Company 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 Company does
not anticipate any material costs relating to its business computer systems
regarding year 2000 compliance since the Company's critical hardware and
software systems use four digits to represent the applicable year. The Company
does use various computers, so-called "PC's", that may run software that may not
use four digits to represent the applicable year. The Company 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 Company's critical
systems. The Company is considering independent testing of its critical
systems.

Tenants and Suppliers: The Company is in the process of surveying tenants,
suppliers and other parties with whom the Company does a significant amount of
business to identify the Company's potential exposure in the event such parties
are not year 2000 compliant in a timely manner. At this time, the Company is
not aware of any of these parties anticipating a material Year 2000 compliance
issue. However, since this area involves some parties over which the Company
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 Company is
working closely with significant 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 Company's investigations and assessments of possible
year 2000 issues are in a preliminary stage, and currently the Company 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 Company's diverse tenant base. The Company will
continue to investigate and assess its tenants through the year ended December
31, 1999.

Non-Information Technology Systems: In the operation of its properties, the
Company has acquired equipment with embedded technology such as
microcontrollers, which operate heating, ventilation, and air conditioning
systems, fire alarms, security systems, telephones and other equipment utilizing
time-sensitive technology. The Company is in the process of evaluating its
potential exposure and costs if such non-information technology systems are not
year 2000 compliant and expects to be able to complete its assessment during the
second quarter of 1999.

-20-

Year 2000 Costs

The Company's Advisor and its Affiliates estimate that costs to achieve year
2000 compliance will not exceed $100,000. However, only approximately 10% of
these costs will be directly allocated to and paid by the Company. The balance
of the year 2000 compliance costs, approximately 97%, will be paid by the
Advisor and its Affiliates. Total year 2000 compliance costs incurred through
December 31, 1998 are estimated at approximately $5,000.

Year 2000 Risks

The most reasonable likely worst case scenario for the Company 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
Company with respect to the year 2000 non-compliance of its tenants is failure
to receive rental income which could result in the Company being unable to meet
cash requirements for monthly expenses and distributions. The most reasonable
likely worst case scenario for the Company with respect to the year 2000 non-
compliance of its suppliers is the failure to supply necessary utilities;
including, but not limited to heating, as a result of a malfunctioning of non-
information technology systems in some of the Company's properties.

Contingency Plan

The Company expects to be Year 2000 compliant in advance of the year 2000. The
Company will continue to monitor its progress and state of readiness, and is in
the process of formulating a contingency plan which the Company will be prepared
to adopt with respect to areas in which evidence arises that it may not become
Year 2000 compliant in sufficient time. As part of its contingency plan, the
Company may consider obtaining a line of credit to meet short term cash needs.
In the event of a failure of the Company's business computer systems, the
Company may also consider the need to delay distributions until its business
computer systems could again process distributions or its tenants could begin
payment of rents. As information is obtained that may indicate such parties may
not become Year 2000 compliant in sufficient time, the Company is prepared to
develop contingency plans, accordingly.

Subsequent Events

In January 1999, the Company received $13,887,649 of offering proceeds for
subscriptions received as of December 31, 1998, bringing total Gross Offering
Proceeds to approximately $553,219,062.

In January 1999, the Company paid a distribution of $3,809,911 to the
Stockholders.

On January 6, 1999, the Company purchased The Plymouth Collection Shopping
Center from an unaffiliated third party for approximately $6,626,000. The
property is located in Plymouth, Minnesota and contains approximately 40,815
square feet of leasable space. Its anchor tenants are Golf Galaxy, Vintage
Liquors and Paper Warehouse.

-21-

On January 20, 1999, the Company purchased the Circuit City Store from an
unaffiliated third party for approximately $2,900,000. The property is located
in Traverse City, Michigan and contains approximately 21,337 square feet of
leasable space. Its sole tenant is Circuit City.

On February 1, 1999, the Company purchased the Loehmann's Plaza property from an
unaffiliated third party for approximately $13,565,000. The property is located
in Brookfield, Wisconsin and contains approximately 107,952 square feet of
leasable space. Its anchor tenants are Loehmann's, Dickens Books and V.
Richards Market.

On February 8, 1999, the Company purchased the Baytowne Square, Baytowne Shoppes
and Wendy's Outlot property from an unaffiliated third party for approximately
$12,655,000. The property is located in Champaign, Illinois and contains
approximately 119,014 square feet of leasable space. Its anchor tenants are
Staples and PetSmart.

On February 8, 1999, the Company purchased the Woodland Commons Shopping Center
from an unaffiliated third party for approximately $20,036,511. The property is
located in Buffalo Grove, Illinois and contains approximately 170,033 square
feet of leasable space. As part of the purchase of this property, the Company
agreed to assume the existing mortgage with Principal Life Insurance Company for
$11,469,903.

On March 2, 1999, the Company received $1,117,665 as payment for approximately
5.173 acres of land dedicated to the City of St. Charles for the development of
public improvements relating to the Stuarts Crossing Shopping Center.

On March 9, 1999, the Company purchased a single-user shopping center known as
"Super Value - Indianapolis" from an unaffiliated third party for approximately
$5,734,000. The property is located in Indianapolis, Indiana and contains
approximately 67,541 square feet of leasable space. Its sole tenant is Cub
Foods.

On March 9, 1999, the Company purchased a single-user shopping center known as
"Super Value - Plymouth" from an unaffiliated third party for approximately
$5,465,000. The property is located in Plymouth, Minnesota and contains
approximately 67,510 square feet of leasable space. Its sole tenant is Cub
Foods.

On March 17, 1999, the Company purchased the Gateway Square Shopping Center from
an unaffiliated third party for approximately $6,940,000. The property is
located in Hinsdale, Illinois and contains approximately 40,150 square feet of
leasable space. Its anchor tenant is Calico Corners.

-22-

Impact of Accounting Principles

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities, was issued in 1998 and is effective for
fiscal years beginning after June 15, 1999.

In April 1998, the AICPA issued Statement of Position No. 98-5 "Reporting on the
Costs of Start-up Activities." This statement provides guidance on the financial
reporting of start-up activities and organization costs. It requires that costs
of start-up activities and organization costs be expensed when incurred.
Adoption of this statement is required for fiscal years beginning after December
15, 1998, and the Company plans to adopt the statement effective January 1,
1999. This statement will have no material impact.

Inflation

For the Company's Neighborhood Retail Centers and Community Centers, inflation
is likely to increase rental income from leases to new tenants and lease
renewals, subject to market conditions. The Company's rental income and
operating expenses for those properties owned or to be owned and operated under
triple-net leases are not likely to be directly affected by future inflation,
since rents are or will be fixed under the leases and property expenses are the
responsibility of the tenants. The capital appreciation of triple-net leased
properties is likely to be influenced by interest rate fluctuations. To the
extent that inflation determines interest rates, future inflation may have an
effect on the capital appreciation of triple-net leased properties.

Item 7(a). Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to interest rate changes primarily as a result of its
long-term debt used to maintain liquidity and fund capital expenditures and
expansion of the Company's real estate investment portfolio and operations. The
Company's interest rate risk management objectives is to limit the impact of
interest rate changes on earnings and cash flows and to lower its overall
borrowing costs. To achieve its objectives the Company borrows primarily at
fixed rates and may enter into derivative financial instruments such as interest
rate swaps, caps and treasury locks in order to mitigate its interest rate risk
on a related financial instruments. The Company does not enter into derivative
or interest rate transactions for speculative purposes.

The Company's interest rate risk is monitored using a variety of techniques.
The table below presents the principal amounts and weighted average interest
rates by year of expected maturity to evaluate the expected cash flows and
sensitivity to interest rate changes.

1999 2000 2001 2002 2003
----------- ----------- ----------- ---------- ----------
Fixed rate debt 9,823,528 366,692 8,954,934 172,303 31,484,369
Average interest rate
on maturing debt 8.00% - 9.00% - 7.32%

Variable rate debt 70,849 4,241,187 - - -
Average interest rate
on maturing debt - 7.03% - - -

The fair value of the Company's debt approximates its carrying amount.

-23-

The Company entered into rate lock agreements in connection with two separate
loans between the Company and Lehman Brothers Holdings, Inc. and Column
Financial, Inc., respectively. These Agreements allowed the Company to set the
interest rate on the loan at time of execution of such Agreements rather than at
the funding. These Agreements were designed to hedge against higher interest
rates at the time of the loan closings.

The Company paid Lehman Brothers Holdings, Inc. $636,000 of loan fees and
$503,295 of other costs and paid Column Financial, Inc. $37,125 of loan fees and
$267,884 of other costs in connection with these loans.

The Lehman Brothers Holdings, Inc. loan and the Column Financial, Inc. loan
closed in October and November 1998, respectively.

Approximately $10,512,036 or 4% of the Company's mortgages payable at December
31, 1998 have variable interest rates averaging 4.73%. An increase in the
variable interest rate on certain mortgages payable constitutes a market risk.

Item 8. Consolidated Financial Statements and Supplementary Data

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Index
-----
Page

Independent Auditors' Report............................................. 25

Financial Statements:

Consolidated Balance Sheets, December 31, 1998 and 1997................ 26

Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996..................................... 28

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996..................................... 29

Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..................................... 30

Notes to Consolidated Financial Statements............................. 32

Real Estate and Accumulated Depreciation (Schedule III).................. 47

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.

-24-

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Inland Real Estate Corporation:

We have audited the consolidated financial statements of Inland Real Estate
Corporation (the Company) as listed in the accompanying index. In connection
with the audits of the consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Inland Real Estate
Corporation as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.

KPMG LLP

Chicago, Illinois
January 29, 1999
except as to Note 13, which is as of March 17, 1999

-25-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Balance Sheets

December 31, 1998 and 1997

Assets
------

1998 1997
---- ----
Investment properties (Notes 1 and 5):
Land............................................ $193,093,898 75,801,319
Construction in progress (Note 9)............... 1,230,448 -
Building and improvements....................... 452,885,969 200,509,519
------------- -------------
647,210,315 276,310,838
Less accumulated depreciation................... 17,161,998 5,665,483
------------- -------------
Net investment properties....................... 630,048,317 270,645,355
------------- -------------
Cash and cash equivalents including amount
held by property manager (Note 1)............... 123,056,702 51,145,587
Restricted cash (Notes 1 and 9)................... 15,613,197 2,073,799
Accounts and rents receivable (net of allowance
for doubtful accounts of $200,000 and -0- at
December 31, 1998 and 1997, respectively)
(Note 6)........................................ 12,720,962 4,926,643
Deposits and other assets (Note 8)................ 2,854,836 3,924,431
Deferred organization costs (net of accumulated
amortization of $16,477 and $10,985
at December 31, 1998 and 1997, respectively)
(Note 1)........................................ 19,746 16,477
Loan fees (net of accumulated amortization
of $395,962 and $131,266 at December 31, 1998
and 1997, respectively,) (Note 1)............... 3,294,787 857,839
------------- -------------
Total assets.................................. $787,608,547 333,590,131
============= =============

See accompanying notes to consolidated financial statements.

-26-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Balance Sheets
(continued)

December 31, 1998 and 1997

Liabilities and Stockholders' Equity
------------------------------------

1998 1997
Liabilities: ---- ----
Accounts payable................................ $ 917,483 47,550
Accrued offering costs to Affiliates (Note 3)... 890,786 544,288
Accrued offering costs to non-affiliates........ 2,740 36,574
Accrued interest payable to Affiliates.......... 4,558 4,641
Accrued interest payable to non-affiliates...... 1,651,334 560,821
Accrued real estate taxes....................... 14,384,234 7,031,732
Distributions payable (Note 13)................. 3,844,649 1,777,113
Security deposits............................... 1,561,020 754,359
Mortgages payable (Note 7)...................... 288,982,470 106,589,710
Unearned income................................. 448,809 495,535
Other liabilities (Note 5)...................... 5,208,755 493,116
Due to Affiliates (Note 3)...................... 32,925 337,825
------------- -------------
Total liabilities............................. 317,929,763 118,673,264
------------- -------------
Minority interest (Note 2)........................ 5,214,298 -
------------- -------------
Stockholders' Equity (Notes 1 and 3):
Preferred stock, $.01 par value, 6,000,000
Shares authorized; none issued and outstanding
at December 31, 1998 and December 31, 1997.... - -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 52,394,500 and 24,973,340 issued and
outstanding at December 31, 1998 and 1997,
respectively.................................. 523,945 249,733
Additional paid-in capital (net of offering
costs of $57,536,374 and $28,341,719 at
December 31, 1998 and 1997, respectively, of
which $51,108,966 and $24,172,634 was paid
to Affiliates, respectively).................. 481,271,094 220,640,345
Accumulated distributions in excess
of net income................................. (17,330,553) (5,973,211)
------------- -------------
Total stockholders' equity.................... 464,464,486 214,916,867
------------- -------------
Commitments and contingencies (Note 12)...........

Total liabilities and stockholders' equity........ $787,608,547 333,590,131
============= =============

See accompanying notes to consolidated financial statements.

-27-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Operations

For the years ended December 31, 1998, 1997 and 1996

1998 1997 1996
Income: ---- ---- ----
Rental income (Notes 1 and 6)..... $ 51,133,774 21,112,365 4,467,903
Additional rental income.......... 16,679,388 6,592,983 1,336,809
Interest income................... 5,185,534 1,615,520 438,188
Other income...................... 303,582 100,717 84,834
------------- ------------ ------------
73,302,278 29,421,585 6,327,734
------------- ------------ ------------
Expenses:
Professional services to
Affiliates...................... 83,203 29,304 16,476
Professional services to
non-affiliates.................. 357,142 96,681 46,790
General and administrative
expenses to Affiliates.......... 330,651 115,468 42,904
General and administrative
expenses to non-affiliates...... 811,952 241,501 77,389
Advisor asset management fee...... 965,108 843,000 238,108
Property operating expenses to
Affiliates...................... 2,779,053 1,120,429 229,307
Property operating expenses to
non-affiliates.................. 18,238,307 7,742,595 1,643,867
Mortgage interest to Affiliates... 55,154 86,455 64,165
Mortgage interest to
non-affiliates.................. 13,366,445 5,568,109 533,320
Depreciation...................... 11,496,515 4,556,445 939,144
Amortization...................... 166,635 124,884 17,367
Acquisition cost expenses to
Affiliates...................... 236,380 194,187 -
Acquisition cost expenses to
non-affiliates.................. 201,403 55,306 26,676
------------- ------------ ------------
49,087,948 20,774,364 3,875,513
------------- ------------ ------------
Income before minority
interest in earnings.......... $ 24,214,330 8,647,221 2,452,221

Minority interest in earnings..... (128,459) - -
------------- ------------ ------------
Net income...................... $ 24,085,871 - -
============= ============ ============

Basic net income per common share... $ .60 .57 .55
============= ============ ============

Diluted net income per common share. $ .60 .57 .55
============= ============ ============

See accompanying notes to consolidated financial statements.

-28-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Stockholders' Equity

For the years ended December 31, 1998, 1997 and 1996

Accumulated
Additional Distributions
Common Paid-in in excess of
Stock Capital net income Total
----------- ------------ -------------- ------------
Balance January 1, 1996... 19,996 16,835,183 (240,113) 16,615,066

Net income................ - - 2,452,221 2,452,221
Distributions declared
($.82 per weighted average
common stock shares
outstanding)............ - - (3,704,943) (3,704,943)
Proceeds from Offering
including DRP (net
of Offering costs of
$7,378,933)............. 61,038 53,707,177 - 53,768,215
Repurchases of Shares..... (34) (30,287) - (30,321)
----------- ------------ -------------- ------------
Balance December 31, 1996. 81,000 70,512,073 (1,492,835) 69,100,238

Net income................ - - 8,647,221 8,647,221
Distributions declared
($.86 per weighted average
common stock shares
outstanding)............ - - (13,127,597) (13,127,597)
Proceeds from Offering
including DRP (net
of Offering costs of
$17,841,611)............ 169,198 150,548,641 - 150,717,839
Repurchases of Shares..... (465) (420,369) - (420,834)
----------- ------------ -------------- ------------
Balance December 31, 1997. 249,733 220,640,345 (5,973,211) 214,916,867

Net income................ - - 24,085,871 24,085,871
Distributions declared
($.88 per weighted average
common stock shares
outstanding)............ - - (35,443,213) (35,443,213)
Proceeds from Offering
including DRP (net
of Offering costs of
$29,194,655 and
subscriptions receivable)
(Note 13)................ 275,668 261,946,748 - 262,222,416
Repurchases of Shares..... (1,456) (1,315,999) - (1,317,455)
----------- ------------ -------------- ------------
Balance December 31, 1998. $ 523,945 481,271,094 (17,330,553) 464,464,486
=========== ============ ============== =============

See accompanying notes to consolidated financial statements.

-29-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Cash Flows

For the years ended December 31, 1998, 1997 and 1996

1998 1997 1996
Cash flows from operating activities: ---- ---- ----
Net income........................ $ 24,085,871 8,647,221 2,452,221
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation.................... 11,496,515 4,556,445 939,144
Amortization.................... 166,635 124,884 17,367
Minority interest in
earnings...................... (128,459) - -
Rental income under master
lease agreements.............. 1,981,774 410,361 437,678
Straight line rental income..... (2,120,951) (654,978) (119,225)
Allowance for doubtful accounts. 200,000 - -
Interest on unamortized
loan fees..................... 103,855 - -
Changes in assets and liabilities:
Accounts and rents receivable. (5,873,368) (2,356,909) (1,461,708)
Other assets.................. (848,935) (810,073) 62,295
Accounts payable.............. 98,201 (242,362) 283,038
Accrued interest payable...... 1,090,430 508,342 51,878
Accrued real estate taxes..... 7,352,502 4,260,843 2,396,709
Security deposits............. 806,661 506,590 193,286
Other liabilities............. 4,715,639 460,296 3,968
Due to Affiliates............. (304,900) 82,234 248,314
Unearned income............... (46,726) 430,945 24,744
Net cash provided by operating -------------- -------------- -------------
activities........................ 42,774,744 15,923,839 5,529,709
-------------- -------------- -------------
Cash flows from investing activities:
Restricted cash................... (13,539,398) (1,951,756) -
Additions to investment properties
net of related payables......... (2,514,122) (836,962) (136,819)
Purchase of investment properties. (329,018,618) (141,187,371) (68,717,979)
Deposit for tenant improvements... - - (122,043)
Construction in progress.......... (1,230,448) - -
Deposits on investment properties. 1,918,530 (3,018,530) -
Net cash used in investing -------------- -------------- -------------
activities........................ (344,384,056) (146,994,619) (68,976,841)
-------------- -------------- -------------
Cash flows from financing activities:
Proceeds from offering............ 291,417,071 168,559,450 61,147,147
Repurchase of Shares.............. (1,317,455) (420,834) (30,321)
Payments of offering costs........ (28,881,991) (17,563,326) (7,305,153)
Loan proceeds..................... 166,352,000 43,926,176 25,670,000
Loan fees......................... (2,701,644) (638,819) (350,286)

See accompanying notes to consolidated financial statements.

-30-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Cash Flows
(continued)

For the years ended December 31, 1998, 1997 and 1996

1998 1997 1996
---- ---- ----
Distributions paid................ $ (33,297,236) (11,899,431) (3,285,528)
Repayment of notes from Affiliate. - (8,000,000) (3,271,185)
Principal payments of debt........ (18,041,255) (238,584) (1,374,738)
Payment of deferred organization
costs........................... (9,063) - -
Net cash provided by financing -------------- -------------- -------------
activities........................ 373,520,427 173,724,632 71,199,936
-------------- -------------- -------------
Net increase in cash and
cash equivalents.................. 71,911,115 42,653,852 7,752,804
Cash and cash equivalents at
beginning of year................. 51,145,587 8,491,735 738,931
-------------- -------------- -------------
Cash and cash equivalents at
end of year....................... $ 123,056,702 51,145,587 8,491,735
============== ============== =============

Supplemental schedule of noncash investing and financing activities:

1998 1997 1996
---- ---- ----
Purchase of investment properties.. $(368,364,949) (181,251,256) (77,421,408)
Assumption of mortgage debt...... 34,082,015 32,063,885 5,803,429
Note payable to Affiliate........ - 8,000,000 2,900,000
Minority interest................ 5,264,316 - -
-------------- -------------- -------------
$(329,018,618) (141,187,371) (68,717,979)
============== ============== =============

Distributions payable.............. $ 3,844,649 1,777,113 548,947
============== ============== =============

Cash paid for interest............. $ 12,435,024 5,146,222 545,607
============== ============== =============

See accompanying notes to consolidated financial statements.

-31-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements

For the years ended December 31, 1998, 1997, and 1996

(1) Organization and Basis of Accounting

Inland Real Estate Corporation (the "Company") was formed on May 12, 1994. The
Company may acquire existing Neighborhood Retail Centers and Community Centers
located primarily within an approximate 400-mile radius of its headquarters in
Oak Brook, Illinois. The Company may also acquire single-user retail
properties in locations throughout the United States, certain of which may be
sale and leaseback transactions, net leased to creditworthy tenants. The
Company is also permitted to construct or develop properties, or render
services in connection with such development or construction, subject to the
Company's compliance with the rules governing real estate investment trusts
under the Internal Revenue Code of 1986, ("Code"), as amended. Inland Real
Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the Company, is
the advisor to the Company.

On October 14, 1994, the Company commenced an initial public offering, on a
best efforts basis, ("Initial Offering") of 5,000,000 shares of common stock
("Shares") at $10 per Share. As of July 24, 1996, the Company had received
subscriptions for a total of 5,000,000 Shares, thereby completing the Initial
Offering. On July 24, 1996, the Company commenced an offering of an additional
10,000,000 Shares at $10.00 per Share, on a best efforts basis, (the "Second
Offering"). As of July 10, 1997, the Company had received subscriptions for a
total of 10,000,000 Shares, thereby completing the Second Offering. On July
14, 1997, the Company commenced an offering of an additional 20,000,000 Shares
at $10.00 per Share, on a best efforts basis, (the "Third Offering"). As of
March 19, 1998, the Company had received subscriptions for a total of
20,000,000 Shares, thereby completing the Third Offering. On April 7, 1998,
the Company commenced an offering of an additional 27,000,000 Shares at $11.00
per Share, on a best efforts basis, (the "Fourth Offering"). As of December
31, 1998, the Company had received subscriptions for a total of 16,642,397
Shares in the Fourth Offering. In addition, as of December 31, 1998, the
Company has distributed 2,212,934 Shares through the Company's Distribution
Reinvestment Program ("DRP"). As of December 31, 1998, the Company has
repurchased a total of 198,375 Shares through the Share Repurchase Program. As
a result, as of December 31, 1998, Gross Offering Proceeds total $539,331,413,
net of Shares repurchased through the Share Repurchase Program.

-32-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

On September 28, 1998, the Company engaged Everen Securities, Inc. to advise
the Company on strategic alternatives designed to increase the stockholder
value. These alternative include, but are not limited to, evaluating whether:
(1) the Company should become internally advised and managed by acquiring the
Advisor and the Property Manager; (2) the Company should list its common stock
on an exchange or other trading system; and (3) the Company should seek to
merge with a third party that is already listed on an exchange or other trading
system. Everen Securities, Inc. is expected to complete its advisor engagement
by the third quarter 1999.

The Company qualified as a real estate investment trust ("REIT") under the Code
for federal income tax purposes commencing with the tax year ending December
31, 1995. Since the Company qualified for taxation as a REIT, the Company
generally will not be subject to federal income tax to the extent it
distributes its REIT taxable income to its stockholders. If the Company fails
to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax on its taxable income at regular corporate tax rates. Even
if the Company qualifies for taxation as a REIT, the Company may be subject to
certain state and local taxes on its income and property and federal income and
excise taxes on its undistributed income.

The preparation of consolidated financial statements in conformity with
Generally Accepted Accounting Principles ("GAAP") 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.

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

Restricted cash includes amounts held in escrow for various properties. These
escrows were established for principal payments of debt, payment of real estate
tax and insurance on certain mortgaged properties, master lease, tenant
improvements, leasing commissions and guarantees of previous owners
obligations.

-33-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

Deposits and other assets represent deposits made to third parties for
financing in progress and potential acquisitions.

Statement of Financial Accounting Standards No. 121 requires the Company 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 operations and sale of properties. The amount of the
impairment loss to be recognized would be the difference between the property's
carrying value and the property's estimated fair value. As of December 31,
1998, the Company does not believe any such impairment of its properties
exists.

Depreciation expense is computed using the straight-line method. Buildings and
improvements are depreciated based upon estimated useful lives of 30 years for
the building and building improvements and 15 years for the site improvements.

Loan fees are amortized on a straight line basis over the life of the related
loans.

Deferred organization costs are amortized over a 60-month period.

Offering costs are offset against the Stockholders' equity accounts. Offering
costs consist principally of printing, selling and registration costs.

Rental income is recognized on a straight-line basis over the term of each
lease. The difference between rental income earned on a straight-line basis
and the cash rent due under the provisions of the lease agreements is recorded
as deferred rent receivable and is included as a component of accounts and
rents receivable in the accompanying consolidated balance sheets. The Company
recognizes percentage rents as they are received.

The Company believes that the interest rates associated with the mortgages
payable approximate the market interest rates for these types of debt
instruments, and as such, the carrying amount of the mortgages payable and
notes payable to Affiliates approximate their fair value.

-34-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

Certain reclassifications were made to the 1997 financial statements to conform
with the 1998 presentation.

The carrying amount of cash and cash equivalents, restricted cash, accounts and
rents receivable, accounts payable and other liabilities, accrued offering
costs to Affiliates, accrued offering costs to non-Affiliates, accrued interest
payable to Affiliates, accrued real estate taxes, and distributions payable
approximate fair value because of the relatively short maturity of these
instruments.

In 1997, the Company adopted FASB No. 123, "Accounting for Stock Based
Compensation". As allowed by FASB No. 123, the Company plans to continue to
use Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock options. This accounting pronouncement
did not have a material effect on the financial position or results of
operations of the Company.

In 1998, the Company adopted FASB No. 128, Earnings per Share. This Statement
did not have a material effect on the Company's primary or diluted net income
per share.

In April 1998, the AICPA issued Statement of Position No. 98-5 "Reporting on
the Costs of Start-up Activities." This statement provides guidance on the
financial reporting of start-up activities and organization costs. It requires
that costs of start-up activities and organization costs be expensed when
incurred. Adoption of this statement is required for fiscal years beginning
after December 15, 1998, and the Company plans to adopt the statement effective
January 1, 1999, and report the impact as a cumulative effect of a change in
accounting principle. This statment will have no material impact.

The Company may enter into derivative financial instrument transactions in
order to mitigate its interest rate risk on a related financial instrument.
The Company has designated these derivative financial instruments as hedges and
applies deferral accounting, as the instrument to be hedged exposes the Company
to interest rate risk, and the derivative financial instrument reduces that
exposure. Gains and losses related to the derivative financial instrument are
deferred and amortized over the terms of the hedged instrument. If a
derivative terminates or is sold, the gain or loss is deferred and amortized
over the remaining life of the derivative. The Company has only entered into
derivative transactions that satisfy the aforementioned criteria.

-35-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(2) Basis of Accounting

The consolidated financial statements include the accounts of the Company and
the limited liability company ("LLC") which owns the Joliet Commons Shopping
Center. The Company entered into an LLC with an unaffiliated third party (the
"Seller") for the purchase of Joliet Commons. The transaction was structured
such that the Company contributed approximately $52,000 for a 1% interest in an
LLC and the Seller contributed a property with a value of approximately
$19,733,000 and debt of approximately $14,569,000 to the LLC for a 99%
interest. Due to the Company's ability as managing member to directly control
the LLC, it is consolidated for financial reporting purposes.

(3) Transactions with Affiliates

The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to each of the
Offerings. Such expenses include postage, data processing and marketing and
are reimbursed at cost. The collective costs to Affiliates incurred relating
to the Offerings were $1,489,541 and $1,047,694 as of December 31, 1998 and
1997, respectively, of which $0 and $24,374 were unpaid as of December 31, 1998
and 1997, respectively. In addition, an Affiliate of the Advisor serves as
Dealer Manager of each of the Offerings and is entitled to receive selling
commissions, a marketing contribution and a due diligence expense allowance fee
from the Company in connection with each of the Offerings. Such amounts
incurred were $49,619,425 and $23,124,939 as of December 31, 1998 and 1997,
respectively, of which $890,786 and $519,914 was unpaid as of December 31, 1998
and 1997, respectively. Approximately $42,235,726 and $19,581,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers as of December 31, 1998 and 1997, respectively.

As of December 31, 1998, the Company had incurred $57,572,899 of organization
and offering costs to Affiliates and non-affiliates. Pursuant to the terms of
each of the Offerings, the Advisor is required to pay organizational and
offering expenses (excluding sales commissions, the marketing contribution and
the due diligence expense allowance fee) in excess of 5.5% of the gross
proceeds of the Offerings (the "Gross Offering Proceeds") or all organization
and offering expenses (including selling commissions) which together exceed 15%
of Gross Offering Proceeds. As of December 31, 1998, organizational and
offering costs expenses did not exceed the 5.5% and 15% limitations. The
Company anticipates that these costs will not exceed these limitations upon
payment of any remaining costs associated with the Fourth Offering.

The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
administration of the Company. Such costs of $83,203, $86,171 and $262,233 are
included in professional services to Affiliates, general and administrative
expenses to Affiliates and acquisition costs expensed to Affiliates,
respectively for the year ended December 31, 1998.

-36-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

The Advisor may receive an annual Advisor Asset Management Fee of not more than
1% of the Average Invested Assets, paid quarterly. For any year in which the
Company qualifies as a REIT, the Advisor must reimburse the Company: (i) to
the extent that the Advisor Asset Management Fee plus Other Operating Expenses
paid during the previous calendar year exceed 2% of the Company's Average
Invested Assets for the calendar year or 25% of the Company's Net Income for
that calendar year; and (ii) to the extent that Stockholders have not received
an annual Distribution equal to or greater than the 8% Current Return. The
Advisor Asset Management Fee plus other operating expenses paid during the
previous calendar year did not exceed 2% of the Company's Average Invested
Assets for the calendar year or 25% of the Company's Net Income for that
calendar year and Stockholder's received an annual Distribution greater than an
8% return. Accordingly, for the year ended December 31, 1998, the Company has
incurred $965,108 of Advisor Asset Management Fees, of which $32,925 remained
unpaid at December 31, 1998. The Advisor may receive an annual Advisor Asset
Management Fee of not more than 1% of the Average Invested Assets, paid
quarterly. The Company paid an Advisor Asset Management Fee which represented
.20%, .45% and 56% of the 1% of the Average Invested Assets for the years ended
December 31, 1998, 1997 and 1996, respectively.

An Affiliate of the Advisor is entitled to receive Property Management Fees for
management and leasing services. The Company incurred and paid Property
Management Fees of $2,779,053, $1,120,429 and $229,307 for the years ended
December 31, 1998, 1997 and 1996, respectively, all of which has been paid.

The Advisor and its Affiliates are entitled to reimbursement for salaries and
expense of employees of the Advisor and its Affiliates relating to selecting,
evaluating and acquiring of properties. Such amounts are included in building
and improvements for those costs relating to properties purchased. Such
amounts are included in acquisition cost expenses to Affiliates for costs
relating to properties not acquired.

(4) Stock Option Plan and Soliciting Dealer Warrant Plan

The Company adopted an amended and restated Independent Director Stock Option
Plan which granted each Independent Director an option to acquire 3,000 Shares
as of the date they become a Director and an additional 500 Shares on the date
of each annual stockholders' meeting commencing with the annual meeting in 1995
if the Independent Director is a member of the Board on such date. The options
for the initial 3,000 Shares granted shall be exercisable as follows: 1,000
Shares on the date of grant and 1,000 Shares on each of the first and second
anniversaries of the date of grant. The succeeding options are exercisable on
the second anniversary of the date of grant. As of December 31, 1998, options
for 1,000 Shares have been exercised for $9.05 per Share. For the years ended
December 31, 1998, 1997 and 1996, options to purchase 13,500, 12,500 and 7,500
shares of common stock at prices ranging from $9.05 to $10.45 per share were
outstanding during each of the respective periods.

-37-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

In addition to sales commissions, Soliciting Dealers may also receive one
Soliciting Dealer Warrant for each 40 Shares sold by such Soliciting Dealer
during the offerings, subject to state and federal securities laws. The holder
of a Soliciting Dealer Warrant will be entitled to purchase one Share from the
Company at a price stated in the Offering during the period commencing with the
first date upon which the Soliciting Dealer Warrants are issued and ending upon
the exercise period. Notwithstanding the foregoing no Soliciting Dealer
Warrant will be exercisable until one year from the date of issuance. As of
December 31, 1998, 1,159,421 warrants had been issued. As of December 31,
1998, none of these warrants were exercised. These warrants are assumed to
have no value.

(5) Investment Properties

As part of several purchases, the Company receives rent under master lease
agreements on the spaces currently vacant for periods ranging from one to two
years or until the spaces are leased. GAAP requires that as these payments are
received, they be recorded as a reduction in the purchase price of the
properties rather than as rental income. The cumulative amount of such
payments was $2,962,829 and $981,055 as of December 31, 1998 and 1997,
respectively (Note 6).

Pro Forma Information (unaudited)

The Company acquired its investment properties at various times. The following
table sets forth certain summary unaudited pro forma operating data as if the
acquisitions had been consummated as of the beginning of the previous
respective period.

For the years ending
December 31,
1998 1997
---- ----
Rental income........................... $ 63,332,102 54,315,842
Additional rental income................ 21,603,337 19,312,169
Total revenues.......................... 90,422,448 75,343,248
Property operating expenses............. 27,096,436 25,327,075
Total depreciation...................... 14,643,015 13,021,126
Total expenses.......................... 59,789,811 52,607,842
Net income.............................. 30,632,637 22,735,406

The unaudited pro forma operating data are presented for comparative purposes
only and are not necessarily indicative of what the actual results of
operations would have been for each of the periods presented, nor does such
data purport to represent the results to be achieved in future periods.

-38-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(6) Operating Leases

Master Lease Agreements

As part of the purchases of several of the properties, the Company will receive
rent under master lease agreements on spaces currently vacant for periods
ranging from one to two years or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
properties as these payments are received, rather than record the payments as
rental income.

Minimum lease payments under operating leases to be received in the future,
excluding rental income under master lease agreements and assuming no expiring
leases are renewed are as follows:

Minimum Lease
Payments
-------------
1999...................................... $ 66,603,241
2000...................................... 61,500,117
2001...................................... 55,708,073
2002...................................... 51,603,773
2003...................................... 46,854,812
Thereafter................................ 381,231,617
-------------
Total..................................... $663,501,633
=============

Remaining lease terms range from one year to forty-five years. Pursuant to the
lease agreements, tenants of the property are required to reimburse the Company
for some or all of their pro rata share of the real estate taxes and operating
expenses of the property. Such amounts are included in additional rental
income.

Certain tenant leases contain provisions providing for stepped rent increases.
GAAP requires the Company to record rental income for the period of occupancy
using the effective monthly rent, which is the average monthly rent for the
entire period of occupancy during the term of the lease. The accompanying
consolidated financial statements include increases of $2,120,951, $654,978 and
$119,225 in 1998, 1997 and 1996, of rental income for the period of occupancy
for which stepped rent increases apply and $2,907,567 and $786,616 in related
accounts and rents receivable as of December 31, 1998 and 1997, respectively.
The Company anticipates collecting these amounts over the terms of the related
leases as scheduled rent payments are made.

-39-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(7) Mortgages Payable

Mortgages payable consist of the following at December 31, 1998 and 1997:

Mortgages payable to non-affiliates:
Regency Point 7.03% 08/2000 (b) 4,312,036 4,373,461
Eagle Crest 7.85% 10/2003 15,373 2,350,000 2,350,000
Nantucket Square 7.85% 10/2003 14,392 2,200,000 2,200,000
Antioch Plaza 7.85% 10/2003 5,724 875,000 875,000
Mundelein Plaza 7.85% 10/2003 18,382 2,810,000 2,810,000
Montgomery-Goodyear 7.85% 10/2003 4,121 630,000 630,000
Montgomery-Sears 7.85% 08/2003 10,761 1,645,000 1,645,000
Hartford/Naperville 7.85% 08/2003 15,111 2,310,000 2,310,000
Zany Brainy 7.59% 01/2004 7,875 1,245,000 1,245,000
Prospect Heights
Plaza 7.59% 01/2004 6,926 1,095,000 1,095,000
Hawthorn Village
Commons 7.59% 01/2004 27,071 4,280,000 4,280,000
Six Corners Plaza 7.59% 01/2004 19,608 3,100,000 3,100,000
Salem Square
Shopping Center 7.59% 01/2004 19,797 3,130,000 3,130,000
Lansing Square 7.80% 01/2004 52,975 8,150,000 8,150,000
Spring Hill Fashion
Mall 7.80% 01/2004 30,485 4,690,000 4,690,000
Aurora Commons (c) 9.00% 10/2001 85,423 9,205,252 9,392,602
Maple Park Place 7.65% 06/2004 48,769 7,650,000 7,650,000
Dominicks-Schaumburg 7.49% 06/2004 33,365 5,345,500 5,345,500
Summit Park Ridge 7.49% 06/2004 9,987 1,600,000 1,600,000
Lincoln Park Place 7.49% 06/2004 6,554 1,050,000 1,050,000
Crestwood Plaza 7.65% 06/2004 5,765 904,380 904,380
Park St. Claire 7.65% 06/2004 4,861 762,500 762,500
Quarry 7.65% 06/2004 5,738 900,000 900,000
Grand/Hunt Club 7.49% 06/2004 11,210 1,796,000 1,796,000
Rivertree Court (d) 10.03% 11/1998 - - 15,700,000
Niles Shopping Center 7.23% 01/2005 9,745 1,617,500 1,617,500
Ameritech 7.23% 01/2005 3,147 522,375 522,375
Calumet Square 7.23% 01/2005 6,223 1,032,920 1,032,920
Sequoia Shopping
Center 7.23% 01/2005 9,068 1,505,000 1,505,000
Dominick's Highland
Park 7.21% 12/2004 38,453 6,400,000 6,400,000
Fashion Square (e) 3.13% 12/2014 19,740 6,200,000 6,800,000
Mallard Crossing 7.28% 03/2005 25,041 4,050,000 -
Prairie Square 7.00% 04/2005 9,215 1,550,000 -

-40-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

Current Current Balance at
Property as Interest Maturity Monthly Dec. 31, Dec. 31,
Collateral Rate Date Payment(a) 1998 1997
- - ------------- ---------- --------- --------- ----------- -----------
Orland Park Retail 7.00% 04/2005 3,716 625,000 -
Maple Plaza 7.00% 04/2005 9,408 1,582,500 -
Iroquois Center 7.00% 04/2005 35,374 5,950,000 -
Dominicks-Countryside 6.99% 04/2003 6,827 1,150,000 -
Wilson Plaza 7.00% 04/2005 3,864 650,000 -
Eagle Country Market 7.00% 04/2005 8,621 1,450,000 -
Terramere Plaza 7.00% 04/2005 13,094 2,202,500 -
Shops at Coopers
Grove 7.00% 04/2005 17,241 2,900,000 -
Party City 7.00% 04/2005 5,871 987,500 -
Cobbler Crossing 7.00% 02/2005 31,946 5,476,500 -
Dominicks-Glendale
Heights 7.00% 01/2005 23,917 4,100,000 -
Riversquare Shopping
Center 7.15% 01/2005 18,173 3,050,000 -
Shorecrest Plaza 7.10% 03/2003 17,620 2,978,000 -
Shoppes of Mill
Creek 8.00% 09/1999 63,333 9,500,000 -
Woodfield Plaza 6.65% 05/2005 53,200 9,600,000 -
Schaumburg Plaza (f) 9.25% 12/2009 30,125 3,908,082 -
Downers Grove Market 6.82% 08/2005 60,243 10,600,000 -
Woodfield Commons-
East/West 6.50% 12/2005 72,123 13,500,000 -
Dominicks-West
Chicago 6.66% 10/2003 17,483 3,150,000 -
Marketplace at Six
Corners 7.00% 12/2003 65,333 11,200,000 -
Joliet Commons 7.79% 10/2007 105,719 14,569,482 -
Edinburgh Festival 6.75% 06/2008 26,015 4,625,000 -
Lehman secured
financing (g) 6.36% 10/2008 299,025 54,600,000 -
Column secured
financing (h) 7.00% 11/2008 150,695 25,000,000 -
------------ -----------
Mortgages Payable.................................... $288,982,470 106,589,710
============ ===========

-41-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(a) All payments are interest only, with the exception of the loans secured by
the Walgreens, Regency Point, Aurora Commons and Joliet Commons properties.

(b) Payments on this mortgage are based on a floating interest rate of 180
basis points over the 30-day LIBOR rate, which adjusts monthly, amortizing
over 25 years.

(c) The Company received a credit for interest expense on the debt at closing,
which is included in restricted cash along with an amount set aside by the
Company for principal payments on the debt. Interest income earned on the
restricted cash amounts, when netted with interest expense on the debt,
results in an adjusted interest rate on the debt of approximately 8.2%.

(d) This mortgage payable was refinanced prior to maturity. See footnote (h)
for information on the new mortgage payable.

(e) As part of the purchase of this property, the Company assumed the existing
mortgage-backed Economic Development Revenue Bonds, Series 1994 offered by
the Village of Skokie, Illinois. The interest rate floats and is reset
weekly by a re-marketing agent. The current rate is 3.13%. The bonds are
further secured by an Irrevocable Letter of Credit, issued by LaSalle Bank
at a fee of 1.25% of the bond outstanding. In addition, there is a .125%
re-marketing fee paid annually and a trustee fee of $250 paid quarterly.
On January 15, 1998, the Company made a $600,000 paydown on the principal
outstanding.

(f) The seller deposited money into an escrow account, which together with
interest earnings on the deposit, will provide a sum that will be drawn
down on a monthly basis by the Company to reduce the effective interest
rate paid on the loan to 7% per annum for a period of five years.

(g) The Company paid $636,000 of loan fees and $503,295 of other costs
associated with this financing with Lehman Brothers Holdings Inc.
("Lehman"). This agreement allowed the Company to secure a rate lock
agreement to set the interest rate at the time of execution of this
financing, thus protecting the Company from future interest rate increases.

(h) The Company paid $37,125 of loan fees and $267,884 of other costs
associated with this financing with Column Financial Inc. ("Column"). This
agreement allowed the Company to secure a rate lock agreement to set the
interest rate at the time of execution of this financing, thus protecting
the Company from future interest rate increases.

-42-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

As of December 31, 1998, the required future principal payments on the
Company's mortgages payable over the next five years are as follows:

1999.................................... $ 9,894,377
2000.................................... 4,607,879
2001.................................... 8,954,934
2002.................................... 172,303
2003.................................... 31,484,369

(8) Deposits and Other Assets

On September 15, 1998, the Company made initial deposits totaling $1,100,000
for the purchase of three properties. The balance of the purchase prices,
approximately $14,300,000, will be paid upon completion of the construction of
the centers. The final purchase price may vary depending upon the final net
operating income of the properties after lease up.

The Company earns interest on these deposits at the rate of 9.375% per annum.

The remaining balance represents deposits made to third parties for potential
acquisitions.

(9) Construction in Progress

On August 6, 1998, the Company acquired title to approximately 27 acres of land
in St. Charles, Illinois, to be developed into a 204,640 square foot shopping
center to be known as "Stuarts Crossing" from an unaffiliated third party. The
initial purchase price of $14,176,627, was funded with cash and cash
equivalents. Included in the purchase price paid by the Company is $5,351,744
of land and $8,824,883 in cash which has been placed in a development escrow
for infrastructure development and the construction of a Jewel/Osco Food Store
and adjacent stores. $7,467,500 of this development escrow is included in
restricted cash and $1,230,448 is included in construction in progress net of
interest income earned on the development escrow.

-43-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(10) Earnings per Share

Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed by reflecting the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. For the years ended
December 31, 1998, 1997 and 1996, options to purchase 13,500, 12,500 and 7,500
shares of common stock at prices ranging from $9.05 to $10.45 per share were
outstanding during each of the respective periods.

As of December 31, 1998, warrants to purchase 1,159,421 shares of common stock
at a price of $12.00 per share were outstanding, but were not included in the
computation of diluted EPS because the warrants' exercise price was greater
than the average market prices of common shares.

The weighted average number of common shares outstanding were 40,359,796,
15,225,983 and 4,494,620 for the years ended December 31, 1998, 1997 and 1996,
respectively.

(11) Segment Reporting

The Company owns and seeks to acquire single-user retail centers, neighborhood
and community shopping centers in the Midwest, generally consisting of the
states of Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of
the Company's eighty-five shopping centers are located in these states. Such
shopping centers are typically anchored by grocery and drug stores complemented
with stores providing a wide range of other goods and services to shoppers.

The Company assesses and measures operating results on an individual property
basis for each of its eighty-five shopping centers based on net property
operations. Since all of the Company's shopping centers
exhibit highly similar economic characteristics, cater to the day-to-day living
needs of their respective surrounding communities, and offer similar degrees of
risk and opportunities for growth,the shopping centers have been aggregated and
reported as one operating segment.

-44-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

The property revenues, property net operations, and property assets of the
reportable segments are summarized in the following tables as of December 31,
1998 and 1997, and for each of the years in the three-year period then ended,
along with a reconciliation to net income:

1998 1997 1996
---- ---- ----
Total property revenues......... $ 68,116,744 27,806,065 5,889,546
Total property operating
expenses...................... 21,017,360 8,863,024 1,873,174
Mortgage interest................ 13,421,599 5,654,564 597,485
------------- ------------- ------------
Net property operations.......... 33,677,785 13,288,477 3,418,887
------------- ------------- ------------
Interest income.................. 5,185,534 1,615,520 438,188
Less non property expenses:
Professional services.......... 440,345 125,985 63,266
General and administrative..... 1,142,603 356,969 120,293
Advisor asset management fee... 965,108 843,000 238,108
Depreciation and amortization.. 11,663,150 4,681,329 956,511
Acquisition cost expense....... 437,783 249,493 26,676
------------- ------------- ------------
Net income before minority
interest in earnings........... $ 24,214,330 8,647,221 2,452,221
============= ============= ============

Net investment properties........ $630,048,317 270,645,355
============= =============

(12) Commitments and Contingencies

In connection with a tax increment financing district for one of the Company's
properties, the Company is contingently liable for any shortfalls in the Tax
Increment as defined. At December 31, 1998, the Company does not believe any
shortfall under the Tax Increment will be due.

As of December 31, 1998 the Company is in the process of surveying tenants,
suppliers and other parties with whom the Company does a significant amount of
business in order to evaluate potential exposure in the event these parties are
not year 2000 compliant on a timely basis. As information is obtained the
Company will be prepared to develop contingency plans accordingly. The
Company's assessments are at a preliminary stage, however the Company is not
currently aware of any material non-compliance by critical tenants or
suppliers. Certain factors especially as it relates to the systems of third
party suppliers or tenants are out of the Company's control. The failure of
these suppliers or tenants systems could have a material adverse effect on the
Company.

-45-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(13) Subsequent Events

In January, 1999, the Company received $13,887,649 of offering proceeds for
subscriptions received as of December 31, 1998, bringing total gross offering
proceeds to approximately $553,219,062.

In January 1999, the Company paid a distribution of $3,844,649 to the
Stockholders.

Subsequent to December 31, 1998, the Company has purchsed eight additional
properties from unafilliated third parties for a combined purchase price of
approximately $83,900,000.

On behalf of the Company, the Advisor is currently exploring the purchase of
additional shopping centers from unaffiliated third parties.

-46-

<TABLE> INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III
Real Estate and Accumulated Depreciation

December 31, 1998
<CAPTION>
Initial Cost Gross amount at which carried
(A) at end of period (B)
------------------------ ----------------------------------------------- Date
Buildings Adjustments Land Buildings Accumulated Con-
and to and and Total Depreciation stru- Date
Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq
------------ ----------- ------------ ----------- ------------ ------------ -------- ------------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-user Retail
- - ------------------
Walgreens/Decatur
Decatur, IL....... $ 714,443 $ 78,330 1,130,723 - 78,330 1,130,723 1,209,053 147,622 1988 01/95

Zany Brainy
Wheaton, IL....... 1,245,000 838,000 1,626,033 664 838,000 1,626,697 2,464,697 135,537 1995 07/96

Ameritech
Joliet, IL........ 522,375 170,000 883,293 2,544 170,000 885,837 1,055,837 49,484 1995 05/97

Dominicks-Schaumburg
Schaumburg, IL.... 5,345,500 2,294,437 8,392,661 2,679 2,294,437 8,395,340 10,689,777 442,959 1996 05/97

Dominicks-Highland Park
Highland Park, IL. 6,400,000 3,200,000 9,597,963 2,200 3,200,000 9,600,163 12,800,163 610,649 1996 06/97

Dominicks-Glendale Heights
Glendale Heights, IL 4,100,000 1,265,000 6,942,997 9,194 1,265,000 6,952,191 8,217,191 309,970 1997 09/97

Party City
Oakbrook Terrace, IL 987,500 750,000 1,231,271 - 750,000 1,231,271 1,981,271 47,842 1985 11/97

Eagle Country Market
Roselle, IL....... 1,450,000 966,667 1,940,898 - 966,667 1,940,898 2,907,565 92,264 1990 11/97

Dominicks-West Chicago
West Chicago, IL.. 3,150,000 1,980,130 4,325,331 - 1,980,130 4,325,331 6,305,461 155,809 1990 01/98

Walgreens-Woodstock
Woodstock, IL..... 569,610 395,080 774,906 - 395,080 774,906 1,169,986 14,567 1973 06/98

Bakers Shoes
Chicago, IL....... - 645,284 342,162 - 645,284 342,162 987,446 2,851 1891 09/98

Carmax-Schaumburg
Schaumburg, IL.... - 7,142,020 13,460,108 - 7,142,020 13,460,108 20,602,128 37,389 1998 12/98

Carmax-Tinley Park
Tinley Park, IL... - 6,788,880 12,112,120 - 6,788,880 12,112,120 18,901,000 33,645 1998 12/98

Staples
Freeport, IL...... - 725,288 1,968,975 - 725,288 1,968,975 2,694,263 6,149 1998 04/98

Hollywood Video-Hammond
Hammond, IN....... - 405,213 945,758 - 405,213 945,758 1,350,971 2,627 1998 12/98

-47-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1998

Initial Cost Gross amount at which carried
(A) at end of period (B)
------------------------ ----------------------------------------------- Date
Buildings Adjustments Land Buildings Accumulated Con-
and to and and Total Depreciation stru- Date
Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq
------------ ----------- ------------ ----------- ------------ ------------ -------- ------------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Neighborhood Retail Centers
- - ---------------------------
Eagle Crest Shopping Center
Naperville, IL.... 2,350,000 1,878,618 2,938,352 269,531 1,878,618 3,207,883 5,086,501 389,258 1991 03/95

Montgomery-Goodyear
Montgomery, IL.... 630,000 315,000 834,659 (11,158) 315,000 823,501 1,138,501 89,305 1991 09/95

Hartford/Naperville Plaza
Naperville, IL.... 2,310,000 990,000 3,427,961 13,002 990,000 3,440,963 4,430,963 402,832 1995 09/95

Nantucket Square
Schaumburg, IL.... 2,200,000 1,908,000 2,349,918 (69,881) 1,908,000 2,280,037 4,188,037 247,194 1980 09/95

Antioch Plaza
Antioch, IL....... 875,000 268,000 1,360,445 (120,629) 268,000 1,239,816 1,507,816 136,741 1995 12/95

Mundelein Plaza
Mundelein, IL..... 2,810,000 1,695,000 3,965,561 (38,893) 1,695,000 3,926,668 5,621,668 360,284 1990 03/96

Regency Point
Lockport, IL...... 4,312,036 1,000,000 4,720,800 (19,377) 1,000,000 4,701,423 5,701,423 430,965 1993 04/96

Prospect Heights
Prospect Heights, IL 1,095,000 494,300 1,683,005 32,061 494,300 1,715,066 2,209,366 139,285 1985 06/96

Montgomery-Sears
Montgomery, IL.... 1,645,000 768,000 2,654,681 (77,754) 768,000 2,576,927 3,344,927 220,162 1990 06/96

Salem Square
Countryside, IL... 3,130,000 1,735,000 4,449,217 (16,960) 1,735,000 4,432,257 6,167,257 357,219 1973 08/96

Hawthorn Village
Vernon Hills, IL.. 4,280,000 2,619,500 5,887,640 46,891 2,619,500 5,934,531 8,554,031 474,302 1979 08/96

Six Corners
Chicago, IL....... 3,100,000 1,440,000 4,532,977 3,638 1,440,000 4,536,615 5,976,615 334,195 1966 10/96

Spring Hill Fashion Corner
West Dundee, IL... 4,690,000 1,794,000 7,415,396 8,955 1,794,000 7,424,351 9,218,351 525,442 1985 11/96

Crestwood Plaza
Crestwood, IL..... 904,380 325,577 1,483,183 4,750 325,577 1,487,933 1,813,510 99,164 1992 12/96

-48-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1998

Park St. Claire
Schaumburg, IL.... 762,500 319,578 986,920 226,674 319,578 1,213,594 1,533,172 145,054 1994 12/96

Summit of Park Ridge
Park Ridge, IL.... 1,600,000 672,000 2,498,050 23,009 672,000 2,521,059 3,193,059 167,925 1986 12/96

Grand and Hunt Club
Gurnee, IL........ 1,796,000 969,840 2,622,575 (52,811) 969,840 2,569,764 3,539,604 171,313 1996 12/96

Quarry Outlot
Hodgkins, IL...... 900,000 522,000 1,278,431 8,872 522,000 1,287,303 1,809,303 85,772 1996 12/96

Aurora Commons
Aurora, IL........ 9,205,252 3,220,000 8,318,861 11,391 3,220,000 8,330,252 11,550,252 587,845 1988 01/97

Lincoln Park Place
Chicago, IL....... 1,050,000 819,000 1,299,902 (91,262) 819,000 1,208,640 2,027,640 80,795 1990 01/97

Niles Shopping Center
Niles, IL......... 1,617,500 850,000 2,466,389 26,658 850,000 2,493,047 3,343,047 137,931 1982 04/97

Mallard Crossing
Elk Grove Village, IL 4,050,000 1,778,667 6,331,943 (51,910) 1,778,667 6,280,033 8,058,700 369,202 1993 05/97

Cobblers Crossing
Elgin, IL......... 5,476,500 3,200,000 7,763,940 (145,569) 3,200,000 7,618,371 10,818,371 445,527 1993 05/97

Calumet Square
Calumet City, IL.. 1,032,920 527,000 1,540,046 63,664 527,000 1,603,710 2,130,710 82,874 1967/ 06/97
1994
Sequoia Shopping Center
Milwaukee, WI..... 1,505,000 1,216,914 1,806,735 (21,826) 1,216,914 1,784,909 3,001,823 92,082 1988 06/97

Riversquare Shopping Center
Naperville, IL.... 3,050,000 2,853,226 3,129,130 205,697 2,853,226 3,334,827 6,188,053 185,544 1988 06/97

Shorecrest Plaza
Racine, WI........ 2,978,000 1,150,000 4,775,119 (41,121) 1,150,000 4,733,998 5,883,998 223,850 1977 07/97

Dominicks-Countryside
Countryside, IL... 1,150,000 1,375,000 925,106 - 1,375,000 925,106 2,300,106 36,390 1975 12/97

Terramere Plaza
Arlington Heights, IL 2,202,500 1,435,000 2,981,314 188,025 1,435,000 3,169,339 4,604,339 103,210 1980 12/97

Wilson Plaza
Batavia, IL....... 650,000 310,000 999,366 - 310,000 999,366 1,309,366 38,279 1986 12/97

-49-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1998

Fashion Square
Skokie, IL........ 6,200,000 2,393,534 6,901,769 162,000 2,393,534 7,063,769 9,457,303 237,896 1984 12/97

Shops at Coopers Grove
Country Club Hills,IL 2,900,000 1,400,897 4,417,565 (32,729) 1,400,897 4,384,836 5,785,733 153,070 1991 01/98

Maple Plaza
Downers Grove, IL. 1,582,500 1,364,202 1,821,820 - 1,364,202 1,821,820 3,186,022 61,119 1988 01/98

Orland Park Retail
Orland Park, IL... 625,000 460,867 795,939 (20,291) 460,867 775,648 1,236,515 26,813 1997 02/98

Wisner/Milwaukee Plaza
Chicago, IL....... 974,725 528,576 1,383,292 - 528,576 1,383,292 1,911,868 40,013 1994 02/98

Homewood Plaza
Homewood, IL...... 1,013,201 534,599 1,398,042 - 534,599 1,398,042 1,932,641 42,683 1993 02/98

Elmhurst City Center
Elmhurst, IL...... 2,513,765 2,050,217 2,882,110 (404,277) 2,050,217 2,477,833 4,528,050 72,152 1994 02/98

Shoppes of Mill Creek
Palos Park, IL.... 9,500,000 3,305,949 8,001,283 15,938 3,305,949 8,017,221 11,323,170 245,369 1989 03/98

Prairie Square
Sun Prairie, WI... 1,550,000 739,575 2,381,050 (21,652) 739,575 2,359,398 3,098,973 72,770 1995 03/98

Oak Forest Commons
Oak Forest, IL.... 6,617,871 2,795,519 9,030,068 (5,628) 2,795,519 9,024,440 11,819,959 267,148 1998 03/98

Downers Grove Market
Downers Grove, IL. 10,600,000 6,224,467 11,616,661 (29,297) 6,224,467 11,587,364 17,811,831 356,714 1998 03/98

St. James Crossing
Westmont, IL...... 3,847,599 2,610,600 4,887,223 (55,593) 2,610,600 4,831,630 7,442,230 128,041 1990 03/98

High Point Center
Madison, WI....... 5,360,988 1,449,560 8,812,673 (14,096) 1,449,560 8,798,577 10,248,137 203,179 1984 04/98

Western & Howard
Chicago, IL....... 992,681 439,990 1,523,460 - 439,990 1,523,460 1,963,450 34,723 1985 04/98

Wauconda Shopping Center
Wauconda, IL...... 1,333,834 454,500 2,067,622 - 454,500 2,067,622 2,522,122 49,027 1988 05/98

-50-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1998

Initial Cost Gross amount at which carried
(A) at end of period (B)
------------------------ ------------------------------------------------ Date
Buildings Adjustments Land Buildings Accumulated Con-
and to and and Total Depreciation stru- Date
Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq
------------ ----------- ------------ ----------- ------------ ------------ -------- ------------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Berwyn Plaza
Berwyn, IL........ 708,638 769,073 1,078,379 - 769,073 1,078,379 1,847,452 24,215 1983 05/98

Woodland Heights
Streamwood, IL.... 3,940,009 2,976,000 6,651,814 (99,166) 2,976,000 6,552,648 9,528,648 135,852 1956 06/98

Schaumburg Shopping Center
Schaumburg, IL.... 3,908,082 2,445,555 4,565,548 (37,264) 2,445,555 4,528,284 6,973,839 80,530 1994 06/98

Winnetka Shopping Center
New Hope, MN...... 2,233,744 1,596,600 2,858,630 - 1,596,600 2,858,630 4,455,230 56,988 1990 07/98

Eastgate Shopping Center
Lombard, IL....... - 4,252,440 2,569,961 (23,447) 4,252,440 2,546,514 6,798,954 42,371 1959 07/98

Orland Greens Shopping Center
Orland Park, IL... - 1,246,440 3,876,188 - 1,246,440 3,876,188 5,122,628 34,427 1984 09/98

Two Rivers Plaza
Bolingbrook, IL... - 1,820,453 4,990,232 - 1,820,453 4,990,232 6,810,685 64,802 1994 10/98

Edinburgh Festival
Brooklyn Park, MN. 4,625,000 2,472,746 6,366,292 (8,430) 2,472,746 6,357,862 8,830,608 49,479 1997 10/98

Riverplace Center
Noblesville, IN... - 1,591,682 4,486,929 - 1,591,682 4,486,929 6,078,611 19,529 1992 11/98

Rose Plaza
Elmwood Park, IL.. - 1,155,117 1,602,869 - 1,155,117 1,602,869 2,757,986 8,762 1997 11/98

Marketplace at Six Corners
Chicago, IL....... 11,200,000 9,007,150 10,014,533 - 9,007,150 10,014,533 19,021,683 28,096 1997 11/98

-51-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1998

Initial Cost Gross amount at which carried
(A) at end of period (B)
------------------------ ------------------------------------------------ Date
Buildings Adjustments Land Buildings Accumulated Con-
and to and and Total Depreciation stru- Date
Encumbrance Land improvements Basis (C) improvements improvements (D) (E) cted Acq
------------ ----------- ------------ ----------- ------------ ------------ --------- ------------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

Community Centers
- - -----------------
Lansing Square
Lansing, IL....... 8,150,000 4,075,000 12,179,383 800,319 4,075,000 12,979,702 17,054,702 814,506 1991 12/96

Maple Park Place
Bolingbrook, IL... 7,650,000 3,665,909 11,669,428 10,603 3,665,909 11,680,031 15,345,940 880,143 1992 01/97

Rivertree Court
Vernon Hills, IL.. 17,547,999 8,651,875 22,941,725 (10,680) 8,651,875 22,931,045 31,582,920 1,195,241 1988 07/97

Naper West
Naperville, IL.... 7,695,199 5,335,000 9,608,534 (196,681) 5,335,000 9,411,853 14,746,853 349,005 1985 12/97

Woodfield Plaza
Schaumburg, IL.... 9,600,000 4,612,277 15,160,000 (94,543) 4,612,277 15,065,457 19,677,734 528,704 1992 01/98

Lake Park Plaza
Michigan City, IN. 6,489,618 3,252,861 8,878,263 865,133 3,252,861 9,743,396 12,996,257 302,054 1990 02/98

Chestnut Court
Darien, IL........ 8,618,623 5,719,982 10,274,916 125,396 5,719,982 10,400,312 16,120,294 277,398 1987 03/98

Bergen Plaza
Oakdale, MN....... 9,141,896 5,346,781 11,700,498 26,841 5,346,781 11,727,339 17,074,120 278,394 1978 04/98

Fairview Heights Plaza
Fairview Heights, IL - 2,350,493 8,914,458 - 2,350,493 8,914,458 11,264,951 103,976 1991 08/98

Stuarts Crossing
St. Charles, IL... - 5,351,744 - - 5,351,744 - 5,351,744 1999 08/98

Woodfield Commons-East/West
Schaumburg, IL.... 13,500,000 8,352,858 18,330,249 (92,451) 8,352,858 18,237,798 26,590,656 184,111 1973 10/98
1975
1997

Joliet Commons
Joliet, IL........ 14,569,482 4,088,806 15,680,612 (14,602) 4,088,806 15,666,010 19,754,816 107,563 1995 10/98

Springboro Plaza
Springboro, OH.... - 1,079,108 8,228,948 - 1,079,108 8,228,948 9,308,056 35,329 1992 11/98

Park Center Plaza
Tinley Park, IL... - 5,363,000 9,610,202 - 5,363,000 9,610,202 14,973,202 30,859 1988 12/98
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Total $288,982,470 193,093,898 451,538,030 1,347,939 193,093,898 452,885,969 645,979,867 17,161,998
============ =========== =========== =========== =========== =========== =========== ============

</TABLE>

-52-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)

Real Estate and Accumulated Depreciation

December 31, 1998, 1997 and 1996

Notes:

(A) The initial cost to the Company represents the original purchase price
of the property, 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, 1998 and 1997
for federal income tax purposes was approximately 626,000,000 and
$277,000,000, unaudited respectively.

(C) Adjustments to basis includes additions to investment properties net of
payments received under master lease agreements. As part of several
purchases, the Company will receive rent under master lease agreements
on the spaces currently vacant for periods ranging from one to two years
or until the spaces are leased. GAAP requires that as these payments
are received, they be recorded as a reduction in the purchase price of
the properties rather than as rental income.

(D) Reconciliation of real estate owned:

1998 1997 1996
------------- ------------ -------------
Balance at beginning of year $276,310,838 94,632,981 17,512,432
Purchases of property....... 368,364,949 181,251,256 77,421,408
Additions................... 3,285,854 836,962 136,819
Payments received under
master leases............. (1,981,774) (410,361) (437,678)
------------- ------------ -------------
Balance at end of year...... $645,979,867 276,310,838 94,632,981
============= ============= =============

(E) Reconciliation of accumulated depreciation:

Balance at beginning of year $ 5,665,483 1,109,038 169,894
Depreciation expense........ 11,496,515 4,556,445 939,144
------------- ------------ -------------
Balance at end of year...... $ 17,161,998 5,665,483 1,109,038
============= ============= =============

-53-

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

There were no disagreements on accounting or financial disclosure during 1998.

PART III

Item 10. Directors and Executive Officers of the Registrant

Officers and Directors

The Company's current officers and directors are as follows:

Functional Title

Robert D. Parks......... President, Chief Executive Officer, Chief Operating
Officer and Affiliated Director
G. Joseph Cosenza....... Affiliated Director
Heidi N. Lawton......... Independent Director
Roland W. Burris........ Independent Director
Joel G. Herter.......... Independent Director
Roberta S. Matlin....... Vice President - Administration
Kelly Tucek............. Secretary, Treasurer and Chief Financial Officer
Patricia A. Challenger.. Assistant Secretary

ROBERT D. PARKS (age 55) President, Chief Executive Officer, Chief Operating
Officer and Director of the Company since its formation in 1994. Mr. Parks
joined The Inland Group, Inc. ("TIGI") and its affiliates in 1968. Mr. Parks
is a Director of TIGI and is Chairman of Inland Real Estate Investment
Corporation ("IREIC") and is a Director of both Inland Securities Corporation
and the Advisor. Mr. Parks is responsible for the ongoing administration of
existing partnerships, corporate budgeting and administration for IREIC. In
this capacity he oversees and coordinates the marketing of all investments
nationwide and has overall responsibility for investor relations. Mr. Parks
received his B.A. Degree from Northeastern Illinois University in 1965 and M.A.
from the University of Chicago in 1968. He is a member of the Real Estate
Investment Association and the National Association of Real Estate Investment
Trusts.

G. JOSEPH COSENZA (age 55) Director of the Company since its formation in 1994.
Mr. Cosenza is a Director and Vice Chairman of The Inland Group, Inc. Mr.
Cosenza oversees, coordinates and directs Inland's many enterprises. In
addition, Mr. Cosenza immediately supervises a staff of nine persons who engage
in property acquisition. Mr. Cosenza has been a consultant to other real
estate entities and lending institutions on property appraisal methods. Mr.
Cosenza received his B.A. Degree from Northeastern Illinois University in 1966
and his M.S. Degree from Northern Illinois University in 1972. From 1967 to
1968, he taught at the LaGrange School District in Hodgkins, Illinois and from
1968 to 1972, he served as Assistant Principal and taught in the Wheeling,
Illinois School District.

-54-

Mr. Cosenza has been a licensed real estate broker since 1968 and an active
member of various national and local real estate associations, including the
National Association of Realtors and the Urban Land Institute. Mr. Cosenza has
also been Chairman of the Board of American National Bank of DuPage and has
served on the Board of Directors of Continental Bank of Oakbrook Terrace. He
is presently a Director on the Board of Westbank in Westchester and Hillside,
Illinois.

HEIDI N. LAWTON (age 37) Independent Director since October 1994, Ms. Lawton
is managing broker, owner and president of Lawton Realty Group, an Oak Brook,
Illinois real estate brokerage firm which she founded in 1989. The firm
specializes in commercial, industrial and investment real estate brokerage.
Ms. Lawton is responsible for all aspects of the operations of the company,
including structuring real estate investments, procuring partner/investors,
acquiring land and properties and obtaining financing for development and/or
acquisition. Prior to founding Lawton Realty Group and while she was earning
her B.S. Degree in business management from the National College of Education,
Ms. Lawton was managing broker for VCR Realty in Addison, Illinois. Ms. Lawton
has been licensed as a real estate professional since 1982 and has served as a
member of the Certified Commercial Investment Members, secretary of the
Northern Illinois Association of Commercial Realtors, and is a past board
member and commercial director of the DuPage Association of Realtors.

ROLAND W. BURRIS (age 61) Independent Director since January 1996. Mr. Burris
is serving as Of Counsel to the Chicago law firm of Buford, Peters, Ware &
Zansitis, LLC. Prior to joining Buford, Peters, Ware & Zansitis, LLC, he was
the Managing Partner of Jones, Ware & Grenard. His areas of practice are
business transactions, estate and probate, wills and trust, environment and
consumer affairs. From 1973 to 1995, Mr. Burris held various governmental
positions in the State of Illinois including State Comptroller (1979 to 1991)
and Attorney General (1991 to 1995). Mr. Burris completed his undergraduate
studies at Southern Illinois University in 1959 and studied international law
as an exchange student at the University of Hamburg in Germany. Mr. Burris
graduated from Howard University Law School in 1963. Mr. Burris serves on the
board of the Illinois Criminal Justice Authority, the Financial Accounting
Foundation, the Law Enforcement Foundation of Illinois, the African American
Citizens Coalition on Regional Development and the Boy Scouts of America. He
currently serves as chair of the Illinois State Justice Commission and is an
adjunct professor in the Master of Public Administration Program at Southern
Illinois University.

JOEL G. HERTER, CPA (age 60) Independent Director of the Company since 1997,
Mr. Herter is a senior partner of Wolf & Company LLP ("Wolf") where he has been
employed since 1978. Mr. Herter graduated from Elmhurst College in 1959 with a
Bachelor of Science degree in business administration. His business experience
includes accounting and auditing, tax and general business services including
venture and conventional financing, forecasts and projections, and strategic
planning to a variety of industries. From 1978 to 1991, Mr. Herter served as
managing partner for Wolf. Mr. Herter is a member of the American Institute of
Certified Public Accountants and the Illinois CPA Society and was a past
president and director of the Elmhurst Chamber of Commerce and was appointed by
Governor Thompson of the State of Illinois to serve on the 1992 World's Fair
Authority. Mr. Herter currently serves as chairman of the Board of Trustees,
Elmhurst Memorial Hospital; director of Suburban Bank and Trust Company,;
chairman of the Board of Trustees, Elmhurst College; chairman of the DuPage
Water Commission; treasurer to the House Republican Campaign Committee and
Friends of Lee Daniels Committee; treasurer for Illinois Attorney General, Jim
Ryan. Mr. Herter has also been appointed by Governor Edgar of the State of
Illinois to the Illinois Sports Facilities Authority.

-55-

ROBERTA S. MATLIN (age 54) Vice President - Administration of the Company since
March 1995. Ms. Matlin joined TIGI in 1984 as Director of Investor
Administration and currently serves as Senior Vice President-Investments of
IREIC directing the day-to-day internal operations and Vice President of Inland
Retail Real Estate Trust, Inc. Ms. Matlin is a Director of Inland Real Estate
Investment Corporation, Inland Securities Corporation and the Advisor. Prior
to joining TIGI, Ms. Matlin was employed for eleven years by the Chicago Region
of the Social Security Administration of the United States Department of Health
and Human Services. Ms. Matlin received her B.A. Degree from the University of
Illinois in 1966 and is registered with the National Association of Securities
Dealers, Inc. as a General Securities Principal.

KELLY TUCEK (age 36) Secretary, Treasurer and Chief Financial Officer of the
Company since August 1996. Ms. Tucek joined TIGI in 1989 and is an Assistant
Vice President of Inland Real Estate Investment Corporation and Treasurer and
Chief Financial Officer of Inland Retail Real Estate Trust, Inc. Ms. Tucek is
responsible for the Investment Accounting Department which includes the
accounting for the Company and all public limited partnership accounting
functions along with quarterly and annual SEC filings. Prior to joining TIGI,
Ms. Tucek was on the audit staff of Coopers and Lybrand since 1984. She
received her B.A. Degree in Accounting and Computer Science from North Central
College in 1984.

PATRICIA A. CHALLENGER (age 46) Assistant Secretary of the Company since March
1995. Ms. Challenger joined Inland in 1985. She is currently a Senior Vice
President of IREIC in charge of the Asset Management Department, where she is
responsible for developing operating and disposition strategies for properties
owned by IREIC related entities. Ms. Challenger received her B.S. degree from
George Washington University in 1975 and her Master's Degree from Virginia Tech
University in 1980. Ms. Challenger was selected and served from 1980 to 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 governmental properties. Ms. Challenger is a licensed real
estate broker, a National Association of Securities Dealers registered
securities sales representative and a member of the Urban Land Institute.

-56-

Item 11. Executive Compensation

The Company's executive officers are all employees of Inland Real Estate
Investment Corporation, the owner of Inland Real Estate Advisory Services,
Inc., the Company's Advisor. The Company does not pay any of these individuals
for serving in their respective positions. For a discussion of these fees paid
to the Advisor, see "Certain Relationships and Related Transactions" below.

The Company pays its Independent Directors an annual fee of $1,000. In
addition, each Independent Director receives $250 for attendance (in person or
by telephone) at each meeting of the Board or committee thereof. Officers of
the Company who are Directors (Messrs. Parks and Cosenza) are not paid fees for
serving as directors.

Under the Company's amended and restated Independent Director Stock Option
Plan, each Independent Director is granted an option to acquire 3,000 shares as
of the date they become a Director and an additional 500 shares on the date of
each annual stockholders' meeting commencing with the annual meeting in 1995 so
long as the Independent Director remains a member of the Board on such date.
The options for the initial 3,000 Shares granted are exercisable as follows:
1,000 Shares on the date of grant and 1,000 Shares on each of the first and
second anniversaries of the date of grant.

-57-

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of March 30, 1999 regarding the
number and percentage of shares beneficially owned by: (i) each director; (ii)
each executive officer; (iii) all directors and executive officers as a group;
and (iv) as of December 31, 1998, any person known to us to be the beneficial
owner of more than 5% of the shares. Share amounts and percentages shown for
each person or entity are adjusted to give effect to shares that are not
outstanding but which may be acquired by the person or entity on exercise of
all options exercisable by the person or entity within sixty dates of the date
hereof. Those shares are not deemed to be outstanding for purposes of
computing the percentage of shares beneficially owned by any other person.

Amount of shares
Beneficially Percent
Title of Class Owned of Class
-------------- ---------------- --------------
Name of Beneficial Owner
------------------------
Robert D. Parks
G. Joseph Cosenza
Roland W. Burris
Joel G. Herter
Heidi N. Lawton
Patricia A. Challenger
Kelly Tucek
Roberta S. Matlin

Common Stock 69,472 Shares Less than 1%

There exists no arrangement, known to the Company, the operation of which may,
at a subsequent date, result in a change in control of the Company.

Item 13. Certain Relationships and Related Transactions

For the year ended December 31, 1998, the Company incurred and paid $26,936,332
organizational and offering costs to Affiliates.

The Advisor and its Affiliates are entitled to reimbursement for salaries and
expenses of employees of the Advisor and its Affiliates relating to the
offerings and the administration of the Company. During the year ended
December 31, 1998, the Company incurred and paid $1,489,541 of these costs. In
addition, an Affiliate of the Advisor served as dealer manager of an offering
of securities by the Company and earned fees of $26,494,486, of which $890,786
was unpaid as of December 31, 1998. Approximately $22,654,438 of these
commissions have been passed through from the Affiliate to unaffiliated
soliciting broker/dealers.

-58-

An affiliate of the Advisor, Inland Commercial Property Management, is entitled
to receive Property Management Fees for management and leasing services. Such
fees may not exceed 4.5% of the gross income earned by the Company on
properties managed. The Company incurred and paid Property Management Fees of
$2,779,053 for the year ended December 31, 1998, all of which have been paid.

The Advisor and its affiliates are entitled to reimbursement for salaries and
expense of employees of the Advisor and its affiliates relating to selecting,
evaluating and acquiring of properties. Such amounts, totalling $230,724, are
included in building and improvements for those costs relating to properties
purchased. Such amounts are included in acquisition cost expenses to
Affiliates for costs relating to properties not acquired.

An affiliate of the Advisor, Inland Mortgage Investment Corporation, holds the
mortgage on the Walgreens/Decatur property. As of December 31, 1998, the
remaining balance of the mortgage is $714,443. For the year ended December 31,
1998, the Company paid principal and interest payments totalling $68,183 on
this mortgage.

PART IV

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

(a) List of documents filed:

(1) The consolidated financial statements of the Company are set forth in the
report in Item 8.

(2) Financial Statement Schedules:

Financial statement schedule for the year ended December 31, 1998 is
submitted herewith.

Page

Real Estate and Accumulated Depreciation (Schedule III)...... 47

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 consolidated financial statements or related notes.

-59-

(3) Exhibits. Required by the Securities and Exchange Commission Regulation
S-K, Item 601.

Item No. Description

The following exhibits are filed as part of this document:

21 Subsidiaries of the Registrant

23 Consent of KPMG LLP dated March 31, 1999.

27 Financial Data Schedule

The following exhibits are incorporated herein by reference:
3.1 Inland Monthly Income Fund III, Inc. Second Articles of
Amendment and Restatement (2)

3.2 Amend and Restated bylaws of Inland Real Estate Corporation (3)

3.3 Inland Monthly Income Fund III, Inc. Articles of Amendment (3)

3.4 Inland Real Estate Corporation Articles of Amendment of Second
Articles of Amendment and Restatement (1)

4.1 Specimen Stock Certificate (1)

10.1 Advisory Agreement between Inland Real Estate Corporation and
Inland Real Estate Advisory Services dated October 14, 1994 (2)

10.1 (a) Amendment No. 1 to the Advisory Agreement dated October 13, 1995
(4)

10.1 (b) Amendment No. 2 to the Advisory Agreement dated October 13, 1996
(4)
10.1 (c) Amendment No. 3 to the Advisory Agreement effective as of
October 13, 1997 (1)

10.2 Form of Management Agreement Between Inland Real Estate
Corporation and Inland Commercial Property Management, Inc. (3)

10.3 Amended and Restated Independent Director Stock Option Plan (2)

10.5 Loan Agreement dated as of September 25, 1998 by and between
Inland Real Estate LB I LLC, as Borrower and Lehman Brothers
Holding Inc., d/b/a/ Lehman Capital, as Lender (5)

10.6 Promissory Note dated September 25, 1998 (5)

10.9 Limited Liability Company Agreement of Inland Real Estate LB I
LLC (5)

-60-

10.14 Loan Commitment dated as of October 23, 1998 by and between
Inland Real Estate Column I, L.L.C., as Borrower and Column
Financial, Inc. as Lender. (5)

10.15 Promissory Note dated November 1, 1998 (5)

10.16 Operating Agreement of Inland Real Estate Column I, L.L.C. (5)

(1) Included in the Registrant's Registration Statement on Form S-11 as
filed by Registrant on January 30, 1998.

(2) Included in the Registrant's Registration Statement on Form S-11
(file number 333-6459) as filed by Registrant on June 20, 1996.

(3) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed
by the Registrant on July 18, 1996.

(4) Included in Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-6459) as filed
by the Registrant on November 1, 1996.

(5) Included in the Registrant's Form 10-Q filed on November 13, 1998.

(b) Reports on Form 8-K:

Report on Form 8-K dated October 13, 1998
Item 2. Acquisition or Disposition of Assets
Item 5. Other items
Item 7. Financial Statements and Exhibits

Report on Form 8-K dated October 22, 1998
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits

Report on Form 8-K dated December 14, 1998
Item 2. Acquisition or Disposition of Assets
Item 5. Other items
Item 7. Financial Statements and Exhibits

(d) None

-61-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

INLAND REAL ESTATE CORPORATION

/s/ Robert D. Parks

By: Robert D. Parks
Chief Executive Officer
and Affiliated Director
Date: March 30, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

/s/ Robert D. Parks

By: Robert D. Parks
Chief Executive Officer
and Affiliated Director
Date: March 30, 1999

/s/ Kelly Tucek /s/ Heidi N. Lawton

By: Kelly Tucek By: Heidi N. Lawton
Chief Financial and Independent Director
Accounting Officer Date: March 30, 1999
Date: March 30, 1999

/s/ G. Joseph Cosenza /s/ Roland W. Burris

By: G. Joseph Cosenza By: Roland W. Burris
Affiliated Director Independent Director
Date: March 30, 1999 Date: March 30, 1999

/s/ Joel G. Herter

By: Joel G. Herter
Independent Director
Date: March 30, 1999

-62-

Subsidiaries of the Registrant

Inland Real Estate LB I, LLC, an Illinois limited liability company

Inland Real Estate Column I, LLC, an Illinois limited liability company

Consent of KPMG LLP

The Board of Directors
Inland Real Estate Corporation

We consent to incorporation by reference in the registration statement (No.
333-70699) on Form S-3 of Inland Real Estate Corporation of our report dated
January 29, 1999, except for note 13, which is as of March 17, 1999, relating
to the consolidated balance sheets of Inland Real Estate Corporation as of
December 31, 1998, and 1997, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and related schedule, which report
appears in the December 31, 1998 annual report of Form 10-K of Inland Real
Estate Corporation.

/s/ KPMG LLP

Chicago, Illinois
March 31, 1999

<ARTICLE> 5

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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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</TABLE>