INLAND REAL ESTATE CORP, 10-K, 2000-03-22

INLAND REAL ESTATE CORP
10-K, 2000-03-22
REAL ESTATE INVESTMENT TRUSTS

Previous: MASSACHUSETTS MUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT 3, 24F-2NT, 2000-03-22

Next: MEDICALOGIC INC, 425, 2000-03-22

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, 1999

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 February 28, 2000, the aggregate market value of the Shares of Common
Stock held by non-affiliates of the registrant was approximately $613,199,840.

As of February 28, 2000, there were 55,765,440 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.................................................... 6

Item 3. Legal Proceedings............................................. 16

Item 4. Submission of Matters to a Vote of Security Holders........... 16

Part II
-------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.............................. 16

Item 6. Selected Financial Data....................................... 17

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 20

Item 7(a).Quantitative and Qualitative Disclosures About Market Risk.... 26

Item 8. Financial Statements and Supplementary Data................... 27

Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................... 57

Part III
--------
Item 10. Directors and Executive Officers of the Registrant............ 57

Item 11. Executive Compensation........................................ 60

Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 60

Item 13. Certain Relationships and Related Transactions................ 61

Part IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.................................................. 62

SIGNATURES............................................................. 64

-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. The
Company received subscriptions for a total of 16,642,397 Shares in the Fourth
Offering. The Initial, Second, Third and Fourth are collectively called the
"Offerings". In addition, as of December 31, 1999, the Company has issued
4,364,623 Shares through the Company's Distribution Reinvestment Program
("DRP"). As of December 31, 1999, the Company has repurchased a total of
608,132 Shares through the Company's Share Repurchase Program, for an aggregate
amount of $5,526,180. As a result, gross offering proceeds from the Offerings
("Gross Offering Proceeds") total $571,937,123, as of December 31, 1999. Inland
Real Estate Advisory Services, Inc. (the "Advisor"), an Affiliate of the
Company, is the advisor to the Company.

On September 28, 1998, the Board of Directors authorized the Company to engage
First Union Securities, Inc. (formerly known as Everen Securities, Inc.) to
advise the Company on strategic alternatives designed to maximize stockholder
value. These alternative include, but are not limited to, evaluating whether
the Company should: (1) become self-administered by acquiring the Advisor and
the Company's property manager; (2) list its common stock on an exchange or
other trading system; or (3) seek to merge with a third party that is already
listed on an exchange or other trading system. First Union Securities has
assisted in the determination by the Company that it desires to become
internally advised and managed and has provided valuation information to the
Company to help accomplish that goal.

-3-

On March 7, 2000, the Company entered into an Agreement and Plan of Merger (the
"Merger Agreement"), pursuant to which it agreed to acquire the Advisor and the
Company's property manager and become a self-administered REIT, through a tax-
free, non-cash merger (the "Merger"). Pursuant to the Merger Agreement, upon
closing, the Company will issue an aggregate of 6,181,818 Shares, or
approximately eleven percent (10%) of its common stock taking into account such
issuance, to the respective parents of the Advisor and the Company's property
manager. The closing of the Merger is subject to numerous conditions including
(i) approval of the Merger Agreement by the Stockholders at the Company's
upcoming Annual Meeting; (ii) the delivery of an opinion of counsel that the
completion of the Merger will not result in the revocation of the Company's
status as a REIT for federal income tax purposes; (iii) delivery of an opinion
of counsel that the transaction shall be treated as a tax free reorganization
under the Internal Revenue Code of 1986, as amended, and (iv) the delivery of
an opinion that the Merger is fair to the Company from a financial point of
view. Concurrent with completing the Merger, the Board of Directors
contemplates: (i) appointing new officers and entering into employment
agreements with these individuals; (ii) entering into a lease agreement for
office space with The Inland Group, Inc.; and (iii) receiving a license from
The Inland Group, Inc. that gives to Company the right to the continued use of
the name "Inland Real Estate Corporation" and the corporate logo.

The Company had no employees during 1999, 1998 and 1997.

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;
furthermore, 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.

-4-

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 ten leases totaling 685,473 square feet, or approximately 7.64% of
the total gross leasable area owned by the Company. Annualized base rental
income of these ten leases is projected to be $8,132,128 for the year ended
December 31, 2000, or approximately 8.20% of the total annualized base rental
income based on the current portfolio. The second largest single tenant is
Jewel Food Stores, which has six leases totaling 395,996 square feet, or
approximately 4.41% of the total gross leasable area owned by the Company.
Annualized base rental income of these six leases is projected to be $3,815,656
for the year ended December 31, 2000, or approximately 3.8% of the total
annualized base rental income based on the current portfolio. Both Dominick's
Finer Foods and Jewel Food Stores are SEC registrants.

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.

-5-

Item 2. Properties

As of December 31, 1999, the Company and its subsidiaries has acquired fee
ownership or an ownership interest in 115 properties, including 23 single-user
retail properties, 74 Neighborhood Retail Centers and 18 Community Centers.
The Company owns property in Illinois, Wisconsin, Indiana, Minnesota, Michigan
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>
Gross Mortgages
Leasable Year Payable Current
Area Date Built/ at No. of Anchor
Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants*
- --------------------------- -------- ------ --------- ----------- -------- ----------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Single-User Retail Properties
- -----------------------------
Walgreens,
Decatur, IL 13,500 01/95 1988 $ 700,381 1 Walgreens

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

Ameritech,
Joliet, IL 4,504 05/97 1995 522,375 1 Ameritech

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

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

Dominick's
Glendale Heights, IL 68,879 09/97 1997 4,100,000 1 Dominick's Finer Foods

Party City
Oakbrook 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

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

Walgreens 15,856 06/98 1973 569,610 1 Walgreens
Woodstock, IL

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

Staples
Freeport, IL 24,049 12/98 1998 1,480,000 1 Staples

Carmax
Schaumburg, IL 93,333 12/98 1998 7,260,000 1 Carmax

Carmax
Tinley Park, IL 94,518 12/98 1998 9,450,000 1 Carmax

Hollywood Video
Hammond, IN 7,488 12/98 1998 740,000 1 Hollywood Video

Circuit City
Traverse City, MI 21,337 01/99 1998 1,603,000 1 Circuit City

Cub Foods
Plymouth, MN 67,510 03/99 1991 - 1 Cub Foods

Cub Foods
Indianapolis, IN 67,541 03/99 1991 - 1 Cub Foods

Eagle Ridge Center
Lindenhurst, IL 56,142 04/99 1998 3,000,000 1 Eagle Foods

Dominick's
Hammond, IN 71,313 05/99 1999 4,100,000 - None

-6-

Gross Mortgages
Leasable Year Payable Current
Area Date Built/ at No. of Anchor
Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants*
- --------------------------- -------- ------ --------- ----------- -------- ----------
Single-User Retail Properties, cont.
- ------------------------------------
Eagle Foods
Buffalo Grove, IL 56,192 06/99 1999 - 1 Eagle Foods

United Audio Center
Schaumburg, IL 9,988 09/99 1998 1,240,000 1 United Audio

Bally's Total Fitness
St. Paul, MN 43,000 09/99 1988 3,145,300 1 Bally's Health Club

Neighborhood Retail Centers
- ---------------------------
Eagle Crest
Naperville, IL 67,632 03/95 1991 2,350,000 11 Eagle Foods

Goodyear
Montgomery, IL 12,903 09/95 1991 630,000 1 Merlin Corp.

Hartford Plaza
Naperville, IL 43,762 09/95 1995 2,310,000 8 Blockbuster Video
Sears Hardware
Keller/Williams Realty

Nantucket Square
Schaumburg, IL 56,981 09/95 1980 2,200,000 20 Hallmark
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 7 Sears

Regency Point,
Lockport, IL 54,911 04/96 1993/ 4,241,187 19 Walgreens
1995 Ace Hardware

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

Sears
Montgomery, IL 34,300 06/96 1990 1,645,000 6 Sears Paint & Hardware
Blockbuster Video

Salem Square
Countryside, IL 112,310 08/96 1973/ 3,130,000 4 TJ Maxx
1985 Marshalls

Hawthorn Village
Vernon Hills,IL 98,806 08/96 1979 4,280,000 22 Dominick's Finer Foods
Walgreens

Six Corners,
Chicago, IL 80,650 10/96 1966 3,100,000 8 Chicago Health Club
Illinois Masonic
Medical Center

Spring Hill Fashion Center
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 1 Entenmann's

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

-7-

Gross Mortgages
Leasable Year Payable Current
Area Date Built/ at No. of Anchor
Property (Sq Ft) Acq. Renovated 12/31/99 Tenants Tenants*
- --------------------------- -------- ------ --------- ----------- -------- ----------
Neighborhood Retail Centers, cont.
- ----------------------------------
Grand and Hunt Club,
Gurnee, IL 21,222 12/96 1996 1,796,000 2 Helzberg Diamonds
Super Crown Books

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

Aurora Commons,
Aurora, IL 127,302 01/97 1988 9,000,328 23 Jewel/Osco

Lincoln Park Place
Chicago, IL 10,678 01/97 1990 1,050,000 1 Lechters Housewares

Niles Shopping Center
Niles, IL 26,109 04/97 1982 1,617,500 6 Jennifer Convertibles
Acel Cellular
Wolf Camera & Video
American Oak Design

Mallard Crossing
Elk Grove Village, IL 82,929 05/97 1993 4,050,000 10 Eagle Foods

Cobblers Crossing
Elgin, IL 102,643 05/97 1993 5,476,500 15 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 12 Kinko's
U.S. Post Office
Play It Again Sports
Wong's Palace

Riversquare Shopping Center
Naperville, IL 58,556 06/97 1988 3,050,000 20 Salon Suites Limited
Harbour Contractors, Inc.

Shorecrest Plaza
Racine, WI 91,244 07/97 1977 2,978,000 12 Piggly Wiggly Grocery
Wisconsin Health & Fitness

Dominick's
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 17 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 26 Total Beverage
Sears

Fashion Square,
Skokie, IL 84,580 12/97 1984 6,200,000 13 Cost Plus
Designer Shoe Outlet

Shops at Coopers Grove
Country Club Hills, IL 72,518 01/98 1991 2,900,000 9 Eagle Foods

Maple Plaza
Downers Grove, IL 31,298 01/98 1988 1,582,500 11 J.C. Licht Co.
Goodyear Tire & Rubber
Copy Center

-8-

Neighborhood Retail Centers, cont.
- ----------------------------------
Orland Park Retail
Orland Park, IL 8,500 02/98 1997 625,000 2 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

Elmhurst City Center
Elmhurst, IL 39,481 02/98 1994 2,513,765 7 Walgreens
Famous Footwear

Shoppes of Mill Creek
Palos Park, IL 102,443 03/98 1989 - 19 Jewel Food Store

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

Oak Forest Commons
Oak Forest, IL 108,330 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 49,994 03/98 1990 3,847,599 20 Nevada Bob's
Luciano's

High Point Center
Madison, WI 86,009 04/98 1984 5,360,988 21 Pier 1 Imports

Western & Howard
Chicago, IL 12,784 04/98 1985 992,681 2 Pearle Vision
Payless Shoe Source

Wauconda Shopping Center
Wauconda, IL 31,157 05/98 1988 1,333,834 3 Sears Hardware
Spasso, Ltd.

Berwyn Plaza
Berwyn, IL 18,138 05/98 1983 708,638 4 Radio Shack

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

Schaumburg Plaza
Schaumburg, IL 61,485 06/98 1994 3,908,082 6 Sears Hardware
Trak Auto
Ulta 3

Winnetka Commons
New Hope, MN 42,415 07/98 1990 2,233,744 16 Walgreens
Big Wheel Auto Store

Eastgate Shopping Center
Lombard, IL 132,519 07/98 1959 3,345,000 36 Ace Hardware
Secretary of State

Orland Greens
Orland Park, IL 45,031 09/98 1984 2,132,000 13 Walgreens
MacFrugals

Two Rivers Plaza
Bolingbrook, IL 57,900 10/98 1994 3,658,000 7 Kay-Bee Toy Store
Sizes Unlimited
Marshalls

-9-

Neighborhood Retail Centers, cont.
- ----------------------------------
Edinburgh Festival
Brooklyn Park, MN 91,536 10/98 1997 4,625,000 13 Knowlan's Super Markets

Riverplace Center
Noblesville, IN 74,414 11/98 1992 3,323,000 9 Fashion Bug
Kroger

Rose Plaza
Elmwood Park, IL 24,204 11/98 1997 2,008,000 3 Binny's

Marketplace at Six Corners
Chicago, IL 117,000 11/98 1997 11,200,000 5 Jewel Food Store
Marshalls

Plymouth Collection
Plymouth, MN 40,815 01/99 1999 3,441,000 9 Golf Galaxy
Vintage Liquors
Paper Warehouse

Loehmann's Plaza
Brookfield, WI 107,952 02/99 1985 6,643,000 27 Loehmann's
Dickens Books
Richards Market

Baytowne Square
Champaign, IL 118,842 02/99 1993 7,027,000 20 Staples
Berean Bookstore
Petsmart

Gateway Square
Hinsdale, IL 40,170 03/99 1985 3,470,000 20 Malson Fabrics

Oak Forest Commons Ph III
Oak Forest, IL 7,424 06/99 1999 552,700 3 Country Companies Insurance
Dollar Store
Jackson Hewitt Tax

Oak Lawn Town Center
Oak Lawn, IL 12,506 06/99 1999 1,200,000 4 Bed Mart
Starbucks Coffee
Hollywood Video
Southwestern Bell

Stuart's Crossing
St. Charles, IL 70,529 07/99 1999 - 1 Jewel Food Stores

West River Crossing
Joliet, IL 31,132 08/99 1999 2,806,700 10 Hollywood Video
Secret Nails
Budget Golf

Hickory Creek Market Place
Frankfort, IL 35,451 08/99 1999 3,108,300 12 Hallmark

Burnsville Crossing
Burnsville, MN 91,015 09/99 1989 2,858,100 14 Petsmart
Schreiderman's Furniture

Byerly's Burnsville
Burnsville, MN 72,365 09/99 1988 2,915,900 6 Byerly's Food Store

Cliff Lake Center
Eagan, MN 74,215 09/99 1988 5,121,280 25 Silas Creek Retail

Park Place Plaza
St. Louis Park, MN 84,999 09/99 1997 6,407,000 12 Petsmart
Office Max

Shingle Creek
Brooklyn Center, MN 39,456 09/99 1986 1,735,000 16 Panera Bread

Maple Grove Retail
Maple Grove, MN 79,130 09/99 1998 3,958,000 1 Rainbow Foods

-10-

Neighborhood Retail Centers, cont.
- ----------------------------------
Rose Naper Plaza West
Naperville, IL 14,335 09/99 1997 - 5 Hollywood Video
Papa John's Pizza
Caribou Coffee
Elegante Salon
Signature Cleaners

Schaumburg Promenade
Schaumburg, IL 91,825 12/99 1999 9,650,000 5 Eastern Mountain Sports
Zany Brainy
Pier One
DSW Shoe Warehouse
Linens and Things

Community Centers
- -----------------
Lansing Square
Lansing, IL 233,508 12/96 1991 8,150,000 15 Sam's Club
Baby Superstore
Office Max

Maple Park Place
Bolingbrook, IL 220,095 01/97 1992 7,650,000 18 K-Mart Corporation
Cub Foods

Rivertree Court
Vernon Hills, IL 298,862 07/97 1988 17,547,999 38 Best Buy
Plitt Theaters

Naper West
Naperville, IL 164,812 12/97 1985 7,695,199 27 Douglas TV
TJ Maxx

Woodfield Plaza
Schaumburg, IL 177,160 01/98 1992 9,600,000 9 Kohl's
Barnes & Noble

Lake Park Plaza
Michigan City, IN 229,639 02/98 1990 6,489,618 13 Walmart

Chestnut Court
Darien, IL 170,027 03/98 1987 8,618,623 23 Just Ducky
Stein Mart

Bergen Plaza
Oakdale, MN 270,283 04/98 1978 9,141,896 36 Rainbow Foods
K-Mart

Fairview Heights Plaza
Fairview Heights, IL 167,491 08/98 1991 5,637,000 8 1/2 Price Store
Michaels
The Sports Authority
Sears Homelife

Woodfield Commons-East/West
Schaumburg, IL 207,583 10/98 1973 13,500,000 19 Toys R Us
1975 Tower Records
1997 Comp USA

Joliet Commons
Joliet, IL 158,915 10/98 1995 14,447,153 13 Barnes and Noble
Old Navy
M.C. Sports

Springboro Plaza
Springboro, OH 154,034 11/98 1992 5,161,000 4 K-Mart
Kroger Foods

Park Center Plaza
Tinley Park, IL 193,179 12/98 1988 7,337,000 26 Cub Foods

Woodland Commons
Buffalo Grove, IL 170,070 02/99 1991 10,734,710 37 Dominick's Finer Foods

-11-

Community Centers, cont.
- ------------------------
Randall Square
Geneva, IL 205,164 05/99 1999 - 21 TJ Maxx
Bed, Bath & Beyond

Riverdale Commons
Coon Rapids, MN 168,277 09/99 1998 9,752,000 13 Rainbow Foods
Office Max
Wickes Furniture

Quarry Retail
Minneapolis, MN 273,648 09/99 1997 15,670,000 12 Rainbow Foods
Home Depot

Pine Tree Plaza
Janesville, WI 187,413 10/99 1998 - 16 Michaels
Staples
TJ Maxx
Gander Mountain

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

-12-

The following table lists the approximate physical occupancy levels for the
Company's properties as of the end of each year during 1999, 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,
----------------------------------
1999 1998 1997 1996
(%) (%) (%) (%)
Properties -------- -------- -------- -------
----------
Walgreens, Decatur, IL .................... 100 100 100 100
Eagle Crest, Naperville, IL................ 94 100 97 100
Goodyear, Montgomery, IL................... 28(b) 77 77 100
Hartford Plaza, Naperville, IL............. 100 100 100 100
Nantucket Square, Schaumburg, IL........... 100 100 96 85
Antioch Plaza, Antioch, IL................. 67 68 68 57
Mundelein Plaza, Mundelein, IL............. 96 100 100 100
Regency Point, Lockport, IL................ 98 97 97 97
Prospect Heights, Prospect Heights, IL..... 25(b) 92 83 100
Sears, Montgomery, IL...................... 100 100 95 85
Zany Brainy, Wheaton, IL................... 100 100 100 100
Salem Square, Countryside, IL.............. 93 97 97 97
Hawthorn Village, Vernon Hills, IL......... 100 100 99 98
Six Corners, Chicago, IL................... 89 82 90 92
Spring Hill Fashion Center, W. Dundee, IL.. 97 95 100 95
Crestwood Plaza, Crestwood, IL............. 68 100 100 100
Park St. Claire, Schaumburg, IL............ 100 100 100 100
Lansing Square, Lansing, IL................ 98(b) 98 90 89
Summit of Park Ridge, Park Ridge, IL....... 84 87 83 81
Grand and Hunt Club, Gurnee, IL............ 100 100 100 100
Quarry Outlot, Hodgkins, IL................ 100 100 100 100
Maple Park Place, Bolingbrook, IL.......... 97 99 98 N/A
Aurora Commons, Aurora, IL................. 93 95 98 N/A
Lincoln Park Place, Chicago, IL............ 60 60 60 N/A
Ameritech, Joliet, IL...................... 100 100 100 N/A
Dominick's, Schaumburg, IL................. 100 100 100 N/A
Dominick's, Highland Park, IL.............. 100 100 100 N/A
Niles Shopping Center, Niles, IL........... 87 100 60 N/A
Mallard Crossing, Elk Grove Village, IL.... 97 97 95 N/A
Cobblers Crossing, Elgin, IL............... 100 91 89 N/A
Calumet Square, Calumet City, IL........... 100 100 100 N/A
Sequoia Shopping Center, Milwaukee, WI..... 93 100 93 N/A
Riversquare Shopping Ctr., Naperville, IL.. 76(b) 97 95 N/A
Rivertree Court, Vernon Hills, IL.......... 99 99 99 N/A
Shorecrest Plaza, Racine, WI............... 89 87 96 N/A
Dominick's, Glendale Heights, IL........... 100 100 100 N/A
Party City, Oakbrook Terrace, IL........... 100 100 100 N/A
Eagle Country Market, Roselle, IL.......... 100 100 100 N/A
Dominick's, Countryside, IL................ 100 100 100 N/A
Terramere Plaza, Arlington Heights, IL..... 79 95 80 N/A
Wilson Plaza, Batavia, IL.................. 100 100 100 N/A
Iroquois Center, Naperville, IL............ 69(b) 73 81 N/A
Fashion Square, Skokie, IL................. 81 100 88 N/A
Naper West, Naperville, IL................. 93 83 86 N/A
Dominick's, West Chicago, IL............... 100 100 N/A N/A
Shops at Coopers Grove,
Country Club Hills,IL.................... 100 100 N/A N/A
Maple Plaza, Downers Grove, IL............. 87 100 N/A N/A

-13-

As of December 31,
----------------------------------
1999 1998 1997 1996
(%) (%) (%) (%)
Properties -------- -------- -------- -------
----------
Orland Park Retail, Orland Park, IL........ 36 100 N/A N/A
Wisner/Milwaukee Plaza, Chicago, IL........ 100 100 N/A N/A
Homewood Plaza, Homewood, IL............... 100 100 N/A N/A
Elmhurst City Center, Elmhurst, IL......... 62 100 N/A N/A
Shoppes of Mill Creek, Palos Park, IL...... 97 98 N/A N/A
Oak Forest Commons, Oak Forest, IL......... 97 100 N/A N/A
Prairie Square, Sun Prairie, WI............ 83(a) 90 N/A N/A
Downers Grove Market, Downers Grove, IL.... 100 100 N/A N/A
St. James Crossing, Westmont, IL........... 83 91 N/A N/A
Woodfield Plaza, Schaumburg, IL............ 82(a) 97 N/A N/A
Lake Park Plaza, Michigan City, IN......... 71(b) 74 N/A N/A
Chestnut Court, Darien, IL................. 95 98 N/A N/A
Western & Howard, Chicago, IL.............. 38(b) 100 N/A N/A
High Point Center, Madison, WI............. 92(b) 90 N/A N/A
Wauconda Shopping Center, Wauconda, IL..... 92 100 N/A N/A
Berwyn Plaza, Berwyn, IL................... 26(a)(b)100 N/A N/A
Woodland Heights, Streamwood, IL........... 81 81 N/A N/A
Schaumburg Plaza, Schaumburg, IL........... 93 93 N/A N/A
Bergen Plaza, Oakdale, MN.................. 97(a) 98 N/A N/A
Walgreens, Woodstock, IL................... 100 100 N/A N/A
Winnetka Commons, New Hope, MN............. 100 100 N/A N/A
Eastgate Shopping Center, Lombard, IL...... 92(a) 91 N/A N/A
Fairview Heights Plaza, Fairview Heights,IL 78(a)(b) 78 N/A N/A
Orland Greens, Orland Park, IL............. 97 100 N/A N/A
Bakers Shoes, Chicago, IL.................. 100 100 N/A N/A
Staples, Freeport, IL...................... 100 100 N/A N/A
Two Rivers Plaza, Bolingbrook, IL.......... 100 100 N/A N/A
Edinburgh Festival, Brooklyn Park, MN...... 100 97 N/A N/A
Woodfield Commons-East/West, Schaumburg, IL 95(a) 89 N/A N/A
Riverplace Center, Noblesville, IN......... 94 100 N/A N/A
Rose Plaza, Elmwood Park, IL............... 100 100 N/A N/A
Marketplace at Six Corners, Chicago, IL.... 100 100 N/A N/A
Joliet Commons, Joliet, IL................. 96(a) 97 N/A N/A
Springboro Plaza, Springboro, OH........... 100 100 N/A N/A
Carmax, Schaumburg, IL..................... 100 100 N/A N/A
Carmax, Tinley Park, IL.................... 100 100 N/A N/A
Hollywood Video, Hammond, IN............... 100 100 N/A N/A
Park Center Plaza, Tinley Park, IL......... 72(a) 71 N/A N/A
Plymouth Collection, Plymouth, MN.......... 100 N/A N/A N/A
Circuit City, Traverse City, MI............ 100 N/A N/A N/A
Loehmann's Plaza, Brookfield, WI........... 100 N/A N/A N/A
Woodland Commons, Buffalo Grove, IL........ 97 N/A N/A N/A
Baytowne Square, Champaign, IL............. 97 N/A N/A N/A
Cub Foods, Plymouth, MN.................... 100 N/A N/A N/A
Cub Foods, Indianapolis, IN................ 100 N/A N/A N/A
Gateway Square, Hinsdale, IL............... 100 N/A N/A N/A
Eagle Ridge Center, Lindenhurst, IL........ 100 N/A N/A N/A
Dominick's, Hammond, IN.................... 0(b) N/A N/A N/A
Randall Square, Geneva, IL................. 94(a) N/A N/A N/A
Eagle Foods, Buffalo Grove, IL............. 100 N/A N/A N/A
Oak Forest Commons Ph III, Oak Forest, IL.. 82 N/A N/A N/A
Oak Lawn Town Center, Oak Lawn, IL......... 100 N/A N/A N/A

-14-

As of December 31,
----------------------------------
1999 1998 1997 1996
(%) (%) (%) (%)
Properties -------- -------- -------- -------
----------
West River Crossing, Joliet, IL............ 87 N/A N/A N/A
Hickory Creek Market Place, Frankfort, IL.. 65 N/A N/A N/A
Bally's Total Fitness, St. Paul, MN........ 100 N/A N/A N/A
Riverdale Commons, Coon Rapids, MN......... 99 N/A N/A N/A
Burnsville Crossing, Burnsville, MN........ 100 N/A N/A N/A
Byerly's Burnsville, Burnsville, MN........ 84 N/A N/A N/A
Cliff Lake Center, Eagan, MN............... 88 N/A N/A N/A
Maple Grove Retail, Maple Grove, MN........ 100 N/A N/A N/A
Park Place Plaza, St. Louis Park, MN...... 100 N/A N/A N/A
Quarry Retail, Minneapolis, MN............. 99 N/A N/A N/A
Shingle Creek, Brooklyn Center, MN......... 73 N/A N/A N/A
United Audio Center, Schaumburg, IL........ 100 N/A N/A N/A
Rose Naper Plaza West, Naperville, IL...... 100 N/A N/A N/A
Schaumburg Promenade, Schaumburg, IL....... 100 N/A N/A N/A
Stuart's Crossing, St. Charles, IL......... 100 N/A N/A N/A
Pine Tree Plaza, Janesville, WI............ 93(a) N/A N/A N/A

(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 which results in economic occupancy ranging from 90% to 100%
at December 31, 1999 for each of these centers. The master lease
agreements are for periods ranging from one to two years from the purchase
date or until the spaces are leased.

(b) The Company receives rent from tenants who have vacated but are still
obligated under their lease terms which results in economic occupancy
ranging from 70% to 100% at December 31, 1999 for each of these centers.

-15-

Item 3. Legal Proceedings

The Company is not a party 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 1999.

PART II

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

Market Information

As of December 31, 1999, there were 19,190 stockholders of the Company. There
is no public market for the shares.

Distributions

The Company declared distributions to Stockholders totaling $.89 and $.88 per
weighted average share outstanding (paid monthly) during the years ended
December 31, 1999 and 1998, respectively. Of this amount, $.66 and $.67
qualifies as distributions taxable as ordinary income for 1999 and 1998,
respectively, 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.

-16-

<TABLE>
Item 6. Selected Financial Data
<CAPTION>
INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

For the years ended December 31, 1999, 1998, 1997, 1996 and 1995

(not covered by the Independent Auditors' Report)

1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets......... $ 982,281,972 787,608,547 333,590,131 104,508,686 18,750,877

Mortgages payable.... $ 440,740,296 288,982,470 106,589,710 30,838,233 750,727

Total income......... $ 123,787,569 73,302,278 29,421,585 6,327,734 1,180,422

Net income........... $ 30,171,901 24,085,871 8,647,221 2,452,221 496,514

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

Distributions
declared........... $ 48,379,621 35,443,213 13,127,597 3,704,943 736,627

Distributions per common
share (b).......... $ .89 .88 .86 .82 .78

Funds From Operations
(b)(c)............. $ 49,605,022 35,474,823 13,203,666 3,391,365 666,408

Funds available for
distribution (c)... $ 49,271,463 35,698,975 13,141,242 3,680,824 787,011

Cash flows provided
by operating
activities......... $ 59,201,034 43,031,662 15,923,839 5,529,709 978,350

Cash flows used
in investing
activities......... $(278,013,144) (344,562,533) (146,994,619) (68,976,841) (6,577,843)

Cash flows provided
by financing
activities........ $ 115,179,751 373,363,545 173,724,632 71,199,936 6,327,490

Weighted average
common Stock shares
outstanding, basic
and diluted........ 54,603,088 40,359,796 15,225,983 4,494,620 943,156

</TABLE>

-17-

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

(b) The net income and distributions per share are based upon the weighted
average number of common shares outstanding. The $.89 per share
distributions for the year ended December 31, 1999, represented 98.8% of
the Company's Funds From Operations ("FFO") and 99.2% 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, 1999, $12,738,889 (or
26.33% of the $48,379,621 distributions declared for 1999) 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 $33,543,750 for 1999. 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.

-18-

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,
1999 1998 1997
---- ---- ----
Net income.................... $ 30,171,901 24,085,871 8,647,221
Depreciation, net of
minority interest........... 19,433,122 11,388,952 4,556,445
------------- ------------- ------------
Funds From Operations (1)..... 49,605,022 35,474,823 13,203,666

Principal amortization of debt,
net of minority interest.... (87,752) (74,454) (67,300)
Deferred rent receivable,
net of minority interest (2) (2,327,251) (2,120,951) (654,978)
Acquisition cost expenses (3). - 437,783 249,493
Rental income received under
master lease agreements,
net of minority interest (4) 2,081,444 1,981,774 410,361
------------- ------------- ------------
Funds available for
distribution................ $ 49,271,463 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. No acquisition costs have been included for the year ended
December 31, 1999, due to the termination of the Company's Offering on
December 31, 1998.

(4) In connection with the purchase of several properties, the Company will
receive payments under master lease agreements covering spaces vacant
at the time of acquisition of those properties. The payments will be
made to the Company for periods ranging from one to two years from the
date of acquisition of the property 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.

-19-

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

Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this annual report on
Form 10-K constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the Company's actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by these forward-looking statements. These factors
include, among other things, limitations on the area in which the Company may
acquire properties; risks associated with borrowings secured by the Company's
properties; competition for tenants and customers; federal, state or local
regulations; adverse changes in general economic or local conditions;
competition for property acquisitions with third parties that have greater
financial resources than the Company; inability of lessees to meet financial
obligations; uninsured losses; risks of failing to qualify as a REIT; and
potential conflicts of interest between the Company and its Affiliates
including the Advisor.

Liquidity and Capital Resources

Cash and cash equivalents consists of cash and short-term investments. Cash and
cash equivalents, at December 31, 1999 and December 31, 1998, were $19,424,343
and $123,056,702, respectively. The decrease in cash and cash equivalents since
December 31, 1998 resulted primarily from the use of cash resources to purchase
additional properties. Partially offsetting the decrease in cash and cash
equivalents was additional proceeds received through the Company's Distribution
Reinvestment Program ("DRP"). The Company intends to use cash and cash
equivalents to purchase additional properties, to pay distributions and for
working capital requirements. The source of future cash for investing in
properties will be from financing obtained on currently unencumbered properties
and amounts raised through the Company's DRP.

As of December 31, 1999, the Company had acquired 115 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 July 1999, the Company increased the
distribution paid to stockholders from $.88 per annum to $.89 per annum on
weighted average shares. Distributions declared for the year ended December 31,
1999 were $48,379,621, of which $12,738,889 represents a return of capital for
federal income tax purposes.

The Advisor to the Company monitors the various qualification tests the Company
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 Advisor to
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 Advisor 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.

-20-

Cash Flows From Operating Activities

Net cash provided by operating activities increased from $15,923,839 for the
year ended December 31, 1997 to $43,031,662 for the year ended December 31,
1998 to $59,201,034 for the year ended December 31, 1999. These increases are
due primarily to the increase in the number of properties owned by the Company.
As of December 31, 1999 the Company had acquired 115 properties, as compared to
85 properties as of December 31, 1998, and 44 properties as of December 31,
1997.

Cash Flows From Investing Activities

The Company used $278,013,144 in cash for investing activities during the year
ended December 31, 1999 as compared to $344,562,533 and $146,994,619 for the
years ended December 31, 1998 and 1997, respectively. Substantially all of the
cash was used primarily for the purchase of and additions to properties.
Additionally, during 1999 the Company purchased $10,659,289 of investment
securities.

Cash Flows From Financing Activities

For the year ended December 31, 1999, the Company generated $115,179,751 of
cash flows from financing activities as compared to $373,363,545 of cash flows
generated from financing activities for the year ended December 31, 1998. This
decrease is due primarily to the termination of the Fourth Offering on December
31, 1998. For the year ended December 31, 1999, the Company had proceeds from
the DRP, net of remaining offering costs paid and shares repurchased, of
$30,432,466 compared to $261,217,625 for the year ended December 31, 1998. The
decrease is also due to an increase in distributions paid for the year ended
December 31, 1999 of $48,773,272 compared to $33,454,118 for the year ended
December 31, 1998 and a decrease in loan proceeds received for the year ended
December 31, 1999 of $145,814,000 compared to $166,352,000 for the year ended
December 31, 1998. This decrease was partially offset by a decrease in
principal payments made on debt for the year ended December 31, 1999 of
$10,659,708 compared to $18,041,255 for the year ended December 31, 1998.

For the year ended December 31, 1998, the Company generated $373,363,545 of
cash flows from financing activities as compared to $173,724,632 of cash flows
from financing activities for the year ended December 31, 1997. The increase is
due to the increase in proceeds raised from the Offerings and an increase in
loan proceeds received in 1998. This increase was partially offset by an
increase in distributions paid and an increase in principal payments made on
debt.

The weighted annual average interest rate on the mortgages payable outstanding
at December 31, 1999 was approximately 7.07%. 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.

-21-

The Advisor 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. Organizational and offering costs totaling $58,852,618 did
not exceed these limitations.

Results of Operations

At December 31, 1999, the Company owned 23 single-user retail properties, 74
Neighborhood Retail Centers and 18 Community Centers.

Total income for the years ended December 31, 1999, 1998 and 1997 was
$123,787,569, $73,302,278 and $29,421,585, respectively. The increases are due
primarily to the purchase of additional properties. As of December 31, 1999,
the Company had acquired 115 properties, as compared to 85 properties as of
December 31, 1998 and 44 properties as of December 31, 1997. The purchase of
additional properties also resulted in increases in property operating expenses
and depreciation expense.

During March 1999, the Company received a fee of $803,158 for the termination
of a lease at one of the Company's properties. This termination fee is included
in additional rental income for the year ended December 31, 1999. The Company
signed a lease with a new tenant for this space and began receiving rent from
the new tenant in April 1999.

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, 1999, as compared to the years ended December 31, 1998
and 1997, is due primarily to the management of an increased number of real
estate assets and an increased 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 .58, .20 and .45 of the 1% of the
Average Invested Assets for the years ended December 31, 1999, 1998 and 1997,
respectively. Remaining Advisor Asset Management Fees are forfeited by the
Advisor and, accordingly, not accrued in the accompanying financial statements.

The increase in mortgage interest to non-affiliates for the year ended December
31, 1999, as compared to the years ended December 31, 1998 and 1997, is due to
an increase in mortgages payable to approximately $440,740,000 from
approximately $289,000,000 and $106,600,000, respectively.

The increase in acquisition cost expenses paid to Affiliates and non-affiliates
for the years ended December 31, 1999 and 1998, as compared to the year ended
December 31, 1997, is due to the increased number of properties considered for
acquisition by the Company and not purchased.

-22-

The accompanying consolidated financial statements include the accounts of the
Company, Inland Joliet Commons LLC, Inland Ryan LLC and Inland Ryan Cliff Lake
LLC. Due to the Company's ability as managing member to directly control the
LLCs, they are consolidated for financial reporting purposes. The third
parties' interests are reflected as minority interest in the accompanying
financial statements.

In October 1998, the Company formed the Inland Joliet Commons LLC, an Illinois
limited liability company, with an unaffiliated third party which purchased
Phase I of the Joliet Commons Shopping Center. The Company contributed
approximately $52,000 for a 1% interest in the Inland Joliet Commons LLC and
the third party contributed a property with a fair market value of
approximately $19,733,000 and debt of approximately $14,569,000 to the Inland
Joliet Commons LLC for a 99% stated interest. The Company is the managing
member of the Inland Joliet Commons LLC. The non-managing member (third party
seller) has a right, on or after October 30, 2000 and prior to the time the
Company has listed its shares on a national securities exchange, to tender its
units in the Inland Joliet Commons LLC to the managing member for a cash
payment equal to the equity in the property at the time of its contribution to
the LLC. If the units are tendered after October 30, 1999 and the Company has
not listed its shares on a national securities exchange, the non-managing
member has a right to receive 469,480 shares of the Company's stock.

In September 1999, the Company formed the Inland Ryan LLC, a Delaware limited
liability company, with an unaffiliated third party which purchased nine
shopping centers. The Company contributed approximately $76,720,000 for an
approximate 77% interest in the Inland Ryan LLC. The third party seller
contributed nine properties with a fair market value of approximately
$99,427,000, debt of approximately $65,500,000 to the LLC and received a cash
payment of $11,175,000 from the Company for an approximate 23% interest. The
Company is the managing member of the Inland Ryan LLC. The non-managing member
(third party seller) has a right on or after January 1, 2001 to tender up to
1/2 of its interest in the Inland Ryan LLC to the managing member for a cash
payment. The remaining interest may be tendered to the managing member on or
after June 30, 2002. If the non-managing member has not tendered all of its
interest by August 31, 2004, then at any time after that date, the managing
member, at its sole and exclusive option, may require the tender of all
remaining non-managing member interests. Generally, profit and loss allocations
and distributions are made in accordance with stated ownership interests.

In September 1999, the Company formed the Inland Ryan Cliff Lake LLC, a
Delaware limited liability company, with the Inland Ryan LLC in order to comply
with covenants of an assumed mortgage. The Company contributed approximately
$6,000 in cash for a 1% interest in the Inland Ryan Cliff Lake LLC. The Inland
Ryan LLC contributed one property with a fair market value of approximately
$5,554,000 and debt of approximately $5,134,000 to the LLC for an approximate
99% interest. The Company is the managing member of the Inland Ryan Cliff Lake
LLC. The non-managing member (third party seller) has a right on or after
January 1, 2001 to tender up to 1/2 of its interest in the Inland Ryan LLC to
the managing member for a cash payment. The remaining interest may be tendered
to the managing member on or after June 30, 2002. If the non-managing member
has not tendered all of its interest by August 31, 2004, then at any time after
that date, the managing member, at its sole and exclusive option, may require
the tender of all remaining non-managing member interests. Generally, profit
and loss allocations and distributions are made in accordance with stated
ownership interests.

-23-

Year 2000 Issues

As part of it's year 2000 readiness plan, the Company had identified three
areas for compliance efforts: business computer systems, tenants and suppliers
and non-information technology systems. The Company has not experienced any
problems relating to year 2000 issues in any of these areas. Total costs
associated with year 2000 readiness were not material.

Subsequent Events

In January 2000, the Company paid a distribution of $4,374,462 to the
Stockholders.

On January 13, 2000, the Company purchased Rose Plaza East from an unaffiliated
third party for approximately $2,171,400 using cash and cash equivalents. The
property is located in Naperville, Illinois and contains approximately 11,658
square feet of leasable space. Its anchor tenants are Starbuck's, BoRics, Plus
Signs, Alpha Communications and Kinko's.

On February 1, 2000, the Company purchased Chatham Ridge Shopping Center from
an unaffiliated third party for approximately $19,475,240. The property is
located in Chicago, Illinois and contains approximately 175,730 square feet of
leasable space. Its anchor tenants are Cub Foods and Marshalls. To purchase the
property, the Company used cash and cash equivalents of approximately
$9,480,000 and obtained a loan from a third party lender for the balance of the
purchase price.

On February 1, 2000, the Company borrowed $3,000,000 from First Union
Securities. The loan, secured by the Company's investment in securities,
accrues interest at 6.5%. The loan was for 14 days with additional 14-day
renewal options. The loan was paid in full on March 14, 2000.

On February 8, 2000, the Company purchased Joliet Commons Phase II from an
unaffiliated third party for approximately $4,800,000 using cash and cash
equivalents. The property is located in Joliet, Illinois and contains
approximately 40,395 square feet of leasable space. Its anchor tenants are
Office Max, Eddie Bauer and Peppers Bedroom City.

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

-24-

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, 2000.

On December 2, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 "Revenue Recognition in Financial Statements." The
staff determined that a lessor should defer recognition of contingent rental
income (i.e., percentage/excess rent) until the specified target (i.e.,
breakpoint) that triggers the contingent rental income is achieved. The Company
records percentage rental revenue in accordance with the SAB.

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.

-25-

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 closely monitors its
variable rate debt and on each such debt it has the right to convert the
interest rate to a fixed rate.

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.

2000 2001 2002 2003 2004
----------- ----------- ----------- ---------- -----------
Fixed rate debt..... $ 400,800 19,745,770 233,000 31,550,014 110,429,253
Average interest rate
on maturing debt.. - 7.46% - 7.32% 7.21%

Variable rate debt.. $4,235,659 - - - 88,364,000
Average interest rate
on maturing debt.. 8.28% - - - 7.31%

As the table incorporates only those exposures that exist as of December 31,
1999, it does not consider those exposures of positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented therein has limited predictive value. As a
result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period, the
Company's hedging strategies at that time, and interest rates.

The fair value of mortgages payable is the amount at which the instrument could
be exchanged in a current transaction between willing parties. The fair value of
the Company's mortgages is estimated to be $402,786,000. The Company estimates
the fair value of its mortgages payable by discounting the future cash flows of
each instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's lenders.

The Company entered into rate lock agreements in connection with three separate
loans between the Company and Lehman Brothers Holdings, Inc., Column Financial,
Inc. and Bear, Stearns Funding, Inc. 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,
Column Financial, Inc. $37,125 of loan fees and $267,884 of other costs and
Bear, Stearns Funding, Inc. $415,766 of loan fees and $134,429 of other costs in
connection with these loans. The Lehman Brothers Holdings, Inc. loan, the Column
Financial, Inc. loan and the Bear, Stearns Funding, Inc. loan closed in October
1998, November 1998 and June 1999, respectively.

Approximately $92,605,000, or 21% of the Company's mortgages payable at December
31, 1999, have variable interest rates averaging 7.35%. An increase in the
variable interest rate on certain mortgages payable constitutes a market risk.

-26-

Item 8. Consolidated Financial Statements and Supplementary Data

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Index
-----
Page

Independent Auditors' Report............................................. 28

Financial Statements:

Consolidated Balance Sheets, December 31, 1999 and 1998................ 29

Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997..................................... 31

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997..................................... 33

Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997..................................... 34

Notes to Consolidated Financial Statements............................. 36

Real Estate and Accumulated Depreciation (Schedule III).................. 51

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.

-27-

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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 31, 2000

-28-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Balance Sheets

December 31, 1999 and 1998

Assets
------
1999 1998
---- ----
Investment properties (Note 4):
Land............................................ $271,905,942 193,093,898
Construction in progress (Note 8)............... 1,699,356 1,230,448
Building and improvements....................... 671,201,002 452,885,969
------------- -------------
944,806,300 647,210,315
Less accumulated depreciation................... 37,424,871 17,161,998
------------- -------------
Net investment properties....................... 907,381,429 630,048,317
------------- -------------
Cash and cash equivalents including amount
held by property manager........................ 19,424,343 123,056,702
Investment in securities (net of allowance for
unrealized loss of $2,088,633 at December 31,
1999) (Note 1).................................. 8,570,656 -
Investment in marketable securities............... 260,000 -
Restricted cash (Notes 8 and 11).................. 15,340,902 15,613,197
Accounts and rents receivable (net of allowance
for doubtful accounts of approximately $1,064,300
and $200,000 at December 31, 1999 and 1998,
respectively) (Note 5).......................... 19,794,687 12,720,962
Mortgage receivable (Note 6)...................... 6,495,541 -
Deposits and other assets......................... 358,986 2,854,836
Deferred organization costs (net of accumulated
amortization of $36,526 and $16,780 at December
31, 1999 and 1998, respectively)................ - 19,746
Leasing fees (net of accumulated amortization
of $39,031 at December 31, 1999)................ 360,486 -
Loan fees (net of accumulated amortization
of $1,029,522 and $395,962 at December 31, 1999
and 1998, respectively)......................... 4,294,942 3,294,787
------------- -------------
Total assets...................................... $982,281,972 787,608,547
============= =============

See accompanying notes to consolidated financial statements.

-29-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Balance Sheets
(continued)

December 31, 1999 and 1998

Liabilities and Stockholders' Equity
------------------------------------
1999 1998
Liabilities: ---- ----
Accounts payable................................ $ 384,665 917,483
Accrued offering costs to Affiliate (Note 2).... - 890,786
Accrued offering costs to non-affiliates........ - 2,740
Accrued interest payable to Affiliate (Note 2).. 4,468 4,558
Accrued interest payable to non-affiliates...... 1,786,331 1,651,334
Accrued real estate taxes....................... 18,829,084 14,384,234
Distributions payable (Note 12)................. 4,374,462 3,844,649
Security deposits............................... 1,976,082 1,561,020
Mortgages payable (Note 7)...................... 440,740,296 288,982,470
Prepaid rents and unearned income............... 1,536,008 448,809
Other liabilities (Notes 4 and 11).............. 8,525,986 5,208,755
Due to Affiliates (Note 2)...................... 1,517,775 32,925
------------- -------------
Total liabilities................................. 479,675,157 317,929,763
------------- -------------
Minority interest................................. 27,112,690 5,214,298
------------- -------------
Stockholders' Equity (Note 2):
Preferred stock, $.01 par value, 6,000,000 Shares
authorized; none issued and outstanding....... - -
Common stock, $.01 par value, 100,000,000 Shares
authorized; 55,398,888 and 52,394,500 issued and
outstanding at December 31, 1999 and 1998,
respectively.................................. 553,988 523,945
Additional paid-in capital (net of offering
costs of $58,816,092 and $57,536,374 at
December 31, 1999 and 1998, respectively, of
which $52,218,524 and $51,108,966 was paid
to Affiliates, respectively).................. 512,567,043 481,271,094
Accumulated distributions in excess
of net income................................. (35,538,273) (17,330,553)
Accumulated other comprehensive income (loss)... (2,088,633) -
------------- -------------
Total stockholders' equity........................ 475,494,125 464,464,486
Commitments and contingencies ------------- -------------
(Notes 5, 7, 8 and 11)..........................

Total liabilities and stockholders' equity........ $982,281,972 787,608,547
============= =============

See accompanying notes to consolidated financial statements.

-30-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Operations

For the years ended December 31, 1999, 1998 and 1997

1999 1998 1997
Income: ---- ---- ----
Rental income (Notes 1 and 5)..... $ 85,951,584 51,133,774 21,112,365
Additional rental income.......... 32,952,348 16,679,388 6,592,983
Interest income................... 4,206,809 5,185,534 1,615,520
Other income...................... 676,828 303,582 100,717
------------- ------------- ------------
123,787,569 73,302,278 29,421,585
Expenses: ------------- ------------- ------------
Professional services to
Affiliates...................... 126,302 83,203 29,304
Professional services to
non-affiliates.................. 644,643 357,142 96,681
General and administrative
expenses to Affiliates.......... 625,937 330,651 115,468
General and administrative
expenses to non-affiliates...... 1,027,660 811,952 241,501
Advisor asset management fee...... 4,193,068 965,108 843,000
Property operating expenses to
Affiliates...................... 4,869,514 2,779,053 1,120,429
Property operating expenses to
non-affiliates.................. 35,433,061 18,238,307 7,742,595
Mortgage interest to Affiliates... 54,114 55,154 86,455
Mortgage interest to
non-affiliates.................. 25,599,610 13,366,445 5,568,109
Depreciation...................... 20,262,873 11,496,515 4,556,445
Amortization...................... 98,396 166,635 124,884
Acquisition cost expenses to
Affiliates...................... 380,606 236,380 194,187
Acquisition cost expenses to
non-affiliates.................. 185,217 201,403 55,306
------------- ------------- ------------
93,501,001 49,087,948 20,774,364
------------- ------------- ------------
Income before minority interest..... 30,286,568 24,214,330 8,647,221

Minority interest................... (114,667) (128,459) -
------------- ------------- ------------
Net income.......................... 30,171,901 24,085,871 8,647,221

Other comprehensive income (loss):
Unrealized holding loss on
investment securities........... (2,088,633) - -
------------- ------------- ------------
Comprehensive income................ $ 28,083,268 24,085,871 8,647,221
============= ============= ============

See accompanying notes to consolidated financial statements.

-31-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Operations
(continued)

For the years ended December 31, 1999, 1998 and 1997

1999 1998 1997
---- ---- ----
Net income per common share, basic
and diluted....................... $ .55 .60 .57
============= ============= ============

Weighted average common stock shares
outstanding, basic and diluted.... 54,603,088 40,359,796 15,225,983
============= ============= ============

See accompanying notes to consolidated financial statements.

-32-

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

Consolidated Statements of Stockholders' Equity

For the years ended December 31, 1999, 1998 and 1997
<CAPTION>
Accumulated Accumulated
Additional Distributions Other
Common Paid-in in excess of Comprehensive
Stock Capital net income Loss Total
---------- ------------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1997........... $ 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 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
Treasury stock.................... (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 shares
outstanding).................... - - (35,443,213) - (35,443,213)
Proceeds from Offering including
DRP (net of Offering costs of
$29,194,655 and subscriptions
receivable)..................... 275,668 261,946,748 - - 262,222,416
Treasury stock.................... (1,456) (1,315,999) - - (1,317,455)
---------- ------------- ------------- -------------- -------------
Balance December 31, 1998......... 523,945 481,271,094 (17,330,553) - 464,464,486

Net income........................ - - 30,171,901 - 30,171,901
Other comprehensive loss.......... - - - (2,088,633) (2,088,633)
Distributions declared ($.89 per
weighted average common shares
outstanding).................... - - (48,379,621) - (48,379,621)
Proceeds from Offering including
DRP (net of Offering costs of
$1,279,718)..................... 34,135 34,995,429 - - 35,029,564
Treasury stock.................... (4,092) (3,699,480) - - (3,703,572)
---------- ------------- ------------- -------------- -------------
Balance December 31, 1999......... $ 553,988 512,567,043 (35,538,273) (2,088,633) 475,494,125
========== ============= ============= ============== =============

</TABLE>

See accompanying notes to consolidated financial statements.

-33-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Cash Flows

For the years ended December 31, 1999, 1998 and 1997

1999 1998 1997
Cash flows from operating activities: ---- ---- ----
Net income........................ $ 30,171,901 24,085,871 8,647,221
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation.................... 20,262,873 11,496,515 4,556,445
Amortization.................... 98,396 166,635 124,884
Minority interest............... 114,667 128,459 -
Rental income under master
lease agreements.............. 2,185,830 1,981,774 410,361
Straight line rental income..... (2,490,459) (2,120,951) (654,978)
Allowance for doubtful accounts. 864,256 200,000 -
Interest on unamortized
loan fees..................... 593,961 103,855 -
Changes in assets and liabilities:
Accounts and rents receivable. (5,447,522) (5,873,368) (2,356,909)
Other assets.................. 2,495,850 (848,935) (810,073)
Accounts payable.............. (532,818) 98,201 (242,362)
Accrued interest payable...... 134,907 1,090,430 508,342
Accrued real estate taxes..... 4,444,850 7,352,502 4,260,843
Security deposits............. 415,062 806,661 506,590
Other liabilities............. 3,317,231 4,715,639 460,296
Due to Affiliates............. 1,484,850 (304,900) 82,234
Prepaid rents and unearned
income....................... 1,087,199 (46,726) 430,945
Net cash provided by operating -------------- ------------- -------------
activities........................ 59,201,034 43,031,662 15,923,839
-------------- ------------- -------------
Cash flows from investing activities:
Restricted cash................... 272,295 (13,539,398) (1,951,756)
Purchase of investment in
securities...................... (10,659,289) - -
Purchase of marketable securities. (260,000) - -
Additions to investment properties (5,893,566) (2,514,122) (836,962)
Purchase of investment properties. (255,226,283) (329,197,095) (141,187,371)
Mortgage receivable............... (6,495,541) - -
Construction in progress.......... (468,908) (1,230,448) -
Leasing fees...................... (399,517) - -
Proceeds from sale of land........ 1,117,665 - -
Deposits on investment properties. - 1,918,530 (3,018,530)
Net cash used in investing -------------- ------------- -------------
activities........................ (278,013,144) (344,562,533) (146,994,619)
-------------- ------------- -------------

See accompanying notes to consolidated financial statements.

-34-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Consolidated Statements of Cash Flows
(continued)

For the years ended December 31, 1999, 1998 and 1997

1999 1998 1997
Cash flows from financing activities: ---- ---- ----
Proceeds from offering............ $ 36,329,118 291,417,071 168,559,450
Repurchase of Shares.............. (3,723,408) (1,317,455) (420,834)
Payments of offering costs........ (2,173,244) (28,881,991) (17,563,326)
Loan proceeds..................... 145,814,000 166,352,000 43,926,176
Loan fees......................... (1,633,735) (2,701,644) (638,819)
Distributions paid................ (48,773,272) (33,454,118) (11,899,431)
Repayment of notes from Affiliate. - - (8,000,000)
Principal payments of debt........ (10,659,708) (18,041,255) (238,584)
Payment of deferred organization
costs........................... - (9,063) -
Net cash provided by financing -------------- ------------- -------------
activities........................ 115,179,751 373,363,545 173,724,632
Net increase (decrease) in cash and -------------- ------------- -------------
cash equivalents.................. (103,632,359) 71,911,115 42,653,852
Cash and cash equivalents at
beginning of year................. 123,056,702 51,145,587 8,491,735
Cash and cash equivalents at -------------- ------------- -------------
end of year....................... $ 19,424,343 123,056,702 51,145,587
============== ============= =============

Supplemental schedule of noncash investing and financing activities:

1999 1998 1997
---- ---- ----
Purchase of investment properties.. $(294,537,006) (368,364,949) (181,251,256)
Assumption of mortgage debt...... 16,603,534 34,082,015 32,063,885
Note payable to Affiliate........ - - 8,000,000
Minority interest................ 22,707,189 5,164,280 -
-------------- ------------- -------------
$(255,226,283) (329,197,095) (141,187,371)
============== ============= =============

Distributions payable.............. $ 4,374,462 3,844,649 1,777,113
============== ============= =============

Cash paid for interest............. $ 25,074,768 12,435,024 5,146,222
============== ============= =============

See accompanying notes to consolidated financial statements.

-35-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements

For the years ended December 31, 1999, 1998, and 1997

(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, some 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, as amended (the "Code"). 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"). The Company received
subscriptions for a total of 16,642,397 Shares in the Fourth Offering. The
Initial, Second, Third and Fourth are collectively called the "Offerings". In
addition, as of December 31, 1999, the Company has issued 4,364,623 Shares
through the Company's Distribution Reinvestment Program ("DRP"). As of December
31, 1999, the Company has repurchased a total of 608,132 Shares through the
Company's Share Repurchase Program, for an aggregate amount of $5,526,180. As a
result, gross offering proceeds from the Offerings ("Gross Offering Proceeds")
total $571,937,123, as of December 31, 1999.

-36-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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.

Certain reclassifications were made to the 1998 and 1997 financial statements
to conform with the 1999 presentation.

The Company classifies its investment in securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term. Held-to-
maturity securities are those securities in which the Company has the ability
and intent to hold the security until maturity. All securities not included in
trading or held-to-maturity are classified as available for sale. Investment in
securities at December 31, 1999 consist of preferred stock investments in
various real estate investment trusts and are classified as available-for-sale
securities. Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded from earnings and reported as a separate component of other
comprehensive income until realized. Realized gains and losses from the sale of
available-for-sale securities are determined on a specific identification
basis. A decline in the market value of any available-for-sale security below
cost that is deemed to be other that temporary results in a reduction in the
carrying amount to fair value. The impairment is charged to earnings and a new
cost basis for the security is established. Dividend income is recognized when
earned. No sales of investment securities available-for-sale were made during
the year ended December 31, 1999.

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,
1999, the Company does not believe any of its properties are impaired.

-37-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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

Leasing fees are amortized on a straight-line basis over the life of the
related lease.

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

The fair value of mortgages payable is the amount at which the instrument could
be exchanged in a current transaction between willing parties. The fair value
of the Company's mortgages is estimated to be $402,786,000. The Company
estimates the fair value of its mortgages payable by discounting the future
cash flows of each instrument at rates currently offered to the Company for
similar debt instruments of comparable maturities by the Company's lenders.

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

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 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 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.

-38-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

-39-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(2) 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 aggregate cost to Affiliates incurred and paid relating
to the Offerings were $2,349,336 and $1,489,541 as of December 31, 1999 and
1998, 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 $49,869,188 and $49,619,425 as of December 31, 1999 and 1998,
respectively, of which $0 and $890,786 was unpaid as of December 31, 1999 and
1998, respectively. Approximately $42,500,000 and $42,200,000 of these
commissions had been passed through from the Affiliate to unaffiliated
soliciting broker/dealers as of December 31, 1999 and 1998, respectively.

As of December 31, 1999, the Company had incurred $58,852,618 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. Organizational and offering costs expenses did not
exceed the 5.5% and 15% limitations.

-40-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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 $126,302, $625,937 and $380,606
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, 1999. Such costs of $83,203,
$330,651 and $236,380 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.

An Affiliate of the Advisor holds the mortgage on the Walgreens/Decatur
property. As of December 31, 1999, the remaining balance of the mortgage is
$700,381. For the years ended December 31, 1999 and 1998, the Company paid
principal and interest payments totaling $68,266 and $68,183, respectively, on
this mortgage.

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.

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 years ended December 31, 1999 and 1998, the Company has
incurred $4,193,068 and $965,108, respectively, of Advisor Asset Management
Fees, of which $1,500,000 and $32,925 remained unpaid at December 31, 1999 and
1998, respectively. The Company paid an Advisor Asset Management Fee which
represented .58, .20 and .45 of the 1% of the Average Invested Assets for the
years ended December 31, 1999, 1998 and 1997, respectively. Remaining Advisor
Asset Management Fees are forfeited by the Advisor and, accordingly, not
accrued in the accompanying financial statements.

An Affiliate of the Advisor 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 $4,869,514, $2,779,053 and $1,120,429 for the
years ended December 31, 1999, 1998 and 1997, respectively, all of which has
been paid.

-41-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(3) 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 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. The succeeding options are exercisable on
the second anniversary of the date of grant. As of December 31, 1999, options
for 1,000 Shares have been exercised for $9.05 per Share. For the years ended
December 31, 1999, 1998 and 1997, options to purchase 15,000, 13,500 and 12,500
shares of common stock at prices ranging from $9.05 to $10.45 per share were
outstanding during each of the respective periods.

In addition to sales commissions, Soliciting Dealers may also have received 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, 1999, 1,156,520 warrants had been issued. As of December 31, 1999, none of
these warrants were exercised. These warrants have no value.

(4) Investment Properties

In connection with the purchase of several properties, the Company will receive
payments under master lease agreements covering spaces of several properties
vacant at the time of acquisition of these properties. The payments will be
made to the Company for periods ranging from one to two years from the date of
acquisition of the property or until the spaces are leased and tenants begin
paying rent. GAAP requires the Company to reduce the purchase price of the
property as these payments are received, rather than record the payments as
rental income. The cumulative amount of such payments was $5,148,659 and
$2,962,829 as of December 31, 1999 and 1998, respectively (Note 5).

-42-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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 ended
December 31,
1999 1998
---- ----
Rental income........................... $ 95,624,113 81,201,253
Additional rental income................ 35,974,834 26,464,900
Total revenues.......................... 136,482,584 113,155,269
Property operating expenses............. 43,276,089 33,921,159
Total depreciation...................... 23,225,306 20,421,721
Total expenses.......................... 101,406,993 75,436,090
Net income.............................. 35,075,591 37,719,179

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.

(5) Operating Leases

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:

2000...................................... $ 92,867,805
2001...................................... 85,589,822
2002...................................... 79,401,650
2003...................................... 73,467,144
2004...................................... 66,007,471
Thereafter................................ 511,782,824
-------------
Total..................................... $909,116,716
=============

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.

-43-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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 $2,490,459, $2,120,951
and $654,978 in 1999, 1998 and 1997, of rental income for the period of
occupancy for which stepped rent increases apply and $5,398,026 and $2,907,567
in related accounts and rents receivable as of December 31, 1999 and 1998,
respectively. The Company anticipates collecting these amounts over the terms of
the related leases as scheduled rent payments are made.

(6) Mortgage Receivable

On May 28, 1999, the Company entered into a construction loan agreement with an
unaffiliated third party, the borrower, for an aggregate loan amount of
$15,500,000 secured by Thatcher Woods Shopping Center in River Grove, Illinois.
The construction loan matures on December 31, 2000 and requires the borrower to
make monthly interest only payments on amounts disbursed at a rate of 9%. The
Company, at its option, may elect to purchase this property, upon completion,
subject to certain fair-value-based criteria stated in the contract.

(7) Mortgages Payable

The Company's mortgages payable are secured by various of its investment
properties and consist of the following at December 31, 1999 and 1998:

Interest Current Balance at
Rate Maturity Monthly Dec. 31, Dec. 31,
@ 12/31/99 Date Payment 1999 1998
---------- --------- --------- ------------ -----------
Mortgage payable to Affiliate:
Inland Mortgage
Servicing Corp. (a) 7.65% 05/2004 $ 5,689 $ 700,381 714,443

Mortgages payable to non-affiliates:
Bank One (a) 7.21% 08/2000 (b) 4,241,187 4,312,036
LaSalle Bank National
Association 7.85% 10/2003 57,992 8,865,000 8,865,000
LaSalle Bank N.A. 7.85% 09/2003 25,872 3,955,000 3,955,000
LaSalle Bank N.A. 7.59% 01/2004 81,277 12,850,000 12,850,000
LaSalle Bank N.A. 7.80% 02/2004 83,460 12,840,000 12,840,000
John Hancock (a) (c) 9.00% 10/2001 85,423 9,000,328 9,205,252
LaSalle Bank N.A. 7.65% 06/2004 65,133 10,216,880 10,216,880
LaSalle Bank N.A. 7.49% 06/2004 61,116 9,791,500 9,791,500
LaSalle Bank N.A. 7.23% 01/2005 28,183 4,677,795 4,677,795
Allstate 7.21% 12/2004 38,453 6,400,000 6,400,000
LaSalle Bank N.A.(d) 3.13% 12/2014 19,740 6,200,000 6,200,000

-44-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

Interest Current Balance at
Rate Maturity Monthly Dec. 31, Dec. 31,
@ 12/31/99 Date Payment 1999 1998
---------- --------- --------- ------------ -----------
LaSalle Bank N.A. 7.28% 03/2005 $ 25,041 $ 4,050,000 4,050,000
LaSalle Bank N.A. 6.99% 04/2003 6,827 1,150,000 1,150,000
LaSalle Bank N.A. 7.00% 04/2005 106,404 17,897,500 17,897,500
Allstate 7.00% 02/2005 31,946 5,476,500 5,476,500
Allstate 7.00% 01/2005 23,917 4,100,000 4,100,000
Allstate 7.15% 01/2005 18,173 3,050,000 3,050,000
Allstate 7.10% 03/2003 17,620 2,978,000 2,978,000
Nationwide Life
Insurance Co. (i) 8.00% 09/1999 63,333 - 9,500,000
Allstate 6.65% 05/2005 53,200 9,600,000 9,600,000
Allstate (e) 9.25% 12/2009 30,125 3,908,082 3,908,082
Allstate 6.82% 08/2005 60,243 10,600,000 10,600,000
LaSalle Bank N.A. 6.50% 12/2005 72,123 13,500,000 13,500,000
Allstate 6.66% 10/2003 17,483 3,150,000 3,150,000
Allstate 7.00% 12/2003 65,333 11,200,000 11,200,000
Berkshire Mortgage (a) 7.79% 10/2007 105,719 14,447,153 14,569,482
Woodmen of the World 6.75% 06/2008 26,015 4,625,000 4,625,000
Lehman secured
financing (f) 6.36% 10/2008 299,025 54,600,000 54,600,000
Column secured
financing (g) 7.00% 11/2008 150,695 25,000,000 25,000,000
Principal Life Ins. 6.24% 09/2001 55,820 10,734,710 -
Bear, Stearns secured
financing (h) 6.86% 06/2004 328,662 57,450,000 -
LaSalle Bank N.A. 6.71% 10/2004 (j) 34,017,000 -
Allstate 7.00% 10/2004 (j) 35,787,000 -
Midland Loan Serv. (a) 7.86% 01/2008 37,649 5,121,280 -
LaSalle Bank N.A. 6.93% 12/2004 (j) 8,910,000 -
LaSalle Bank N.A. 7.13% 12/2004 (j) 9,650,000 -
------------ -----------
Mortgages Payable.................................... $440,740,296 288,982,470
============ ===========

(a) These loans require payments of principal and interest monthly, all other
loans listed are interest only.

(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%.

-45-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(d) 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 rate at December 31, 1999 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.

(e) The Company received a subsidy at closing from the seller for a period of
five years, which together with interest earnings on the initial 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.

(f) The Company paid $636,000 of loan fees and $503,295 of other costs
associated with this financing with Lehman Brothers Holdings, Inc. This
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.

(g) The Company paid $37,125 of loan fees and $267,884 of other costs
associated with this financing with Column Financial, Inc. This 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 $415,766 of loan fees and $134,429 of other costs
associated with this financing with Bear, Stearns Funding, Inc. This
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.

(i) On September 10, 1999, the Company paid off the loan secured by the Shoppes
of Mill Creek Shopping Center.

(j) Payments on these mortgages are calculated using a floating rate of
interest based on LIBOR.

As of December 31, 1999, the required future principal payments on the
Company's mortgages payable over the next five years are as follows:

2000.................................... $ 4,636,459
2001.................................... 19,745,770
2002.................................... 233,000
2003.................................... 31,550,014
2004.................................... 198,793,253

-46-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(8) 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 "Stuart's 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, construction, and a deposit on the final
purchase price of a 70,640 square foot Jewel Food Store and adjacent stores. In
July 1999, the Jewel Food Store was completed and $6,069,437 was released from
escrow which represents the final purchase price of the Jewel Food Store.
Additionally, $1,434,037 of construction in progress was recorded as operating
property. In November 1999, the Company funded an additional $1,221,750 to
escrow for the construction of a 15,000 square foot store space adjacent to the
Jewel Food Store. Contingent upon the lease-up of the 15,000 square foot space,
the Company is required to deposit additional cash into the development escrow
to fund the space's final purchase price. As of December 31, 1999, $478,584 of
this development escrow is included in restricted cash and $1,517,305 is
included in construction in progress.

(9) 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, 1999, 1998 and 1997, options to purchase 15,000, 13,500 and 12,500
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, 1999, warrants to purchase 1,156,520 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 54,603,088,
40,359,796 and 15,225,983 for the years ended December 31, 1999, 1998 and 1997,
respectively.

-47-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

(10) Segment Reporting

The Company owns and seeks to acquire single-user, neighborhood and community
retail shopping centers in the Midwest, generally within the states of
Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of the
Company's shopping centers are located within these states and are typically
anchored by grocery and drug stores complemented with additional 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 properties based on net property operations. Since all of
the Company's properties 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.

The property revenues, property net operations, and property assets of the
reportable segments are summarized in the following tables as of December 31,
1999, 1998 and 1997, and for each of the years in the three-year period then
ended, along with a reconciliation to net income:

1999 1998 1997
---- ---- ----
Total property revenues.......... $119,580,760 68,116,744 27,806,065
Total property operating
expenses....................... 39,493,573 21,017,360 8,863,024
Mortgage interest................ 25,653,724 13,421,599 5,654,564
------------- ------------- -------------
Net property operations.......... 54,433,463 33,677,785 13,288,477
------------- ------------- -------------
Interest income.................. 4,206,809 5,185,534 1,615,520
Less non property expenses:
Professional services.......... 770,945 440,345 125,985
General and administrative..... 2,462,597 1,142,603 356,969
Advisor asset management fee... 4,193,068 965,108 843,000
Depreciation and amortization.. 20,361,271 11,663,150 4,681,329
Acquisition cost expense....... 565,823 437,783 249,493
------------- ------------- -------------
Income before minority interest.. $ 30,286,568 24,214,330 8,647,221
============= ============= =============

Net investment properties........ $907,381,429 630,048,317 270,645,355
============= ============= =============

(11) Commitments and Contingencies

The Company is not subject to any material pending legal proceedings.

In connection with a tax increment financing district for three of the
Company's properties, the Company is contingently liable for any shortfalls in
the Tax Increment as defined. At December 31, 1999, the Company does not
believe any shortfall under the Tax Increment will be due.

-48-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

On May 21, 1999, the Company acquired title to a 210,321 square foot shopping
center in Geneva, Illinois known as "Randall Square." The initial purchase
price of $30,122,756 was funded with cash and cash equivalents. Included in the
purchase price paid, the Company deposited $5,895,895 into a purchase price
escrow. The Company is required to purchase stores adjacent to the property,
contingent upon their lease-up. As of December 31, 1999, the $5,895,895 is
included in restricted cash and other liabilities.

On August 4, 1999, the Company acquired title to a 32,000 square foot shopping
center known as "Hickory Creek Marketplace" and an additional six acres of
vacant land in Frankfort, Illinois. Upon the remaining acreage, a 20,800 square
foot store is to be developed by an unaffiliated third party. The initial
purchase price of $6,216,535 was funded with cash and cash equivalents. In
addition to the purchase price paid, the Company deposited $2,707,303 in a
development escrow to fund the construction and the final purchase price of the
20,800 square foot structure. As of December 31, 1999, the $2,707,303 is
included in restricted cash.

(12) Subsequent Events

In January 2000, the Company paid a distribution of $4,374,462 to the
Stockholders.

-49-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Notes to Consolidated Financial Statements
(continued)

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

-50-

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

Schedule III
Real Estate and Accumulated Depreciation

December 31, 1999
<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, IL..... $ 700,381 78,330 1,130,723 - 78,330 1,130,723 1,209,053 185,313 1988 01/95
Zany Brainy
Wheaton, IL..... 1,245,000 838,000 1,626,033 664 838,000 1,626,697 2,464,697 189,761 1995 07/96
Ameritech
Joliet, IL...... 522,375 170,000 883,293 2,544 170,000 885,837 1,055,837 79,523 1995 05/97
Dominick's
Schaumburg, IL.. 5,345,500 2,294,437 8,392,661 2,679 2,294,437 8,395,340 10,689,777 722,809 1996 05/97
Dominick's
Highland Park, IL. 6,400,000 3,200,000 9,597,963 2,200 3,200,000 9,600,163 12,800,163 996,404 1996 06/97
Dominick's
Glendale Hghts, IL 4,100,000 1,265,000 6,942,997 9,194 1,265,000 6,952,191 8,217,191 558,064 1997 09/97
Party City
Oakbrook Terr., IL. 987,500 750,000 1,231,271 - 750,000 1,231,271 1,981,271 88,886 1985 11/97
Eagle Country Market
Roselle, IL..... 1,450,000 966,667 1,940,898 - 966,667 1,940,898 2,907,565 177,432 1990 11/97
Dominick's
West Chicago, IL 3,150,000 1,980,130 4,325,331 13,063 1,980,130 4,338,394 6,318,524 311,995 1990 01/98
Walgreens
Woodstock, IL... 569,610 395,080 774,906 - 395,080 774,906 1,169,986 43,743 1973 06/98
Bakers Shoes
Chicago, IL..... - 645,284 342,993 15,120 645,284 358,113 1,003,397 14,536 1891 09/98
Staples
Freeport, IL.... 1,480,000 725,288 1,969,690 - 725,288 1,969,690 2,694,978 79,957 1998 04/98
Carmax
Schaumburg, IL.. 7,260,000 7,142,020 13,461,169 - 7,142,020 13,461,169 20,603,189 486,083 1998 12/98
Carmax
Tinley Park, IL. 9,450,000 6,788,880 12,116,751 - 6,788,880 12,116,751 18,905,631 437,533 1998 12/98
Hollywood Video
Hammond, IN..... 740,000 405,213 948,925 - 405,213 948,925 1,354,138 34,234 1998 12/98
Circuit City
Traverse City, MI 1,603,000 1,123,170 1,778,861 - 1,123,170 1,778,861 2,902,031 56,167 1998 01/99
Cub Foods
Plymouth, MN.... - 1,551,104 3,916,470 - 1,551,104 3,916,470 5,467,574 120,305 1991 03/99
Cub Foods
Indianapolis, IN - 2,182,557 3,560,502 - 2,182,557 3,560,502 5,743,059 128,868 1991 03/99
Eagle Ridge Center
Lindenhurst, IL. 3,000,000 866,702 5,144,821 - 866,702 5,144,821 6,011,523 141,513 1998 04/99
Dominick's
Hammond, IN..... 4,100,000 825,225 8,025,601 - 825,225 8,025,601 8,850,826 192,672 1999 05/99
Eagle Foods
Buffalo Grove, IL - 1,425,840 5,925,015 - 1,425,840 5,925,015 7,350,855 128,539 1999 06/99
United Audio Center
Schaumburg, IL... 1,240,000 1,215,143 1,272,717 - 1,215,143 1,272,717 2,487,860 14,318 1998 09/99
Bally's Total Fitness
St. Paul, MN..... 3,145,300 1,298,052 4,612,336 - 1,298,052 4,612,336 5,910,388 53,089 1988 09/99

-51-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1999

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
Naperville, IL.. $ 2,350,000 1,878,618 2,938,352 269,531 1,878,618 3,207,883 5,086,501 500,618 1991 03/95
Goodyear
Montgomery, IL.. 630,000 315,000 834,659 (11,158) 315,000 823,501 1,138,501 116,751 1991 09/95
Hartford Plaza
Naperville, IL.. 2,310,000 990,000 3,427,961 20,912 990,000 3,448,873 4,438,873 527,891 1995 09/95
Nantucket Square
Schaumburg, IL.. 2,200,000 1,908,000 2,349,918 (55,972) 1,908,000 2,293,946 4,201,946 323,931 1980 09/95
Antioch Plaza
Antioch, IL..... 875,000 268,000 1,360,445 (104,977) 268,000 1,255,468 1,523,468 180,485 1995 12/95
Mundelein Plaza
Mundelein, IL... 2,810,000 1,695,000 3,965,561 (32,703) 1,695,000 3,932,858 5,627,858 491,271 1990 03/96
Regency Point
Lockport, IL.... 4,241,187 1,000,000 4,720,800 (19,377) 1,000,000 4,701,423 5,701,423 587,683 1993 04/96
Prospect Heights
Prospect Hghts, IL 1,095,000 494,300 1,683,005 63,714 494,300 1,746,719 2,241,019 195,092 1985 06/96
Sears
Montgomery, IL.. 1,645,000 768,000 2,654,681 (77,754) 768,000 2,576,927 3,344,927 305,865 1990 06/96
Salem Square
Countryside, IL. 3,130,000 1,735,000 4,449,217 (13,596) 1,735,000 4,435,621 6,170,621 504,986 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 8,554,031 674,374 1979 08/96
Six Corners
Chicago, IL..... 3,100,000 1,440,000 4,532,977 220,141 1,440,000 4,753,118 6,193,118 492,423 1966 10/96
Spring Hill Fashion Center
West Dundee, IL. 4,690,000 1,794,000 7,415,396 211,873 1,794,000 7,627,269 9,421,269 778,352 1985 11/96
Crestwood Plaza
Crestwood, IL... 904,380 325,577 1,483,183 4,750 325,577 1,487,933 1,813,510 148,763 1992 12/96
Park St. Claire
Schaumburg, IL.. 762,500 319,578 986,920 226,674 319,578 1,213,594 1,533,172 230,716 1994 12/96
Summit of Park Ridge
Park Ridge, IL.. 1,600,000 672,000 2,498,050 29,070 672,000 2,527,120 3,199,120 252,722 1986 12/96
Grand and Hunt Club
Gurnee, IL...... 1,796,000 969,840 2,622,575 (52,811) 969,840 2,569,764 3,539,604 256,972 1996 12/96
Quarry Outlot
Hodgkins, IL.... 900,000 522,000 1,278,431 8,872 522,000 1,287,303 1,809,303 128,684 1996 12/96
Aurora Commons
Aurora, IL...... 9,000,328 3,220,000 8,318,861 11,391 3,220,000 8,330,252 11,550,252 894,795 1988 01/97
Lincoln Park Place
Chicago, IL..... 1,050,000 819,000 1,299,902 (86,237) 819,000 1,213,665 2,032,665 121,082 1990 01/97
Niles Shopping Center
Niles, IL....... 1,617,500 850,000 2,466,389 26,658 850,000 2,493,047 3,343,047 221,199 1982 04/97
Mallard Crossing
Elk Grove Vill., IL 4,050,000 1,778,667 6,331,943 109,253 1,778,667 6,441,196 8,219,863 594,077 1993 05/97
Cobblers Crossing
Elgin, IL....... 5,476,500 3,200,000 7,763,940 119,311 3,200,000 7,883,251 11,083,251 711,250 1993 05/97

-52-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1999

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>
Calumet Square
Calumet City, IL $ 1,032,920 527,000 1,540,046 124,186 527,000 1,664,232 2,191,232 138,022 67/94 06/97
Sequoia Shopping Center
Milwaukee, WI... 1,505,000 1,216,914 1,805,784 (11,425) 1,216,914 1,794,359 3,011,273 151,801 1988 06/97
Riversquare Shopping Center
Naperville, IL.. 3,050,000 2,853,226 3,129,477 205,697 2,853,226 3,335,174 6,188,400 309,490 1988 06/97
Shorecrest Plaza
Racine, WI...... 2,978,000 1,150,000 4,775,119 37,402 1,150,000 4,812,521 5,962,521 384,122 1977 07/97
Dominick's
Countryside, IL. 1,150,000 1,375,000 925,106 - 1,375,000 925,106 2,300,106 72,781 1975 12/97
Terramere Plaza
Arlington Hghts, IL 2,202,500 1,435,000 2,981,314 220,369 1,435,000 3,201,683 4,636,683 209,534 1980 12/97
Wilson Plaza
Batavia, IL..... 650,000 310,000 999,366 23,960 310,000 1,023,326 1,333,326 77,217 1986 12/97
Iroquois Center
Naperville, IL.. 5,950,000 3,668,347 8,276,041 404,076 3,668,347 8,680,117 12,348,464 587,735 1983 12/97
Fashion Square
Skokie, IL...... 6,200,000 2,393,534 6,901,769 162,000 2,393,534 7,063,769 9,457,303 479,001 1984 12/97
Shops at Coopers Grove
Ctry Club Hills,IL 2,900,000 1,400,897 4,417,565 (24,924) 1,400,897 4,392,641 5,793,538 306,074 1991 01/98
Maple Plaza
Downers Grove, IL. 1,582,500 1,364,202 1,822,493 78,000 1,364,202 1,900,493 3,264,695 129,235 1988 01/98
Orland Park Retail
Orland Park, IL... 625,000 460,867 795,939 (22,566) 460,867 773,373 1,234,240 55,954 1997 02/98
Wisner/Milwaukee Plaza
Chicago, IL....... 974,725 528,576 1,383,292 - 528,576 1,383,292 1,911,868 88,058 1994 02/98
Homewood Plaza
Homewood, IL...... 1,013,201 534,599 1,398,042 8,360 534,599 1,406,402 1,941,001 94,070 1993 02/98
Elmhurst City Center
Elmhurst, IL...... 2,513,765 2,050,217 3,011,298 (533,465) 2,050,217 2,477,833 4,528,050 158,747 1994 02/98
Shoppes of Mill Creek
Palos Park, IL.... - 3,305,949 8,005,850 23,847 3,305,949 8,029,697 11,335,646 539,507 1989 03/98
Prairie Square
Sun Prairie, WI... 1,550,000 739,575 2,381,050 2,227 739,575 2,383,277 3,122,852 160,464 1995 03/98
Oak Forest Commons
Oak Forest, IL.... 6,617,871 2,795,519 9,033,988 616,978 2,795,519 9,650,966 12,446,485 603,821 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 17,811,831 784,426 1998 03/98
St. James Crossing
Westmont, IL.... 3,847,599 2,610,600 4,938,351 (125,002) 2,610,600 4,813,349 7,423,949 296,831 1990 03/98
High Point Center
Madison, WI..... 5,360,988 1,449,560 8,817,508 (4,280) 1,449,560 8,813,228 10,262,788 508,501 1984 04/98
Western & Howard
Chicago, IL..... 992,681 439,990 1,523,460 - 439,990 1,523,460 1,963,450 86,839 1985 04/98
Wauconda Shopping Center
Wauconda, IL.... 1,333,834 454,500 2,067,622 - 454,500 2,067,622 2,522,122 122,615 1988 05/98
Berwyn Plaza
Berwyn, IL...... 708,638 769,073 1,078,379 - 769,073 1,078,379 1,847,452 60,657 1983 05/98

-53-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1999

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>
Woodland Heights
Streamwood, IL.. $ 3,940,009 2,976,000 6,898,100 (106,493) 2,976,000 6,791,607 9,767,607 366,279 1956 06/98
Schaumburg Plaza
Schaumburg, IL... 3,908,082 2,445,555 4,565,548 28,971 2,445,555 4,594,519 7,040,074 243,572 1994 06/98
Winnetka Commons
New Hope, MN..... 2,233,744 1,596,600 2,858,630 13,873 1,596,600 2,872,503 4,469,103 171,501 1990 07/98
Eastgate Shopping Center
Lombard, IL...... 3,345,000 4,252,440 2,577,933 1,550,219 4,252,440 4,128,152 8,380,592 150,802 1959 07/98
Orland Greens
Orland Park, IL.. 2,132,000 1,246,440 3,877,755 - 1,246,440 3,877,755 5,124,195 172,173 1984 09/98
Two Rivers Plaza
Bolingbrook, IL.. 3,658,000 1,820,453 4,993,133 6,050 1,820,453 4,999,183 6,819,636 262,326 1994 10/98
Edinburgh Festival
Brooklyn Park, MN 4,625,000 2,472,746 6,372,809 5,270 2,472,746 6,378,079 8,850,825 278,616 1997 10/98
Riverplace Center
Noblesville, IN. 3,323,000 1,591,682 4,497,515 - 1,591,682 4,497,515 6,089,197 176,034 1992 11/98
Rose Plaza
Elmwood Park, IL 2,008,000 1,530,149 2,665,910 - 1,530,149 2,665,910 4,196,059 112,328 1997 11/98
Marketplace at Six Corners
Chicago, IL..... 11,200,000 9,007,150 10,014,533 - 9,007,150 10,014,533 19,021,683 365,247 1997 11/98
Plymouth Collection
Plymouth, MN.... 3,441,000 1,459,045 5,174,725 (6,488) 1,459,045 5,168,237 6,627,282 193,550 1999 01/99
Loehmann's Plaza
Brookfield, WI.. 6,643,000 4,797,940 8,758,688 (2,921) 4,797,940 8,755,767 13,553,707 285,837 1985 02/99
Baytowne Square
Champaign, IL... 7,027,000 3,820,545 8,853,078 (65,374) 3,820,545 8,787,704 12,608,249 307,408 1993 02/99
Gateway Square
Hinsdale, IL.... 3,470,000 3,045,966 3,899,226 58,490 3,045,966 3,957,716 7,003,682 122,477 1985 03/99
Oak Forest Commons Ph III
Oak Forest, IL.. 552,700 204,881 906,609 985 204,881 907,594 1,112,475 17,789 1999 06/99
Oak Lawn Town Center
Oak Lawn, IL.... 1,200,000 1,384,049 1,034,346 - 1,384,049 1,034,346 2,418,395 20,481 1999 06/99
Stuart's Crossing
St. Charles, IL. - 4,234,079 7,503,474 - 4,234,079 7,503,474 11,737,553 139,546 1999 08/98
West River Crossing
Joliet, IL...... 2,806,700 2,316,806 3,320,482 (76,352) 2,316,806 3,244,130 5,560,936 52,047 1999 08/99
Hickory Creek Marketplace
Frankfort, IL... 3,108,300 1,796,717 4,435,125 (103,088) 1,796,717 4,332,037 6,128,754 71,078 1999 08/99
Burnsville Crossing
Burnsville, MN.. 2,858,100 2,061,340 4,667,414 - 2,061,340 4,667,414 6,728,754 58,373 1989 09/99
Byerly's Burnsville
Burnsville, MN.. 2,915,900 1,706,797 4,144,841 - 1,706,797 4,144,841 5,851,638 51,952 1988 09/99
Cliff Lake Center
Eagan, MN....... 5,121,280 2,517,253 3,056,771 - 2,517,253 3,056,771 5,574,024 42,466 1988 09/99
Park Place Plaza
St. Louis Park, MN 6,407,000 4,255,856 8,575,148 - 4,255,856 8,575,148 12,831,004 97,677 1997 09/99
Maple Grove Retail
Maple Grove, MN. 3,958,000 2,172,777 5,758,017 - 2,172,777 5,758,017 7,930,794 68,085 1998 09/99

-54-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)
Real Estate and Accumulated Depreciation

December 31, 1999

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>
Shingle Creek
Brooklyn Ctr, MN $ 1,735,000 1,228,197 2,261,560 279 1,228,197 2,261,839 3,490,036 29,819 1986 09/99
Rose Naper Plaza West
Naperville, IL.. - 989,499 1,790,417 - 989,499 1,790,417 2,779,916 20,056 1997 09/99
Schaumburg Promenade
Schaumburg, IL.. 9,650,000 6,562,000 12,741,877 (45,121) 6,562,000 12,696,756 19,258,756 19,114 1999 12/99
Community Centers
- -----------------
Lansing Square
Lansing, IL....... 8,150,000 4,075,000 12,179,383 834,722 4,075,000 13,014,105 17,089,105 1,250,561 1991 12/96
Maple Park Place
Bolingbrook, IL... 7,650,000 3,665,909 11,669,428 208,478 3,665,909 11,877,906 15,543,815 1,322,731 1992 01/97
Rivertree Court
Vernon Hills, IL. 17,547,999 8,651,875 22,963,475 (17,483) 8,651,875 22,945,992 31,597,867 2,016,637 1988 07/97
Naper West
Naperville, IL... 7,695,199 5,335,000 9,611,971 (175,143) 5,335,000 9,436,828 14,771,828 700,089 1985 12/97
Woodfield Plaza
Schaumburg, IL... 9,600,000 4,612,277 15,160,000 (254,931) 4,612,277 14,905,069 19,517,346 1,059,237 1992 01/98
Lake Park Plaza
Michigan City, IN 6,489,618 3,252,861 9,208,072 858,779 3,252,861 10,066,851 13,319,712 643,763 1990 02/98
Chestnut Court
Darien, IL...... 8,618,623 5,719,982 10,350,084 153,341 5,719,982 10,503,425 16,223,407 647,994 1987 03/98
Bergen Plaza
Oakdale, MN..... 9,141,896 5,346,781 11,700,498 53,988 5,346,781 11,754,486 17,101,267 696,705 1978 04/98
Fairview Heights Plaza
Fairview Hghts, IL. 5,637,000 2,350,493 8,914,458 5,500 2,350,493 8,919,958 11,270,451 416,045 1991 08/98
Woodfield Commons-East/West 73/75
Schaumburg, IL... 13,500,000 8,352,858 18,336,997 237,787 8,352,858 18,574,784 26,927,642 840,501 1997 10/98
Joliet Commons
Joliet, IL....... 14,447,153 4,088,806 15,684,488 (103,677) 4,088,806 15,580,811 19,669,617 750,899 1995 10/98
Springboro Plaza
Springboro, OH... 5,161,000 1,079,108 8,240,455 - 1,079,108 8,240,455 9,319,563 318,257 1992 11/98
Park Center Plaza
Tinley Park, IL.. 7,337,000 5,363,000 9,633,491 (370,070) 5,363,000 9,263,421 14,626,421 403,276 1988 12/98
Woodland Commons
Buffalo Grove, IL 10,734,710 5,337,727 15,410,472 277,468 5,337,727 15,687,940 21,025,667 507,558 1991 02/99
Randall Square
Geneva, IL...... - 8,434,372 21,707,845 (16,491) 8,434,372 21,691,354 30,125,726 460,594 1999 05/99
Riverdale Commons
Coon Rapids, MN. 9,752,000 4,324,439 15,131,793 635 4,324,439 15,132,428 19,456,867 171,238 1998 09/99
Quarry Retail
Minneapolis, MN. 15,670,000 7,761,542 23,603,421 (2,952) 7,761,542 23,600,469 31,362,011 265,773 1997 09/99
Pine Tree Plaza
Janesville, WI.. - 2,889,136 15,644,108 (35,668) 2,889,136 15,608,440 18,497,576 169,152 1998 10/99
------------ ----------- ------------ ------------ ----------- ------------ ----------- ------------
Total $440,740,296 271,905,942 666,172,357 5,028,645 271,905,942 671,201,002 943,106,944 37,424,871
============ =========== ============ =========== =========== ============ =========== ============

</TABLE>

-55-

INLAND REAL ESTATE CORPORATION
(a Maryland corporation)

Schedule III (continued)

Real Estate and Accumulated Depreciation

December 31, 1999, 1998 and 1997

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, 1999 and 1998 for
federal income tax purposes was approximately $824,300,000 and
$626,000,000, 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:

1999 1998 1997
------------- ------------- -------------
Balance at beginning of year... $645,979,867 276,310,838 94,632,981
Purchases of property.......... 294,537,006 368,364,949 181,251,256
Additions...................... 5,893,566 3,285,854 836,962
Sales.......................... (1,117,665) - -
Payments received under
master leases................ (2,185,830) (1,981,774) (410,361)
------------- ------------- -------------
Balance at end of year......... $943,106,944 645,979,867 276,310,838
============= ============= =============

(E) Reconciliation of accumulated depreciation:

Balance at beginning of year... $ 17,161,998 5,665,483 1,109,038
Depreciation expense........... 20,262,873 11,496,515 4,556,445
------------- ------------- -------------
Balance at end of year......... $ 37,424,871 17,161,998 5,665,483
============= ============= =============

-56-

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

There were no disagreements on accounting or financial disclosure during 1999.

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. DelRosso.... Assistant Secretary

ROBERT D. PARKS (age 56) is a Director of The Inland Group, Inc.; Chairman of
Inland Real Estate Investment Corporation; President, Chief Executive Officer,
Chief Operating Officer and Affiliated Director of Inland Real Estate
Corporation, and Chairman, Chief Executive Officer and Affiliated Director of
inland Retail Real Estate Trust, Inc.

Mr. Parks is responsible for the ongoing administration of existing investment
programs, corporate budgeting and administration for Inland Real Estate
Investment Corporation. He oversees and coordinates the marketing of all
investments and investor relations.

Prior to joining Inland, Mr. Parks taught in Chicago's public schools. He
received his B.A. Degree from Northeastern Illinois University and his M.A.
Degree from the University of Chicago. He is a member of the Real Estate
Investment Association as well as a member of the National Association of Real
Estate Investment Trusts (NAREIT).

G. JOSEPH COSENZA (age 56) has been with The Inland Group, Inc. and its
affiliates since 1968 and is one of the four original principals. Mr. Cosenza
is a Director and Vice Chairman of The Inland Group, Inc. and oversees,
coordinates and directs Inland's many enterprises. In addition, Mr. Cosenza
immediately supervises a staff of twelve persons who engage in property
acquisition. Mr. Cosenza has been a consultant to other real estate entities
and lending institutions on property appraisal methods.

-57-

Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and
his M.S. Degree from Northern Illinois University. From 1967 to 1968, he taught
in the LaGrange Illinois School District and from 1968 to 1972, he served as
Assistant Principal and taught in the Wheeling Illinois School District. Mr.
Cosenza has been a licensed real estate broker since 1968 and an active member
of various national and local real estate associations, including the National
Association of Realtors and the Urban Land Institute.

Mr. Cosenza has also been Chairman of the Board of American National Bank of
DuPage and has served on the Board of Directors of Continental Bank of Oakbrook
Terrace. He is presently 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 and owner of Lawton Realty Group, an Oak Brook, Illinois real
estate brokerage firm which she founded in 1989. Lawton Realty Group
specializes in commercial, industrial and investment real estate brokerage. Ms.
Lawton is responsible for all aspects of the operations of Lawton Realty Group.
She also structures real estate investments for clients, procures
partner/investors, acquires properties and obtains financing for development.
Prior to founding Lawton Realty Group and while she was earning her B.S. Degree
in business management from the National College of Education, she was managing
broker for VCR Realty located in Addison, Illinois. While at VCR Realty, she
was engaged primarily in brokerage of industrial and commercial properties.
She also provided property management services, including leasing, for a
portfolio of more than 100 properties, including condominium complexes,
industrial properties, apartment complexes and small retail shopping centers.
At the beginning of her career in real estate, Ms. Lawton served as a general
contractor for the building and selling of single-family homes as well as a
retail center in Lombard, Illinois. As a licensed real estate professional
since 1982, she has served as a member of the Certified Commercial Investment
Members, Director of the Northern Illinois Association of Commercial Realtors,
Commercial Director of the DuPage Association of Realtors, and an Independent
Director for CCS Mortgage.

ROLAND W. BURRIS (age 62) 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 planning, probate and trust, environment and
consumer affairs. From 1973 to 1995, Mr. Burris was involved in the State of
Illinois government holding the positions of State Comptroller and Attorney
General of the State of Illinois. Mr. Burris completed his undergraduate
studies at Southern Illinois University and studied international law as an
exchange student at the University of Hamburg in Germany. Mr. Burris served on
many boards including the Illinois Criminal Justice Authority, the Financial
Accounting Foundation, the Law Enforcement Foundation of Illinois, the African
American Citizens Coalition on Regional Development, the Boy Scouts of America
and chair of the Illinois State Justice Commission. He is also serving as an
adjunct professor in the Master of Public Administration Program at Southern
Illinois University.

-58-

JOEL G. HERTER (age 61) Independent Director of the Company since 1997, Mr.
Herter is a senior consultant and advisor to 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 of 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.

ROBERTA S. MATLIN (age 55) 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 37) 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. DELROSSO (age 47) Assistant Secretary of the Company since March
1995. Ms. DelRosso 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. DelRosso received her B.S. degree from
George Washington University in 1975 and her Master's Degree from Virginia Tech
University. Ms. DelRosso is a licensed real estate broker, a National
Association of Securities Dealers registered securities sales representative
and a member of the Urban Land Institute.

-59-

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 $15,000. In
addition, each Independent Director receives $500 for attendance in person or
$250 for attendance 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.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of December 31, 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, 1999, 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
Heidi N. Lawton
Roland W. Burris
Joel G. Herter
Roberta S. Matlin
Kelly Tucek
Patricia A. DelRosso

Common Stock 72,612 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.

-60-

Item 13. Certain Relationships and Related Transactions

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. For the year ended December 31, 1999, the Company incurred and paid
$1,109,558 organizational and offering costs to Affiliates.

An Affiliate of the Advisor holds the mortgage on the Walgreens/Decatur
property. As of December 31, 1999, the remaining balance of the mortgage is
$700,381. For the year ended December 31, 1999, the Company paid principal and
interest payments totaling $68,266 on this mortgage.

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.

-61-

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, 1999 is
submitted herewith.

Page
----
Real Estate and Accumulated Depreciation (Schedule III)...... 51

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.

(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 22, 2000.

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)

-62-

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)

10.1 (d) Amendment No. 4 to the Advisory Agreement dated March 27, 1998
(5)

10.1 (e) Amendment No. 5 to the Advisory Agreement dated March 31, 1998
(5)

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)

(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 Pre-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11 (file number 333-45233) as filed
by the Registrant on April 6, 1998.

(b) Reports on Form 8-K:

Report on Form 8-K dated November 2, 1999
Item 2. Acquisition or Disposition of Assets
Item 7. Financial Statements and Exhibits

Report on Form 8-K/A dated November 23, 1999
Item 7. Financial Statements and Exhibits

(d) None

-63-

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 21, 2000

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 21, 2000

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

By: Kelly Tucek By: Heidi N. Lawton
Chief Financial and Independent Director
Accounting Officer Date: March 21, 2000
Date: March 21, 2000

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

By: G. Joseph Cosenza By: Roland W. Burris
Affiliated Director Independent Director
Date: March 21, 2000 Date: March 21, 2000

/s/ Joel G. Herter

By: Joel G. Herter
Independent Director
Date: March 21, 2000

-64-

Subsidiaries on the Registrant

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

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

Inland Real Estate BSC 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 31, 2000 relating to the consolidated balance sheets of Inland Real
Estate Corporation as of December 31, 1999, and 1998, 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, 1999, and related
schedule, which report appears in the December 31, 1999 annual report of Form
10-K of inland Real Estate Corporation.

Chicago, Illinois
March 22, 2000

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 19424343
<SECURITIES> 8830656
<RECEIVABLES> 20290228
<ALLOWANCES> (1064300)
<INVENTORY> 0
<CURRENT-ASSETS> 70245115
<PP&E> 944806300
<DEPRECIATION> 37424871
<TOTAL-ASSETS> 982281972
<CURRENT-LIABILITIES> 28432793
<BONDS> 0
0
0
<COMMON> 553988
<OTHER-SE> 512567043
<TOTAL-LIABILITY-AND-EQUITY> 475494125
<SALES> 0
<TOTAL-REVENUES> 123787569
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 70847277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25653724
<INCOME-PRETAX> 30171901
<INCOME-TAX> 0
<INCOME-CONTINUING> 30171901
<DISCONTINUED> 0
<EXTRAORDINARY> (2088633)
<CHANGES> 0
<NET-INCOME> 28083268
<EPS-BASIC> .55
<EPS-DILUTED> .55

</TABLE>