INLAND LAND APPRECIATION FUND II LP - 10-Q Quarterly Report

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

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2003

or

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

For the transition period from ____________ to ____________

Commission File #0-19220

Inland Land Appreciation Fund II, L.P.
(Exact name of registrant as specified in its charter)

Delaware	#36-3664407
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)

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

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

________________N/A___________________
(Former name, former address and former fiscal
year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by a checkmark whether the registrant is an accelerated filer (as defined in Securities Exchange Act Rule 12b-2) Yes No X

-1-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Balance Sheets

June 30, 2003 and December 31, 2002
(unaudited)

Assets

		2003	2002
Current assets:
Cash and cash equivalents	$	4,633,334	2,247,179
Accounts and accrued interest receivable (net of allowance for doubtful accounts of $336,712 at June 30, 2003 and December 31, 2002) (Note 5)		1,347,198	949,100

Total current assets		5,980,532	3,196,279

Mortgage loans receivable (net of allowance for doubtful accounts of $1,208,378 at June 30, 2003 and December 31, 2002) (Note 5)		16,000,000	16,000,000
Investment properties (including acquisition fees paid to Affiliates of $980,768 and $1,021,860 at June 30, 2003 and December 31, 2002, respectively) (Note 3):
Land and improvements		21,401,824	22,590,721

Total assets	$	43,382,356	41,787,000

See accompanying notes to financial statements.

-2-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Balance Sheets
(continued)

June 30, 2003 and December 31, 2002
(unaudited)

Liabilities and Partners' Capital

		2003	2002

Current liabilities:
Accounts payable	$	28,468	194,111
Accrued real estate taxes		100,761	155,949
Due to Affiliates (Note 2)		6,651	29,369
Unearned income		408,557	316,858

Total current liabilities		544,437	696,287

Deferred gain on sale of investment properties (Note 5)		9,354,211	9,354,211

Partners' capital:
General Partner:
Capital contribution		500	500
Cumulative net income		3,405,798	3,402,309
Cumulative cash distributions		(3,036,067)	(3,036,067)

		370,231	366,742
Limited Partners:
Units of $1,000. Authorized 60,000 Units, 50,068 Units outstanding at June 30, 2003 and December 31, 2002, (net of offering costs of $7,532,439, of which $2,535,445 was paid to Affiliates)		42,559,909	42,559,909
Cumulative net income		30,099,901	28,356,184
Cumulative cash distributions		(39,546,333)	(39,546,333)

		33,113,477	31,369,760

Total Partners' capital		33,483,708	31,736,502

Total liabilities and Partners' capital	$	43,382,356	41,787,000

See accompanying notes to financial statements.

-3-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Statements of Operations

For the three and six months ended June 30, 2003 and 2002
(unaudited)

		Three months	Three months	Six months	Six months
		ended	ended	ended	Ended
		June 30, 2003	June 30, 2002	June 30, 2003	June 30, 2002
Income:
Sale of investment properties (Note 3)	$	2,998,011	679,976	3,376,608	1,405,634
Rental income (Note 4)		45,416	52,532	90,331	102,311
Interest income		250,927	252,632	496,491	501,920
Other income		-	-	-	865

		3,294,354	985,140	3,963,430	2,010,730

Expenses:
Cost of investment properties sold		1,516,063	570,910	1,824,337	1,214,209
Professional services to Affiliates		10,889	17,178	17,966	29,290
Professional services to non-affiliates		3,405	2,009	38,905	36,103
General and administrative expenses to Affiliates		9,583	3,357	20,356	9,413
General and administrative expenses to non-affiliates		7,866	18,008	65,851	106,737
Marketing expenses to Affiliates		3,851	3,970	12,293	9,950
Marketing expenses to non-affiliates		14,753	32,852	32,337	90,950
Land operating expenses to non-affiliates		11,503	32,974	50,179	91,870
Bad debt expense		-	-	-	589,257
Impairment loss on land		154,000	-	154,000	-


		1,731,913	681,258	2,216,224	2,177,779

Net income (loss)	$	1,562,441	303,882	1,747,206	(167,049)

See accompanying notes to financial statements.

-4-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Statements of Operations
(continued)

For the three and six months ended June 30, 2003 and 2002
(unaudited)

		Three months	Three months	Six months	Six months
		ended	ended	ended	ended
		June 30, 2003	June 30, 2002	June 30, 2003	June 30, 2002

Net income (loss) allocated to:
General Partner	$	2,345	1,948	3,489	(3,585)
Limited Partners		1,560,096	301,934	1,743,717	(163,464)

Net income	$	1,562,441	303,882	1,747,206	(167,049)

Net income (loss) allocated to the one General Partner Unit	$	2,345	1,948	3,489	(3,585)

Net income (loss) per Unit, basic and diluted, allocated to Limited Partners per weighted average Limited Partnership Units (50,068 for the three and six months ended June 30, 2003 and 2002)	$	31.16	6.03	34.83	(3.26)

See accompanying notes to financial statements.

-5-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Statements of Cash Flows

For the six months ended June 30, 2003 and 2002
(unaudited)

		2003	2002
Cash flows from operating activities:
Net income (loss)	$	1,747,206	(167,049)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Gain on sale of investment properties		(1,552,271)	(191,425)
Recognition of deferred gain on sale of investment properties		-	(747,455)
Bad debt expense		-	1,336,712
Impairment loss on land		154,000	-
Changes in assets and liabilities:
Accounts and accrued interest receivable		(398,098)	(479,305)
Other current assets		-	10,563
Accounts payable		(165,643)	(318,233)
Accrued real estate taxes		(55,188)	96,108
Due to Affiliates		(22,718)	1,675
Unearned income		91,699	(11,458)

Net cash used in operating activities		(201,013)	(469,867)

Cash flows from investing activities:
Additions to investment properties		(789,440)	(795,628)
Proceeds from sale of investment properties		3,376,608	1,405,634

Net cash provided by investing activities		2,587,168	610,006

Cash flows from financing activities:
Repurchase of Limited Partnership Units		-	(1,200)

Net cash used in financing activities		-	(1,200)

Net increase in cash and cash equivalents		2,386,155	138,939
Cash and cash equivalents at beginning of period		2,247,179	2,185,530

Cash and cash equivalents at end of period	$	4,633,334	2,324,469

See accompanying notes to financial statements.

-6-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Notes to Financial Statements

June 30, 2003
(unaudited)

Readers of this quarterly report should refer to the Partnership's audited financial statements for the fiscal year ended December 31, 2002, which are included in the Partnership's 2002 annual report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report.

(1) Organization and Basis of Accounting

Inland Land Appreciation Fund II, L.P. (the "Partnership"), is a limited partnership formed on June 28, 1989, pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in undeveloped land on an all-cash basis and realize appreciation of such land upon resale. On October 25, 1989, the Partnership commenced an offering of 30,000 (subject to increase to 60,000) limited partnership units or units pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The amended and restated limited partnership agreement (the "Partnership Agreement") provides for Inland Real Estate Investment Corporation to be the general partner. On October 24, 1991, the Partnership terminated its offering of units, after the Partnership had sold 50,476.17 units, at $1,000 per unit, resulting in $50,476,170 in gross offering proceeds, not including the general partner's capital contribution of $500. All of the holders of these units have been admitted as limited partners to the Partnership. As of June 30, 2003, the Partnership has repurchased a total of 408.65 units for $383,822 from various limited partners through the unit repurchase program. Under this program, limited partners may, under certain circumstances, have their units repurchased for an amount equal to their original capital as reduced by distributions from net sale proceeds.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

In the opinion of management, the financial statements contain all the adjustments necessary to present fairly the financial position and results of operations for the period presented herein. Results of interim periods are not necessarily indicative of results to be expected for the year.

On January 1, 2003, the Partnership adopted FASB Interpretation No. 45 ("FIN 45") "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The adoption of FIN 45 did not have a material effect on the Partnership's financial statements.

- -7-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

June 30, 2003
(unaudited)

(2) Transactions with Affiliates

The general partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the general partner and its affiliates relating to the administration of the Partnership. Such costs are included in professional services and general and administrative expenses to affiliates, of which $6,651 and $14,204 was unpaid as of June 30, 2003 and December 31, 2002, respectively.

An affiliate of the general partner performed sales marketing and advertising services for the Partnership and was reimbursed (as set forth under terms of the Partnership Agreement) for direct costs. Such costs of $12,293 and $9,950 have been incurred for the six months ended June 30, 2003 and 2002, respectively, and are included in marketing expenses to affiliates, all of which were paid as of June 30, 2003 and December 31, 2002.

An affiliate of the general partner performed property upgrades, rezoning, annexation and other activities to prepare the Partnership's land investments for sale and was reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. The affiliate did not recognize a profit on any project. Such costs are included in investment properties, of which $0 and $15,165 was unpaid as of June 30, 2003 and December 31, 2002, respectively.

- -8-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(3) Investment Properties

		Gross Acres		Purchase/	Initial Costs				Costs Capitalized	Costs of	Total Remaining Costs of	Current Year Gain (Loss)
Parcel	Illinois		Purchased	Sales		Original	Acquisition	Total	Subsequent to	Property	Parcels at	on Sale
#	County		(Sold)	Date		Costs	Costs	Costs	Acquisition	Sold	06/30/03	Recognized
1	McHenry		372.759	04/25/90	$	2,114,295	114,070	2,228,365	615,269	-	2,843,634	-

2	Kendall		41.118	07/06/90		549,639	43,889	593,528	15,633	-	609,161	-

3	Kendall		120.817	11/06/90		1,606,794	101,863	1,708,657	127,939	-	1,836,596	-

4	Kendall		299.025	06/28/91		1,442,059	77,804	1,519,863	294,235	-	1,814,098	-

5	Kane		189.0468	02/28/91		1,954,629	94,569	2,049,198	349,845	2,399,043	-	-
			(189.0468)	05/16/01

6	Lake		57.3345	04/16/91		904,337	71,199	975,536	30,144	4,457	1,001,223	-
			(.258)	10/01/94

7	McHenry		56.7094	04/22/91		680,513	44,444	724,957	3,210,451	3,935,408	-	-
			(12.6506)	Var 1997
			(15.7041)	Var 1998
			(19.6296)	Var 1999
			(8.7251)	Var 2000

8	Kane		325.394	06/14/91		3,496,700	262,275	3,758,975	37,574	744,933	3,051,616	-
			(.870)	04/03/96
			(63.000)	01/23/01

9 (d)	Will		9.867	08/13/91		-	-	-	-	-	-	-
			(9.867)	09/16/02

10	Will		150.66	08/20/91		1,866,716	89,333	1,956,049	19,458	-	1,975,507	-

11	Will		138.447	08/20/91		289,914	20,376	310,290	2,700	312,990	-	-
			(138.447)	05/03/93

12 (d)	Will		44.732	08/20/91		-	-	-	-	-	-	-
			(44.732)	09/16/02

-9-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(3 Investment Properties (continued)

		Gross Acres		Purchase/	Initial Costs				Costs Capitalized	Costs of	Total Remaining Costs of	Current Year Gain (Loss)
Parcel	Illinois		Purchased	Sales		Original	Acquisition	Total	Subsequent to	Property	Parcels at	on Sale
#	County		(Sold)	Date		Costs	Costs	Costs	Acquisition	Sold	06/30/03	Recognized

13	Will		6.342	09/23/91	$	139,524	172	139,696	-	139,696	-	-
			(6.342)	05/03/93

14	Kendall		44.403	09/03/91		888,060	68,210	956,270	1,254,298	1,994,404	216,164	(18,245)
			(15.392)	04/16/01
			(14.2110)	Var 2002
			(13.6000)	04/11/03

15	Kendall		100.364	09/04/91		1,050,000	52,694	1,102,694	117,829	1,220,523	-	-
			(5.000)	09/01/93
			(11.000)	12/01/94
			(84.364)	08/14/98

16	McHenry		168.905	09/13/91		1,402,058	69,731	1,471,789	97,766	1,569,555	-	-
			(168.905)	08/03/01

17	Kendall		3.462	10/30/91		435,000	22,326	457,326	113,135	570,461	-	-
			(2.113)	03/06/01
			(1.349)	08/23/02

18	McHenry		139.1697	11/07/91		1,160,301	58,190	1,218,491	490,576	-	1,709,067	-

19	Kane		436.236	12/13/91		4,362,360	321,250	4,683,610	187,211	4,870,821	-	-
			(436.236)	05/16/01

20	Kane &
	Kendall		400.129	01/31/92		1,692,623	101,318	1,793,941	1,403,382	1,250,469	1,946,854	-
			(21.138)	06/30/99

21	Kendall		15.013	05/26/92		250,000	23,844	273,844	14,835	18,798	269,881	-
			(1.000)	03/16/99

-10-

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)

Notes to Financial Statements
(continued)

(3) Investment Properties (continued)

		Gross Acres		Purchase/	Initial Costs				Costs Capitalized	Costs of	Total Remaining Costs of	Current Year Gain (Loss)
Parcel	Illinois		Purchased	Sales		Original	Acquisition	Total	Subsequent to	Property	Parcels at	on Sale
#	County		(Sold)	Date		Costs	Costs	Costs	Acquisition	Sold	06/30/03	Recognized

22	Kendall		391.959	10/30/92	$	3,870,000	283,186	4,153,186	1,741,828	4,315,259	1,579,755	1,566,620
			(10.000)	01/06/94
			(5.538)	01/05/96
			(2.400)	07/27/99
			(73.395)	Var 2001
			(136.000)	08/14/02
			(34.1400)	05/27/03

23 (c)	Kendall		133.2074	10/30/92		3,231,942	251,373	3,483,315	4,665,998	8,149,313	-	-
			(11.525)	07/16/93
			(44.070)	Var 1995
			(8.250)	Var 1996
			(2.610)	Var 1997
			(10.6624)	Var 1998
			(5.8752)	Var 1999
			(49.0120)	Var 2000
			(.2028)	Var 2001
			(1.0000)	Var 2002

23A(a)	Kendall		.2676	10/30/92		170,072	12,641	182,713	-	182,713	-	-
			(.2676)	03/16/93

24	Kendall		3.908	01/21/93		645,000	56,316	701,316	30,436	731,752	-	-
			(3.908)	04/16/01

24A(b)	Kendall		.406	01/21/93		155,000	13,533	168,533	-	168,533	-	-
			(.406)	04/16/01

25	Kendall		656.687	01/28/93		1,625,000	82,536	1,707,536	22,673	1,730,209</