Item 1. Business
The Registrant, Inland Monthly Income Fund II, L.P. (the "Partnership"), was formed on June 20, 1988 pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in improved residential, retail, industrial and other income producing properties. On August 4, 1988, the Partnership commenced an Offering of 50,000 Limited Partnership Units (subject to an increase of up to 30,000 additional Units) pursuant to a Registration under the Securities Act of 1933. The Offering terminated on August 4, 1990, with total sales of 50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of $25,323,569, not including the General Partner's contribution of $500. All of the holders of these Units were admitted to the Partnership. Inland Real Estate Investment Corporation is the General Partner. The Partnership acquired five properties utilizing $21,224,542 of capital proceeds collected. On January 8, 1991, the Partnership sold one of its properties, The Wholesale Club. The Limited Partners of the Partnership share in their portion of benefits of ownership of the Partnership's real property investments according to the number of Units held. The Partnership repurchased 551.64 Units for $260,285 from various Limited Partners through the Unit Repurchase Program. There are no funds remaining for the repurchase of Units through this program.
The Partnership is engaged in the business of real estate investment. A presentation of information about industry segments would not be material to an understanding of the Partnership's business taken as a whole.
The Partnership acquired fee ownership of the following real property investments:
Property and Location Square Feet Date of Purchase - ------------------------------- ------------------ --------------------- Scandinavian Health Spa 26,040 10/19/88 Health & Racquet Club Broadview Heights, Ohio
Wholesale Club 103,000 12/06/88 Commercial Warehouse (sold 01/08/91) Fort Wayne, Indiana
Colonial Manor 107,867 06/07/89 Nursing Home Facility LaGrange, Illinois
K mart 84,146 12/29/89 Retail Store Chandler, Arizona
Euro-Fresh Market Plaza 52,475 12/31/90 (f/k/a Water Tower Market Plaza) Shopping Center Palatine, Illinois
Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) for additional descriptions of the Partnership's real property investments.
The Partnership'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 set forth on a year-end basis in the table in Item 2

Item 2. Properties
The Partnership owns directly the properties referred to in Item 1 above and in Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) to which reference is hereby made for a description of said properties.
The following is a list of approximate occupancy levels for the Partnership's investment properties as of the end of each of the last five years:
Properties 1996 1995 1994 1993 1992 ---------- ---- ---- ---- ---- ---- Scandinavian Health Spa 100% 100% 100% 100% 100% Health & Racquet Club Broadview Heights, Ohio
Colonial Manor 100% 100% 100% 100% 100% Nursing Home Facility LaGrange, Illinois
K mart 100% 100% 100% 100% 100% Retail Store Chandler, Arizona
Euro-Fresh Market Plaza 95% 89%* 89% 97% 97% (f/k/a Water Tower Market Plaza) Shopping Center Palatine, Illinois
* Certified Grocers Midwest, Inc. vacated Water Tower Market Plaza in August 1995. Certified occupied 29,317 square feet, or approximately 56%, of the shopping center. This occupancy reflects the payment of guaranteed rental income received under the original lease. (See Liquidity and Capital Resources.)
The following is a list of average effective annual rents per square foot for the Partnership's investment properties for each of the last five years:
Properties 1996 1995 1994 1993 1992 ---------- ---- ---- ---- ---- ---- Scandinavian Health Spa $ 13.79 13.79 12.54 12.54 12.54 Health & Racquet Club Broadview Heights, Ohio
Colonial Manor 8.00 8.00 8.00 8.00 8.00 Nursing Home Facility LaGrange, Illinois
K mart 5.37 5.37 5.37 5.37 5.37 Retail Store Chandler, Arizona
Euro-Fresh Market Plaza 4.66 4.18 4.92 5.71 5.67 (f/k/a Water Tower Market Plaza) Shopping Center Palatine, Illinois
Item 3.

Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during 1996.
PART II
Item 5.

Item 5. Market for the Partnership's Limited Partnership Units and Related Security Holder Matters
As of December 31, 1996, there were 2,172 holders of Units of the Partnership. There is no public market for Units nor is it anticipated that any public market for Units will develop. Reference is made to Item 6

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
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 Partnership's actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. These factors include, among other things, competition for tenants; federal, state, or local regulations; adverse changes in general economic or local conditions; uninsured losses; and potential conflicts of interest between the Partnership and its Affiliates, including the General Partner.
On August 4, 1988, the Partnership commenced an Offering of 50,000 (subject to increase to 80,000) Limited Partnership Units pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The Offering terminated on August 4, 1990, with total sales of 50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of $25,323,569, not including the General Partner's contribution of $500. All of the holders of these Units have been admitted to the Partnership. The Partnership acquired five properties utilizing $21,224,542 of capital proceeds collected. On January 8, 1991, the Partnership sold one of its properties, The Wholesale Club. As of December 31, 1996, cumulative distributions to Limited Partners totaled $17,982,890, of which $4,395,565 represents proceeds from the sale of The Wholesale Club and $13,587,325 represents distributable cash flow from the properties. The Partnership repurchased 551.64 Units for $260,285 from various Limited Partners through the Unit Repurchase Program. There are no funds remaining for the repurchase of Units through this program.
As of December 31, 1996, the Partnership had cash and cash equivalents of $1,043,462 which includes approximately $327,800 held in an unrestricted escrow account for the payment of real estate taxes for Colonial Manor Living Center. The Partnership intends to use such remaining funds for distributions and for working capital requirements.
The properties owned by the Partnership are generating cash flow in excess of the 8% annualized distributions to the Limited Partners (paid monthly), in addition to covering all the operating expenses of the Partnership. As of December 31, 1996, the Partnership has made cumulative distributions of $253,868 in addition to the 8% annualized return to the Limited Partners from excess cash flow. To the extent that the cash flow from the properties is insufficient to meet the Partnership's needs, the Partnership may rely on advances from Affiliates of the General Partner, other short-term financing, or may sell one or more of the properties.
During May 1996, Euro-Fresh Market ("Euro-Fresh") began its occupancy of the anchor store of Water Tower Market Plaza in Palatine, Illinois and the shopping center has been renamed Euro-Fresh Market Plaza. Eagle Foods had assigned the lease on February 4, 1994 to Certified Grocers Midwest, Inc. ("Certified") who vacated in August 1995. Under the original lease, as well as the assignment of the lease, Eagle Foods has guaranteed payments until November 1998. As of December 31, 1996, there was one vacant space at Euro-Fresh Market Plaza for 2,500 square feet.
Results of Operations
At December 31, 1996, the Partnership owns four operating properties. Two of the Partnership's four operating properties, Scandinavian Health Spa and Colonial Manor Living Center, are leased on a "triple-net" basis which means that all expenses of the property are passed through to the tenant. The leases of the other two properties owned by the Partnership, K mart and Euro-Fresh Market Plaza (f/k/a Water Tower Market Plaza) provide that the Partnership be responsible for maintenance of the structure and the parking lot and the tenants are required to reimburse the Partnership for portions of insurance, real estate taxes and common area maintenance. The Partnership sold one of its properties, The Wholesale Club, on January 8, 1991.
Rental and additional income increased for the year ended December 31, 1996, as compared to the year ended December 31, 1995, due to two factors. Colonial Manor Living Center rental income increased due to an annual rental increase in February 1996. Additionally, Euro-Fresh Market Plaza (f/k/a Water Tower Market Plaza) rental income increased due to scheduled rental increases and an increase in occupancy. As of December 31, 1996, there was one vacant space at Euro-Fresh Market Plaza for 2,500 square feet. Rental and additional income had decreased for the year ended December 31, 1995, as compared to the year ended December 31, 1994, due to a decrease in rental income at Euro-Fresh Market Plaza. As of December 31, 1995, there were three spaces vacant totaling 5,900 square feet. This decrease was partially offset by scheduled rental increases at Colonial Manor Living Center and Scandinavian Health Spa.
Interest income increased for the years ended December 31, 1996 and 1995, as compared to the year ended December 31, 1994, due to increases in interest rates.
The other income recorded for the year ended December 31, 1994 is primarily a result of non-operating income relating to Euro-Fresh Market Plaza.
Professional services to Affiliates decreased for the years ended December 31, 1996 and 1995, as compared to the year ended December 31, 1994, due to decreases in legal and accounting services required by the Partnership.
General and administrative expenses to Affiliates decreased for the year ended December 31, 1996, as compared to the years ended December 31, 1995 and 1994, due to decreases in marketing and data processing expenses.
Property operating expenses to Affiliates decreased for the years ended December 31, 1996 and 1995, as compared to the year ended December 31, 1994, due to a decrease in property maintenance performed by an Affiliate on the Partnership's investment properties. Property operating expenses to non- affiliates increased for the year ended December 31, 1996, as compared to the year ended December 31, 1995, due to an increase in operating expenses at Euro- Fresh Market Plaza. Such expenses include non-recurring repair and maintenance and marketing expenses. This increase was partially offset by decreases in common area maintenance and painting. Property operating expenses to non- affiliates increased for the year ended December 31, 1995, as compared to the year ended December 31, 1994, due to increases in common area maintenance, painting, marketing and real estate taxes at Euro-Fresh Market Plaza.
Inflation
In general, rental income and operating expenses for those Partnership properties operated under triple-net leases, Scandinavian Health Spa and Colonial Manor Living Center, are not likely to be directly affected by future inflation, since rents are fixed under the leases and property expenses are the responsibility of tenants. The capital appreciation of triple-net-leased properties is likely to be influenced by interest rate fluctuations. To the extent that inflation affects interest rates, future inflation may have an effect on the capital appreciation of triple-net-leased properties.
Both the K mart and Euro-Fresh Market Plaza (f/k/a Water Tower Market Plaza) properties are subject to net leases containing rental escalation clauses which take effect when specified sales volumes are achieved by the tenants. If inflation, over time, increases the prices of goods sold by these tenants, this may result in increased rental income for the Partnership. In addition to the grocery store which is its anchor tenant, Euro-Fresh Market Plaza also includes smaller commercial spaces which are subject to renewal under short-term leases. For these spaces, inflation is likely to increase rental income from leases to new tenants and lease renewals, subject to normal market conditions.
Item 8.

Item 8. Financial Statements and Supplementary Data
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Index ----- Page ---- Independent Auditors' Report............................................. 13
Financial Statements:
Balance Sheets, December 31, 1996 and 1995............................. 14
Statements of Operations, for the years ended December 31, 1996, 1995 and 1994..................................... 16
Statements of Partners' Capital, for the years ended December 31, 1996, 1995 and 1994..................................... 17
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994..................................... 18
Notes to Financial Statements.......................................... 19
Real Estate and Accumulated Depreciation (Schedule III).................. 26
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.
INDEPENDENT AUDITORS' REPORT
To the Partners of Inland Monthly Income Fund II, L.P.
We have audited the accompanying balance sheets of Inland Monthly Income Fund II, L.P. (a limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in item 14(c). These financial statements and financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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, such financial statements present fairly, in all material respects, the financial position of Inland Monthly Income Fund II, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois January 31, 1997
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Balance Sheets
December 31, 1996 and 1995
Assets ------
1996 1995 Current assets: ---- ---- Cash and cash equivalents (Note 1).............. $ 1,043,462 981,562 Accounts and rents receivable................... 139,447 159,975 Current portion of deferred rent receivable (Note 5)........................... 1,366 2,968 Other assets.................................... 493 670 ------------ ------------ Total current assets.......................... 1,184,768 1,145,175 ------------ ------------ Investment properties (including acquisition fees paid to Affiliates of $1,430,682) (Notes 1, 3 and 4): Land............................................ 3,998,149 3,998,149 Buildings and improvements...................... 13,814,185 13,814,185 ------------ ------------ 17,812,334 17,812,334 Less accumulated depreciation................. 3,186,278 2,754,691 ------------ ------------ Net investment properties................... 14,626,056 15,057,643 ------------ ------------ Other assets: Deferred leasing fees to Affiliates (net of accumulated amortization of $106,820 and $88,728 for 1996 and 1995, respectively) (Notes 1 and 3)............................... 120,912 139,004 Deferred rent receivable, less current portion (Notes 1 and 5)............................... 381,268 378,600 ------------ ------------ Total other assets.......................... 502,180 517,604 ------------ ------------ Total assets...................................... $16,313,004 16,720,422 ============ ============
See accompanying notes to financial statements.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Balance Sheets (continued)
December 31, 1996 and 1995
Liabilities and Partners' Capital --------------------------------- 1996 1995 ---- ---- Current liabilities: Accounts payable................................ $ 14,122 5,494 Accrued real estate taxes....................... 183,965 180,025 Distributions payable (Note 7).................. 140,045 140,426 Due to Affiliates (Note 3)...................... 2,925 7,398 Deposits held for others........................ 340,767 321,855 Other current liabilities....................... 26,925 26,925 ------------ ------------ Total current liabilities..................... 708,749 682,123
Commission payable to Affiliate (Note 3).......... 132,000 132,000 ------------ ------------ Total liabilities................................. 840,749 814,123 ------------ ------------ Partners' capital (Notes 1, 2 and 3): General Partner: Capital contribution.......................... 500 500 Cumulative net income......................... 68,590 72,906 ------------ ------------ 69,090 73,406 Limited Partners: ------------ ------------ Units of $500. Authorized 80,000 Units, 50,095.50 Units outstanding (net of offering costs of $3,148,734, of which $653,165 was paid to Affiliates)..................... 21,916,510 21,916,510 Cumulative net income......................... 11,469,545 10,195,854 Cumulative distributions...................... (17,982,890) (16,279,471) ------------ ------------ 15,403,165 15,832,893 ------------ ------------ Total Partners' capital..................... 15,472,255 15,906,299 ------------ ------------ Total liabilities and Partners' capital........... $16,313,004 16,720,422 ============ ============
See accompanying notes to financial statements.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 Income: ---- ---- ---- Rental income (Notes 1, 4 and 5).. $ 1,918,275 1,892,936 1,899,150 Additional rental income.......... 157,981 144,535 155,593 Interest income................... 32,504 32,707 22,499 Other income...................... - 2,657 32,351 ------------ ------------ ------------ 2,108,760 2,072,835 2,109,593 Expenses: ------------ ------------ ------------ Professional services to Affiliates...................... 14,024 19,466 22,892 Professional services to non-affiliates.................. 25,541 24,550 25,626 General and administrative expenses to Affiliates.......... 30,024 35,026 36,549 General and administrative expenses to non-affiliates...... 13,781 13,641 13,493 Property operating expenses to Affiliates................... 31,848 31,068 33,969 Property operating expenses to non-affiliates............... 274,488 248,448 229,996 Depreciation...................... 431,587 431,587 431,587 Amortization...................... 18,092 18,093 18,092 ------------ ------------ ------------ 839,385 821,879 812,204 ------------ ------------ ------------ Net income.......................... $ 1,269,375 1,250,956 1,297,389 ============ ============ ============ Net income (loss) allocated to (Note 2): General Partner................... $ (4,316) (4,316) (4,316) Limited Partners.................. 1,273,691 1,255,272 1,301,705 ------------ ------------ ------------ Net income...................... $ 1,269,375 1,250,956 1,297,389 ============ ============ ============ Net loss allocated to the one General Partner Unit.......... $ (4,316) (4,316) (4,316) ============ ============ ============ Net income allocated to Limited Partners per weighted average Limited Partnership Units of 50,095.50......................... $ 25.43 25.06 25.98 ============ ============ ============
See accompanying notes to financial statements.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Statements of Partners' Capital
For the years ended December 31, 1996, 1995 and 1994
General Limited Partner Partners Total ----------- ----------- ----------- Balance January 1, 1994............. $ 82,038 16,736,037 16,818,075
Net income (loss)................... (4,316) 1,301,705 1,297,389 Distributions ($35.07 per weighted average of Limited Partnership Units of 50,095.50)............... - (1,756,765) (1,756,765) ------------ ------------ ------------ Balance December 31, 1994........... 77,722 16,280,977 16,358,699
Net income (loss)................... (4,316) 1,255,272 1,250,956 Distributions ($34.00 per weighted average of Limited Partnership Units of 50,095.50)............... - (1,703,356) (1,703,356) ------------ ------------ ------------ Balance December 31, 1995........... 73,406 15,832,893 15,906,299
Net income (loss)................... (4,316) 1,273,691 1,269,375 Distributions ($34.00 per weighted average of Limited Partnership Units of 50,095.50)............... - (1,703,419) (1,703,419) ------------ ------------ ------------ Balance December 31, 1996........... $ 69,090 15,403,165 15,472,255 ============ ============ ============
See accompanying notes to financial statements.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994 Cash flows from operating activities: ---- ---- ---- Net income........................ $ 1,269,375 1,250,956 1,297,389 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation.................... 431,587 431,587 431,587 Amortization.................... 18,092 18,093 18,092 Deferred rent receivable........ (1,066) 1,878 (12,901) Changes in assets and liabilities: Accounts and rents receivable. 20,528 8,730 (43,992) Other assets.................. 177 (316) (69) Accounts payable.............. 8,628 (29,160) 30,914 Accrued real estate taxes..... 3,940 7,831 9,055 Due to Affiliates............. (4,473) 6,718 (579) Other current liabilities..... - (25,000) (2,466) Net cash provided by operating ------------ ------------ ------------ activities........................ 1,746,788 1,671,317 1,727,030 ------------ ------------ ------------ Cash flows from financing activities: Change in deposits held for others 18,912 (30,292) 11,004 Cash distributions ............... (1,703,800) (1,703,356) (1,756,765) Net cash used in financing ------------ ------------ ------------ activities...................... (1,684,888) (1,733,648) (1,745,761) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents................ 61,900 (62,331) (18,731) Cash and cash equivalents at beginning of year................. 981,562 1,043,893 1,062,624 Cash and cash equivalents at end ------------ ------------ ------------ of year........................... $ 1,043,462 981,562 1,043,893 ============ ============ ============
See accompanying notes to financial statements.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements
For the years ended December 31, 1996, 1995 and 1994
(1) Organization and Basis of Accounting
The Registrant, Inland Monthly Income Fund II, L.P. (the "Partnership"), was formed on June 20, 1988 pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in improved residential, retail, industrial and other income producing properties. On August 4, 1988, the Partnership commenced an Offering of 50,000 (subject to increase to 80,000) Limited Partnership Units pursuant to a Registration under the Securities Act of 1933. The Offering terminated on August 4, 1990, with total sales of 50,647.14 Units at $500 per Unit, resulting in gross offering proceeds of $25,323,569, not including the General Partner's contribution for $500. All of the holders of these Units have been admitted to the Partnership. Inland Real Estate Investment Corporation is the General Partner. The Limited Partners of the Partnership share in the benefits of ownership of the Partnership's real property investments in proportion to the number of Units held. The Partnership repurchased 551.64 Units for $260,285 from various Limited Partners through the Unit Repurchase Program. There are no funds remaining for the repurchase of Units through this program.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Offering costs have been offset against the Limited Partners' capital accounts.
The Partnership adopted Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") as required in the first quarter of 1996. SFAS 121 requires that the Partnership record an impairment loss on its property to be held for investment whenever its carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. The adoption of SFAS 121 did not have any effect on the Partnership's financial position, results of operations or liquidity.
Depreciation expense is computed using the straight-line method. Buildings and improvements are based upon estimated useful lives of 30 to 40 years, while furniture and fixtures are based upon estimated useful lives of 5 to 12 years. Repair and maintenance expenses are charged to operations as incurred. Significant improvements are capitalized and depreciated over their estimated useful lives.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
Deferred leasing fees are amortized on a straight-line basis over the term of the related lease.
Rental income is recognized on a straight-line basis over the term of each lease. The difference between rental income earned and the cash rent due under the provisions of the lease agreements is recorded as deferred rent receivable.
The Partnership considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents and are carried at cost, which approximates market. For the years ended December 31, 1996 and 1995, included in cash and cash equivalents is approximately $327,800 and $311,000, respectively, held in an unrestricted escrow account for the payment of real estate taxes for Colonial Manor Living Center.
No provision for Federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership.
The Partnership records are maintained on the accrual basis of accounting in accordance with generally accepted accounting principles ("GAAP"). The Federal income tax return has been prepared from such records after making appropriate adjustments, if any, to reflect the Partnership's accounts as adjusted for Federal income tax reporting purposes. Such adjustments are not recorded in the records of the Partnership. The net effect of these items is summarized as follows: 1996 1995 ------------------------- ----------------------- Tax Tax GAAP Basis GAAP Basis Basis (unaudited) Basis (unaudited) ----------- ------------- ----------- ----------- Total assets................ $16,313,004 19,461,737 16,720,422 19,869,155
Partners' capital: General Partner........... 69,090 16,313 73,406 20,629 Limited Partners.......... 15,403,165 18,604,676 15,832,893 19,034,404
Net income (loss): General Partner........... (4,316) (4,316) (4,316) (4,316) Limited Partners.......... 1,273,691 1,317,530 1,255,272 1,276,077
Net income per Limited Partnership Unit.......... 25.43 26.30 25.06 25.47
The net income per Limited Partnership Unit is based upon the weighted average number of Units of 50,095.50.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
(2) Partnership Agreement
The Partnership Agreement defines the allocation of distributable available cash and profits and losses. Limited Partners will receive 100% of cash available for distribution until the Limited Partners have received a Cumulative Preferred Return of 8% per annum through August 4, 1993 and a Preferential Return of 10% per annum for the period after August 4, 1993. Thereafter, the General Partner shall be allocated an amount equal to any Supplemental Capital Contributions outstanding at the time of the distribution and then 95% of cash available for distribution will be allocated to the Limited Partners and 5% will be allocated to the General Partner. Net Sale Proceeds will be distributed to the Limited Partners until they have received an amount equal to their Invested Capital and any deficiency in the 10% Preferential Return. Thereafter, any remaining Net Sale Proceeds will be distributed 85% to the Limited Partners and 15% to the General Partner. Distributions of Net Sale Proceeds to the Limited Partners represent a return of Invested Capital.
Pursuant to the terms of the Partnership Agreement, the profits and losses from operations are allocated as follows:
(a) Depreciation shall be allocated 99% to the taxable Limited Partners and 1% to the General Partner.
(b) To the extent the minimum distribution of 8% per annum through August 4, 1993 to the Limited Partners is funded by Supplemental Capital Contributions, the distribution shall be treated as a guaranteed payment, and the resulting deduction shall be allocated to the General Partner.
(c) The remaining net profits shall be allocated 100% to the Limited Partners until the Limited Partners have been allocated an amount equal to the distribution required to provide them a Cumulative Preferred Return of 8% per annum through August 4, 1993 and a Preferential Return of 10% per annum for the period after August 4, 1993.
(d) The remainder, if any, shall be allocated 95% to the Limited Partners and 5% to the General Partner
The General Partner was required to make Supplemental Capital Contributions, if necessary, in sufficient amounts to allow the Partnership to make distributions to the Limited Partners to provide a non-compounded return on their invested capital equal to 8% per annum through August 4, 1993. The amount of such Supplemental Capital Contributions was $30,155. The entire amount was paid to the Partnership in April of 1990. The General Partner was repaid on August 4, 1993, after the Limited Partners received a Cumulative Preferred Return of 8% per annum through August 4, 1993.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
(3) 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 to Affiliates and general and administrative expenses to Affiliates, of which $2,925 and $7,398 was unpaid as of December 31, 1996 and 1995, respectively.
An Affiliate of the General Partner earned Property Management Fees of $31,848, $31,068 and $32,107 for the years ended December 31, 1996, 1995 and 1994, respectively, in connection with managing the Partnership's properties. Such fees are included in property operating expenses to Affiliates, all of which has been paid as of December 31, 1996. In addition, an Affiliate of the General Partner performed property maintenance on the Partnership's investment properties and was reimbursed (as set forth under terms of the Partnership Agreement) for direct costs. Such costs of $1,862 for the year ended December 31, 1994 are included in property operating expenses to Affiliates, all of which has been paid. No such costs were incurred for the years ended December 31, 1996 and 1995.
In connection with the sale of The Wholesale Club on January 8, 1991, the Partnership recorded $132,000 of sales commission payable to an Affiliate of the General Partner. Such commission has been deferred until the Limited Partners receive their Original Capital plus a return as specified in the Partnership Agreement.
(4) Investments in Property
Scandinavian Health Spa, Inc., Broadview Heights, Ohio - ------------------------------------------------------ On October 19, 1988, the Partnership took title to this property which an Affiliate of the General Partner purchased on behalf of the Partnership from an unaffiliated third party for $2,760,000. The property consists of a 26,040 net rentable square-foot, two-story masonry building including a pool, whirlpool, two saunas, suspended running track, two racquet ball courts, extensive locker room areas, a nursery and offices. The total cost of this property to the Partnership was $3,016,527, which includes acquisition fees of $241,500 and acquisition costs of $15,027. The lease expires in December 2004 and the tenant has the option to extend the lease for two additional five-year periods. The tenant has leased 100% of the rentable space on a triple-net basis for a current monthly amount of $29,925.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
Colonial Manor Living Center, LaGrange, Illinois - ------------------------------------------------ On June 7, 1989, the Partnership took title to this property which an Affiliate of the General Partner purchased on behalf of the Partnership from an unaffiliated third party for $6,787,232. The property consists of a 107,867 square-foot nursing care facility located in LaGrange, Illinois. The total cost of this property to the Partnership was $7,521,881, which includes acquisition fees of $601,675 and acquisition costs of $132,974. The center is currently 100% leased to Elite Care Corporation. The lease is a triple-net lease and expires January 2001. The tenant has the right to extend the lease for an additional ten-year term. The rent per annum is $868,552 and adjusts annually. In 1992, the current operator of this facility negotiated with a new operator to sublease the facility. The General Partner approved the transaction with no significant changes to the terms of the lease.
K mart Retail Store, Chandler, Arizona - -------------------------------------- On December 29, 1989, the Partnership took title to this property which an Affiliate of the General Partner purchased on behalf of the Partnership from an unaffiliated third party for $4,568,000. The property consists of an 84,146 square-foot retail building. The total cost of this property to the Partnership was $5,072,473, which includes acquisition fees of $406,862 and related acquisition costs of $97,611. The tenant has a lease for 100% of the rentable space on a net basis and is responsible for payment of the real estate taxes, insurance and all utilities. The Partnership will be responsible for maintenance of the structure and the parking lot. The lease requires a base rent of $452,000 per annum and additional rent equal to 1% of gross sales in excess of $14,000,000. The lease expires in July 2013 and the tenant has the option to extend the lease for four additional five-year periods.
Euro-Fresh Market Plaza (f/k/a Water Tower Market Plaza), Palatine, Illinois - ---------------------------------------------------------------------------- On December 31, 1990, the Partnership took title to this property from an unaffiliated third party for $2,000,000. The property consists of two buildings aggregating 52,475 square feet. One of the buildings is a food store and the other is a multi-tenant building containing twelve commercial units. The total cost of this property to the Partnership was $2,186,383, which includes acquisition fees of $180,645 and related acquisition costs of $5,738. The property is 92% leased on a net basis with the tenants responsible for their portion of real estate taxes and common area maintenance. The Partnership is responsible for its share of real estate taxes and common area maintenance plus the maintenance of the structures and the parking lot. Then anchor tenant, Eagle Food Store, had a lease through May 1997 with an annual rent of $78,600. The current tenants in the 12-unit building have leases ranging from one to five years at an average monthly rent of $1,207. In January 1994, the anchor tenant at the shopping center, Eagle Foods, closed its store. In February 1994, with the approval of the General Partner, Eagle Foods assigned its lease to Certified Grocers Midwest, Inc. ("Certified"). Certified occupied the store from March 1994 until August 1995. In May 1996, Euro-Fresh Market ("Euro- Fresh") began its occupancy of the anchor store and the shopping center was renamed Euro-Fresh Market Plaza. Under the original lease, as well as the assignment of the lease, Eagle Foods has guaranteed payments until November 1998.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
Cost and accumulated depreciation of the above properties are summarized as follows: 1996 1995 Health and Racquet Club: ------------ ------------ Cost.............................. $ 3,016,527 3,016,527 Less accumulated depreciation..... 595,620 523,422 ------------ ------------ 2,420,907 2,493,105 Retail Store: ------------ ------------ Cost.............................. 5,072,473 5,072,473 Less accumulated depreciation..... 744,230 639,163 ------------ ------------ 4,328,243 4,433,310 Nursing Home: ------------ ------------ Cost.............................. 7,521,881 7,521,881 Less accumulated depreciation..... 1,558,015 1,352,563 ------------ ------------ 5,963,866 6,169,318 Shopping Center: ------------ ------------ Cost.............................. 2,201,453 2,201,453 Less accumulated depreciation..... 288,413 239,543 ------------ ------------ 1,913,040 1,961,910 ------------ ------------ Total............................. $14,626,056 15,057,643 ============ ============
(5) Operating Leases
Certain tenant leases contain provisions providing for stepped rent increases. Generally accepted accounting principles require that rental income be recorded for the period of occupancy using the straight-line basis. The accompanying financial statements include an increase of $1,066, a decrease of $1,878 and an increase of $12,901 in 1996, 1995 and 1994, respectively, of rental income for the period of occupancy for which stepped rent increases apply and $382,634 and $381,568 in related deferred rent receivable as of December 31, 1996 and 1995, respectively. These amounts will be collected over the terms of the related leases as scheduled rent payments are made.
INLAND MONTHLY INCOME FUND II, L.P. (a limited partnership)
Notes to Financial Statements (continued)
Minimum lease payments to be received in the future from operating leases are as follows:
1997.......................................... $ 1,891,271 1998.......................................... 1,872,933 1999.......................................... 1,794,411 2000.......................................... 1,791,752 2001.......................................... 918,541 Thereafter.................................... 6,256,680 ------------ Total......................................... $14,525,588 ============
Pursuant to the lease agreements, tenants of Euro-Fresh Market Plaza (f/k/a Water Tower Market Plaza) are required to reimburse the Partnership for their prorata share of the real estate taxes and operating expenses of the property. Such amounts are included in additional rental income.
The Partnership currently has significant net operating leases with Elite Care Corporation ("Elite"), K mart Corporation ("K mart") and Scandinavian Health Spa, Inc. ("SHS"). Revenues from the Elite lease for the Colonial Manor Nursing Home, the K mart lease for the K mart store and the SHS lease for the Scandinavian Health Spa represents approximately 41%, 21% and 17%, respectively, of the Partnership's income as of December 31, 1996.
(6) Legal Proceedings
On March 10, 1995, the Partnership settled a claim with regards to the reorganization plan of Adventist Living Centers, Inc. ("ALC"), a former tenant of the Partnership's nursing home. The Partnership received $81,082 from ALC in connection with their lease termination agreement. The Partnership paid $36,941 as its portion of the settlement but received $5,906 from its share of a co- defendant's contribution.
(7) Subsequent Events
During January 1997, the Partnership paid a distribution of $140,045 to the Limited Partners.
Item 9.

Item 9. Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure
There were no disagreements on accounting or financial disclosures during 1996.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership, Inland Real Estate Investment Corporation, was organized in 1984 for the purpose of acting as general partner of limited partnerships formed to acquire, own and operate real properties. The General Partner is a wholly-owned subsidiary of The Inland Group, Inc. In 1990, Inland Real Estate Investment Corporation became the replacement General Partner for an additional 301 privately-owned real estate limited partnerships syndicated by Affiliates. The General Partner has responsibility for all aspects of the Partnership's operations. The relationship of the General Partner to its Affiliates is described under the caption "Conflicts of Interest" at pages 11 to 13 of the Prospectus, a copy of which description is hereby incorporated herein by reference.
Officers and Directors
The officers, directors, and key employees of The Inland Group, Inc. and its Affiliates ("Inland") that are likely to provide services to the Partnership are as follows:
Functional Title
Daniel L. Goodwin....... Chairman and Chief Executive Officer Robert H. Baum.......... Executive Vice President-General Counsel G. Joseph Cosenza....... Senior Vice President-Acquisitions Robert D. Parks......... Senior Vice President-Investments Norbert J. Treonis...... Senior Vice President-Property Management Catherine L. Lynch...... Treasurer Paul J. Wheeler......... Vice President-Personal Financial Services Group Roberta S. Matlin....... Assistant Vice President-Investments Mark Zalatoris.......... Assistant Vice President-Due Diligence Patricia A. Challenger.. Vice President-Asset Management Kelly Tucek............. Assistant Vice President-Partnership Accounting Cynthia M. Hassett...... Assistant Vice President-Partnership Accounting Venton J. Carlston...... Assistant Controller
DANIEL L. GOODWIN (age 53) is Chairman of the Board of Directors of The Inland Group, Inc., a billion-dollar real estate and financial organization located in Oak Brook, Illinois. Among Inland's subsidiaries is the largest property management firm in Illinois and one of the largest commercial real estate and mortgage banking firms in the Midwest.
Mr. Goodwin has served as Director of the Avenue Bank of Oak Park and as a Director of the Continental Bank of Oakbrook Terrace. He was Chairman of the Bank Holding Company of American National Bank of DuPage. Currently he is the Chairman of the Board of Inland Mortgage Investment Corporation.
Mr. Goodwin has been in the housing industry for more than 28 years, and has demonstrated a lifelong interest in housing-related issues. He is a licensed real estate broker and a member of the National Association of Realtors. He has developed thousands of housing units in the Midwest, New England, Florida, and the Southwest. He is also the author of a nationally recognized real estate reference book for the management of residential properties.
Mr. Goodwin has served on the Board of the Illinois State Affordable Housing Trust Fund for the past 6 years. He is an advisor for the Office of Housing Coordination Services of the State of Illinois, and a member of the Seniors Housing Committee of the National Multi-Housing Council. Recently, Governor Edgar appointed him Chairman of the Housing Production Committee for the Illinois State Affordable Housing Conference. He also served as a member of the Cook County Commissioner's Economic Housing Development Committee, and he was the Chairman of the DuPage County Affordable Housing Task Force. The 1992 Catholic Charities Award was presented to Mr. Goodwin for his work in addressing affordable housing needs. The City of Hope designated him as the 1980's Man of the Year for the Illinois construction industry. In 1989, the Chicago Metropolitan Coalition on Aging presented Mr. Goodwin with an award in recognition of his efforts in making housing more affordable to Chicago's Senior Citizens. On May 4, 1995, PADS, Inc. (Public Action to Deliver Shelter) presented Mr. Goodwin with an award, recognizing The Inland Group as the leading corporate provider of transitional housing for the homeless people of DuPage County. Also, Mr. Goodwin serves as Chairman of New Directions Housing Corporation, a leading provider of affordable housing in northern Illinois.
Mr. Goodwin is a product of Chicago-area schools, and obtained his Bachelor's and Master's Degrees from Illinois Universities. Following graduation, he taught for five years in Chicago Public Schools. His commitment to education has continued through his work with the Better Boys Foundation's Pilot Elementary School in Chicago, and the development of the Inland Vocational Training Center for the Handicapped located at Little City in Palatine, Illinois. He personally established an endowment which funds a perpetual scholarship program for inner-city disadvantaged youth. In 1990 he received the Northeastern Illinois University President's Meritorious Service Award. Mr. Goodwin holds a Master's Degree in Education from Northern Illinois University, and in 1986, he was awarded an Honorary Doctorate from Northeastern Illinois University College of Education. More than 12 years ago, under Mr. Goodwin's direction, Inland instituted a program to train disabled students in the workplace. Most of these students are still employed at Inland today, and Inland has become one of the largest employers of the disabled in DuPage County. He has served as a member of the Board of Governors of Illinois State Colleges and Universities, and he is currently a trustee of Benedictine University. He was elected Chairman of Northeastern Illinois University Board of Trustees in January 1996.
Mr. Goodwin served as a member of Governor Jim Edgar's Transition Team. In 1988 he received the Outstanding Business Leader Award from the Oak Brook Jaycees and has been the General Chairman of the National Football League Players Association Mackey Awards for the benefit of inner-city youth. He served as the recent Chairman of the Speakers Club of the Illinois House of Representatives. In March 1994, he won the Excellence in Business Award from the DuPage Area Association of Business and Industry. Additionally, he was honored by Little Friends on May 17, 1995 for rescuing their Parent-Handicapped Infant Program when they lost their lease. He was the recipient of the 1995 March of Dimes Life Achievement Award and was recently recognized as the 1997 Corporate Leader of the Year by the Oak Brook Area Association of Commerce and Industry.
ROBERT H. BAUM (age 53) has been with The Inland Group, Inc. and its affiliates since 1968 and is one of the four original principals. Mr. Baum is Vice Chairman and Executive Vice President-General Counsel of The Inland Group, Inc. In his capacity as General Counsel, Mr. Baum is responsible for the supervision of the legal activities of The Inland Group, Inc. and its affiliates. This responsibility includes the supervision of The Inland Law Department and serving as liaison with all outside counsel. Mr. Baum has served as a member of the North American Securities Administrators Association Real Estate Advisory Committee and as a member of the Securities Advisory Committee to the Secretary of State of Illinois. He is a member of the American Corporation Counsel Association and has also been a guest lecturer for the Illinois State Bar Association. Mr. Baum has been admitted to practice before the Supreme Court of the United States, as well as the bars of several federal courts of appeals and federal district courts and the State of Illinois. He received his B.S. Degree from the University of Wisconsin and his J.D. Degree from Northwestern University School of Law. Mr. Baum has served as a director of American National Bank of DuPage. Currently, he serves as a director of Westbank, and is a member of the Governing Council of Wellness House, a charitable organization that provides emotional support for cancer patients and their families.
G. JOSEPH COSENZA (age 53) is a Director and Vice Chairman of The Inland Group, Inc. Mr. Cosenza oversees, coordinates and directs Inland's many enterprises and, in addition, immediately supervises a staff of eight persons who engage in property acquisition. Mr. Cosenza has been a consultant to other real estate entities and lending institutions on property appraisal methods.
Mr. Cosenza received his B.A. Degree from Northeastern Illinois University and his M.S. Degree from Northern Illinois University. From 1967 to 1968, he taught at the LaGrange School District in Hodgkins, Illinois and from 1968 to 1972, he served as Assistant Principal and taught in the Wheeling, Illinois School District. 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 Chairman of the Board of Westbank in Westchester, Illinois.
ROBERT D. PARKS (age 53) is Director of The Inland Group, Inc., President, Chairman and Chief Executive Officer of Inland Real Estate Investment Corporation and President, Chief Executive Officer, Chief Operating Officer and Affiliated Director of Inland Real Estate Corporation.
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 was a school teacher 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 registered Direct Participation Program Principal with the National Association of Securities Dealers, Inc., and he is a member of the Real Estate Investment Association and a member of NAREIT.
NORBERT J. TREONIS (age 46) joined The Inland Group, Inc. and its affiliates in 1975 and he is currently Chairman and Chief Executive Officer of The Inland Property Management Group, Inc. and a Director of The Inland Group, Inc. He serves on the Board of Directors of all Inland subsidiaries involved in the property management, acquisitions and maintenance of real estate, including Mid-America Property Management Corporation, and Metropolitan Construction Services, Inc. Mr. Treonis is charged with the responsibility of the overall management and leasing of all apartment units, retail, industrial and commercial properties nationwide.
Mr. Treonis is a licensed real estate broker. He is a past member of the Board of Directors of American National Bank of DuPage, the Apartment Builders and Managers Association of Illinois, the National Apartment Association and the Chicagoland Apartment Association.
Mr. Treonis has been the Chairman of the Board of Directors of Inland Commercial Property Management, Inc. since its formation in 1994.
CATHERINE L. LYNCH (age 38) joined Inland in 1989 and is the Treasurer of Inland Real Estate Investment Corporation. Ms. Lynch is responsible for managing the Corporate Accounting Department. Prior to joining Inland, Ms. Lynch worked in the field of public accounting for KPMG Peat Marwick since 1980. She received her B.S. degree in Accounting from Illinois State University. Ms. Lynch is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. She is registered with the National Association of Securities Dealers as a Financial Operations Principal.
PAUL J. WHEELER (age 44) joined Inland in 1982 and is currently the President of Inland Property Sales, Inc., the entity responsible for all corporately owned real estate. Mr. Wheeler received his B.A. degree in Economics from DePauw University and an M.B.A. in Finance/Accounting from Northwestern University. Mr. Wheeler is a Certified Public Accountant and licensed real estate broker. For three years prior to joining Inland, Mr. Wheeler was Vice President/Finance at the real estate brokerage firm of Quinlan & Tyson, Inc.
ROBERTA S. MATLIN (age 52) joined Inland in 1984 as Director of Investor Administration and currently serves as Senior Vice President-Investments. Prior to that, Ms. Matlin spent 11 years with the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. As Senior Vice President-Investments, she directs the day-to-day internal operations of the General Partner. Ms. Matlin received her B.A. degree from the University of Illinois. She is registered with the National Association of Securities Dealers, Inc. as a General Securities Principal.
MARK ZALATORIS (age 39) joined Inland in 1985 and currently serves as Vice President of Inland Real Estate Investment Corporation. His responsibilities include the coordination of due diligence activities by selling broker/dealers and is also involved with limited partnership asset management including the mortgage funds. Mr. Zalatoris is a graduate of the University of Illinois where he received a Bachelors degree in Finance and a Masters degree in Accounting and Taxation. He is a Certified Public Accountant and holds a General Securities License with Inland Securities Corporation.
PATRICIA A. CHALLENGER (age 44) joined Inland in 1985. Ms. Challenger serves as Senior Vice President of Inland Real Estate Investment Corporation in the area of Asset Management. As head of the Asset Management Department, she develops operating and disposition strategies for all investment-owned properties. Ms. Challenger received her bachelor's degree from George Washington University and her master's from Virginia Tech University. Ms. Challenger was selected and served from 1980-1984 as Presidential Management Intern, where she was part of a special government-wide task force to eliminate waste, fraud and abuse in government contracting and also served as Senior Contract Specialist responsible for capital improvements in 109 government properties. Ms. Challenger is a licensed real estate broker, NASD registered securities sales representative and is a member of the Urban Land Institute.
KELLY TUCEK (age 34) joined Inland in 1989 and is an Assistant Vice President of Inland Real Estate Investment Corporation. As of August 1996, Ms. Tucek is responsible for the Investment Accounting Department which includes all public partnership accounting functions along with quarterly and annual SEC filings. Prior to joining Inland, 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.
CYNTHIA M. HASSETT (age 37) joined Inland in 1983 and was a Vice President of Inland Real Estate Investment Corporation. Through August 1996, Ms. Hassett was responsible for the Investment Accounting Department which includes all public partnership accounting functions along with quarterly and annual SEC filings. Prior to joining Inland, Ms. Hassett was on the audit staff of Altschuler, Melvoin and Glasser since 1980. She received her B.S. degree in Accounting from Illinois State University. Ms. Hassett is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.
VENTON J. CARLSTON (age 39) joined Inland in 1985 and is the Assistant Controller of Inland Real Estate Investment Corporation where he supervises the corporate bookkeeping staff and is responsible for financial statement preparation and budgeting for Inland Real Estate Investment Corporation and its subsidiaries. Prior to joining Inland, Mr. Carlston was a partnership accountant with JMB Realty. He received his B.S. degree in Accounting from Southern Illinois University. Mr. Carlston is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. He is registered with the National Association of Securities Dealers, Inc. as a Financial Operations Principal.
Item 11.

Item 11. Executive Compensation
The General Partner is entitled to receive a share of cash distributions when a Preferential Return of 10% of Cash Available for Distribution has been made to the Limited Partners, and a share of profits or losses as described under the caption "Cash Distributions" at page 42 and "Allocation of Profits and Losses" at pages 41 and 42 of the Prospectus, and at pages A-6 to A-10 of the Partnership Agreement, included as an exhibit to the Prospectus, which is incorporated herein by reference. Reference is also made to Note 2 of the Notes to Financial Statements (Item 8 of this Annual Report) for a description of such distributions and allocations for 1996.
The Partnership is permitted to engage in various transactions involving Affiliates of the General Partner of the Partnership, as described under the captions "Compensation and Fees" at pages 7-9 and "Conflicts of Interest" at pages 9-11 of the Prospectus, and at pages A-12 through A-20 of the Partnership Agreement, included as an exhibit to the Prospectus, which is incorporated herein by reference. The relationship of the General Partner (and its directors and officers) to its Affiliates is set forth above in Item 10.
The General Partner of the Partnership and its Affiliates may be reimbursed for their expenses or out-of-pocket expenses relating to administration of the Partnership and salaries and direct expenses of employees of the General Partner and its Affiliates for the administration of the Partnership. Such costs for 1996 were $44,048, of which $2,925 was unpaid as of December 31, 1996.
During 1996, Affiliates of the General Partner earned $31,848 in management fees in connection with managing the Partnership's properties, all of which is paid as of December 31, 1996.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units of the Partnership.
(b) The officers and directors of the General Partner of the Partnership own as a group the following Units of the Partnership:
Amount and Nature of Beneficial Percent Title of Class Ownership of Class ------------------------ ------------------ ---------------- Limited Partnership 58.76 Units directly Less than 1/2% Units
No officer or director of the General Partner of the Partnership possesses a right to acquire beneficial ownership of Units of the Partnership.
All of the outstanding shares of the General Partner of the Partnership are owned by an Affiliate or its officers and directors as set forth above in Item 10.
(c) There exists no arrangement, known to the Partnership, the operation of which may, at a subsequent date, result in a change in control of the Partnership.
Item 13.

Item 13. Certain Relationships and Related Transactions
There were no significant transactions or business relationships with the General Partner, Affiliates or their management other than those described in Items 10 and 11 above. Reference is made to Note 3 of the Notes to Financial Statements (Item 8 of this Annual Report) for information regarding related party transactions.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The Financial Statements listed in the index at page 12 of this Annual Report are filed as part of this Annual Report.
(b) Exhibits. The following documents are filed as part of this Report:
3 Amended and Restated Agreement of Limited Partnership, and Certificate of Limited Partnership included as Exhibits A and B of the Prospectus dated August 4, 1988, as supplemented, are incorporated herein by reference thereto.
4 Form of Certificate of Ownership representing interests in the registrant filed as Exhibit 4 to Registration Statement on Form S-11, File No. 33- 22513, is incorporated herein by reference thereto.
27 Financial Data Schedule
28 Prospectus dated August 4, 1988, as supplemented, included in Post- effective Amendment No. 2 to Form S-11 Registration Statement, File No. 33- 22513, is incorporated herein by reference thereto.
(c) Financial Statement Schedules.
Financial statement schedules for the years ended December 31, 1996, 1995 and 1994 are submitted herewith:
Page ----
Real Estate and Accumulated Depreciation, (Schedule III)........ 26
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.
(d) Reports on Form 8-K.
None.
No Annual Report or proxy material for the year 1996 has been sent to the Partners of the Partnership. An Annual Report will be sent to the Partners subsequent to this filing and the Partnership will furnish copies of such report to the Commission when it is sent to the Partners.
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 MONTHLY INCOME FUND II, L.P. Inland Real Estate Investment Corporation General Partner
By: Robert D. Parks Chairman of the Board and Chief Executive Officer Date: March 24, 1997
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:
By: Inland Real Estate Investment Corporation General Partner
By: Robert D. Parks Chairman of the Board and Chief Executive Officer Date: March 24, 1997
By: Patricia A. Challenger Senior Vice President Date: March 24, 1997
By: Kelly Tucek Principal Financial Officer and Principal Accounting Officer Date: March 24, 1997
By: Daniel L. Goodwin Director Date: March 24, 1997
By: Robert H. Baum Director Date: March 24, 1997