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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 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 of incorporation or organization)		(I.R.S. Employer Identification No.)

2901 Butterfield Road, Oak Brook, IL 60523

(Address of principal executive offices)(Zip Code)

630-218-8000

(Registrant’s telephone number, including area code)

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:

Limited Partnership Units

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The registrant’s common equity is not publicly traded and therefore has no market value.

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

TABLE OF CONTENTS


		Page
	Part I

Item 1.	Business		3

Item 1(A).	Risk Factors		4

Item 1(B).	Unresolved Staff Comments		5

Item 2.	Investment Properties		6

Item 3.	Legal Proceedings		10

Item 4.	Mine Safety Disclosures		10

	Part II

Item 5.	Market for Partnership’s Limited Partnership Units, Related Security Holder Matters and Partnership Purchases of Limited Partnership Units		11

Item 6.	Selected Financial Data		11

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 7(A).	Quantitative and Qualitative Disclosures About Market Risk		16

Item 8.	Financial Statements and Supplementary Data		16

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		28

Item 9(A).	Controls and Procedures		28

Item 9(B).	Other Information		28
	Part III

Item 10.	Directors, Executive Officers and Corporate Governance		29

Item 11.	Executive Compensation		33

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		34

Item 13.	Certain Relationships and Related Transactions		35

Item 14.	Principal Accounting Fees and Services		35

	Part IV

Item 15.	Exhibits and Financial Statement Schedules		36

Item 16.	Form 10-K Summary		36

	EXHIBIT INDEX		37

	SIGNATURES		38

-2-

PART I

Item 1. Business

Inland Land Appreciation Fund II, L.P. (the “Partnership”) was formed on June 28, 1989 to invest in undeveloped land on an all-cash basis and realize appreciation of such land upon resale. On October 25, 1989, we commenced an offering of 30,000 (subject to an increase to 60,000) limited partnership units, or units, at $1,000 per unit, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On October 24, 1991, we terminated our offering of units, after we sold 50,476.17 units, at $1,000 per unit, resulting in $50,476,170 in gross offering proceeds, not including our general partner’s capital contribution of $500. All of the holders of our units were admitted to our Partnership. Inland Real Estate Investment Corporation is our general partner. Our limited partners share in their portion of benefits of ownership of our real property investments according to the number of units held. Through December 31, 2017, we had repurchased a total of 408.65 units for $383,822 from various limited partners through the unit repurchase program.

We purchased on an all-cash basis, twenty-seven parcels of undeveloped land and two buildings and are engaged in the rezoning and resale of the parcels. On September 16, 2002, we completed a tax-deferred exchange of Parcels 9 and 12 for 50 acres in Kendall County (Parcel 28). All of the investments were made in the Chicago metropolitan area. The anticipated holding period of the land was approximately two to seven years from the completion of the land portfolio acquisitions. As a result of the lengthy rezoning and entitlement processes and the no growth mentality of the municipalities where the land is located our holding period has exceeded our original estimates. Through December 31, 2017, we have had multiple sales transactions, disposing of approximately 4,486 acres of the approximately 4,530 acres originally owned.

We are engaged in the business of real estate investment which management considers being a single operating segment. A presentation of information about operating segments would not be material to an understanding of our business taken as a whole.

During the year ended December 31, 2017, we had no land sales. On April 15, 2016, the Partnership sold the remaining acreage of Parcel 8, resulting in net sales proceeds of $1,614,552. On November 17, 2016, the Partnership sold the farmland portion of Parcel 20, resulting in net sales proceeds of $2,084,246. There were two distributions of net sales proceeds during 2016 totaling $3,553,189. Net sales proceeds, including previously undistributed net sales proceeds, were used to fund our operations including land improvements and land use activities.

On January 10, 2017, the Partnership entered into a Real Estate Purchase and Sale Agreement with a third party purchaser for the sale of approximately 30 acres of Parcel 20 at a sales price of $2,800,000. The contract was contingent on the purchaser obtaining necessary municipal approvals for a multi-family development. The agreement was amended to extend the due diligence period and the time period for purchaser to obtain such municipal approvals. An amendment also documented an agreed upon reduction of the original sales price to $2,425,000 following results of soil testing during due diligence. The purchaser waived all contingencies on January 24, 2018 and the sale closed on February 23, 2018.

The Partnership will make a final liquidating distribution of net sales proceeds and remaining working capital reserve less an amount sufficient to cover the costs associated with closing the Partnership. The distribution is expected to occur by March 31, 2018.

We had no employees during 2017. Accordingly, we hired no compensation consultants.

Our general partner and its affiliates provide services to us. Our general partner and its affiliates are reimbursed for salaries and expenses of employees of the general partner and its affiliates relating to the administration of the Partnership. An affiliate of the general partner performs land improvements, rezoning, annexation and other activities to prepare our parcels for sale and is reimbursed for salaries and direct costs.

-3-

Access to Our Information

We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the Securities and Exchange Commission (SEC). The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at (800)-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.

We make available, free of charge, by responding to requests addressed to our Investor Services department, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports. These reports are available as soon as reasonably practical after such material is electronically filed or furnished to the SEC.

Limited partners wishing to communicate with our general partner can do so by writing to the attention of the general partner in care of our Partnership at 2901 Butterfield Road, Oak Brook, IL 60523.

Item 1(A). Risk Factors

Pre-Development Stage Land

The net proceeds of the offering were invested in pre-development stage land. An investment in such land involves a number of potential risks, which include the following:

Environmental Risks. Federal and state environmental laws can impose substantial liability on owners of real estate without regard to fault, even when other parties are or were responsible for the environmental impairment. Environmental liabilities could cause us to incur significant expenses, including (but not limited to) the obligation to remedy or clean up hazardous substances (such as pesticides commonly used on farmland) or other pollutants, regardless of fault.

Limited Current Income. With the exception of limited amounts of cash which may be generated from certain revenue-producing activities, pre-development land does not generate current income. Nevertheless, we incur ongoing expenses in connection with the ownership of such land (for example, real estate taxes and insurance).

Litigation. We are a defendant from time to time in lawsuits relating to our business. Due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of any such litigation. An unfavorable outcome could negatively impact our cash flow, financial condition and results of operations.

Partnership-Related Risks

No Market for Units. Our units are subject to certain restrictions on transferability. As a result of these restrictions, no public trading market is likely to develop for these securities, nor is one intended to develop. Purchasers of units may not, therefore, be able to liquidate their investment, and units may not be readily acceptable as collateral for a loan.

Transfer Limit. In accordance with Article XVI Section 16.1 of the Inland Land Appreciation Fund II, L.P. Partnership Agreement and Treasury Regulation Section 1.7704-1(j), we reached the maximum threshold of limited partnership units that may be transferred/assigned directly between parties during 2017. For the benefit of interested limited partners, we have a relationship with a “qualified matching service” as defined under Treasury Regulation Section 1.7704-1(g). In accordance with this Treasury Regulation and the IRS private letter ruling obtained by the “qualified matching service,” we understand that limited partnership units may be transferred or assigned through the “qualified matching service” up to a separate maximum threshold each taxable year (in addition to the maximum threshold that may be transferred or assigned directly between parties under our partnership agreement and Treasury Regulation Section 1.7704-1(j)). However, there can be no assurance that the IRS private letter ruling will apply to transfers of our units, or that any particular transfer will not violate the transfer restrictions contained in the partnership agreement or the provisions of Treasury Regulation Section 1.7704-1(g). If you have any interest in participating in a transfer/assignment of partnership units through this “qualified matching service”, please contact Central Trade and Transfer directly at 877-704-6737. You are strongly encouraged to consult your personal legal, financial and tax advisors in connection with any such transfer/assignment.

-4-

Conflicts of Interest. We may be subject to various conflicts of interest arising out of our relationship with our general partner and its affiliates. If the general partner or its affiliates breach their fiduciary obligations to us, or do not resolve these conflicts of interest to our benefit, we could suffer consequences which we might not otherwise be subject to if such conflicts of interest did not exist.

Federal Income Tax Aspects

Potential Receipt of UBTI. The incurrence of debt in connection with our pre-development and/or sales activities could cause the gain on the sale of our parcel to constitute unrelated business taxable income (“UBTI”) and affect limited partners that are tax-exempt entities.

Tax liabilities may be greater than cash distributions. Each limited partner will be required to report the limited partner’s allocable share of our taxable net income on the limited partner’s personal tax return, regardless of whether the limited partner has received any cash distributions from us. Thus, limited partners may incur taxes associated with their proportional share of our net income even though we have not distributed cash to pay the taxes.

Item 1(B). Unresolved Staff Comments

Not applicable.

-5-

Item 2. Investment Properties

We acquired fee ownership of the following real property investments. The following table summarizes the detail activity of all the parcels owned by the Partnership from the purchase date through the year ended December 31, 2017.

Investment properties activity:


			Gross Acres			Purchase/		Initial Costs						Costs Capitalized				Total Remaining Costs of
Parcel #		Illinois County	Purchased (Sold)			Sales Date		Original Costs		Acquisition Costs		Total Costs		Subsequent to Acquisition		Costs of Property Sold/Impaired		Parcels at 12/31/2017
	1	McHenry		372.7590			04/25/90	$	2,114,295		114,070		2,228,365		630,703		2,859,068		0
				(372.7590	)		02/23/04
	2	Kendall		41.1180			07/06/90		549,639		43,889		593,528		75,199		668,727		0
				(3.4730	)		08/29/03
				(37.6450	)		02/17/05
	3/27	Kendall		120.8170			11/06/90		2,591,268		156,709		2,747,977		9,880,850		12,628,827		0
				83.5250			03/11/93
				(3.3900	)		05/17/05
				(31.0000	)		07/14/05
				(74.7000	)		Var 2006
				(36.8500	)		Var 2007
				(6.6000	)		Var 2008
				(36.1262	)		Var 2009
				(1.7230	)		06/25/10
				(3.1200	)		12/28/10
				(10.8328	)		06/10/13
	4	Kendall		299.0250			06/28/91		1,442,059		77,804		1,519,863		539,750		2,059,613		0
				(299.0250	)		03/14/14
	5	Kane		189.0468			02/28/91		1,954,629		94,569		2,049,198		349,845		2,399,043		0
				(189.0468	)		05/16/01
	6	Lake		57.3345			04/16/91		904,337		71,199		975,536		55,628		1,031,164		0
				(.2580	)		10/01/94
				(57.0765	)		03/22/07
	7	McHenry		56.7094			04/22/91		680,513		44,444		724,957		3,210,451		3,935,408		0
				(12.6506	)		Var 1997
				(15.7041	)		Var 1998
				(19.6296	)		Var 1999
				(8.7251	)		Var 2000
	8	Kane		325.3940			06/14/91		3,496,700		262,275		3,758,975		85,548		3,844,523		0
				(.8700	)		04/03/96
				(63.0000	)		01/23/01
				(80.0000	)		05/11/04
				(181.524	)		04/15/16

-6-

Investment properties activity (continued):


		Gross Acres			Purchase/		Initial Costs						Costs Capitalized				Total Remaining Costs of
Parcel	Illinois	Purchased			Sales		Original		Acquisition		Total		Subsequent to		Costs of Property		Parcels at
#	County	(Sold)			Date		Costs		Costs		Costs		Acquisition		Sold/Impaired		12/31/2017
9 (c)	Will		9.8670			08/13/91	$	0		0		0		0		0		0
			(9.8670	)		09/16/02
10	Will		150.6600			08/20/91		1,866,716		89,333		1,956,049		23,897		1,979,946		0
			(150.6600	)		01/10/05
11	Will		138.4470			08/20/91		289,914		20,376		310,290		2,700		312,990		0
			(138.4470	)		05/03/93
12 (c)	Will		44.7320			08/20/91		0		0		0		0		0		0
			(44.7320	)		09/16/02
13	Will		6.3420			09/23/91		139,524		172		139,696		0		139,696		0
			(6.3420	)		05/03/93
14	Kendall		44.4030			09/03/91		888,060		68,210		956,270		1,259,583		2,215,853		0
			(15.3920	)		04/16/01
			(14.2110	)		Var 2002
			(13.6000	)		04/11/03
			(1.2000	)		02/19/04
15	Kendall		100.3640			09/04/91		1,050,000		52,694		1,102,694		117,829		1,220,523		0
			(5.0000	)		09/01/93
			(11.0000	)		12/01/94
			(84.3640	)		08/14/98
16	McHenry		168.9050			09/13/91		1,402,058		69,731		1,471,789		97,766		1,569,555		0
			(168.9050	)		08/03/01
17	Kendall		3.4620			10/30/91		435,000		22,326		457,326		113,135		570,461		0
			(2.1130	)		03/06/01
			(1.3490	)		08/23/02

-7-

Investment properties activity (continued):


		Gross Acres			Purchase/		Initial Costs						Costs Capitalized				Total Remaining Costs of
Parcel	Illinois	Purchased			Sales		Original		Acquisition		Total		Subsequent to		Costs of Property		Parcels at
#	County	(Sold)			Date		Costs		Costs		Costs		Acquisition		Sold/Impaired		12/31/2017
18	McHenry		139.1697			11/07/91	$	1,160,301		58,190		1,218,491		9,456,992		10,675,483		0
			(9.2500	)		Var 2004
			(33.3197	)		Var 2005
			(62.0200	)		Var 2006
			(12.8800	)		Var 2007
			(2.2400	)		Var 2008
			.2188			03/02/11
			(19.6788	)		11/18/13
19	Kane		436.2360			12/13/91		4,362,360		321,250		4,683,610		187,211		4,870,821		0
			(436.2360	)		05/16/01
20	Kane & Kendall		400.1290			01/31/92		1,692,623		101,318		1,793,941		9,525,572		8,432,089		2,887,424
			(21.1380	)		06/30/99
			(7.0000	)		07/21/08
			(3.1085	)		03/21/11
			(4.0770	)		09/19/12
			(2.3160	)		08/16/13
			(317.8600	)		11/17/16
21	Kendall		15.0130			05/26/92		250,000		23,844		273,844		43,063		316,907		0
			(1.0000	)		03/16/99
			(14.0130	)		09/06/06
22	Kendall		391.9590			10/30/92		3,870,000		283,186		4,153,186		1,763,629		5,916,815		0
			(10.0000	)		01/06/94
			(5.5380	)		01/05/96
			(2.4000	)		07/27/99
			(73.3950	)		Var 2001
			(136.0000	)		08/14/02
			(34.1400	)		05/27/03
			(101.4900	)		01/09/04
			(28.9960	)		11/13/13

-8-

Investment properties activity (continued):


			Gross Acres			Purchase/		Initial Costs						Costs Capitalized				Total Remaining Costs of
Parcel		Illinois	Purchased			Sales		Original		Acquisition		Total		Subsequent to		Costs of Property		Parcels at
#		County	(Sold)			Date		Costs		Costs		Costs		Acquisition		Sold/Impaired		12/31/2017
	23	Kendall		133.2074			10/30/92	$	3,231,942		251,373		3,483,315		4,665,998		8,149,313		0
				(11.5250	)		07/16/93
				(44.0700	)		Var 1995
				(8.2500	)		Var 1996
				(2.6100	)		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		0		182,713		0
				(.2676	)		03/16/93
	24	Kendall		3.9080			01/21/93		645,000		56,316		701,316		30,436		731,752		0
				(3.9080	)		04/16/01
	24A(b)	Kendall		.4060			01/21/93		155,000		13,533		168,533		0		168,533		0
				(.4060	)		04/16/01
	25	Kendall		656.6870			01/28/93		1,625,000		82,536		1,707,536		22,673		1,730,209		0
				(656.6870	)		10/31/95
	26	Kane		89.5110			03/10/93		1,181,555		89,312		1,270,867		5,135,895		6,406,762		0
				(2.1080	)		Var 1999
				(34.2550	)		Var 2000
				(7.8000	)		Var 2001
				(29.1200	)		Var 2002
				(11.3100	)		Var 2003
				(4.9180	)		01/28/04
	28 (c)	Kendall		50.0000			09/16/02		661,460		22,976		684,436		230,630		915,066		0
				(50.0000	)		04/17/12

								$	38,810,025		2,504,276		41,314,301		47,504,983		85,931,860		2,887,424

-9-

(a)

Included in the purchase of Parcel 23 was a newly constructed 2,500 square foot house. The house was sold in March 1993.

(b)

Included in the purchase of Parcel 24 was a 2,400 square foot office building. The building was sold in 2001.

(c)

On September 16, 2002, the Partnership completed a tax-deferred exchange of Parcels 9 and 12 for 50 acres in Kendall County (Parcel 28).

Our general partner has agreed to make a supplemental capital contribution to us if and to the extent that real estate taxes and insurance payable with respect to our land during a given year exceed the revenue earned by us from leasing our land during such year. Any supplemental capital contribution will be repaid only after limited partners have received, over the life of our Partnership, a return of their original capital plus the 15% cumulative return. During 2017, our remaining parcel consisted of land which did not generate revenue from farming or other leasing activities and thus did not cover real estate taxes and insurance expense. Consequently, the general partner made a supplemental capital contribution of $13,317 to cover real estate taxes and insurance for the year ended December 31, 2017.

Item 3. Legal Proceedings

None

Item 4. Mine Safety Disclosures

Not applicable

-10-

Part II

Item 5. Market for Partnership’s Limited Partnership Units, Related Security Holder Matters and Partnership Purchases of Limited Partnership Units

As of February 15, 2018, there were 3,974 holders of our units. There is no public market for units nor is it anticipated that any public market for units will develop.

There were no distributions in 2017. There were two distributions of net sales proceeds during 2016. On June 17, 2016, the Partnership made a distribution to the limited partners of $1,600,000 less the $46,811 Illinois non-resident withholding repayment for a total distribution of $1,553,189. On December 19, 2016, the Partnership made a distribution to the limited partners of $2,000,000. The Partnership will make a final liquidating distribution of net sales proceeds and remaining working capital reserve less an amount sufficient to cover the costs associated with closing the Partnership. The distribution is expected to occur by March 31, 2018.

Item 6. Selected Financial Data

Not applicable

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 our 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, adverse changes in real estate, financing and general economic or local conditions; the ability to obtain annexation and zoning approvals required to develop our property; the approval of local governing bodies to develop our property; successful lobbying of local “no growth” or limited development homeowner groups; eminent domain proceedings; changes in the environmental conditions or changes in the environmental positions of governmental bodies; and potential conflicts of interest between us and our affiliates, including our general partner.

Critical Accounting Policies

The Securities and Exchange Commission previously issued Financial Reporting Release (FRR) or FRR No. 60 “Cautionary Advice Regarding Disclosure About Critical Accounting Policies.” A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances. We believe that our most critical accounting policies relate to how we value, classify and allocate costs of our investment properties and revenue recognition. These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain. The purpose of the FRR is to provide investors with an understanding of how management forms these policies. Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with accounting principles generally accepted in the United States of America or GAAP. GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates. The following disclosure discusses judgments known to management pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.

Valuation of Investment Properties - On a quarterly basis, we review impairment indicators and if necessary, conduct an impairment analysis to ensure that the carrying value of the investment property does not exceed its estimated fair value. If an investment property is considered impaired, we would be required to record an impairment loss equal to the excess of carrying value over the estimated fair value.

-11-

expenditures, assessment of current economic conditions and management’s intent to hold the remaining parcels until such time as reasonable and acceptable offers are received. These indicators are considered by management in determining the value of any particular property. The value of any particular property is sensitive to the actual results of any of these uncertain indicators, either individually or taken as a whole. Should the actual results differ from management’s judgment, the valuation could be negatively or positively affected.

The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management’s continuous process of analyzing each property. During the first quarter of 2016, management formally changed its intent from holding the remaining parcels for an indefinite period of time to attempting to sell the parcels by the end of the year. Management deemed the change in intent as a trigger for impairment. Based on the knowledge of recent real estate market data gathered for the auction of Parcel 20 in 2016 and an offer received in 2017, management determined the value of the remaining parcel was impaired. For the years ended December 31, 2017 and 2016, the Partnership recorded an impairment of $1,235,000 and $2,680,000, respectively, on Parcel 20, which reduced the remaining book value to the estimated fair value. Subsequent costs incurred above the estimated fair value for the remaining parcel continue to be expensed and included in land operating expenses.

All other assets and liabilities are valued at cost, which approximates fair value.

The Partnership follows Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which establishes a fair value hierarchy that requires the Partnership to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. ASC 820 establishes the following three levels of inputs that may be used to measure fair value:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Cost Allocation - We use the area method of cost allocation whereby a per acre price is used as the standard allocation method for land purchases and sales. The total cost of the parcel is divided by the total number of acres to arrive at a per acre price. Parcel 20 has been written down to its estimated fair market value.

Revenue Recognition - We recognize income from the sale of land parcels in accordance with the full accrual method of accounting. Rental revenue is recognized as earned.

Assets Held for Sale - In determining whether to classify an asset as held for sale, we consider whether: (i) management has committed to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) we have initiated a program to locate a buyer; (iv) we believe that the sale of the asset is probable; (v) the due diligence period per the sales agreement has expired and a closing date has been set; (vi) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vii) actions required for us to complete the plan indicate that it is unlikely that any significant changes will be made to the plan.

If all of the above criteria are met, we classify the asset as held for sale. The assets and liabilities associated with those assets that are held for sale are classified separately on the balance sheets for the most recent reporting period. During the year ended December 31, 2016, the carrying values of Parcel 8 and the farm portion of Parcel 20 were reduced to their respective fair value based on then projected net sales proceeds for sales which closed in 2016. The reduction to fair value resulted in a provision for loss on investment property held for sale of $585,937 for the year ended December 31, 2016. For the years ended December 31, 2017 and 2016, there was no investment property classified as assets held for sale.

-12-

From time to time, we may determine that a “held for sale property” no longer meets the criteria to continue to be classified as held for sale. If this occurs, we record the property at the lower of the carrying amount before the property was classified as held for sale or the fair value at the decision date not to sell.

Liquidity and Capital Resources

Between October 25, 1989 and October 24, 1991, we sold 50,476.17 limited partnership units to the public at $1,000 per unit resulting in $50,476,170 in gross offering proceeds, not including the general partner’s capital contribution of $500.

We used $41,314,301 of gross offering proceeds to purchase, on an all-cash basis, twenty-seven parcels of undeveloped land and two buildings. These investments include the payment of the purchase price, acquisition fees and acquisition costs of such properties. Three of the parcels were purchased during 1990, sixteen during 1991, four during 1992, and four during 1993. On September 16, 2002, we completed a tax-deferred exchange of Parcels 9 and 12 for 50 acres in Kendall County (Parcel 28). Through December 31, 2017, we have had multiple sales, exchange transactions and conveyances, disposing of the buildings and approximately 4,486 acres of the approximately 4,530 acres originally owned. Through December 31, 2017, cumulative distributions have totaled $100,030,845 to the limited partners, which is equivalent to 198% of the original capital raised, which was $50,476,170, and cumulative distributions to the general partner have totaled $13,713,195. Of the $100,030,845 distributed to the limited partners, $99,309,845 was net sales proceeds and $721,000 was from operations. Through December 31, 2017, we have used $47,504,983 of working capital for rezoning and other activities. Such amounts have been capitalized and are included in investment properties.

Our capital needs and resources will vary depending upon a number of factors, including the extent to which we conduct rezoning and other activities relating to utility access, the installation of roads, subdivision and/or annexation of land to a municipality, changes in real estate taxes affecting our land, and the amount of revenue received from leasing. Our general partner has agreed to make a supplemental capital contribution to the Partnership, if and to the extent that real estate taxes and insurance payable with respect to our land during a given year exceed the revenue earned by us from leasing our land during such year. Since there have been no farm leases in place since November 2016, the General Partner made a supplemental capital contribution of $13,317 to cover real estate taxes and insurance for the year ended December 31, 2017.

During 2017, there were no land sales. On April 15, 2016, we sold the remaining acreage of Parcel 8, resulting in net sales proceeds of $1,614,552. On November 17, 2016, we sold the farmland portion of Parcel 20, resulting in net sales proceeds of $2,084,246.

At December 31, 2017, we had cash and cash equivalents of $1,890,301 which is available to be used for our costs and liabilities, cash distributions to partners and other activities with respect to our one land parcel. On June 17, 2016 the Partnership made a distribution to the limited partners of $1,600,000 less the $46,811 Illinois non-resident withholding repayment for a total distribution of $1,553,189. On December 19, 2016, the Partnership made an additional distribution to the limited partners of $2,000,000.

Transactions with Related Parties

Our general partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the general partner and its affiliates relating to our administration. Such costs of $76,537 and $82,737 are included in professional services to affiliates and general and administrative expenses to affiliates for the years ended December 31, 2017 and 2016, respectively, of which $8,699 and $16,190 was unpaid as of December 31, 2017 and 2016, respectively.

An affiliate of our general partner performs land improvements, rezoning, annexation and other activities to prepare our investment properties for sale and is reimbursed for salaries and direct costs. For the years ended December 31, 2017 and 2016, we incurred $0 and $1,289, respectively, of such costs. Such costs are included in investment properties, of which all was paid as of December 31, 2016. An affiliate of the general partner also supervises the maintenance of the parcels. Such costs of $4,462 and $7,417 are included in land operating expenses to affiliates for the years ended December 31, 2017 and 2016, respectively, of which $497 and $1,200 was unpaid as of December 31, 2017 and 2016, respectively. The affiliate did not recognize a profit on any project.

-13-

As of December 31, 2017, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the general partner.

Results of Operations

As of December 31, 2017, we owned one parcel of land consisting of approximately 44 acres. As of December 31, 2016, there no longer is a farm lease in place. The farm lease terminated when the farmland portion of Parcel 20 was sold in November 2016. The rental income from this lease covered the real estate taxes and insurance expense for 2016. Rental income was $0 and $83,980 for the years ended December 31, 2017 and 2016, respectively.

Professional services to affiliates and non-affiliates were $132,139 and $148,604 for the years ended December 31, 2017 and 2016, respectively. Professional services to affiliates and non-affiliates include accounting and legal services. The decrease is due primarily to a decrease in accounting and tax fees.

General and administrative expenses to affiliates and non-affiliates were $63,249 and $63,299 for the years ended December 31, 2017 and 2016, respectively. General and administrative expenses include data processing costs, postage, printing expenses, farm management fees and investor services.

Land operating expenses to affiliates and non-affiliates were $16,549 and $65,397 for the years ended December 31, 2017 and 2016, respectively. These costs typically include real estate tax expense and insurance; however, the decrease in 2017 is due to the cost of a survey for Parcel 20 in 2016 and lower real estate taxes in 2017 due to the sale of Parcel 8 in 2016.

Interest income was $6,557 and $5,602 for the years ended December 31, 2017 and 2016, respectively. Interest income is primarily a result of cash available to invest on a short term basis during the year as a result of sales proceeds received.

Other income was $4,200 and $4,000 for the years ended December 31, 2017 and 2016, respectively. Other income is due primarily to transfer fee income as a result of the number of completed unit transfers. The increase in 2017 is due to an increase in the number of completed unit transfers.

Our Partnership Agreement

Our partnership agreement prescribes the allocation of profits and losses, and the distribution priorities of available cash. If and to the extent that real estate taxes and insurance payable with respect to our land during a given year exceed our revenues, our general partner will make a supplemental capital contribution of such amount to us to ensure that we have sufficient funds to make such payments and receives a special allocation of expenses in a like amount.

Profits and losses from operations (other than capital transactions) will be allocated 99% to the limited partners and 1% to the general partner. The net gain from sales of our properties is first allocated among the partners in proportion to the negative balances, if any, in their respective capital accounts. Thereafter, except as provided below, net gain is allocated to the general partner in an amount equal to the proceeds distributed to the general partner from such sale and the balance of any net gain is allocated to the limited partners. If the amount of net gain realized from a sale is less than the amount of cash distributed to the general partner from such sale, we will allocate income or gain to the general partner in an amount equal to the excess of the cash distributed to the general partner with respect to such sale as quickly as permitted by law. Any net loss from a sale will be allocated to the limited partners.

Distributions of net sales proceeds will be allocated between the general partner and the limited partners based upon both an aggregate overall return to the limited partners and a separate return with respect to each parcel of land purchased by us.

As a general rule, net sale proceeds will be distributed 90% to the limited partners and 10% to the general partner until the limited partners have received from net sale proceeds (i) a return of their original capital plus (ii) a noncompounded cumulative preferred return of 15% of their invested capital. However, with respect to each parcel of land, the general partner’s 10% share will be subordinated until the limited partners receive a return of the original capital attributed to such parcel (“parcel capital”) plus a 6% per annum noncompounded cumulative preferred return thereon.

-14-

After the amounts described in items (i) and (ii) above and any previously subordinated distributions to the general partner have been paid, and the amount of any supplemental capital contributions have been repaid to the general partner, subsequent distributions shall be paid 75% to the limited partners and 25% to the general partner without considering parcel capital. If, after all net sale proceeds have been distributed, the general partner has received more than 25% of all net sale proceeds (exclusive of distributions made to the limited partners to return their original capital), the general partner shall contribute to us for distribution to the limited partners an amount equal to such excess.

Any distributions from net sales proceeds at a time when invested capital is greater than zero shall be deemed applied first to reduction of such invested capital before application to payment of any deficiency in the 15% cumulative preferred return.

Subsequent Events

The Partnership evaluates subsequent events occurring between the most recent balance sheet date and the date that the financial statements are available to be issued in order to determine whether the subsequent events are to be recorded in and/or disclosed in the Partnership’s financial statements and footnotes. The financial statements are considered to be available to be issued at the time that they are filed with the Securities and Exchange Commission.

On February 23, 2018, we sold approximately 30 acres of Parcel 20 for which we received approximately $2,287,000 in net sales proceeds, resulting in an approximate gain on sale of $111,000.

On February 23, 2018, the Partnership entered into a Contract of Sale with an affiliate of the Partnership’s general partner for the balance of Parcel 20 for a sales price of $715,410. The sale closed on March 5, 2018. We received approximately $709,000 in net sales proceeds, resulting in an approximate gain on sale of $12,700.

There are no other subsequent events to report that would have a material impact on the Partnership’s financial statements.

Other Items

In accordance with Article XVI Section 16.1 of the Inland Land Appreciation Fund II, L.P. Partnership Agreement and Treasury Regulation Section 1.7704-1(j), we reached the maximum threshold of limited partnership units that may be transferred/assigned directly between parties during 2017. For the benefit of interested limited partners, we have a relationship with a “qualified matching service” as defined under Treasury Regulation Section 1.7704-1(g). In accordance with this Treasury Regulation and the IRS private letter ruling obtained by the “qualified matching service”, we understand that limited partnership units may be transferred/assigned through the “qualified matching service” up to a separate maximum threshold each taxable year (in addition to the maximum threshold that may be transferred/assigned directly between parties discussed above). However, there can be no assurance that the IRS private letter ruling will apply to transfers of units, or that any particular transfer will not violate the transfer restrictions contained in our partnership agreement or the provisions of Treasury Regulation Section 1.7704-1(g). If you have any interest in participating in a transfer/assignment of partnership units through this “qualified matching service,” please contact Central Trade and Transfer directly at 877-704-6737. You are strongly encouraged to consult your personal legal, financial and tax advisors in connection with any such transfer/assignment.

The Illinois Department of Revenue regulates Illinois income tax withholding requirements for nonresident partners. For the taxable years ended December 31, 2017 and 2016, there were no withholdings required. You are encouraged to consult with your tax advisor in connection with the Illinois withholding requirements for nonresident partners. We are also required to pay a withholding tax to the Internal Revenue Service with respect to a partner’s allocable share of our taxable net income, if the partner is a foreign person. We will first pay the withholding tax from the distributions to any nonresident and/or foreign partners, and to the extent that the tax exceeds the amount of distributions withheld, or if there have been no distributions to withhold, the excess will be accounted for as a distribution to such nonresident and/or foreign partners and recovered from a future distribution.

Off-Balance Sheet Arrangements, Contractual Obligations, Liabilities and Contracts and Commitments

None

Litigation

None

-15-

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

Not Applicable

Item 8. Financial Statements and Supplementary Data

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Index


	Page
Report of Independent Registered Public Accounting Firm		17

Financial Statements:

Balance Sheets, December 31, 2017 and 2016		18

Statements of Operations, for the years ended December 31, 2017 and 2016		19

Statements of Partners’ Capital, for the years ended December 31, 2017 and 2016		20

Statements of Cash Flows, for the years ended December 31, 2017 and 2016		21

Notes to Financial Statements		22

Schedules not filed:

All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

-16-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Inland Land Appreciation Fund II, L.P.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Inland Land Appreciation Fund II, L.P. (a Delaware limited partnership) (the Partnership) as of December 31, 2017 and 2016, the related statements of operations, partners’ capital, and cash flows for each of the years then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP

We have served as the Partnership’s auditor since 2005.

Chicago, Illinois

March 15, 2018

-17-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Balance Sheets

December 31, 2017 and 2016


	2017			2016
Assets
Current assets:
Cash and cash equivalents (Note 1)	$	1,890,301			2,087,068
Other assets		403			287


Total current assets		1,890,704			2,087,355


Investment properties (including acquisition fees paid to affiliates of $6,284 at December 31, 2017 and 2016) (Note 5):
Land and improvements		2,887,424			4,122,424


Total assets	$	4,778,128			6,209,779
Liabilities and Partners’ Capital
Current liabilities:
Accrued real estate taxes	$	12,808			13,402
Due to affiliates (Note 4)		9,196			17,390


Total current liabilities		22,004			30,792


Partners’ capital:
General Partner:
Capital contribution		500			500
Supplemental capital contribution		13,317			0
Cumulative net income		14,068,238			14,070,250
Cumulative cash distributions		(13,713,195	)		(13,713,195	)


		368,860			357,555


Limited Partners:
Units of $1,000. Authorized 60,000 Units, 50,068 Units outstanding at December 31, 2017 and 2016,(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		61,858,200			63,292,368
Cumulative cash distributions		(100,030,845	)		(100,030,845	)


		4,387,264			5,821,432


Total Partners’ capital		4,756,124			6,178,987


Total liabilities and Partners’ capital	$	4,778,128			6,209,779

See accompanying notes to financial statements.

-18-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Statements of Operations

For the years ended December 31, 2017 and 2016


	2017			2016
Revenues:
Rental income (Note 6)	$	0			83,980
Gain on sale of investment properties		0			22,432


Total revenues		0			106,412


Expenses:
Professional services to affiliates		36,840			45,539
Professional services to non-affiliates		95,299			103,065
General and administrative expenses to affiliates		39,697			37,198
General and administrative expenses to non-affiliates		23,552			26,101
Land operating expenses to affiliates		4,462			7,417
Land operating expenses to non-affiliates		12,087			57,980
Provision for loss on investment property held for sale		0			585,937
Impairment loss on land		1,235,000			2,680,000


Total expenses		1,446,937			3,543,237


Operating loss		(1,446,937	)		(3,436,825	)

Interest income		6,557			5,602
Other income		4,200			4,000


Net loss	$	(1,436,180	)		(3,427,223	)


Net loss allocated to (Note 2):
General Partner	$	(2,012	)		(1,837	)
Limited Partners		(1,434,168	)		(3,425,386	)


Net loss	$	(1,436,180	)		(3,427,223	)

Net loss allocated to the one General Partner Unit	$	(2,012	)		(1,837	)

Net loss per Unit allocated to Limited Partners per weighted average Limited Partnership Units (50,068 Units for the years ended December 31, 2017 and 2016)	$	(28.64	)		(68.41	)

See accompanying notes to financial statements.

-19-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Statements of Partners’ Capital

For the years ended December 31, 2017 and 2016


	General Partner			Limited Partners			Total

Balance at January 1, 2016	$	359,392			12,800,007			13,159,399

Net loss (Note 2)		(1,837	)		(3,425,386	)		(3,427,223	)

Distributions to Partners (Note 2)		0			(3,553,189	)		(3,553,189	)


Balance at December 31, 2016	$	357,555			5,821,432			6,178,987

Net loss (Note 2)		(2,012	)		(1,434,168	)		(1,436,180	)

Distributions to Partners (Note 2)		0			0			0

Supplemental capital contribution		13,317			0			13,317


Balance at December 31, 2017	$	368,860			4,387,264			4,756,124

See accompanying notes to financial statements.

-20-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Statements of Cash Flows

For the years ended December 31, 2017 and 2016


	2017			2016
Cash flows from operating activities:
Net loss	$	(1,436,180	)		(3,427,223	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of investment properties		0			(22,432	)
Provision for loss on investment property held for sale		0			585,937
Impairment loss on investment property		1,235,000			2,680,000
Changes in assets and liabilities:
Other assets		(116	)		2,032
Accrued real estate taxes		(594	)		(19,773	)
Due to affiliates		(8,194	)		9,750


Net cash flow used in operating activities		(210,084	)		(191,709	)

Cash flows from investing activities:
Additions to investment properties		0			(1,289	)
Proceeds from sale of investment properties		0			3,698,798


Net cash flow provided by investing activities		0			3,697,509

Cash flows from financing activities:
Distributions		0			(3,553,189	)
Supplemental capital contribution		13,317			0


Net cash provided by (used in) financing activities		13,317			(3,553,189	)


Net decrease in cash and cash equivalents		(196,767	)		(47,389	)
Cash and cash equivalents at beginning of year		2,087,068			2,134,457


Cash and cash equivalents at end of year	$	1,890,301			2,087,068

See accompanying notes to financial statements.

-21-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

For the years ended December 31, 2017 and 2016

(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 (“Units”) pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) provides for Inland Real Estate Investment Corporation to be the General Partner. On October 24, 1991, the Partnership terminated its Offering of Units, with total sales of 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 to the Partnership. Through December 31, 2017, the Partnership had repurchased a total of 408.65 Units for $383,822 from various Limited Partners through the Unit Repurchase Program.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications were made to the 2016 financial statements to conform with the 2017 presentation.

Offering costs have been offset against the Limited Partners’ capital accounts.

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 value. The Partnership maintains its cash and cash equivalents at a financial institution. The account balances at the financial institution periodically exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance coverage of $250,000 on interest bearing and non-interest bearing accounts and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage. The Partnership believes that the risk is not significant, and the Partnership does not anticipate the financial institution’s non-performance.

The Partnership recognizes income from the sale of land parcels in accordance with the full accrual method of accounting.

The Partnership’s escrow agent holds earnest money deposits from a prospective purchaser when an agreement for sale is executed. Generally, these funds are not the Partnership’s until the closing has occurred or the buyer under the sale agreement has committed a default which would entitle the Partnership to the earnest money.

The Partnership uses the area method of allocation, whereby a per acre price is used as the standard allocation method for land purchases and sales. The total cost of the parcel is divided by the total number of acres to arrive at a per acre price. Repair and maintenance expenses are charged to operations as incurred.

A presentation of information about operating segments would not be material to an understanding of the Partnership’s business taken as a whole as the Partnership is engaged in the business of real estate investment which management considers to be a single operating segment.

The Partnership has taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover our costs for an extended period of time as we continue to market the remaining parcel for sale. Our remaining parcel is not encumbered by debt and is located in an area that we believe is in the path of future development. During the first quarter of 2016, management formally changed its intent from holding the remaining parcels for an indefinite period of time to attempting to sell the remaining parcels by the end of the year. In addition, on a quarterly basis, the Partnership reviews impairment indicators and if necessary, conducts an impairment analysis to ensure that the carrying value of each investment property does not exceed its estimated fair value. If an investment property is considered impaired, the Partnership would be required to record an impairment loss equal to the excess of carrying value over the estimated fair value.

-22-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

In determining the value of an investment property and whether the property is impaired, management considers several factors which require difficult, complex and/or subjective judgments, such as projected sales prices, capital expenditures, assessment of current economic conditions, and management’s intent to hold on to a property until such time as a reasonable and acceptable offer is received. These factors are considered by management in determining the value of any particular property. The value of any particular property is sensitive to the actual results of any of these uncertain factors, either individually or taken as a whole. Should the actual results differ from management’s judgment, the valuation could be negatively or positively affected. The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management’s continuous process of analyzing each property.

The Partnership is required to pay a withholding tax to the Internal Revenue Service with respect to a Partner’s allocable share of the Partnership’s taxable net income if the Partner is a foreign person. Similarly, the Partnership is required to pay a withholding tax to the Illinois Department of Revenue for nonresident partners. The Partnership will first pay the withholding tax from the distributions to any nonresident and/or foreign partners, and to the extent that the tax exceeds the amount of distributions withheld, or if there have been no distributions to withhold, the excess will be accounted for as a distribution to such nonresident and/or foreign partners and recovered from a future distribution.

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 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:


	2017						2016
	GAAP Basis			Tax Basis (unaudited)			GAAP Basis			Tax Basis (unaudited)

Total assets	$	4,778,128			12,310,568			6,209,779			13,742,219

Partners’ capital:
General Partner		368,860			121,047			357,555			135,275
Limited Partners		4,387,264			12,167,519			5,821,432			13,576,154

Net loss allocated:
General Partner		(2,012	)		(15,195	)		(1,837	)		(1,830	)
Limited Partners		(1,434,168	)		(185,985	)		(3,425,386	)		(745,393	)

Net loss per Limited Partnership Unit		(28.64	)		(3.71	)		(68.41	)		(14.89	)

The net loss per Unit is based upon the weighted average number of Units of 50,068 during 2017 and 2016.

-23-

INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Partnership has evaluated the impact of the adoption of this guidance and as a result of the evaluation does not expect it will have a material impact on its financial condition, results of operations and cash flows.

In February 2016, the FASB issued ASU 2016-02 Leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying assets for the term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted. The Partnership has evaluated the impact of the adoption of this guidance and as a result of the evaluation does not expect it will have a material impact on its financial condition, results of operations and cash flows. As of December 31, 2016 and 2017, there are no longer any farm leases in place.

In June 2016, the FASB issued ASU 2016-13 that requires entities to estimate credit losses expected over the contractual life of financial assets measured at amortized costs based on historical experience, current conditions, and reasonable and supportable forecasts. The new standard is effective for annual periods beginning after December 15, 2019. The Partnership has evaluated the impact of the adoption of this guidance and as a result of the evaluation does not expect it will have a material impact on its financial condition, results of operations and cash flows.

In August 2016, the FASB issued ASU 2016-15 that amends the classification of certain cash receipts and cash payments, to reduce the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. The Partnership is currently evaluating the impact that the adoption of the new guidance will have on its financial condition, results of operations and cash flows.

(2) Partnership Agreement

The Partnership Agreement prescribes the allocation of profits and losses, and the distribution priorities of available cash. If and to the extent that real estate taxes and insurance payable with respect to the Partnership’s land during a given year exceed revenues of the Partnership, the General Partner will make a Supplemental Capital Contribution of such amount to the Partnership to ensure that it has sufficient funds to make such payments and receives a special allocation of expenses in a like amount.

Profits and losses from operations (other than capital transactions) will be allocated 99% to the Limited Partners and 1% to the General Partner. The net gain from sales of Partnership properties is first allocated among the Partners in proportion to the negative balances, if any, in their respective capital accounts. Thereafter, except as provided below, net gain is allocated to the General Partner in an amount equal to the proceeds distributed to the General Partner from such sale and the balance of any net gain is allocated to the Limited Partners. If the amount of net gain realized from a sale is less than

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INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

the amount of cash distributed to the General Partner from such sale, the Partnership will allocate income or gain to the General Partner in an amount equal to the excess of the cash distributed to the General Partner with respect to such sale as quickly as permitted by law. Any net loss from a sale will be allocated to the Limited Partners.

Distributions of Net Sale Proceeds will be allocated between the General Partner and the Limited Partners based upon both an aggregate overall return to the Limited Partners and a separate return with respect to each parcel of land purchased by the Partnership.

As a general rule, Net Sale Proceeds will be distributed 90% to the Limited Partners and 10% to the General Partner until the Limited Partners have received from Net Sale Proceeds (i) a return of their Original Capital plus (ii) a noncompounded Cumulative Preferred Return of 15% of their Invested Capital. However, with respect to each parcel of land, the General Partner’s 10% share will be subordinated until the Limited Partners receive a return of the Original Capital attributed to such parcel (“Parcel Capital”) plus a 6% per annum noncompounded Parcel Cumulative Preferred Return thereon.

After the amounts described in items (i) and (ii) above and any previously subordinated distributions to the General Partner have been paid, and the amount of any Supplemental Capital Contributions have been repaid to the General Partner, subsequent distributions shall be paid 75% to the Limited Partners and 25% to the General Partner without considering Parcel Capital. If, after all Net Sale Proceeds have been distributed, the General Partner has received more than 25% of all Net Sale Proceeds (exclusive of distributions made to the Limited Partners to return their Original Capital), the General Partner shall contribute to the Partnership for distribution to the Limited Partners an amount equal to such excess.

Any distributions from Net Sale Proceeds at a time when Invested Capital is greater than zero shall be deemed applied first to the reduction of such Invested Capital before application to payment of any deficiency in the 15% Cumulative Preferred Return.

The term of the Partnership shall continue until December 31, 2039, unless sooner terminated as provided in the Partnership Agreement.

(3) Investment Property Held for Sale

During the quarter ended March 31, 2016, the carrying value of the investment property held for sale, Parcel 8, was reduced to its fair value based on the actual sale which occurred in April 2016 and resulted in a provision for loss on investment property held for sale of $320,937. During the quarter ended September 30, 2016, the carrying value of the investment property held for sale, the farmland portion of Parcel 20, was reduced to its fair value of $2,061,813 resulting in a provision for loss on investment property held for sale of $265,000. For the year ended December 31, 2016, the provision for loss on investment property held for sale totaled $585,937 in regards to Parcel 8 and the farm portion of Parcel 20. For the years ended December 31, 2017 and 2016, there was no investment property classified as assets held for sale. See Note 5 for a discussion regarding the valuation of the remaining portion of Parcel 20.

(4) 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 of $76,537 and $82,737 are included in professional services to affiliates and general and administrative expenses to affiliates for the years ended December 31, 2017 and 2016, respectively, of which $8,699 and $16,190 was unpaid as of December 31, 2017 and 2016, respectively.

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INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

An affiliate of the General Partner performs land improvements, rezoning, annexation and other activities to prepare the Partnership’s investment properties for sale and is reimbursed (as set forth under terms of the Partnership Agreement) for salaries and direct costs. For the years ended December 31, 2017 and 2016, the Partnership incurred $0 and $1,289, respectively, of such costs. Such costs are included in investment properties, of which all was paid as of December 31, 2016. Also, an affiliate of the General Partner supervises the maintenance of the parcels. Such costs of $4,462 and $7,417 are included in land operating expenses to affiliates for the years ended December 31, 2017 and 2016, respectively, of which $497 and $1,200 was unpaid as of December 31, 2017 and 2016, respectively. The affiliate does not recognize a profit on any project.

As of December 31, 2017 and 2016, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the General Partner.

(5) Investment properties

As of December 31, 2017, the Partnership owned one parcel of land consisting of approximately 44 acres.

(a)

The Partnership has taken the steps necessary to reduce costs and maintain sufficient reserves of cash and cash equivalents to cover all costs for an extended period of time. During April 2016, a farm lease was signed for the tillable portion of Parcel 20. The rental income from this lease covered the real estate taxes and insurance expense for 2016. The General Partner has agreed to make a supplemental capital contribution to the Partnership to the extent that real estate taxes and insurance payable with respect to the Partnership’s land during a given calendar year exceeds the revenue earned by the Partnership from leasing its land during such year. Since there have been no farm leases in place since the farmland portion of Parcel 20 was sold in November 2016, the General Partner made a supplemental capital contribution of $13,317 for the real estate tax and insurance expense for the year ended December 31, 2017.

In addition, on a quarterly basis, the Partnership reviews impairment indicators and if necessary, conducts an impairment analysis to ensure that the carrying value of the investment property does not exceed its estimated fair value. If this were to occur, the Partnership would be required to record an impairment loss equal to the excess of the carrying value over the estimated fair value.

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INLAND LAND APPRECIATION FUND II, L.P.

(a limited partnership)

Notes to Financial Statements

(continued)

In determining the value of an investment property and whether the property is impaired, management considers several indicators which require difficult, complex and/or subjective judgments, such as projected sales prices, capital expenditures, assessment of current economic conditions, and management’s intent to hold on to a property until such time as a reasonable and acceptable offer is received. The aforementioned indicators are considered by management in determining the value of any particular property. The value of any particular property is sensitive to the actual results of any of these uncertain indicators, either individually or taken as a whole. Should the actual results differ from management’s judgment, the valuation could be negatively or positively affected.

The valuation and possible subsequent impairment of investment properties is a significant estimate that can and does change based on management’s continuous process of analyzing each property. During the first quarter of 2016, management formally changed its intent from holding the remaining parcels for an indefinite period of time to attempting to sell the remaining parcels by the end of the year. Management deemed the change in intent as a trigger for impairment. Based on the knowledge of recent real estate market data gathered for the auction of Parcel 20 in 2016 and an offer received in 2017, management determined the value of the remaining parcel was impaired. For the years ended December 31, 2017 and 2016, the Partnership recorded an impairment of $1,235,000 and $2,680,000, respectively, on Parcel 20, which reduced the remaining book value to the estimated fair value. Subsequent costs incurred above the estimated fair value for the remaining parcel continue to be expensed and included in land operating expenses.

(b)	Reconciliation of investment properties owned:


	2017			2016
Balance at January 1,	$	4,122,424			11,063,438
Additions during year		0			1,289
Provision for loss on investment property held for sale		0			(585,937	)
Impairment loss on land		(1,235,000	)		(2,680,000	)
Sale of investment property		0			(3,676,366	)


Balance at December 31,	$	2,887,424			4,122,424

(c)	The aggregate cost of investment properties owned at December 31, 2017 for Federal income tax purposes was approximately $6,800,000 (unaudited).

(6) Rental Income

The Partnership had determined during 2016 that all leases relating to the farm parcels were operating leases. Accordingly, rental income was reported when earned.

There were no farm leases in place during the year ended December 31, 2017.

(7) Subsequent Events

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On February 23, 2018, we sold approximately 30 acres of Parcel 20 for which we received approximately $2,287,000 in net sales proceeds, resulting in an approximate gain on sale of $111,000.

There are no other subsequent events to report that would have a material impact on the Partnership’s financial statements.

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

There were no disagreements on accounting or financial disclosure matters during 2017.

Item 9(A). Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to us is made known to the members of senior management and the Audit Committee.

Based on management’s evaluation as of December 31, 2017, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, management concluded that our internal control over financial reporting was effective as of December 31, 2017. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.

There were no changes to our internal controls over financial reporting during the fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9(B). Other Information

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Our general partner, Inland Real Estate Investment Corporation (IREIC), 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 an indirect wholly-owned subsidiary of The Inland Group, Inc. The general partner has responsibility for all aspects of our operations including risk oversight. The directors of the general partner have diverse and lengthy experience in the real estate industry and are well-qualified to guide the Partnership.

During 2004, the board of directors of our general partner formalized our audit committee. The audit committee is not independent of our general partner and consists of Catherine L. Lynch, committee chair and audit committee financial expert, Guadalupe Griffin, Roberta S. Matlin and Cathleen M. Hrtanek. The audit committee is responsible for engaging our independent registered public accounting firm, reviewing the plans and results of the audit engagement with our independent registered public accounting firm and consulting with the independent registered public accounting firm regarding the adequacy of our internal accounting controls.

Our general partner has a code of ethics that applies to all of its employees. We will provide the code of ethics free of charge upon written request to our Investor Services department in care of the general partner of our Partnership at 2901 Butterfield Road, Oak Brook, IL 60523.

Officers and Directors

The officers, directors, and key employees of IREIC and its affiliates that are likely to provide services to the Partnership are as follows. Ages are listed as of January 1, 2018.


		Functional Title

Daniel L. Goodwin		Chairman of IREIC
Robert H. Baum		Director, General Counsel of IREIC
Robert D. Parks		Director of IREIC
Mitchell A. Sabshon		Director, Chief Executive Officer and President of IREIC
Catherine L. Lynch		Director, Chief Financial Officer, Treasurer and Secretary of IREIC
Roberta S. Matlin		Director and Senior Vice President of IREIC
Guadalupe Griffin		Senior Vice President of IREIC-Asset Management and Principal Executive Officer of the Partnership
Donna Urbain		Principal Financial Officer of the Partnership and Vice President – Controller of IREIC
Cathleen M. Hrtanek		Associate Counsel and Vice President, The Inland Real Estate Group, LLC, counsel to the Partnership

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DANIEL L. GOODWIN (age 74) is the chairman of the board and chief executive officer of The Inland Group, Inc., headquartered in Oak Brook, Illinois. Inland is comprised of separate real estate investment and financial companies with managed assets with a value of approximately $9.4 billion, doing business nationwide with a presence in 44 states, as of September 30, 2017. Inland owns and manages properties in all real estate sectors, including retail, office, industrial and apartments. Mr. Goodwin also serves as a director or officer of entities wholly owned or controlled by The Inland Group. In addition, Mr. Goodwin has served as the chairman of the board of Inland Mortgage Investment Corporation since March 1990, chairman, director, and chief executive officer of Inland Bancorp, Inc., a bank holding company, since January 2001 and chairman of the board of Inland Real Estate Investment Corporation since 2017. Mr. Goodwin served as a director of Inland Real Estate Corporation (n/k/a IRC Retail Centers LLC) (IRC) from 2001 until its merger in March 2016, and served as its chairman of the board from 2004 to April 2008. Mr. Goodwin became a director and the chairman of the board of Inland Real Estate Income Trust, Inc. in July 2012 and of Inland Residential Properties Trust, Inc. in December 2013. He is also the chairman of the National Association of Real Estate Investment Trusts Public Non-Listed REIT Council and a director of the Chicago Better Government Association.

Housing. Mr. Goodwin is a member of the National Association of Realtors President’s Circle, the National Association of Realtors Hall of Fame, the Illinois Association of Realtors Hall of Fame and the Chicago Association of Realtors Hall of Fame. He is also the author of a nationally recognized real estate reference book for the management of residential properties. Mr. Goodwin served on the Board of the Illinois State Affordable Housing Trust Fund. He served as an advisor for the Office of Housing Coordination Services of the State of Illinois, and as a member of the Seniors Housing Committee of the National Multifamily Housing Council. He has served as Chairman of the DuPage County Affordable Housing Task Force. Mr. Goodwin also founded New Directions Housing Corporation, a not for profit entity that develops affordable housing for low income individuals.

Education. Mr. Goodwin obtained his bachelor’s degree and master’s degree from Illinois State universities. Following graduation, he taught for five years in the Chicago Public Schools. Over the past twenty years, Mr. Goodwin served as a member of the Board of Governors of Illinois State Colleges and Universities, vice chairman of the Board of Trustees of Benedictine University, vice chairman of the Board of Trustees of Springfield College, and chairman of the Board of Trustees of Northeastern Illinois University.

ROBERT H. BAUM (age 74) has been with The Inland Real Estate Group, LLC and its affiliates since 1968 and is one of the four original principals. He is a Vice Chairman and Executive Vice President and General Counsel of The Inland Real Estate Group, LLC. In his capacity as General Counsel, Mr. Baum is responsible for the supervision of the legal activities of The Inland Real Estate Group, LLC and its affiliates. This responsibility includes the supervision of the Inland Law Department and serving as liaison with outside counsel.

Following his graduation from Northwestern University School of Law in 1967, Mr. Baum took a teaching position in the Chicago Public School System where he met the three other teaching associates who together with him became the founding principals of Inland. In 1968, he began his practice of law in Chicago with Shulman and Baum, a labor law firm. In January, 1973, Mr. Baum joined Inland on a full-time basis as its General Counsel, a position he has held since that time.

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 The Private Company General Counsel Group and has also been a guest lecturer for the Illinois State Bar Association and Northwestern University School of Law. 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 is also an Illinois licensed real estate broker. He has served as a director of American National Bank of DuPage and Inland Bank & Trust and currently serves as a director of Inland Bancorp, Inc., a bank holding company.

Mr. Baum is a member of the Board of Trustees of Window to the World Communications, Inc., Chicago’s premier public media organization that creates and presents unique content for television (WTTW, Channel 11), radio (WFMT, 98.7 FM) and digital media.

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Mr. Baum is also a Lifetime Trustee and has served as a member of the Board of Directors of Wellness House, a charitable organization that helps cancer patients improve the quality of their lives by providing programs emphasizing emotional support and information as a vital complement to medical treatment, all for no charge.

He is also a Governing Member of the Chicago Symphony Orchestra and underwrites a scholarship for the keyboardist position of the Civic Orchestra of Chicago. In addition, Mr. Baum was named a Paul Harris Fellow by The Rotary Foundation of Rotary International. He is also a past member of the Men’s Council of the Museum of Contemporary Art in Chicago.

ROBERT D. PARKS (age 74) has fifty years of experience in the commercial real estate industry, having been a principal of the Inland real estate organization since May 1968. Mr. Parks is a Director of The Inland Group, Inc. and one of its four original principals. Mr. Parks is also a Director of Inland Real Estate Investment Corporation and a Director of Inland Private Capital Corporation. He served as chairman of IREIC from November 1984 to December 2016. He was a Director of Inland Investment Advisors, Inc. from June 1995 to May 2013 and a Director of Inland Securities Corporation from August 1984 until June 2009. He was a Director of Inland Real Estate Corporation from 1994 through June 2008 and served as chairman of the board from May 1994 to May 2004 and its President and Chief Executive Officer from 1994 to April 2008. He was a Director and chairman of the board of Inland Retail Real Estate Trust, Inc. from its inception in September 1998 to March 2006, and as chief executive officer until December 2004, and as the chairman of the board and a Director of Retail Properties of America, Inc. (formerly, Inland Western Retail Real Estate Trust, Inc.) from its inception in March 2003 to October 2010. Mr. Parks also served as the chairman of the board and a Director of Inland Diversified Real Estate Trust, Inc. from its inception in June 2008 through July 2014, and InvenTrust Properties Corp. (formerly, Inland American Real Estate Trust, Inc.) from October 2004 through February 2015. He was also a Director of Inland Institutional Capital Partners Corporation from May 2006 until August 2012.

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 National Association of Real Estate Investment Trusts (NAREIT).

MITCHELL A. SABSHON (age 65) is a director, chief executive officer and president of IREIC, positions he has held since September 2013, August 2013 and January 2014, respectively. Mr. Sabshon has also served as a director and Chairman of the Board of Inland Private Capital Corporation since September 2013 and January 2015, respectively and a director of Inland Securities Corporation since January 2014. He is a director and president and chief executive officer of Inland Residential Properties Trust, Inc. and its business manager, positions he has held since December 2013. He is a director, chief executive officer and president of Inland Real Estate Income Trust, Inc., positions he has held since September 2014, April 2014 and December 2016, respectively, and a director and president of its business manager, positions he has held since October 2013 and December 2016, respectively. Mr. Sabshon also serves as the chairman of the board of directors and chief executive officer of InPoint Commercial Real Estate Income, Inc. (“InPoint”), positions he has held since September 2016 and October 2016, respectively, and as the chief executive officer of the InPoint advisor since August 2016. Prior to joining IREIC in August 2013, Mr. Sabshon served as executive vice president and chief operating officer of Cole Real Estate Investments, Inc. (“Cole”) from November 2010 to June 2013. As chief operating officer, Mr. Sabshon oversaw the company’s finance, property management, asset management and leasing operations. Prior to joining Cole, Mr. Sabshon held several senior executive positions at leading financial services firms. He spent almost 10 years at Goldman Sachs Commercial Mortgage Capital. He also served as senior vice president in Lehman Brothers’ real estate investment banking group. Prior to joining Lehman Brothers, Mr. Sabshon was an attorney in the corporate and real estate structured finance practice groups of Skadden, Arps, Slate, Meagher and Flom in New York. Mr. Sabshon is the Chairman Emeritus of the Investment Program Association for 2018. He is also a member of the International Council of Shopping Centers, the Urban Land Institute, the National Association of Corporate Directors, and a member of the Board of Trustees of the American Friends of Hebrew University—Midwest Region. Mr. Sabshon is a member of the New York State Bar. He also holds a real estate broker license in New York. Mr. Sabshon received his juris doctor from Hofstra University School of Law and his bachelor degree from George Washington University.

CATHERINE L. LYNCH (age 59) joined Inland in 1989 and has been a director of The Inland Group since June 2012. She serves as the treasurer and secretary (since January 1995), the chief financial officer (since January 2011) and a director (since April 2011) of IREIC and as a director (since July 2000) and chief financial officer and secretary (since June 1995) of Inland Securities Corporation. Ms. Lynch also has served as a director of Inland Private Capital Corporation

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since May 2012. She has served as the chief financial officer of Inland Real Estate Income Trust, Inc. since April 2014 and as a director of its business manager since August 2011. She has also served as the chief financial officer of Inland Residential Properties Trust, Inc. and its business manager since December 2013. Ms. Lynch also serves as the chief financial officer and treasurer (since October 2016) of InPoint and as the chief financial officer and treasurer of the InPoint advisor (since August 2016). Ms. Lynch served as the treasurer of Inland Capital Markets Group, Inc. from January 2008 until October 2010, as a director and treasurer of Inland Investment Advisors, LLC from June 1995 through December 2014 and as a director and treasurer of Inland Institutional Capital, LLC from May 2006 through December 2014. Ms. Lynch worked for KPMG Peat Marwick LLP from 1980 to 1989. Ms. Lynch received her bachelor degree in accounting from Illinois State University in Normal. Ms. Lynch is a certified public accountant and a member of the American Institute of Certified Public Accountants and the Illinois CPA Society. Ms. Lynch also is registered with FINRA as a financial operations principal.

ROBERTA S. MATLIN (age 73) joined IREIC in 1984 as director of investor administration. In 1993 she was promoted to a senior vice president of IREIC, and in 1998 became a director of IREIC. Since January 2015 she has served as a senior vice president of The Inland Real Estate Group, LLC responsible for special projects for the Chairman of The Inland Group, Inc. In July 2014, Ms. Matlin was named the Chairman of The Inland Real Estate Group of Companies, Inc. (“Inland”) Charities Committee, which is responsible for managing all charitable donations on behalf Inland. Also, Ms. Matlin has been a director of Inland Private Capital Corporation since May 2001, and she has served as vice president of Inland Institutional Capital, LLC since May 2006 and a manager since August 2012. She has served as president of Inland Opportunity Business Manager & Advisor, Inc. since April 2009 and as a director since January 2015. Since December 2007, Ms. Matlin has served as a director of Pan American Bank and since January 2012, as chair of its audit committee. Ms. Matlin served as a trustee and executive vice president of Inland Mutual Fund Trust from 2001 until 2004. She also has served as a director and president of Inland Securities Corporation from July 1995 to March 1997 and director and vice president since April 1997 and as a director of Inland Business Manager & Advisor Group, Inc. since January 2014.

Ms. Matlin is and was responsible for the non-legal corporate governance administration of various real estate investment trusts and their business managers that were sponsored by IREIC. Specifically, since August 2011 she has served as vice president of administration of Inland Real Estate Income Trust, Inc. and IREIT Business Manager & Advisor, Inc., since December 2013 she has served as vice president of administration for Inland Residential Business Manager & Advisor, Inc., and since August 2016 she has served as vice president of administration for Inland InPoint Advisor, LLC. From June 2008 until July 2014, Ms. Matlin served as vice president of administration of Inland Diversified Real Estate Trust, Inc. and served as the president of Inland Diversified Business Manager & Advisor, Inc. from June 2008 through May 2009 and then as its vice president until July 2014. She served as vice president of administration of Inland American Real Estate Trust, Inc. from October 2004 until February 2014 when Inland American became self-managed. She served as president of Inland American Business Manager & Advisor, Inc. from October 2004 until January 2012 and then as its vice president until February 2014. Ms. Matlin served as vice president of administration of Inland Western Retail Real Estate Trust, Inc. from 2003 until 2007, vice president of administration of Inland Retail Real Estate Trust, Inc. from 1998 until 2004, and vice president of administration of Inland Real Estate Corporation from 1995 until 2000. She also served as a manager and president of Inland Investment Advisors, LLC from June 1995 until May 2017.

Prior to joining Inland, Ms. Matlin worked for the Chicago Region of the Social Security Administration of the United States Department of Health and Human Services. Ms. Matlin is a graduate of the University of Illinois in Champaign. She holds Series 7, 22, 24, 39, 63, 65, 79 and 99 registrations with FINRA.

GUADALUPE GRIFFIN (age 53) joined Inland in 1994. Ms. Griffin serves as principal executive officer of the Partnership (since January 2014) and senior vice president – asset management of IREIC (since March 2012). Ms. Griffin is responsible for investor communications, the asset management and day-to-day operations of the public and private partnerships and limited liability companies sponsored by IREIC, which include the development of operating and disposition strategies. Ms. Griffin also has served as a director and vice president of Intervest Southern Real Estate Corporation since January 2015 and March 2006, respectively, and vice president of Inland Opportunity Business Manager & Advisor, Inc. since April 2009. Ms. Griffin is a licensed real estate broker.

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DONNA URBAIN (age 55) joined Inland in 2002 and is the principal financial officer of the Partnership. Ms. Urbain is responsible for the investment accounting department which includes all public partnership accounting functions along with quarterly and annual SEC filings. Ms. Urbain also serves as vice president – controller of IREIC. She has served as a director of IREIC Property Management Group, Inc., manager of Inland Commercial Real Estate Services LLC, manager of Inland Residential Real Estate Services LLC and director of Inland National Services Corp. since May 2016. Prior to joining Inland, Ms. Urbain worked in the field of public accounting for KPMG LLP. Ms. Urbain is a Certified Public Accountant. She received her B.B.A. in Accounting from the University of Notre Dame in South Bend, Indiana.

CATHLEEN M. HRTANEK (age 41) joined Inland in 2005 and is an associate counsel and vice president of The Inland Real Estate Group, LLC. In her capacity as associate counsel, Ms. Hrtanek represents many of the entities that are part of The Inland Real Estate Group of Companies on a variety of legal matters. She is also a member of the audit committee for the Partnership. Ms. Hrtanek has served as the secretary of Inland Opportunity Business Manager & Advisor, Inc. since April 2009, as the secretary of Inland Real Estate Income Trust, Inc. and IREIT Business Manager & Advisor, Inc. since August 2011, as the secretary of Inland Residential Properties Trust, Inc. and Inland Residential Business Manager & Advisor, Inc. since December 2013 and as the secretary of the InPoint advisor since August 2016. Ms. Hrtanek also served as the secretary of Inland Diversified Real Estate Trust, Inc. from September 2008 through July 2014, as the secretary of Inland Diversified Business Manager & Advisor, Inc. from September 2008 through March 2016, and as the secretary of Inland Private Capital Corporation from August 2009 through May 2017. Prior to joining Inland, Ms. Hrtanek had been employed by Wildman Harrold Allen & Dixon LLP in Chicago, Illinois from September 2001 until 2005. Ms. Hrtanek has been admitted to practice law in the State of Illinois. Ms. Hrtanek received her bachelor degree from the University of Notre Dame in South Bend, Indiana and her law degree from Loyola University Chicago School of Law.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors, executive officers and beneficial owners of more than ten percent of our partnership units to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and to provide us with copies of such reports. Based solely on a review of the copies provided to us, we believe that all applicable Section 16(a) filing requirements have been met for such reporting persons.

Item 11. Executive Compensation

We do not have any employees, and none of our executive officers receives any compensation from us. Accordingly, we hired no compensation consultants.

Our general partner is entitled to receive a share of cash distributions of net sale proceeds based upon both an aggregate overall return to the limited partners and a separate return with respect to each parcel of land purchased by us.

Our partnership agreement prescribes the allocation of profits and losses, and the distribution priorities of available cash. If and to the extent that real estate taxes and insurance payable with respect to our land during a given year exceed our revenues, our general partner will make a supplemental capital contribution of such amount to us to ensure that we have sufficient funds to make such payments and receive a special allocation of expenses in a like amount.

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Distributions of net sale proceeds will be allocated between the general partner and the limited partners based upon both an aggregate overall return to the limited partners and a separate return with respect to each parcel of land purchased by us.

As a general rule, net sale proceeds will be distributed 90% to the limited partners and 10% to the general partner until the limited partners have received from net sale proceeds (i) a return of their original capital plus (ii) a noncompounded cumulative preferred return of 15% of their invested capital. However, with respect to each parcel of land, the general partner’s 10% share will be subordinated until the limited partners receive a return of the original capital attributed to such parcel or parcel capital plus a 6% per annum noncompounded cumulative preferred return thereon.

Any distributions from net sales proceeds at a time when invested capital is greater than zero shall be deemed applied first to the reduction of such invested capital before application to payment of any deficiency in the 15% cumulative preferred return.

We are permitted to engage in various transactions involving affiliates of our general partner, as described below.

Our general partner and its affiliates may be reimbursed (as set forth under terms of the partnership agreement) for salaries and expenses of employees of the general partner and its affiliates relating to our administration. For the year ended December 31, 2017, such costs, included in general and administrative expenses to affiliates and professional services to affiliates, were $76,537 of which $8,699 was unpaid as of December 31, 2017.

An affiliate of our general partner performs land improvements, rezoning, annexation and other activities to prepare our investment properties for sale and is reimbursed (as set forth under terms of the partnership agreement) for salaries and direct costs. The affiliate does not recognize a profit on any project. No such costs were incurred for the year ended December 31, 2017. An affiliate of the general partner also supervises the maintenance of the parcels. Such costs of $4,462 are included in land operating expenses to affiliates for the year ended December 31, 2017, of which $497 was unpaid as of December 31, 2017.

As of December 31, 2017 and 2016, the Partnership held all cash and cash equivalents with Inland Bank and Trust, an affiliate of the general partner.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We do not maintain any equity compensation plans.

(a)

The following person is a beneficial owner of more than 5% of our limited partnership units:

As of December 31, 2017, Douglas R. Nash beneficially owns 2,995.185 limited partner units or 5.98% of class. He has sole power to vote and dispose of 1,717.908 units. He has shared power with RTH Investments LLC (manager is Douglas R. Nash) to vote and dispose of 1,277.277 units.

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(b)

The officers and directors of our general partner own as a group the following units of our partnership:


Title of Class	Amount and Nature of Beneficial Ownership		Percent of Class
Limited partner units		80 Units, directly		Less than 1	%

No officer or director of our general partner possesses a right to acquire beneficial ownership of units of our partnership.

All of the outstanding shares of our general partner are owned by an affiliate or its officers and directors as set forth above in Item 10.

(c)

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

Item 13. Certain Relationships and Related Transactions

We do not currently have written, formal policies and procedures for the review, approval or ratification of transactions with related persons, as defined by Item 404 of the SEC Regulation S-K. Our policies, however, contain provisions setting forth an ability to engage in certain transactions. Our audit committee reviews all of these transactions as well as any related party transactions.

We sold the balance of Parcel 20, which was our last parcel, to an affiliate of our general partner for a sales price of $715,410. There were no other significant transactions or business relationships with the general partner, its affiliates or their management other than those described in Item 7 (Transactions with Related Parties) above. Reference is made to Note 4 of the Notes to Financial Statements (Item 8 of this Annual Report) for information regarding related party transactions.

Item 14: Principal Accounting Fees and Services

Fees. Aggregate fees for professional services rendered by our principal accountant, Grant Thornton LLP, were as follows:


	Years ended December 31,
	2017		2016
Audit fees for professional services rendered for the audit of our annual financial statements and quarterly reviews of our financial statements.	$	57,135		57,786

Our audit committee has reviewed and approved all of the fees charged by Grant Thornton and actively monitors the relationship between audit and non-audit services provided by Grant Thornton. The audit committee concluded that all services rendered by Grant Thornton during the years ended December 31, 2017 and 2016, respectively, were consistent with maintaining Grant Thornton’s independence.

In addition, the audit committee must pre-approve all services provided by the Partnership’s independent registered public accounting firm and the fees charged for these services including an annual review of audit fees, audit related fees, tax fees and other fees with specific dollar value limits for each category of service.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	The financial statements listed in the index at page 16 of this annual report are filed as part of this annual report.

(b)

Exhibits:

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

(c)	Financial Statement Schedules:

All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes.

No annual report or proxy material for the year 2017 has been sent to our limited partners. This annual report will be sent to the limited partners subsequent to this filing.

Item 16. Form 10-K Summary

None

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EXHIBIT INDEX


Exhibit No.		Description

3		Restated Certificate of Limited Partnership and Amended and Restated Agreement of Limited Partnership, included as Exhibits A and B of the Registration Statement on Form S-11, filed with the SEC on October 25, 1989, as amended, are incorporated herein by reference thereto. (P)

10.1		Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and JG Properties dated September 23, 2016, is incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed with the SEC on November 10, 2016.

10.2		Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated January 10, 2017, is incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-K filed with the SEC on March 21, 2017.

10.3		First Amendment to Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated April 7, 2017.

10.4		Second Amendment to Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated April 25, 2017.

10.5		Third Amendment to Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated June 9, 2017.

10.6		Fourth Amendment to Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated November 15, 2017.

10.7		Fifth Amendment to Real Estate Purchase and Sale Agreement (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and S.R. Jacobson Development Corp., dated January 8, 2018.

10.8		Contract of Sale (re: Inland Land Appreciation Fund II, L.P. Parcel 20), by and between Inland Land Appreciation Fund II, L.P. and IMDC Acquisitions, L.L.C., dated February 23, 2018.

31.1		Rule 13a-14(a)/15d-14(a) Certification by principal executive officer

31.2		Rule 13a-14(a)/15d-14(a) Certification by principal financial officer

32.1		Section 1350 Certification by principal executive officer

32.2		Section 1350 Certification by principal financial officer

101		The following financial information from our Annual Report on Form 10-K for the year ended December 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Partners’ Capital, (iv) the Statements of Cash Flows and (v) related notes.

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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 LAND APPRECIATION FUND II, L.P.

By:		Inland Real Estate Investment Corporation
Its:		General Partner

/s/		GUADALUPE GRIFFIN

By:		Guadalupe Griffin
Its:		Senior Vice President and Principal Executive Officer of the Partnership
Date:		March 15, 2018

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
Its:		General Partner

/s/		GUADALUPE GRIFFIN

By:		Guadalupe Griffin
Its:		Principal Executive Officer of the Partnership
Date:		March 15, 2018

/s/		DONNA URBAIN

By:		Donna Urbain
Its:		Principal Financial Officer of the Partnership
Date:		March 15, 2018

/s/		CATHERINE L. LYNCH

By:		Catherine L. Lynch
Its:		Director
Date:		March 15, 2018

/s/		ROBERTA S. MATLIN

By:		Roberta S. Matlin
Its:		Director
Date:		March 15, 2018

/s/		MITCHELL A. SABSHON

By:		Mitchell A. Sabshon
Its:		Director
Date:		March 15, 2018

/s/		DANIEL L. GOODWIN

By:		Daniel L. Goodwin
Its:		Chairman
Date:		March 15, 2018

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INLAND LAND APPRECIATION FUND II LP 10-K