UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q





|  |                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------
|X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2006
|  |                                                                                                                                       
|o | 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 of Incorporation) | (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)

___________________________________________







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 the filing requirements for at least the past 90 days.

Yes X   No  o



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  o          Accelerated filer  o          Non-accelerated filer  X



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yesq   No  X











-1-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Balance Sheets
March 31, 2006 and December 31, 2005

(unaudited)





Assets





|                                                                                                                                                                          |   |            |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | ----------
|                                                                                                                                                                          |   | 2006       | 2005      
|Current assets:                                                                                                                                                           |   |            |           
|Cash and cash equivalents (Note 1)                                                                                                                                        | $ | 4,964,583  | 6,129,127 
|Accounts and accrued interest receivable (net of allowance for     doubtful accounts of $336,712 at March 31, 2006 and     December 31, 2005) (Note 5)                    |   | 141,851    | 268,897   
|Other current assets                                                                                                                                                      |   | 278,000    | 278,182   
|                                                                                                                                                                          |   |            |           
|Total current assets                                                                                                                                                      |   | 5,384,434  | 6,676,206 
|                                                                                                                                                                          |   |            |           
|Mortgage loans receivable (net of allowance for doubtful   accounts of $85,992 at March 31, 2006 and December 31,   2005) (Note5)                                         |   | 10,847,737 | 11,705,015
|Investment properties (including acquisition fees paid to   Affiliates of $575,006 and $585,834 at March 31, 2006 and   December 31, 2005, respectively) (Notes 1 and 3): |   |            |           
|Land and improvements                                                                                                                                                     |   | 22,972,485 | 21,988,636
|                                                                                                                                                                          |   |            |           
|Total assets                                                                                                                                                              | $ | 39,204,656 | 40,369,857



See accompanying notes to financial statements.



-2-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
March 31, 2006 and December 31, 2005
(unaudited)Liabilities and Partners' Capital





|                                                                                                                                                                                                      |   |              |             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | ------------
|                                                                                                                                                                                                      |   | 2006         | 2005        
|                                                                                                                                                                                                      |   |              |             
|Current liabilities:                                                                                                                                                                                  |   |              |             
|Accounts payable                                                                                                                                                                                      | $ | 1,048,001    | 2,377,965   
|Accrued real estate taxes                                                                                                                                                                             |   | 36,670       | 29,126      
|Due to Affiliates (Note 2)                                                                                                                                                                            |   | 58,387       | 71,227      
|Unearned income                                                                                                                                                                                       |   | 6,624        | -           
|                                                                                                                                                                                                      |   |              |             
|Total current liabilities                                                                                                                                                                             |   | 1,149,682    | 2,478,318   
|                                                                                                                                                                                                      |   |              |             
|Deferred gain on sale of investment properties (Note 5)                                                                                                                                               |   | 6,339,564    | 6,841,470   
|                                                                                                                                                                                                      |   |              |             
|Total liabilities                                                                                                                                                                                     |   | 7,489,246    | 9,319,788   
|                                                                                                                                                                                                      |   |              |             
|Partners' capital:                                                                                                                                                                                    |   |              |             
|General Partner:                                                                                                                                                                                      |   |              |             
|Capital contribution                                                                                                                                                                                  |   | 500          | 500         
|Cumulative net income                                                                                                                                                                                 |   | 8,788,912    | 8,788,007   
|Cumulative cash distributions                                                                                                                                                                         |   | (8,388,195)  | (8,388,195) 
|                                                                                                                                                                                                      |   |              |             
|                                                                                                                                                                                                      |   | 401,217      | 400,312     
|Limited Partners:                                                                                                                                                                                     |   |              |             
|Units of $1,000. Authorized 60,000 Units, 50,068 Units outstanding
    at March 31, 2006 and December 31, 2005, (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                                                                                                                                                                                 |   | 59,520,118   | 58,855,682  
|Cumulative cash distributions                                                                                                                                                                         |   | (70,765,834) | (70,765,834)
|                                                                                                                                                                                                      |   |              |             
|                                                                                                                                                                                                      |   | 31,314,193   | 30,649,757  
|                                                                                                                                                                                                      |   |              |             
|Total Partners' capital                                                                                                                                                                               |   | 31,715,410   | 31,050,069  
|                                                                                                                                                                                                      |   |              |             
|Total liabilities and Partners' capital                                                                                                                                                               | $ | 39,204,656   | 40,369,857  



See accompanying notes to financial statements.



-3-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three months ended March 31, 2006 and 2005
(unaudited)

|                                                                                                                                                                 |   |           |           
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | --------- | ----------
|                                                                                                                                                                 |   | 2006      | 2005      
|Income:                                                                                                                                                          |   |           |           
|Sale of investment properties (Note 3)                                                                                                                           | $ | 911,575   | 10,590,261
|Recognition of deferred gain on sale of investment properties                                                                                                    |   | 501,906   | -         
|Rental income (Note 4)                                                                                                                                           |   | 19,128    | 16,896    
|Interest income                                                                                                                                                  |   | 214,223   | 229,816   
|Other income                                                                                                                                                     |   | 11,928    | 2,751     
|                                                                                                                                                                 |   |           |           
|                                                                                                                                                                 |   | 1,658,760 | 10,839,724
|                                                                                                                                                                 |   |           |           
|Expenses:                                                                                                                                                        |   |           |           
|Cost of investment properties sold                                                                                                                               |   | 838,633   | 3,049,672 
|Provision (recovery) for loan losses and bad debt expense                                                                                                        |   | -         | (795,400) 
|Professional services to Affiliates                                                                                                                              |   | 7,149     | 11,296    
|Professional services to non-affiliates                                                                                                                          |   | 33,442    | 37,895    
|General and administrative expenses to Affiliates                                                                                                                |   | 3,170     | 7,509     
|General and administrative expenses to non-affiliates                                                                                                            |   | 45,844    | 83,281    
|Marketing expenses to Affiliates                                                                                                                                 |   | 7,621     | 9,133     
|Marketing expenses to non-affiliates                                                                                                                             |   | 29,297    | 34,844    
|Land operating expenses to non-affiliates                                                                                                                        |   | 28,263    | 12,905    
|                                                                                                                                                                 |   |           |           
|                                                                                                                                                                 |   | 993,419   | 2,451,135 
|                                                                                                                                                                 |   |           |           
|Net income                                                                                                                                                       | $ | 655,341   | 8,388,589 
|                                                                                                                                                                 |   |           |           
|Net income allocated to:                                                                                                                                         |   |           |           
|General Partner                                                                                                                                                  | $ | 905       | 8,480     
|Limited Partners                                                                                                                                                 |   | 664,436   | 8,380,109 
|                                                                                                                                                                 |   |           |           
|Net income                                                                                                                                                       | $ | 665,341   | 8,388,589 
|                                                                                                                                                                 |   |           |           
|                                                                                                                                                                 |   |           |           
|Net income allocated to the one General Partner Unit                                                                                                             | $ | 905       | 8,480     
|                                                                                                                                                                 |   |           |           
|                                                                                                                                                                 |   |           |           
|Net income per Unit allocated to Limited Partners per weighted
  average Limited Partnership Units (50,068 for the three months   ended March 31, 2006 and 2005) | $ | 13.27     | 167.38    



See accompanying notes to financial statements.



-4-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the three months ended March 31, 2006 and 2005
(unaudited)

|                                                                                  |   |             |            
|--------------------------------------------------------------------------------- | - | ----------- | -----------
|                                                                                  |   | 2006        | 2005       
|Cash flows from operating activities:                                             |   |             |            
|Net income                                                                        | $ | 665,341     | 8,388,589  
|Adjustments to reconcile net income to net cash used in operating     activities: |   |             |            
|Provision for (recovery of) loan losses and bad debt expense                      |   | -           | (795,400)  
|Gain on sale of investment properties                                             |   | (72,942)    | (7,540,589)
|Recognition of deferred gain on sale of investment properties                     |   | (501,906)   | -          
|Changes in operating assets and liabilities:                                      |   |             |            
|Accounts and accrued interest receivable                                          |   | 127,046     | (198,643)  
|Other current assets                                                              |   | 182         | (337,630)  
|Accounts payable                                                                  |   | (1,329,964) | (1,038,911)
|Accrued real estate taxes                                                         |   | 7,544       | 5,405      
|Due to Affiliates                                                                 |   | (12,840)    | (3,023)    
|Unearned income                                                                   |   | 6,624       | (1,002,853)
|                                                                                  |   |             |            
|Net cash used in operating activities                                             |   | (1,110,915) | (2,523,055)
|                                                                                  |   |             |            
|Cash flows from investing activities:                                             |   |             |            
|Principal payments on mortgage loans receivable                                   |   | 857,278     | 795,400    
|Additions to investment properties                                                |   | (1,822,482) | (750,317)  
|Proceeds from sale of investment properties                                       |   | 911,575     | 10,590,261 
|                                                                                  |   |             |            
|Net cash provided by (used in) investing activities                               |   | (53,629)    | 10,635,344 
|                                                                                  |   |             |            
|Net increase (decrease) in cash and cash equivalents                              |   | (1,164,544) | 8,112,289  
|Cash and cash equivalents at beginning of period                                  |   | 6,129,127   | 4,338,694  
|                                                                                  |   |             |            
|Cash and cash equivalents at end of period                                        | $ | 4,964,583   | 12,450,983 
|                                                                                  |   |             |            



See accompanying notes to financial statements.



-5-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 2006
(unaudited)



Readers of this quarterly report should refer to the Partnership's audited financial statements for the fiscal year ended December 31, 2005, which are included in the Partnership's 2005 annual report, as certain footnote disclosures which would substantially duplicate those contained in such audited financial statements have been omitted from this report.



(1) Organization and Basis of Accounting



Inland Land Appreciation Fund II, L.P. (the "Partnership"), is a limited partnership formed on June 28, 1989, pursuant to the Delaware Revised Uniform Limited Partnership Act, to invest in undeveloped land on an all-cash basis and realize appreciation of such land upon resale. On October 25, 1989, the Partnership commenced an offering of 30,000 (subject to increase to 60,000) limited partnership units or Units pursuant to a registered offering under the Securities Act of 1933.  Inland Real Estate Investment Corporation is 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. As of March 31, 2006, 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.



In the opinion of management, the financial statements contain all the adjustments necessary to present fairly the financial position and results of operations for the period presented herein.  Results of interim periods are not necessarily indicative of results to be expected for the year.Certain reclassifications have been made to the 2005 financial statements to conform to the 2006 presentation.



The Partnership uses the area method of allocation, which approximates the relative sales 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.





-6-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2006
(unaudited)





(2) Transactions with Affiliates

The General Partner and its affiliates are entitled to reimbursement for salaries and expenses of employees of the General Partner and its affiliates relating to the administration of the Partnership. Such costs are included in professional services to affiliates and general and administrative expenses to affiliates, of which $7,693 and $8,511 was unpaid as of March 31, 2006 and December 31, 2005, respectively.

An affiliate of the General Partner performed marketing and advertising services for the Partnership and was reimbursed (as set forth under term of the partnership agreement) for direct costs.  Such costs of $7,621 and $9,133 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2006 and March 31, 2005, respectively, of which $5,069 and $0 was unpaid as of March 31, 2006 and December 31, 2005, respectively.

An affiliate of the General Partner performed property upgrades, rezoning, annexation and other activities to prepare the Partnership's land investments for sale and was reimbursed (as set forth under terms of the partnership agreement) for salaries and direct costs.  For the three months ended March 31, 2006, the Partnership incurred $67,149 of such costs.  The affiliate did not recognize a profit on any project. Such costs are included in investment properties, of which $45,625 and $62,716 was unpaid as of March 31, 2006 and December 31, 2005, respectively.







-7-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements (continued)

March 31, 2006 (unaudited)

(3) Investment Properties



|       |             |            |               |                   |           |                          |                   |               |           |            |            | 
|------ | ----------- | ---------- | ------------- | ----------------- | --------- | ------------------------ | ----------------- | ------------- | --------- | ---------- | ---------- | 
|       | Gross Acres | Purchase/  | Initial Costs | Costs Capitalized | Costs of  | Total Remaining Costs of | Current Year Gain
|Parcel | Illinois    | Purchased  | Sales         |                   | Original  | Acquisition              | Total             | Subsequent to | Property  | Parcels at | on Sale   
|#      | County      | (Sold)     | Date          |                   | Costs     | Costs                    | Costs             | Acquisition   | Sold      | 03/31/06   | Recognized
|1      | McHenry     | 372.759    | 04/25/90      | $                 | 2,114,295 | 114,070                  | 2,228,365         | 630,703       | 2,859,068 | -          | -         
|       |             | (372.759)  | 02/23/04      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|2      | Kendall     | 41.118     | 07/06/90      |                   | 549,639   | 43,889                   | 593,528           | 75,199        | 668,727   | -          | -         
|       |             | (3.47)     | 08/29/03      |                   |           |                          |                   |               |           |            |           
|       |             | (37.645)   | 02/17/05      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|3      | Kendall     | 120.817    | 11/06/90      |                   | 1,606,794 | 101,863                  | 1,708,657         | 2,854,857     | 567,827   | 3,995,687  | -         
|       |             | (3.390)    | 05/17/05      |                   |           |                          |                   |               |           |            |           
|       |             | (31.000)   | 07/14/05      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|4      | Kendall     | 299.025    | 06/28/91      |                   | 1,442,059 | 77,804                   | 1,519,863         | 474,414       | -         | 1,994,277  | -         
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|5      | Kane        | 189.0468   | 02/28/91      |                   | 1,954,629 | 94,569                   | 2,049,198         | 349,845       | 2,399,043 | -          | -         
|       |             | (189.0468) | 05/16/01      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|6      | Lake        | 57.3345    | 04/16/91      |                   | 904,337   | 71,199                   | 975,536           | 1,230,312     | 4,457     | 2,201,391  | -         
|       |             | (.258)     | 10/01/94      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|7      | McHenry     | 56.7094    | 04/22/91      |                   | 680,513   | 44,444                   | 724,957           | 3,210,451     | 3,935,408 | -          | -         
|       |             | (12.6506)  | Var 1997      |                   |           |                          |                   |               |           |            |           
|       |             | (15.7041)  | Var 1998      |                   |           |                          |                   |               |           |            |           
|       |             | (19.6296)  | Var 1999      |                   |           |                          |                   |               |           |            |           
|       |             | (8.7251)   | Var 2000      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|8      | Kane        | 325.394    | 06/14/91      |                   | 3,496,700 | 262,275                  | 3,758,975         | 50,822        | 1,909,034 | 1,900,763  | -         
|       |             | (.870)     | 04/03/96      |                   |           |                          |                   |               |           |            |           
|       |             | (63.000)   | 01/23/01      |                   |           |                          |                   |               |           |            |           
|       |             | (80.000)   | 05/11/04      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|9 (c)  | Will        | 9.867      | 08/13/91      |                   | -         | -                        | -                 | -             | -         | -          | -         
|       |             | (9.867)    | 09/16/02      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           



-8-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)

(3) Investment Properties (continued)



|       |             |           |               |                   |           |                          |                   |               |           |            |            | 
|------ | ----------- | --------- | ------------- | ----------------- | --------- | ------------------------ | ----------------- | ------------- | --------- | ---------- | ---------- | 
|       | Gross Acres | Purchase/ | Initial Costs | Costs Capitalized | Costs of  | Total Remaining Costs of | Current Year Gain
|Parcel | Illinois    | Purchased | Sales         |                   | Original  | Acquisition              | Total             | Subsequent to | Property  | Parcels at | on Sale   
|#      | County      | (Sold)    | Date          |                   | Costs     | Costs                    | Costs             | Acquisition   | Sold      | 03/31/06   | Recognized
|10     | Will        | 150.66    | 08/20/91      | $                 | 1,866,716 | 89,333                   | 1,956,049         | 23,897        | 1,979,946 | -          | -         
|       |             | (150.66)  | 01/10/05      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|11     | Will        | 138.447   | 08/20/91      |                   | 289,914   | 20,376                   | 310,290           | 2,700         | 312,990   | -          | -         
|       |             | (138.447) | 05/03/93      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|12 (c) | Will        | 44.732    | 08/20/91      |                   | -         | -                        | -                 | -             | -         | -          | -         
|       |             | (44.732)  | 09/16/02      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|13     | Will        | 6.342     | 09/23/91      |                   | 139,524   | 172                      | 139,696           | -             | 139,696   | -          | -         
|       |             | (6.342)   | 05/03/93      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|14     | Kendall     | 44.403    | 09/03/91      |                   | 888,060   | 68,210                   | 956,270           | 1,259,583     | 2,215,853 | -          | -         
|       |             | (15.392)  | 04/16/01      |                   |           |                          |                   |               |           |            |           
|       |             | (14.2110) | Var 2002      |                   |           |                          |                   |               |           |            |           
|       |             | (13.6000) | 04/11/03      |                   |           |                          |                   |               |           |            |           
|       |             | (1.2000)  | 02/19/04      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|15     | Kendall     | 100.364   | 09/04/91      |                   | 1,050,000 | 52,694                   | 1,102,694         | 117,829       | 1,220,523 | -          | -         
|       |             | (5.000)   | 09/01/93      |                   |           |                          |                   |               |           |            |           
|       |             | (11.000)  | 12/01/94      |                   |           |                          |                   |               |           |            |           
|       |             | (84.364)  | 08/14/98      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|16     | McHenry     | 168.905   | 09/13/91      |                   | 1,402,058 | 69,731                   | 1,471,789         | 97,766        | 1,569,555 | -          | -         
|       |             | (168.905) | 08/03/01      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|17     | Kendall     | 3.462     | 10/30/91      |                   | 435,000   | 22,326                   | 457,326           | 113,135       | 570,461   | -          | -         
|       |             | (2.113)   | 03/06/01      |                   |           |                          |                   |               |           |            |           
|       |             | (1.349)   | 08/23/02      |                   |           |                          |                   |               |           |            |           
|       |             |           |               |                   |           |                          |                   |               |           |            |           
|18     | McHenry     | 139.1697  | 11/07/91      |                   | 1,160,301 | 58,190                   | 1,218,491         | 6,962,347     | 4,555,460 | 3,625,378  | 72,942    
|       |             | (9.2500)  | Var 2004      |                   |           |                          |                   |               |           |            |           
|       |             | (33.3197) | Var 2005      |                   |           |                          |                   |               |           |            |           
|       |             | (9.25)    | Var 2006      |                   |           |                          |                   |               |           |            |           

INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)

(3) Investment Properties (continued)



|       |             |            |               |                   |           |                          |                   |               |           |            |            |  | 
|------ | ----------- | ---------- | ------------- | ----------------- | --------- | ------------------------ | ----------------- | ------------- | --------- | ---------- | ---------- |  | 
|       | Gross Acres | Purchase/  | Initial Costs | Costs Capitalized | Costs of  | Total Remaining Costs of | Current Year Gain
|Parcel | Illinois    | Purchased  | Sales         |                   | Original  | Acquisition              | Total             | Subsequent to | Property  | Parcels at | on Sale   
|#      | County      | (Sold)     | Date          |                   | Costs     | Costs                    | Costs             | Acquisition   | Sold      | 03/31/06   | Recognized
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|19     | Kane        | 436.236    | 12/13/91      | $                 | 4,362,360 | 321,250                  | 4,683,610         | 187,211       | 4,870,821 | -          | -         
|       |             | (436.236)  | 05/16/01      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|20     | Kane &      |            |               |                   |           |                          |                   |               |           |            |           
|       | Kendall     | 400.129    | 01/31/92      |                   | 1,692,623 | 101,318                  | 1,793,941         | 3,584,495     | 1,250,469 | 4,127,967  | -         
|       |             | (21.138)   | 06/30/99      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|21     | Kendall     | 15.013     | 05/26/92      |                   | 250,000   | 23,844                   | 273,844           | 37,886        | 18,798    | 292,932    | -         
|       |             | (1.000)    | 03/16/99      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|22     | Kendall     | 391.959    | 10/30/92      |                   | 3,870,000 | 283,186                  | 4,153,186         | 1,768,117     | 5,556,530 | 364,773    | -         
|       |             | (10.000)   | 01/06/94      |                   |           |                          |                   |               |           |            |           
|       |             | (5.538)    | 01/05/96      |                   |           |                          |                   |               |           |            |           
|       |             | (2.400)    | 07/27/99      |                   |           |                          |                   |               |           |            |           
|       |             | (73.395)   | Var 2001      |                   |           |                          |                   |               |           |            |           
|       |             | (136.000)  | 08/14/02      |                   |           |                          |                   |               |           |            |           
|       |             | (34.1400)  | 05/27/03      |                   |           |                          |                   |               |           |            |           
|       |             | (101.4900) | 01/09/04      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|23     | Kendall     | 133.2074   | 10/30/92      |                   | 3,231,942 | 251,373                  | 3,483,315         | 4,665,998     | 8,149,313 | -          | -         
|       |             | (11.525)   | 07/16/93      |                   |           |                          |                   |               |           |            |           
|       |             | (44.070)   | Var 1995      |                   |           |                          |                   |               |           |            |           
|       |             | (8.250)    | Var 1996      |                   |           |                          |                   |               |           |            |           
|       |             | (2.610)    | Var 1997      |                   |           |                          |                   |               |           |            |           
|       |             | (10.6624)  | Var 1998      |                   |           |                          |                   |               |           |            |           
|       |             | (5.8752)   | Var 1999      |                   |           |                          |                   |               |           |            |           
|       |             | (49.0120)  | Var 2000      |                   |           |                          |                   |               |           |            |           
|       |             | (.2028)    | Var 2001      |                   |           |                          |                   |               |           |            |           
|       |             | (1.0000)   | Var 2002      |                   |           |                          |                   |               |           |            |           
|       |             |            |               |                   |           |                          |                   |               |           |            |           
|23A(a) | Kendall     | .2676      | 10/30/92      |                   | 170,072   | 12,641                   | 182,713           | -             | 182,713   | -          | -         
|       |             | (.2676)    | 03/16/93      |                   |           |                          |                   |               |           |            |           





-9-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)

(3) Investment Properties (continued)



|       |             |           |               |                   |            |                          |                   |               |            |            |            | 
|------ | ----------- | --------- | ------------- | ----------------- | ---------- | ------------------------ | ----------------- | ------------- | ---------- | ---------- | ---------- | 
|       | Gross Acres | Purchase/ | Initial Costs | Costs Capitalized | Costs of   | Total Remaining Costs of | Current Year Gain
|Parcel | Illinois    | Purchased | Sales         |                   | Original   | Acquisition              | Total             | Subsequent to | Property   | Parcels at | on Sale   
|#      | County      | (Sold)    | Date          |                   | Costs      | Costs                    | Costs             | Acquisition   | Sold       | 03/31/06   | Recognized
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|24     | Kendall     | 3.908     | 01/21/93      | $                 | 645,000    | 56,316                   | 701,316           | 30,436        | 731,752    | -          | -         
|       |             | (3.908)   | 04/16/01      |                   |            |                          |                   |               |            |            |           
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|24A(b) | Kendall     | .406      | 01/21/93      |                   | 155,000    | 13,533                   | 168,533           | -             | 168,533    | -          | -         
|       |             | (.406)    | 04/16/01      |                   |            |                          |                   |               |            |            |           
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|25     | Kendall     | 656.687   | 01/28/93      |                   | 1,625,000  | 82,536                   | 1,707,536         | 22,673        | 1,730,209  | -          | -         
|       |             | (656.687) | 10/31/95      |                   |            |                          |                   |               |            |            |           
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|26 (d) | Kane        | 89.511    | 03/10/93      |                   | 1,181,555  | 89,312                   | 1,270,867         | 5,135,895     | 6,406,762  | -          | -         
|       |             | (2.108)   | Var 1999      |                   |            |                          |                   |               |            |            |           
|       |             | (34.255)  | Var 2000      |                   |            |                          |                   |               |            |            |           
|       |             | (7.800)   | Var 2001      |                   |            |                          |                   |               |            |            |           
|       |             | (29.1200) | Var 2002      |                   |            |                          |                   |               |            |            |           
|       |             | (11.3100) | Var 2003      |                   |            |                          |                   |               |            |            |           
|       |             | (4.9180)  | 01/28/04      |                   |            |                          |                   |               |            |            |           
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|27     | Kendall     | 83.525    | 03/11/93      |                   | 984,474    | 54,846                   | 1,039,320         | 2,556,539     | -          | 3,595,859  | -         
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|28 (c) | Kendall     | 50.0000   | 09/16/02      |                   | 661,460    | 22,976                   | 684,436           | 189,022       | -          | 873,458    | -         
|       |             |           |               |                   |            |                          |                   |               |            |            |           
|       |             |           |               | $                 | 38,810,025 | 2,504,276                | 41,314,301        | 35,632,132    | 53,973,948 | 22,972,485 | 72,942    





-10-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2006
(unaudited)





(3) Investment Properties (continued)



(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).



(d)

Reconciliation of investment properties owned:



|                         |   |            |             
|------------------------ | - | ---------- | ------------
|                         |   | March 31,  | December 31,
|                         |   | 2006       | 2005        
|                         |   |            |             
|Balance at January 1,    | $ | 21,988,636 | 19,821,907  
|Additions during period  |   | 1,822,482  | 8,300,086   
|Sales during period      |   | (838,633)  | (6,133,357) 
|                         |   |            |             
|Balance at end of period | $ | 22,972,485 | 21,988,636  





(4) Rental Income



The Partnership has determined that all leases relating to the farm parcels are operating leases. Accordingly, rental income is reported when earned.



As of March 31, 2006, the Partnership had leases of generally one year in duration, for approximately 757 acres of the approximately 1,267 acres owned.



-11-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2006
(unaudited)





(5) Mortgage Loans Receivable

Mortgage loans receivable are the result of sales of parcels, in whole or in part.  The Partnership has recorded a deferred gain on these sales.  The deferred gain will be recognized over the life of the related mortgage loan receivable as principal payments are received.



|                                     |          |               |        |            |            |            |          
|------------------------------------ | -------- | ------------- | ------ | ---------- | ---------- | ---------- | ---------
|                                     |          |               |        |            |            | Accrued    |          
|                                     |          |               |        | Principal  | Principal  | Interest   | Deferred 
|                                     |          |               |        | Balance    | Balance    | Receivable | Gain     
|Parcel                               | Maturity | Interest Rate |        | 03/31/06   | 12/31/05   | 03/31/06   | 03/31/06 
|                                     |          |               |        |            |            |            |          
|5 & 19                               | 07/01/11 | 6.00%         | $      | 10,847,737 | 11,705,015 | 56,551     | 6,339,564
|                                     |          |               |        |            |            |            |          
|15                                   | 07/31/05 | 9.00%         |        | 85,992     | 85,992     | 336,712    | -        
|                                     |          |               |        |            |            |            |          
|                                     |          |               |        | 10,933,729 | 11,791,007 | 393,263    | 6,339,564
|                                     |          |               |        |            |            |            |          
|Less allowance for doubtful accounts |          | 85,992        | 85,992 | 336,712    | -         
|                                     |          |               |        |            |            |            |          
|                                     |          |               | $      | 10,847,737 | 11,705,015 | 56,551     | 6,339,564

On May 16, 2001, the Partnership sold 189 acres of Parcel 5 and 436 acres of Parcel 19 for $17,500,000 and recorded deferred gain of $10,203,634.  The Partnership received a deferred down payment note in the amount of $1,500,000, due December 31, 2001.  The note had an interest rate of 6%, however the note provided for the interest to be waived if the principal was paid in full by December 1, 2001.  The Partnership received payment of the deferred down payment note on December 1, 2001 and recognized $875,923 of deferred gain.  The Partnership also received an installment note in the amount of $16,000,000 at the time of closing.  The installment note matures July 1, 2011 and has an interest rate of 6%.  For the three months ended March 31, 2006, we received principal payments totaling $857,278 and recognized deferred gain of $501,906.  The remaining deferred gain will be recognized as payments are received.

The General Partner determined that the maximum value of Parcel 15 could be realized if the parcel was developed and sold as individual lots. However, if the Partnership had followed that plan, there is a possibility that the Limited Partners may have been subject to unrelated business taxable income. Therefore, the Partnership sold the parcel to a third party developer whereby 100% of the sales price was represented by a note receivable from the buyer. This transaction was deemed an installment sale. After the sale, the developer, through a limited liability company or LLC, secured third party financing to cover the deferred down payment owed to the Partnership as well as provide proceeds to begin the development of the project. This sale was structured so that the deferred down payment received at the time of the sale was sufficient to provide a distribution to our Limited Partners that equated to the parcel capital allocated to the parcel plus approximately a 6% return per annum on the capital invested in the parcel (parcel capital) through the date of the distribution.





-12-



INLAND LAND APPRECIATION FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2006
(unaudited)





The velocity of the developer's individual lot sales was slower than was originally projected and consequently the developer's carrying costs were higher.  As a result of the slower than anticipated lot sales, the net sale proceeds available to the Partnership were lower than anticipated. As of March 31, 2006 and December 31, 2005, the Partnership had recorded an allowance for doubtful accounts of $85,992 relating to the mortgage receivable and $336,712 relating to the accrued interest receivable relating to the sale of Parcel 15 and has written off the related deferred gain of $747,454. During 2005, the Partnership received principal payments of $1,122,386 for a portion of the mortgage which was previously written off.  The Partnership recorded a provision for the reversal of loan losses and bad debt expense in the amount of $1,122,386.

The General Partner guaranteed the third party development loans owed by the LLC. In reviewing the developments financial situation, our General Partner determined that it would be in its best interest to have an affiliate acquire the interest in the LLC. The General Partner and its affiliates concluded that they could better control the continuing costs to complete the development and would therefore have the best opportunity to limit their exposure under the guarantee agreements and possibly recover a portion of the amount owed to the Partnership. An affiliate of our General Partner acquired the interests in the LLC and paid off the debt under its guarantee of the LLC loans. The affiliate of the General Partner will complete the development and sale of this project.

(6) Subsequent Events



On April 5, 2006, we received a principal payment of $422,395 for a portion of a mortgage receivable which was previously written off.  Such amount will be recorded as a provision for the reversal of loan losses and bad debt expense in the second quarter.



On May 4, 2006, we sold 8 additional lots of Parcel 18 for approximately $532,000 and recorded a gain of approximately $42,000.









-13-



Item 2.  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 quarterly report on Form 10-Q 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, the ability to obtain annexation and zoning approvals required to develop our properties; the approval of local governing bodies to develop our properties; successful lobbying of local "no growth" or limited development homeowner groups; adverse changes in real estate, financing and general economic or local conditions; 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.

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.

Critical Accounting Policies

The Securities and Exchange Commission issued Financial Reporting Release 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 judgements in certain circumstances. We believe that our most critical accounting policies relate to how we value our investment properties and mortgage loans receivable, cost allocation and revenue recognition.  These judgements often result from the need to make estimates about the effect of matters that are inherently uncertain.  The purpose of the FRR is to require companies 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 judgements 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, in accordance with Statement of Financial Accounting Standards No. 144, we conduct an impairment analysis to ensure that the carrying value of each property does not exceed its estimated fair value.  If this were to occur, we would be required to record an impairment loss equal to the excess of carrying value over fair value.

In determining the value of an investment property and whether the property is impaired, management considers several factors such as projected capital expenditures and sales prices. The aforementioned 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 judgement, 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. As of March 31, 2006, we had recorded no such impairment.

Cost Allocation - We use the area method of cost allocation, which approximates the relative sales 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.

Valuation of Mortgage Loans Receivable - On a quarterly basis, we conduct an analysis to ensure that the carrying value of each mortgage loan receivable is recoverable from the borrower. If we determine all or a portion of the receivable is not collectible, we would be required to record an allowance for doubtful accounts equal to the amount estimated to be uncollectible.

In determining the value of mortgage loans receivable, management considers projected sales proceeds available and expenses related to the property associated with the mortgage. Should the actual results differ from management's judgement, the valuation could be negatively or positively affected.

The valuation and possible subsequent allowance for doubtful accounts is a significant estimate that can and does change based on management's continuous process of analyzing each mortgage loan receivable. As of March 31, 2006, we had recorded an allowance for doubtful accounts of $85,992 and $336,712 on the mortgage loans receivable and the related accrued interest receivable, respectively.

Revenue Recognition - We recognize income from the sale of land parcels in accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate.



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) we are actively marketing the asset for sale at a price that is reasonable in relation to its current value; and (vi) 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.  Additionally, the operations for the periods presented are classified on the statements of operations as discontinued operations for all periods presented.

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.  As of March 31, 2006, we have not classified any properties as held for sale.

Liquidity and Capital Resources

On October 25, 1989, we commenced an offering of 30,000 (subject to increase to 60,000) limited partnership units or units pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On October 24, 1991, we terminated our 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 were admitted to the partnership. Our limited partners share in their portion of benefits of ownership of our real property investments according to the number of units held.





-14-



We used $41,314,301 of gross offering proceeds to purchase, on an all-cash basis, 27 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). As of March 31, 2006, we have had multiple sales and exchange transactions through which we have disposed of the buildings and approximately 3,263 acres, or 72%, of the approximately 4,530 acres originally owned. As of March 31, 2006, cumulative distributions have totaled $70,765,834 to the limited partners (which exceeds the original capital) and $8,388,195 to the general partner.  Of the $70,765,834 distributed to the limited partners, $70,044,834 was net sales proceeds and $721,000 was from operations. As of March 31, 2006, we have used $35,632,132 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. As of March 31, 2006, we owned, in whole or in part, 10 parcels consisting of approximately 1,267 acres, of which 757 acres are tillable and leased to local farmers and are generating sufficient cash flow from leases to cover property taxes and insurance.

At March 31, 2006, we had cash and cash equivalents of $4,964,583 which is available to be used for our costs and liabilities, cash distributions to partners and other activities with respect to some or all of our land parcels.

During the three months ended March 31, 2006 we received net sales proceeds of $911,575 from the sales of Parcel 18. We anticipate future additional sales of over 300 acres of Parcels 18, 20 and 27 in 2006 through 2007.  However there can be no assurance that any sales will be completed or that a distribution will be made to the limited partners. Undistributed net sales proceeds will be used to cover our operations, including property upgrades. We will evaluate our cash needs throughout the year to determine any future distributions.

We plan to enhance the value of our remaining land through pre-development activities such as rezoning, annexation and land planning. We have already been successful in, or are in the process of, pre-development activity on several of our land investments. Parcel 1 was annexed to the Village of Huntley and zoned for residential and commercial development and was sold in February 2004. Parcels 14, 17 and 24 were rezoned for commercial and multi-family uses. In February 2004 the remaining 1.2 acres of Parcel 14 was sold.  Parcel 26 was developed for single-family homes and as of December 31, 2004, all of lots had been sold. Parcel 20 has been granted rezoning which will permit additional land to be useable for development.  We are in zoning and planning discussions for Parcels 3 and 27. Zoning and planning of Parcels 3 and 27 is substantially complete and two contracts for sale of developed single family lots are complete. We have completed our final planning on Parcel 4 and have entered into a contract for sale. Sales of improved lots are proceeding on Parcel 18.

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 $10,319 and $18,805 are included in professional services to affiliates and general and administrative expenses to affiliates for the three months ended March 31, 2006 and March 31, 2005, respectively, of which $7,693 and $8,511 was unpaid as of March 31, 2006 and December 31, 2005, respectively.



-15-



An affiliate of our general partner performed marketing and advertising services for us and was reimbursed for direct costs.   Such costs of $7,621 and $9,133 have been incurred and are included in marketing expenses to affiliates for the three months ended March 31, 2006 and March 31, 2005, respectively, of which $5,069 and $0 was unpaid at March 31, 2006 and December 31, 2005, respectively.

An affiliate of our general partner performed property upgrades, rezoning, annexation and other activities to prepare our land investments for sale and was reimbursed for salaries and direct costs. For the three months ended March 31, 2006, we incurred $67,149 of such costs. The affiliate did not recognize a profit on any project. Such costs are included in investment properties, of which $45,625 and $62,716 was unpaid as of March 31, 2006 and December 31, 2005, respectively.



Results of Operations

Income from the sale of investment properties of $911,575 and cost of investment properties sold of $838,633 for the three months ended March 31, 2006 is the result of the sale of 9.25 acres of Parcel 18. Income from the sale of investment properties of $10,590,261 and cost of investment properties sold of $3,049,672 for the three months ended March 31, 2005 is the result of the sale of Parcel 10, the sale of the remaining acreage of Parcel 2 and the sale of approximately 6 acres of Parcel 18.



During 2001, we sold 189 acres of Parcel 5 and 436 acres of Parcel 19 for $17,500,000 and recorded deferred gain of $10,230,133.  We received a deferred down payment note in the amount of $1,500,000, due December 31, 2001.  The note had an interest rate of 6%, however the note provided for the interest to be waived if the principal was paid in full by December 1, 2001.  We received payment of the deferred down payment note on December 1, 2001 and recognized $875,923 of deferred gain.  We also received an installment note in the amount of $16,000,000 at the time of closing.  The installment note matures July 1, 2011 and has an interest rate of 6%. For the three months ended March 31, 2006, we received principal payments totaling $857,278 and recognized deferred gain of $501,906.  The remaining deferred gain will be recognized as payments are received.

As of March 31, 2006, we owned 10 parcels of land consisting of approximately 1,267 acres. Of the approximately 1,267 acres owned, 757 acres are tillable, leased to local farmers and generate sufficient cash flow to cover property taxes, insurance and other miscellaneous expenses. Rental income was $19,128 and $16,896 for the three months ended March 31, 2006 and 2005, respectively. Rental income increased due to an increase in the farm rental rates.



Professional services to affiliates and non-affiliates were $40,591 and $49,191 for the three months ended March 31, 2006 and March 31, 2005, respectively.  The decrease in 2006 is due to a decrease in sales activity.



General and administrative expenses to non-affiliates were $45,844 and $83,281 for the three months ended March 31, 2006 and March 31, 2005, respectively. The decrease in 2006 is due to a decrease in state taxes payable as a result of decreased land sales in 2006.

Marketing expenses to affiliates and non-affiliates were $36,918 and $43,977 for the three months ended March 31, 2006 and March 31, 2005, respectively.  In 2005 and continuing into 2006, we changed our marketing approach to target homebuilders, industrial users and land developers through direct mailings, newspaper and trade publication advertising and an enhanced website.



Land operating expenses to non-affiliates were $28,263 and $12,905 for the three months ended March 31, 2006 and March 31, 2005, respectively.  The increase in 2006 is due to the final lighting expenditures and landscaping changes for Parcel 26 Bliss Woods.



We determined that the maximum value of Parcel 15 could be realized if the parcel was developed and sold as individual lots. However, if we had followed that plan, there is a possibility that the limited partners may have been subject to unrelated business taxable income. Therefore, we sold the parcel to a third party developer whereby 100% of the sales price was represented by a note receivable from the buyer. This transaction was deemed an installment sale.  After the sale, the developer, through a limited liability company or LLC, secured third party financing to cover the deferred down payment owed to us as well as provide proceeds to begin the development of the project. This sale was structured so that the deferred down payment received at the time of the sale was sufficient to provide a distribution to our limited partners that equated to the parcel capital allocated to the parcel plus approximately a 6% return per annum on the capital invested in the parcel (parcel capital) through the date of the distribution.



The velocity of the developer's individual lot sales was slower than was originally projected and consequently the developer's carrying costs were higher.  As a result of the slower lot sales, the net sale proceeds available to us were lower than anticipated. As of March 31, 2006 and December 31, 2005, we had recorded an allowance for doubtful accounts of $85,992, relating to the mortgage receivable and $336,712 relating to the accrued interest receivable, both relating to the sale of Parcel 15. The related deferred gain of $747,454 has been written off. During 2005, we received principal payments of $1,122,386 for a portion of the mortgage which was previously written off.  We recorded a provision for the reversal of loan losses and bad debt expense in the amount of $1,122,386.



Our general partner guaranteed the third party development loans owed by the LLC. In reviewing the developments financial situation, our general partner determined that it would be in its best interest to have an affiliate acquire the interest in the limited liability company. The general partner and its affiliates concluded that they could better control the continuing costs to complete the development and would therefore have the best opportunity to limit their exposure under the guarantee agreements and possibly recover a portion of the amount owed. An affiliate of our general partner acquired the interests in the LLC and paid off the debt under its guarantee of the LLC loans. The affiliate of the general partner will complete the development and sale of this project. Based on our continuing review of the developments financial situation, we do not anticipate receiving any additional proceeds. However, any write-off will not take place until such time as we are certain that no further proceeds will become available to reduce the amount of the receivables. Our limited partners received distributions that equated to the parcel capital plus approximately a 6% return per annum on the parcel capital through the date of the distribution.



Subsequent Events



On April 5, 2006, we received a principal payment of $422,395 for a portion of a mortgage receivable which was previously written off.  Such amount will be recorded as a provision for the reversal of loan losses and bad debt expense in the second quarter.



On May 4, 2006, we sold 8 additional lots of Parcel 18 for approximately $532,000 and recorded a gain of approximately $42,000.





Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.





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Item 4. Controls and Procedures

Our general partner conducted, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report.  Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of the end of such period, our disclosure controls and procedures are effective in timely alerting them to material information that is required to be disclosed in the periodic reports that we must file with the Securities and Exchange Commission.

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2006 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.







PART II - Other Information



Items 1 through 5 are omitted because of the absence of conditions under which they are required.



Item 6: Exhibits and Reports on Form 8-K



(a)  Exhibits:

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



(b)  Reports on Form 8-K:



None







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SIGNATURES







Pursuant to the requirements 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/ BRENDA G. GUJRAL                     
|      |                                          
|By:   | Brenda G. Gujral                         
|Its:  | President and principal executive officer
|Date: | May 11, 2006                             
|      |                                          
|      |                                          
|      | /S/ GUADALUPE GRIFFIN                    
|      |                                          
|By:   | Guadalupe Griffin                        
|Its:  | Vice President                           
|Date: | May 11, 2006                             
|      |                                          
|      |                                          
|      | /S/ KELLY TUCEK                          
|      |                                          
|By:   | Kelly Tucek                              
|Its:  | Vice President and                       
|      | principal financial officer              
|Date: | May 11, 2006                             









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