UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-15724
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
(Exact name of registrant as specified in its charter)
Delaware 13-3294835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue Greenwich, CT 06830
(Address of principal executive offices) (Zip Code)
(203) 862-7000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - SEPTEMBER 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1997 and December 31, 1996
STATEMENTS OF OPERATIONS - For the three months ended September 30,
1997 and 1996 and for the nine months ended September 30, 1997
and 1996
STATEMENT OF PARTNERS' EQUITY - For the nine months ended September
30, 1997
STATEMENTS OF CASH FLOWS - For the nine months ended September 30,
1997 and 1996
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 5 - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
September 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $10,790,421 and $17,012,938) .. $ 1,445,548 $11,953,520
Cash and cash equivalents ........................... 8,390,382 3,769,118
Real estate - net ................................... 3,822,369 3,730,284
Other assets ........................................ 73,436 87,327
----------- -----------
$13,731,735 $19,540,249
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable ............................... $ 3,515,466 $ 3,570,723
Due to affiliates ................................... 1,791,184 2,123,481
Accounts payable and accrued expenses ............... 181,839 175,366
----------- -----------
Total liabilities ............................ 5,488,489 5,869,570
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (as restated) (330,004 units
issued and outstanding) .......................... 7,831,134 12,987,195
General partners' equity (as restated) .............. 412,112 683,484
----------- -----------
Total partners' equity ....................... 8,243,246 13,670,679
----------- -----------
$13,731,735 $19,540,249
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues
Operating income - real estate ............. $ 453,196 $ 494,836 1,287,823 1,359,418
Short-term investment interest ............. 80,580 48,104 295,327 143,354
Other income ............................... 38,587 64,316 116,128 138,915
Mortgage loans interest income ............. 18,847 -- 112,604 --
----------- ----------- ------------ -----------
591,210 607,256 1,811,882 1,641,687
----------- ----------- ------------ -----------
Costs and expenses
Operating expenses - real estate ........... 252,775 295,988 710,588 821,607
Mortgage loan interest expense ............. 75,027 85,348 235,004 257,139
General and administrative expenses ........ 58,183 74,656 148,383 225,250
Asset management fees ...................... 36,718 38,713 115,706 123,868
Depreciation expense ....................... 23,000 22,222 69,000 66,222
Mortgage servicing fees .................... 15,437 23,663 56,057 69,272
(Recovery of) provision for loan losses .... (604,155) -- 1,736,105 --
----------- ----------- ------------ -----------
(143,015) 540,590 3,070,843 1,563,358
----------- ----------- ------------ -----------
Net income (loss) ............................... $ 734,225 $ 66,666 $(1,258,961) $ 78,329
=========== =========== =========== ===========
Net income (loss) attributable to
Limited partners ........................... $ 697,514 $ 63,333 $(1,196,013) $ 74,413
General partners ........................... 36,711 3,333 (62,948) 3,916
----------- ----------- ------------ -----------
$ 734,225 $ 66,666 $(1,258,961) $ 78,329
=========== =========== =========== ===========
Net income (loss) per unit of limited partnership
interest (330,004 units outstanding) ....... $ 2.12 $ .19 $ (3.62) $ .22
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1997 ........................... $ (3,440,567) $ 17,111,246 $ 13,670,679
Reallocation of partners' equity ................... 4,124,051 (4,124,051) --
------------ ------------ ------------
Balance, January 1, 1997 (as restated) ............. 683,484 12,987,195 13,670,679
Net loss for the nine months ended
September 30, 1997 ............................. (62,948) (1,196,013) (1,258,961)
Distributions for the nine months ended
September 30, 1997 ($12.00 per limited
partnership unit) .............................. (208,424) (3,960,048) (4,168,472)
------------ ------------ ------------
Balance, September 30, 1997 ........................ $ 412,112 $ 7,831,134 $ 8,243,246
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities
Net (loss) income ..................................................... $(1,258,961) $ 78,329
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation ................................................... 69,000 66,222
Deferred asset management and
mortgage servicing fees, net of
payments made .............................................. (332,297) (106,693)
Provision for loan losses ...................................... 2,340,260 --
Recovery of loan losses ........................................ (604,155)
Mortgage loan interest accrued ................................. (56,541) --
Changes in assets and liabilities
Other assets ....................................................... 13,891 (8,387)
Accounts payable and accrued expenses .............................. 6,473 94,385
----------- -----------
Net cash provided by operating activities .................. 177,670 123,856
----------- -----------
Cash flows from investing activities
Additions to real estate .............................................. (161,085) --
Principal payments on mortgage loan payable ........................... (55,257) (46,178)
Proceeds from principal repayments of mortgage loans .................. 8,828,408 --
----------- -----------
Net cash provided by (used in) investing activities ........ 8,612,066 (46,178)
----------- -----------
Cash flows from financing activities
Distributions to partners ............................................. (4,168,472) --
----------- -----------
Net increase in cash and cash equivalents .................................. 4,621,264 77,678
Cash and cash equivalents, beginning of period ............................. 3,769,118 4,035,754
----------- -----------
Cash and cash equivalents, end of period ................................... $ 8,390,382 $ 4,113,432
=========== ===========
Supplemental disclosure of cash flow information
Interest paid ......................................................... $ 235,004 $ 257,139
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction
with the financial statements, related footnotes and discussions
contained in the Resources Accrued Mortgage Investors, L.P. - Series 86
(the "Partnership") annual report on Form 10-K for the year ended
December 31, 1996. The results of operations for the nine months ended
September 30, 1997 are not necessarily indicative of the results to be
expected for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invested in nonrecourse, zero coupon junior
mortgage loans on properties owned or acquired by limited partnerships
sponsored by affiliates of the General Partners. These loans generally
contained provisions whereby the Partnership may have been entitled to
additional interest represented by participation in the appreciation of
the underlying property.
The Partnership accounts for its investments in mortgage loans under
the following methods:
Investment method
Mortgage loans representing transactions in which the Partnership
is considered to have substantially the same risks and potential
rewards as the borrower are accounted for as investments in real
estate rather than as loans. Although the transactions are
structured as loans, due to the terms of the zero coupon
mortgage, it is not readily determinable at inception that the
borrower will continue to maintain a minimum investment in the
property. Under this method of accounting, the Partnership will
recognize as revenue the lesser of the amount of interest as
contractually provided for in the mortgage loan, or its pro rata
share of the actual cash flow from operations of the underlying
property inclusive of depreciation and interest expense on any
senior indebtedness.
Interest method
Under this method of accounting, the Partnership recognizes
revenue as interest income over the term of the mortgage loans so
as to produce a constant periodic rate of return. Interest income
will not be recognized as revenue during periods where there are
concerns about the ultimate realization of the interest or loan
principal.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each of the mortgage loans in the Partnership's portfolio. In
performing the review, management considers the estimated net
realizable value of the mortgage loan or collateral as well as other
factors, such as the current occupancy, the amount and status of any
senior debt, the prospects for the property and the economic situation
in the region where the property is located. Because this determination
of net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of
September 30, 1997. Accordingly, the Partnership may provide additional
losses in subsequent periods and such provisions could be material.
Depreciation
Depreciation is computed using the straight-line method over the useful
life of the property, which is estimated to be 40 years. The original
cost of the property represented the carrying value of the first
mortgage loan at the time of the foreclosure. Repairs and maintenance
are charged to operations as incurred.
Write-down for impairment
The Partnership provides write-downs for impairment based upon a
quarterly review of the real estate in its portfolio, when management
believes that, based upon market analysis and appraisal reports, the
investment in such real estate may not be recoverable.
The initial test to determine if an impairment exists is to compute the
recoverability of the asset based upon anticipated cash flows compared
to the carrying value of the asset. If anticipated cash flows are
insufficient to recover the carrying value of the asset, an impairment
loss should be recognized and the asset written down to its estimated
fair value. The fair value of the asset is the amount by which the
asset could be bought or sold in a current transaction between willing
parties, that is, other than in a forced or liquidation sale.
The allowance is inherently subjective and is based on management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide additional losses in
subsequent periods and such provisions could be material.
Recently issued accounting pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 128, "Earnings per Share"
establishes standards for computing and presenting earnings per share,
and is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Statement No. 129, "Disclosure
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
of Information about Capital Structure" establishes standards for
disclosing information about an entity's capital structure, and is
effective for financial statements for periods ending after December
15, 1997. Statement No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and display of comprehensive income
and its components, and is effective for fiscal years beginning after
December 15, 1997. Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" establishes standards for the way
that public business enterprises report information about operating
segments in annual financial statements and requires that those
enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for related disclosures about products and services,
geographic areas, and major customers, and is effective for financial
statements for periods beginning after December 15, 1997.
Management of the Company does not believe that these new standards
will have a material effect on the Company's reported operating
results, per share amounts, financial position or cash flows.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Investment General Partner of the Partnership, RAM Funding, Inc.,
and the Administrative General Partner, Resources Capital Corp., are
wholly-owned subsidiaries of Presidio Capital Corp. ("Presidio"). The
Associate General Partner of the Partnership is Presidio AGP Corp., a
Delaware Corporation, also a wholly-owned subsidiary of Presidio. The
General Partners and certain of their affiliates are general partners
in several other limited partnerships which are also affiliated with
Presidio, and which are engaged in businesses that are, or may in the
future, be in direct competition with the Partnership. On November 2,
1997, the Adinistrative Services Agreement with Wexford Management LLC
("Wexford"), the administrator for Presidio, expired. Pursuant to that
agreement Wexford had the authority to designate directors of the
General Partners. Effective November 3, 1997, Wexford and Presidio
entered into an Administrative Services Agreement dated as of November
3,1997 (the "ASA") which expires on May 3, 1998. Under the terms of the
ASA Wexford will provide consulting and administrative services to
Presidio and its affilates for a term of six months. For the nine
months ended September 30, 1997 and 1996, reimbursable expenses paid to
Wexford amounted to $20,250 and $46,445, respectively.
Effective November 3, 1997, the officers and employees of Wexford that
had served as officers and/or directors of the General Partners
tendered their resignation. On the same date, the Board of Directors
appointed new individuals to serve as officers and/or directors of the
General Partners.
The Administrative General Partner is entitled to receive an asset
management fee for services rendered in the administration and
management of the Partnership's operations equal to 1/4 of 1% per annum
of the Net Asset Value of the Partnership, as defined in the Amended
and Restated Agreement of Limited Partnership (the "Limited Partnership
Agreement"). Payment of the asset management fee is deferred until
commencement of the disposition of the Partnership's mortgage loans,
with interest on the amount deferred at 10% per annum, compounded
annually. The Administrative General Partner earned $115,706 and
$123,868, including accrued interest of $109,378 and $119,470 for the
nine months ended September 30, 1997 and 1996, respectively.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(continued)
The Administrative General Partner is also entitled to receive a
mortgage servicing fee at an annual rate of 1/4 of 1% per annum of the
principal balance of the Partnership's mortgage loans outstanding from
time to time. Payment of the mortgage servicing fee is deferred until
disposition of the applicable mortgage loan, with interest on the
amount deferred at 10% per annum, compounded annually. The
Administrative General Partner earned $56,057 and $69,272, including
accrued interest of $33,263 and $38,687 for the nine months ended
September 30, 1997 and 1996, respectively.
In May 1997, the Administrative General Partner was paid $193,426 which
represented the asset management fees previously accrued for the
Airport Center, Southern Inns and BP Shopping Center loans. In
September 1997, the Administrative General Partner was paid $54,134,
which represented partial payment of the previously accrued asset
management fee for the Berkeley Western loan.
Also, in May 1997, the Administrative General Partner was paid $58,900
which represented the mortgage servicing fee accrued for the Tri-State
loan. In June 1997, the Administrative General Partner was paid
$197,600 which represented the mortgage servicing fee for the
Stockfield loan.
Amounts due to affiliates for asset management and mortgage servicing
fees consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Asset management fee $ 1,415,183 $ 1,547,037
Mortgage servicing fee 376,001 576,444
----------- ------------
$ 1,791,184 $ 2,123,481
=========== ============
</TABLE>
The General Partners collectively are allocated 5% of the net income or
loss of the Partnership and are entitled to receive 5% of
distributions. Such amounts are allocated or distributed 4.8% to the
Administrative General Partner, 0.1% to the Investment General Partner,
and 0.1% to the Associate General Partner. For the three months ended
September 30, 1997 and 1996 the Administrative General Partner,
Investment General Partner and Associate General Partner were allocated
net income of $35,243, $734 and $734 and $3,199, $67 and $67,
respectively.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invested in nonrecourse, zero-coupon junior mortgage
loans. Collection of amounts due on the Partnership's junior mortgage
loans is solely dependent upon the sale or refinancing of the
underlying properties at amounts sufficient to satisfy the
Partnership's mortgage loans, after payment of the senior mortgage
loans owned by unaffiliated third parties.
The properties, which collateralize the Partnership's mortgage loans,
have experienced varying degrees of operating problems. Certain loans
were ultimately lost when the senior lenders foreclosed on the
properties securing the Partnership's mortgage loans. Certain loans
have been restructured to allow the Partnership a possible equity
participation in the future sales or refinancings of the properties.
The Partnership has provided for these contingencies, in some
circumstances, by establishing an allowance for loan losses on its
entire investment in certain mortgages.
Tri-State loan
The Tri-State loan, in the original principal amount of $1,800,000, was
made to Tri-State Retail Associates, L.P. ("Tri-State"). The
Partnership's security for this loan was subordinate to the first
mortgage held by Trans Ohio Savings Bank, in the original principal
amount of $10,650,000, which was schedule to mature on July 1, 1998.
The mortgage secured three retail warehouses formerly operated as PACE
membership clubs.
There was substantial risk that the Partnership would lose its entire
investment at the time the first mortgage matured. Therefore, the
entire carrying value of the loan, in the amount of $1,963,522, was
reserved during 1993.
In June 1995 the Partnership entered into an agreement to restructure
its loan to Tri-State. The agreement, among other things, set certain
release prices for the three properties securing the loan, allowing
Tri-State to sell one property alone. The agreement also provided that
Tri-State would not incur a prepayment penalty in the event of a
prepayment. In addition, the Partnership waived its right to receive
additional interest (interest that represented a percentage of the
increase in the value of the Tri-State Properties).
In January 1997, the Partnership received the full contractual balance
(including accrued interest) of the Tri-State loan of $5,693,199, the
recovery of which was recorded at December 31, 1996.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan
The Complex securing the Research Triangle loan ("RT Loan"), was
operating with positive cash flow and meeting all its debt service
requirements. The RT Loan and the Senior Wrap Mortgages were due to
mature January 1, 1996. The Senior Wrap Mortgages were being negotiated
to extend the maturity dates. While negotiations were in progress,
Research Triangle Associates ("RT"), the owner of the property secured
by the loan, continued to make debt service payments. Leases with IBM
accounted for over 70% of the leased space at the property and were due
to expire in 1997. Since refinancing would be difficult without a
longer lease commitment from IBM, the Partnership ceased accruing
interest during 1993. Due to the uncertainty associated with the
ultimate recoverability of the RT Loan, a reserve for loan losses in
the amount of $2,360,000 was established for the quarter ended March
31, 1995. In 1996 the IBM leases were extended for periods expiring in
2 to 5 years.
On August 1, 1995 (the "Closing Date"), the Partnership entered into a
Loan Acquisition and Participation Agreement (the "Agreement") with the
owner of the Senior Wrap Mortgages, TEER Associates ("Teer"), whereas
the Partnership conveyed its interest in the RT Loan to Teer in
consideration of the grant of a RAM Participation Interest. The RAM
Participation Interest was a twenty percent (20%) undivided interest in
(i) the Wrap Cash Flow, which was all amounts received by Teer on
account of the Senior Wrap Mortgages reduced by the sum of the senior
loan payments and the amount of all reimbursable expenses attributable
to the Senior Wrap Mortgages and (ii) the RAM Cash Flow, which was all
amounts received by Teer under the RT Loan reduced by the amount of
reimbursable expenses attributable to the RT Loan.
As a result of this transaction and an analysis of the value of the
investment, it was determined that an additional allowance for loan
losses was required for the value of the RT Loan in the amount of
$1,260,000. The property securing the RT Loan was appraised in August
1995, and valued at $45,000,000. The Partnership's 20% interest in the
excess of market value over the Senior Wrap Mortgage amounted to
approximately $1,360,000. The carrying value prior to the additional
allowance was approximately $2,620,000, resulting in a $1,260,000
allowance in August 1995. For the nine months ended September 30, 1997
and 1996, the Partnership recorded $56,063 and $52,537, respectively,
from the RAM Participation Interest, which are included in other income
in the accompanying statements of operations.
In September 1997, the properties underlying the RAM Participation
Interest were sold. Accordingly, the Partnership received its 20%
undivided interest, as stipulated in the agreement, which amounted to
$1,966,411. The carrying value of the RT Loan at the time of the sale
was $1,362,256, resulting in a recovery of loan losses of $604,155 for
the quarter ended September 30, 1997.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Pike Creek loan
The Pike Creek loan was originally a $975,000 third mortgage loan to
Big Valley Associates, L.P. which bore interest at 13.4% per annum
compounded monthly, and was scheduled to mature on December 31, 1999.
The property securing the Pike Creek loan is currently operating with
positive cash flow and is meeting all debt service requirements.
However, a second mortgage, which required no debt service payments
until maturity, matured at the end of 1995. A first mortgage loan,
which had a principal balance of approximately $12,850,000, matured on
February 15, 1996.
Negotiations were being conducted during early 1996 to refinance or
otherwise restructure the first and second mortgages. Based on an
internal valuation, at that time, the likelihood of obtaining continued
financing would have been difficult. Therefore, the Partnership had
determined that interest on this loan should not be accrued.
Due to the uncertainty associated with the ultimate collectability of
the Pike Creek loan, an allowance for loan losses in the amount of
$946,000 was established during March 1995, which reduced the carrying
value of the loan to $1,050,832.
In November 1996 this loan was amended and restated (the "Amended
Note"). The Amended Note has a principal balance of $830,000, which is
comprised of $500,000 of the original loan made by the Partnership and
$330,000 of new funds advanced by the Partnership. The $500,000 portion
of the Amended Note bears interest at 7% per annum and the $330,000
portion bears interest at 12% per annum, both compounded annually. The
amendment was necessary in order to facilitate the refinancing of the
first mortgage loan which was in default. Additionally, it allowed for
the satisfaction of the second mortgage loan. The $330,000 advanced to
the Pike Creek borrower was used, in addition to funds provided by the
Pike Creek borrower to satisfy its second mortgage loan. Both portions
of the Amended Note will be serviced by a percentage of net cash flow
from the property. Net cash flow is defined as the amount by which, in
any calendar year, rent received by the Pike Creek borrower exceeds all
costs and expenses incurred in connection with the property, including
debt service. In addition, various provisions were made for the
Partnership to receive additional interest from the Pike Creek borrower
upon the sale or refinancing of the property. Interest earned on the
Pike Creek loan for the nine months ended September 30, 1997 amounted
to $56,541.
Stockfield loan
The property securing the Stockfield loan was 96% occupied by Shell
California Productions, Inc. ("Shell") whose lease expires in August
1999, approximately three years after the first mortgage loan matured
on April 1, 1996 and approximately one year after the Partnership's
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Stockfield loan (continued)
loan was scheduled to mature on March 31, 1998. Shell was paying rent
that exceeded market rates for the area. Shell was unlikely to exercise
its renewal option without renegotiating the rental downward to market
rates and may not have made a decision with respect to renewal before
the first mortgage or the Stockfield loan was scheduled to mature.
These factors were likely to hinder Stockfield Associates Limited
Partnership ("Stockfield"), the owner of the property which secured the
Stockfield loan, in its ability to obtain refinancing. As a result, the
Partnership decided in 1993 to cease accruing interest on the
Stockfield loan.
Due to the uncertainty associated with the ultimate collectibility of
the Stockfield loan, an allowance for loan losses in the amount of
$2,106,000 was established in March 1995, which reduced the carrying
value of the loan to $2,340,260. Stockfield's first mortgage matured on
April 1, 1996 and, since that time, Stockfield was attempting to
negotiate an extension or restructure the first mortgage. Stockfield
was unable to reach an agreement with the first mortgage lender and the
first mortgage lender commenced foreclosure proceedings. As a result,
during the first quarter of 1997, the Partnership recorded an
additional provision for loan losses for the remaining carrying value
of the Stockfield loan, which was $2,340,260. In April 1997 the senior
mortgage lender foreclosed on the Property securing the loan and the
Partnership lost its entire investment.
Brentwood Place loan
The Brentwood Place loan was made to BP Shopping Center Associates ("BP
Associates") in original principal amount of $1,900,000 and was secured
by a shopping center in Brentwood, Tennessee. Decreasing rental rates,
combined with several merchant failures, created cash flow problems
which in turn, caused BP Associates to default on their first mortgage
debt service obligations to Northwestern Mutual Life Insurance Company
("Northwestern") in February 1991. BP Associates continued to have cash
flow problems and its inability to restructure its existing
indebtedness led to it filing for protection under Chapter 11 of the
United States Bankruptcy Code on May 16, 1991. In December 1992, a Plan
of Reorganization was approved by all creditor classes, including the
Partnership, and confirmed by the Bankruptcy Court.
Under the plan, title and control of the property was transferred to
Northwestern, which had the right to hold the property or sell it. The
Partnership, and certain other unsecured creditors, received equity
participation certificates of which the Partnership had a majority
interest. The entire carrying value of this loan of $2,081,130 had been
written off during 1990.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Brentwood Place loan (continued)
In February 1997, the Partnership received $1,224,861 with respect to
its equity participation certificate due to the sale of the BP Shopping
Center by Northwestern. In the fourth quarter of 1996, the Partnership
recorded a recovery of prior loan losses to reflect this receipt.
West Palm Loan
On July 2, 1996 West Palm Associates Limited Partnership filed for
protection under Chapter 11 of the United States Bankruptcy Code. In
February 1997, a Plan for Reorganization was filed which called for a
restructuring of the Partnership's mortgage, and in September 1997 the
restructuring agreement was executed. The Partnership has reduced its
indebtedness to $5,000,000, with interest accruing at 7% per annum and
extended the maturity date to February 2017. The Partnership is also
entitled to a participation interest in the event of a sale of the
property.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's investments in mortgage
loans is as follows:
<TABLE>
<CAPTION>
Date
Interest Compound Loan Maturity Prepayment is
Description Rate Period Date Date Permissable
----------- ---- ------ ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) 14.50% Annual 20-Dec-85 (i) (i)
Berkeley, CA
Stockfield Associates (b) (c) 14.50% Annual 1-Apr-86 (l) 1-Apr-96
Bakersfield, CA
Research Triangle (d) (j)(m) 13.675% Monthly 1-Jan-88 (j) (j)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) 13.40% Monthly 16-Dec-87 21-Nov-16
Wilmington, DE
B.P. Associates (e) 13.40% Monthly 7-Jan-88 (e) (e)
Brentwood, TN
Boram (g) 14.50% Annual 12-Feb-88 (g) (g)
Shreveport, LA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Interest recognized
Mortgage Mortgage -----------------------
Amount Purchased Placement Sep. 30, 1996 and
Description Advanced Interest Fee 1997 Prior Reserves
----------- -------- -------- --- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) 2,250,000 $94,079 $ 137,483 $ - $ - $ -
Berkeley, CA
Stockfield Associates (b) (c) 4,200,000 137,142 254,378 - 89,000 -
Bakersfield, CA
Research Triangle (d) (j)(m) 3,000,000 - 175,953 - 2,068,560 -
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k)
Wilmington, DE 1,305,000 - 57,185 56,541 1,077,654 (1,050,832)
B.P. Associates (e)
Brentwood, TN 1,900,000 - 111,437 - 69,693 -
Boram (g)
Shreveport, LA 6,900,000 - 404,692 - 863,769 -
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- -------------------------
Write-offs, Payments Sep. 30 , Dec. 31, Sep. 30, Dec. 31,
Description Net of recoveries Received 1997 1996 1997 1996
----------- ----------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) $ (2,481,562) $ - $ - - - (i)
Berkeley, CA
Stockfield Associates (b) (c) (4,680,520) - - 2,340,260 - 18,035,899
Bakersfield, CA
Research Triangle (d) (j) (m) (3,278,102) (1,966,411) - 1,362,256 - (j)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) - - 1,445,548 1,389,007 886,541 838,175
Wilmington, DE
B.P. Associates (e) (856,269) (1,224,861) - 1,224,861 - (e)
Brentwood, TN
Boram (g) (8,168,461) - - - - (g)
Shreveport, LA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's investments in mortgage
loans is as follows:
<TABLE>
<CAPTION>
Date
Interest Compound Loan Maturity Prepayment is
Description Rate Period Date Date Permissable
----------- ---- ------ ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Residential
West Palm (c)(n) 7.00% Annual 16-Jun-88 16-Feb-16 1-Jul-1997
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) 13.46% Monthly 22-Jun-88 30-Jun-00 1-Jul-1997
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) 13.46% Monthly 29-Jun-88 (f) (f)
North and South Carolina, Virginia
<CAPTION>
Interest recognized
Mortgage Mortgage -----------------------
Amount Purchased Placement Sep 30, 1996 and
Description Advanced Interest Fee 1997 Prior Reserves
----------- -------- -------- --- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c)(n) $ 9,200,000 $ - $ 539,589 $ - $ - $ (9,739,589)
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) 1,800,000 - 105,572 56,063 3,731,564 -
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) 4,000,000 - 234,604 - - -
North and South Carolina, Virginia
------------ -------- ---------- --------- ------------ ------------
$ 34,555,000 $231,221 $2,020,893 $ 112,604 $ 7,900,240 $(10.790,421)
============ ======== ========== ========= ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- --------------------------
Write-offs, Payments Sep. 30, Dec. 31, Sep. 30, Dec. 31,
Description Net of recoveries Received 1997 1996 1997 1996
----------- ----------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c)(n) - - - - 5,000,000 $28,826,915
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) - (5,693,199) - 5,637,136 - 5,631,611
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) (4,234,604) - - - - (f)
North and South Carolina, Virginia
------------ ----------- ----------- ----------- ----------- -----------
$(23,699,518) $(8,884,471) $ 1,445,548 $11,953,520 $ 5,886,541 $53,332,600
============ =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
(a) Contractual balance represents the amount to be paid by the borrower if the
loan were liquidated as of September 30, 1997 or December 31, 1996,
respectively, including principal plus interest earned to such date.
(b) The Partnership may be entitled to additional interest in the appreciation
of property, which additional interest is subordinated to a specified
return to the borrowers.
(c) These loans are accounted for under the investment method.
(d) These loans are accounted for under the interest method.
(e) In December 1992, a Plan of Reorganization was confirmed and the
Partnership received Equity Participation Certificates. In February, 1997,
the property was sold and the partnership received $1,224,861 for its share
of the Equity Participation Certificates.
(f) In April 1993, the Partnership acquired a property through foreclosure of
the original loan. The Partnership recognized income of $235,644 in 1993.
(g) In July 1993, the loan was restructured. The Partnership now has a
participating interest in a future sale of the property.
(h) This loan was repaid in January, 1997.
(i) In November 1994, a Plan of Reorganization was confirmed which converted
the Partnership's original investment into a non-interest bearing note for
$550,000 and participating interest in the future sale of the property.
(j) During 1995, the Partnership conveyed its interest in this loan in exchange
for a participation interest in the cash flow of the Senior Wrap Mortgage
holder.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
(k) During 1996, the Partnership amended and restated this loan. The new loan
of $830,000 consists of two components; $500,000 and $330,000 bearing
interest at 7% and 12% per annum, respectively, plus equity participation
provisions.
(l) In April 1997, the senior mortgage lender foreclosed on the property
securing the loan.
(m) In September 1997, the Partnership received $1,966,411 in satisfaction of
its participation interest in the sale of the underlying property.
(n) This loan was restructured to reduce the indebtedness to $5,000,000 with
interest accruing at 7% per annum and the maturity date was extended to
February 2017.
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 1997 December 31, 1996
---------------------------------------------- --------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Total Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Opening balance ........... $ 7,977,396 $ 3,976,124 $ 11,953,520 $ 2,340,260 $ 2,413,088 $ 4,753,348
(Provision for) recovery of
loan losses ........... (2,340,260) 604,155 (1,736,105) 1,963,522 1,224,861 3,188,383
Additional funding ........ -- -- -- -- 330,000 330,000
Interest recognized ....... 56,063 56,541 112,604 3,673,614 8,175 3,681,789
Loan repayments ........... (5,693,199) (3,191,272) (8,884,471) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Ending balance ............ $ -- $ 1,445,548 $ 1,455,548 $ 7,977,396 $ 3,976,124 $ 11,953,520
============ ============ ============ ============ ============ ============
</TABLE>
5 REAL ESTATE
On April 1, 1993 the Partnership acquired title by foreclosure and
assumed ownership responsibilities of a hotel property, the Richmond
Comfort Inn Executive Center, located in Richmond, Virginia, which was
part of the Partnership's collateral for the Southern Inns loan.
The Partnership had originally loaned Southern Inns $4,000,000 secured
by seven properties, one of which was this hotel. The Partnership
acquired title by foreclosure to this property subject to a first
mortgage. The Partnership recorded the land and building acquired by
the foreclosure at an initial cost equal to the existing first
mortgage. The operating income and expenses of the hotel are reflected
in the statements of operations.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
5 REAL ESTATE (continued)
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------- -------------
<S> <C> <C>
Land $ 444,700 $ 444,700
Building and improvements 3,774,523 3,613,438
----------- -------------
4,219,223 4,058,138
Less: accumulated depreciation (396,854) (327,854)
------------ --------------
$ 3,822,369 $ 3,730,284
=========== =============
</TABLE>
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
6 MORTGAGE LOAN PAYABLE
In connection with the foreclosure of the Richmond Comfort Inn, the
Partnership acquired the property subject to a $4,000,000 nonrecourse
promissory note secured by a first mortgage on the hotel property. The
mortgage note has a current balance of $3,515,466 at September 30,
1997. Interest rates on the loan are adjustable every five years with a
current interest rate of 9.49% effective through the maturity date of
the loan. Interest is based on a 2% premium over the Federal Home Loan
Bank of Atlanta Five Year Advance Rate. The loan requires monthly
payments of interest and principal. Interest expense for the nine
months ended September 30, 1997 amounted to $235,004. The loan is held
by the Resolution Trust Company and the lender is permitted to
accelerate the note as of April 1, 1997, and thereafter with six months
notice. The Partnership has not been notified of an acceleration of
this mortgage. The loan matures on February 1, 2016. A prepayment
penalty of 2%, reducing to 1%, exists for the first two years after an
interest rate change.
7 PARTNERS' EQUITY
The General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners'
equity account was credited with only the actual capital contributed in
cash, $1,000. The Partnership's management determined that this
accounting does not appropriately reflect the Limited Partners' and the
General Partners' relative participations in the Partnership's net
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
7 PARTNERS' EQUITY (continued)
assets, since it does not reflect the General Partners' 5% equity
interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $4,124,051 (5% of the gross proceeds
raised at the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
8 COMMITMENTS AND CONTINGENCIES
Legal proceedings
On or about May 11, 1993, three public real estate partnerships (the
"HEP Partnerships") including High Equity Partners, L.P. - Series 86,
in which the Administrative General Partner is also a General Partner,
were advised of the existence of an action (the "HEP Action") filed in
the Superior Court for the State of California for the County of Los
Angeles, by Mark Erwin, Trustee, Mark Erwin Sales, Inc. Defined Benefit
Plan; Nancy Cooper, Trustee of Nancy Cooper Individual Retirement
Account; and Leonard Drescher, Trustee of Drescher Family Trust Account
individually and purportedly on behalf of a class consisting of all of
the purchasers of limited partnership interests in the HEP Partnerships
(the "Plaintiffs"). The HEP Action names as defendants the
Administrative General Partner and several individuals who are general
partners of the former Associate General Partner, among others.
On November 30, 1995, the original plaintiffs and the intervening
plaintiffs filed a Consolidated Class and Derivative Action Complaint
against the General Partners alleging, among other things, breach of
fiduciary duties, breach of contract, and negligence.
On or about January 31, 1996, the parties to the HEP Action agreed upon
a revised settlement, which would be significantly more favorable to
the Plaintiffs than the previously proposed settlement. The revised
settlement proposal, like the previous proposal, involves the
reorganization of the HEP Partnerships. Upon the effectuation of the
revised settlement, the HEP Action would be dismissed with prejudice.
On July 18, 1996, the Court preliminarily approved the revised
settlement. In August 1996, the Court approved the form and method of
notice regarding the revised settlement, which was sent to the HEP
limited partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the revised settlement. Despite this, following
the submission of additional briefs, the Court entered an order on
January 14, 1997 rejecting the revised settlement and concluding that
there had not been an adequate showing that the settlement was fair and
reasonable. Thereafter, the Plaintiffs filed a motion seeking to have
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
8 COMMITMENTS AND CONTINGENCIES (continued)
the Court reconsider its order. However, the defendants withdrew the
revised settlement and at a hearing on February 24, 1997, the Court
denied the Plaintiffs' motion. Also at the February 24, 1997 hearing,
the Court recused itself from considering a motion to intervene and to
file a new complaint in intervention by one of the objectors to the
revised settlement, granted the request of one of the Plaintiffs' law
firm to withdraw as class counsel and scheduled future hearings on
various matters.
In the event that there is no settlement of the remaining claims, the
Administrative General Partner intends to vigorously contest such
claims and have, along with the other defendants, previously filed a
motion to dismiss the HEP Action, which is currently pending before the
Superior Court. It is impossible at this time to predict what the
defense of this lawsuit will cost the Administrative General Partner
and whether such costs could adversely effect the Administrative
General Partners' ability to perform its obligations to the
Partnership.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The General Partners hold a 5% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners'
equity account was credited with only the actual capital contributed in
cash, $1,000. The Partnership's management determined that this
accounting does not appropriately reflect the Limited Partners' and the
General Partners' relative participations in the Partnership's net
assets, since it does not reflect the General Partners' 5% equity
interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $4,124,051 (5% of the gross proceeds
raised at the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
Because the Partnership's loans are zero-coupon loans, the Partnership
receives no current cash flow from such investments with the exception
of the Research Triangle loan and the Big Valley loans as discussed.
In January 1997, the Partnership received $5,693,199 in full
satisfaction of the Tri-State mortgage. In February 1997, the
Partnership received $1,224,861 in full payment of an equity
participation certificate relating to BP Shopping Center. In September
1997, the Partnership received $1,966,411 in full satisfaction of the
Research Triangle Participation Interest (see Note 4 to the Financial
Statements).
As of September 30, 1997, the Partnership's working capital reserves
amounted to approximately $8,390,000. The Partnership may utilize its
working capital reserves in the event the Partnership incurs additional
expenses in taking legal action or lending additional funds to protect
its interest in certain of the mortgage loans in which the underlying
properties are experiencing financial difficulties (see Note 4 to the
Financial Statements). The Partnership's cash flow from the operation
of its hotel property is anticipated to be sufficient to meet such
property's capital expenditure needs in 1997.
In May 1997, the Administrative General Partner was paid $193,426 which
represented the asset management fees previously accrued for the
Airport Center, Southern Inns and BP Shopping Center. In September
1997, the Administrative General Partner was paid $54,134, which
represented partial payment of the previously accrued asset management
fee for the Berkeley Western loan.
<PAGE>
Also, in May 1997, the Administrative General Partner was paid $58,900
which represented the mortgage servicing fee accrued for the Tri-State
loan. In June 1997, the Administrative General Partner was paid
$197,600 which represented the mortgage servicing fee for the
Stockfield loan.
The Partnership declared an interim distribution on June 30, 1997 which
was paid in the subsequent quarter. The distribution represents a
portion of the proceeds the Partnership received during 1997 from the
repayment of two fully reserved loans, Tri-State and BP (see Note 4 to
the Financial Statements).
Liquidity and Capital Resources (continued)
The Partnership has placed the undistributed portion of the proceeds of
the Tri-State, BP and Research Triangle loan repayments (approximately
$4,708,000) in working capital reserves in order to retain sufficient
cash to protect and maximize the value of its remaining investments.
The Partnership will determine on a quarterly basis, based on an
analysis of its remaining investments, whether further distributions
are warranted.
Working capital reserves will be temporarily invested in short-term
money market instruments and are expected to be sufficient to pay
administrative expenses during the term of the Partnership. The
Partnership determines on a quarterly basis whether cash distributions
to the partners are warranted.
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each mortgage in the Partnership's portfolio. In performing
the review, management considers the estimated net realizable value of
the properties or collateral as well as other factors, such as the
current occupancy, the amount and status of senior debt, if any, the
prospects for the property and the economic situation in the region
where the property is located. Because this determination of net
realizable value is based upon projections of future economic events
which are inherently subjective, the amounts ultimately realized at
disposition may differ materially from the carrying value as of
September 30, 1997.
Stockfield's first mortgage matured on April 1, 1996 and, since that
time Stockfield was attempting to negotiate an extension or restructure
the first mortgage. Stockfield was unable to reach an agreement with
the first mortgage lender and the first mortgage lender began
foreclosure proceedings. As a result, during the first quarter of 1997,
the Partnership recorded a provision for loan losses for the entire
carrying value of the Stockfield loan, which was $2,340,260. In April
1997, the first mortgage lender foreclosed on the Property and the
Partnership lost its entire investment.
In September 1997, the properties underlying the RAM Participation
Interest in Research Triangle were sold. Accordingly, the Partnership
received its 20% undivided interest, as stipulated in the agreement,
which amounted to $1,966,411. The carrying value of the RT Loan at the
time of the sale was $1,362,256, resulting in a recovery of loan losses
of $604,155 for the quarter ended September 30, 1997.
<PAGE>
There was no provision for loan losses recorded for the quarters ended
September 30, 1997 and 1996.
The allowance is inherently subjective and is based on management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide additional losses in
subsequent periods and such provisions could be material.
Certain of the properties, with respect to which the Partnership has
made loans are experiencing varying degrees of operating problems (see
Note 4 to the Financial Statements).
Results of operations
There was a net loss for the nine months ended September 30, 1997 as
opposed to net income for the nine months ended September 30, 1996,
primarily due to the provision for loan losses, net of recoveries,
recorded in 1997. Net income increased for the three months ended
September 30, 1997 compared to the same period in the prior year
primarily due to the recovery of loan losses recorded on the Research
Triangle loan.
Revenues increased for the nine months and decreased for the three
months ended September 30, 1997. The increase for the nine months was
primarily a result of increases in mortgage loans interest income and
short-term investment interest. Mortgage loan interest income increased
due to the interest that was recorded as a result of the payoff of the
Tri-State loan and the restructuring of the Big Valley loan. Short-term
investment interest increased as a result of an increase in cash and
cash equivalents on which interest is earned. Cash and cash equivalents
increased due to the payoff of the Tri-State loan and the payment
received in connection with the equity participations in BP Shopping
Center and Research Triangle. The decrease for the three months was due
to a larger decrease in other income and operational income than the
increase in mortgage loan interest income and short-term investment
interest.
Costs and expenses increased for the nine months and decreased for the
three months ended September 30, 1997. The increase for the nine months
was primarily due to the provision for loan losses which was recorded
during the first quarter of 1997 on the Stockfield loan as described
above. The decrease for the three months was primarily a result of the
recovery of loan losses which was recorded during the third quarter of
1997 related to the Research Triangle loan as described above.
Inflation
Inflation has not had a material impact on the Partnership's recent
operations or financial position and is not expected to have a material
impact in the future.
Legal Proceedings
For a discussion of Legal Proceedings, please see Note 8 ("Commitments
and Contingencies") to the Financial Statements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) See Management's Discussion and Analysis of Financial Condition and
Results of Operations and Notes to Financial Statements - Note 8,
which is herein incorporated by reference.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: Forms 8-K were filed on June 30, 1997 and on
August 7, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCES ACCRUED MORTGAGE
INVESTORS, L.P. - SERIES 86
By: Resources Capital Corp.
Administrative General Partner
Dated: November 19, 1997 By: /s/ Richard Sabella
-------------------
Richard Sabella
President
(Duly Authorized Officer)
Dated: November 19, 1997 By: /s/ Kevin Reardon
-----------------
Kevin Reardon
Vice President, Secretary
and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1997 Form 10-Q of Resources Accrued Mortgage
Investors, L.P. - Series 86 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,390,382
<SECURITIES> 0
<RECEIVABLES> 46,819
<ALLOWANCES> 0
<INVENTORY> 16,650
<CURRENT-ASSETS> 8,453,851
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,731,735
<CURRENT-LIABILITIES> 181,839
<BONDS> 3,515,466
0
0
<COMMON> 0
<OTHER-SE> 8,243,246
<TOTAL-LIABILITY-AND-EQUITY> 13,731,735
<SALES> 0
<TOTAL-REVENUES> 1,811,882
<CGS> 0
<TOTAL-COSTS> 1,265,738
<OTHER-EXPENSES> 1,805,105
<LOSS-PROVISION> 1,736,105
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,258,961)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,258,961)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,258,961)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
