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 June 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>
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RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
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FORM 10-Q - JUNE 30, 1997
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1997 and December 31, 1996 ................
STATEMENTS OF OPERATIONS - For the three months ended June 30, 1997
and 1996 and for the six months ended June 30, 1997 and 1996 ......
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1997 .................................................
STATEMENTS OF CASH FLOWS - For the six months ended
June 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 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
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $14,672,678 and $17,012,938) .. $ 2,788,957 $11,953,520
Cash and cash equivalents ........................... 10,519,343 3,769,118
Real estate - net ................................... 3,783,731 3,730,284
Other assets ........................................ 64,318 87,327
----------- -----------
$17,156,349 $19,540,249
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable ............................... $ 4,168,472 $ --
Mortgage loan payable ............................... 3,535,018 3,570,723
Due to affiliates ................................... 1,793,163 2,123,481
Accounts payable and accrued expenses ............... 150,675 175,366
----------- -----------
Total liabilities ............................ 9,647,328 5,869,570
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (as restated) (330,004 units
issued and outstanding) .......................... 7,133,620 12,987,195
General partners' equity (as restated) .............. 375,401 683,484
----------- -----------
Total partners' equity ....................... 7,509,021 13,670,679
----------- -----------
$17,156,349 $19,540,249
=========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
For the three months ended For the six months ended
June 30, June 30,
--------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Operating income - real estate ............. $ 557,960 $ 482,069 $ 834,627 $ 864,582
Short-term investment interest ............. 136,591 47,121 214,747 95,250
Other income ............................... 41,509 36,144 77,541 74,599
Mortgage loans interest income ............. 18,847 -- 93,757 --
----------- ----------- ----------- -----------
754,907 565,334 1,220,672 1,034,431
----------- ----------- ----------- -----------
Costs and expenses
Operating expenses - real estate ........... 345,796 279,497 457,813 525,619
Mortgage loan interest expense ............. 75,392 85,715 159,977 171,791
General and administrative expenses ........ 48,200 78,344 90,200 150,594
Asset management fees ...................... 37,118 43,090 78,988 85,155
Depreciation expense ....................... 23,000 22,000 46,000 44,000
Mortgage servicing fees .................... 17,597 23,086 40,620 45,609
Provision for loan losses .................. -- -- 2,340,260 --
----------- ----------- ----------- -----------
547,103 531,732 3,213,858 1,022,768
----------- ----------- ----------- -----------
Net income (loss) ............................... $ 207,804 $ 33,602 $(1,993,186) $ 11,663
=========== =========== =========== ===========
Net income (loss) attributable to
Limited partners ........................... $ 197,413 $ 31,922 $(1,893,527) $ 11,080
General partners ........................... 10,391 1,680 (99,659) 583
----------- ----------- ----------- -----------
$ 207,804 $ 33,602 $(1,993,186) $ 11,663
=========== =========== =========== ===========
Net income (loss) per unit of limited partnership
interest (330,004 units outstanding) ....... $ .60 $ .10 $ (5.74) $ .03
=========== =========== =========== ===========
See notes to financial statements.
</TABLE>
<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 six months ended
June 30, 1997 .................... (99,659) (1,893,527) (1,993,186)
Distributions for the six months ended
June 30, 1997 ($12.00 per limited
partnership unit) ................ (208,424) (3,960,048) (4,168,472)
------------ ------------ ------------
Balance, June 30, 1997 ............... $ 375,401 $ 7,133,620 $ 7,509,021
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CASH FLOWS
For the six months ended
June 30,
1997 1996
------------ ------------
<S> <C> <C>
Net (loss) income ............................................. $ (1,993,186) $ 11,663
Adjustments to reconcile net (loss) income to net cash
provided by operating activities
Depreciation .......................................... 46,000 44,000
Deferred asset management and
mortgage servicing fees, net of
payments made ..................................... (330,318) 43,937
Provision for loan losses ............................. 2,340,260 --
Mortgage loan interest accrued ........................ (37,694) --
Changes in assets and liabilities
Other assets ............................................. 23,009 (49,915)
Accounts payable and accrued expenses .................... (24,691) 52,110
------------ ------------
Net cash provided by operating activities ......... 23,380 101,795
------------ ------------
Additions to real estate ...................................... (99,447) --
Principal payments on mortgage loan payable ................... (35,705) (30,424)
Proceeds from principal repayments of mortgage loans .......... 6,861,997 --
------------ ------------
Net cash provided by (used in) investing activities 6,726,845 (30,424)
------------ ------------
Distributions to partners ..................................... (208,424) --
------------ ------------
Net increase in cash and cash equivalents...................... 6,750,225 71,371
Cash and cash equivalents, beginning of period................. 3,769,118 4,035,754
------------ ------------
Cash and cash equivalents, end of period....................... $ 10,519,343 $ 4,107,125
============ ============
Supplemental disclosure of cash flow information:
Interest paid ................................................. $ 159,977 $ 171,791
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
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 Investor, 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 six months ended
June 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
contain provisions whereby the Partnership may be 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
FORM 10-Q - JUNE 30, 1997
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 June
30, 1997. Accordingly, the Partnership may provide additional losses in
subsequent periods and such provisions could be material.
A $2,340,260 allowance for loan losses was required for the three
months ended March 31, 1997 to fully reserve for the Stockfield loan
(Note 4). No allowance for loan losses was required for the three
months ended June 30, 1997 or June 30, 1996.
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.
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
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
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, in direct competition with the Partnership. Wexford Management
LLC, a company controlled by certain officers and directors of
Presidio, performs management and administrative services for Presidio
and its direct and indirect subsidiaries as well as the Partnership.
For the six months ended June 30, 1997 and 1996, reimbursable expenses
paid to Wexford amounted to $10,789 and $30,322, respectively.
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 $78,988 and
$85,155, including accrued interest of $73,563 and $80,926 for the six
months ended June 30, 1997 and 1996, respectively.
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 $40,620 and $45,609, including
accrued interest of $24,094 and $25,219 for the six months ended June
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.
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 related to the
Stockfield loan. In June 1996, the Administrative General Partner was
paid $86,827 which represented the mortgage servicing fee previously
accrued for the Research Triangle Loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amounts due to affiliates for asset management and mortgage servicing
fees, consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Asset management fee $1,432,599 $1,547,037
Mortgage servicing fee 360,564 576,444
---------- ----------
$1,793,163 $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
June 30, 1997 and 1996 the Administrative General Partner, Investment
General Partner and Associate General Partner were allocated net income
of $9,975, $208 and $208 and $1,646, $17 and $17, respectively.
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
notes 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, established 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
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.
Research Triangle loan
The Complex securing the Research Triangle loan ("RT Loan"), is
operating with positive cash flow and is presently 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 are currently
being negotiated to extend the maturity dates. While negotiations are
in progress, Research Triangle Associates ("RT"), the owner of the
property secured by the loan, continues to make debt service payments.
Currently, leases with IBM account 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, an additional 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 is a twenty (20%) percent undivided interest in
(i) the Wrap Cash Flow, which is 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 is all
amounts received by Teer under the RT Loan reduced by the amount of
reimbursable expenses attributable to the RT Loan. Reimbursable
expenses are costs and expenses of Teer in connection with the
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan (continued)
performance of all obligations under the Agreement, including the
collection and enforcement of the Senior Wrap Mortgages and the RT
Loans, the preservation of the collateral, the filing and prosecution
of a complaint with respect to any of the above matters, etc. The
Partnership granted Teer an option to purchase the RAM Participation
Interest. Teer may exercise the purchase option at any time from the
Closing Date through the third anniversary of the Closing Date. The
option prices are as follows: (i) on or prior to the first anniversary,
an amount equal to $1,750,000 (including cash payments received by the
Partnership on the account of the RAM Participation Interest during the
period following the Closing Date), (ii) on or prior to the second
anniversary, an amount equal to $2,200,000 (including cash payments
made on account of the RAM Participation Interest after the first
anniversary date), (iii) on or prior to the third anniversary, an
amount equal to $2,600,000 (including cash payments made on account of
the RAM Participation Interest after the second anniversary date). TEER
has not exercised its option to acquire the RAM Participation Interest.
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 six months ended June 30, 1997 and
1996, the Partnership recorded $40,594 and $55,009, respectively, from
the RAM Participation Interest, which amounts are included in other
income in the accompanying statements of operations.
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 be difficult. Therefore, the Partnership had determined
that interest on this loan should not be accrued.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Pike Creek loan (continued)
Due to the uncertainty associated with the ultimate collectability of
the Pike Creek loan, an additional 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 payable. 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 six months ended June 30, 1997
amounted to $37,695.
Stockfield loan
The property securing the Stockfield loan is 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
loan matures on March 31, 1998. Shell is presently paying rent that
exceeds market rates for the area. Shell is unlikely to exercise its
renewal option without renegotiating the rental downward to market
rates and may make no decision with respect to renewal before the first
mortgage or the Stockfield loan matures. These factors are likely to
hinder Stockfield Associates Limited Partnership ("Stockfield"), the
owner of the property which secures 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 additional 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 has begun foreclosure proceedings.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Stockfield loan (continued)
As a result, during the first quarter of 1997, the Partnership recorded
a 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 an 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.
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.
<PAGE>
<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) (i) 13.675% Monthly 1-Jan-88 (j) (j)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) 13.40% Monthly 16-Dec-87 31-Dec-99 1-Jan-97
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
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Interest recognized
Mortgage Mortgage -----------------------
Amount Purchased Placement June 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) (i) 3,000,000 - 175,953 - 2,068,560 (3,882,257)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k)
Wilmington, DE 1,305,000 - 57,185 37,694 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
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- -------------------------
Write-offs, Payments June 30 , Dec. 31, June 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) (i)
Berkeley, CA
Stockfield Associates (b) (c) (4,680,520) - - 2,340,260 (l) 18,035,899
Bakersfield, CA
Research Triangle (d) (i) - - 1,362,256 1,362,256 (j) (i)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(k) - - 1,426,701 1,389,007 875,870 838,175
Wilmington, DE
B.P. Associates (e) (856,269) (1,224,86) - 1,224,861 (e) (e)
Brentwood, TN
Boram (g) (8,168,461) - - - (g) (g)
Shreveport, LA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 997
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) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-1997
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) 13.46% Monthly 22-Jun-88 30-Jun-2000 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 June 30, 1996 and
Description Advanced Interest Fee 1997 Prior Reserves
----------- -------- -------- --- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c) $ 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 $ 93,757 $ 7,900,240 $(14,672,678)
============ ======== ========== ========= ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying value Balance (a)
------------------------- --------------------------
Write-offs, Payments June 30, Dec. 31, June 30, Dec. 31,
Description Net of recoveries Received 1997 1996 1997 1996
----------- ----------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c) - - - - $30,800,805 $28,826,915
Los Angeles, CA
Industrial/Commercial
Tri-State (b) (c) (h) - (5,693,199) - 5,637,136 (h) 5,631,611
Kentucky, Nebraska, Pennsylvania
Southern Inns, (f) (4,234,604) - - - (f) (f)
North and South Carolina, Virginia
------------ ----------- ----------- ----------- ----------- -----------
$(20,421,416) $(6,918,060) $ 2,788,957 $11,953,520 $31,676,675 $53,332,600
============ =========== =========== =========== =========== ===========
(a) Contractual balance represents the amount to be paid by the borrower if the
loan were liquidated as of June 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.
(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 foreclosured on the property
securing the loan.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
June 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) -- (2,340,260) 1,963,522 1,224,861 3,188,383
Additional funding ........ -- -- -- -- 330,000 330,000
Interest recognized ....... 56,063 37,694 93,757 3,673,614 8,175 3,681,789
Loan payments ............. (5,693,199) (1,224,861) (6,918,060) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Ending balance ............ $ -- $ 2,788,957 $ 2,788,957 $ 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
FORM 10-Q - JUNE 30, 1997
5 REAL ESTATE (continued)
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ----------
<S> <C> <C>
Land $ 444,700 $ 444,700
Building and improvements 3,712,885 3,613,438
----------- ----------
4,157,585 4,058,138
Less: accumulated depreciation (373,854) (327,854)
------------ -----------
$ 3,783,731 $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 $3,535,018 at June 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 six months
ended June 30, 1997 amounted to $159,977. 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
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
7 PARTNERS' EQUITY (continued)
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.
8 DISTRIBUTIONS PAYABLE
Distributions payable are as follows:
<TABLE>
<CAPTION>
June 30,
1997
------------
<S> <C>
General partners $ 208,424
Limited partners ($12.00 per unit) 3,960,048
------------
$ 4,168,472
============
</TABLE>
9 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FORM 10-Q - JUNE 30, 1997
9 COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings (continued)
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
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. See note 4 to
the financial statements.
As of June 30, 1997, the Partnership's working capital reserves
amounted to approximately $6,300,000. 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 February 1996, the Partnership paid the Administrative General
Partner $86,827, which represented the mortgage servicing fee
associated with Research Triangle loan. In May 1997, the Partnership
paid the Administrative General Partner $58,900, which represented the
accrued mortgage servicing fee associated with the Tri-State loan. In
June 1997, the Partnership paid the Administrative General Partner
$197,600, which represented the mortgage servicing fee related to the
Stockfield loan. In May 1997, the Partnership paid the Administrative
General Partner $193,426, which represented the asset management fee
previously accrued for the Airport Center, Southern Inns and BP
Shopping Center loans.
The Partnership declared an interim distribution on June 30, 1997. 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.
<PAGE>
Liquidity and Capital Resources (continued)
The Partnership has placed the undistributed portion of the proceeds of
the Tri-State and BP loan repayments (approximately $2,742,000) 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 June
30, 1997. There was a $2,340,260 provision recorded on the Stockfield
loan for the quarter ended March 31, 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. There was no provision for loan losses recorded for the
quarters ended June 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
The net loss increased for the six months ended and net income
increased for the three months ended June 30, 1997 when compared with
the same periods in 1996. The net loss increase for the six months
ended June 30, 1997 was primarily due to the provision for loan losses
recorded on the Stockfield loan. The net income increase for the three
months ended June 30, 1997 was primarily due to an increase in
revenues.
<PAGE>
Results of operations (continued)
Revenues increased for both the six months and the three months ended
June 30, 1997 compared to the same periods in 1996, primarily due to
increases in mortgage interest income and short term investment income.
Mortgage 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 primarily as a result of an increase in cash and cash
equivalents. Cash and cash equivalents increased due to the payoff of
the Tri-State loan and the payment received in connection with the
equity participation certificate in BP Shopping Center.
For both the three and six months ended June 30, 1997 compared to the
same periods in 1996, costs and expenses increased. The increase for
the six months was primarily due to a provision for loan losses, which
was recorded during the first quarter of 1997. The first mortgage on
the Stockfield loan matured on April 1, 1996. Since that time
Stockfield was attempting to negotiate an extension or restructure the
first mortgage, but was unable to reach an agreement with the first
mortgage lender. The first mortgage lender had begun foreclosure
proceedings and as a result, the Partnership recorded a provision for
loan losses for the entire carrying value of the Stockfield loan, which
was $2,340,260 at March 31, 1997. In April 1997, the first mortgage
lender foreclosed on the property. In addition, there was a decrease in
general and administrative expenses for both periods which was
primarily a result of a decrease legal and payroll costs.
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 9 ("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 9 which
is herein incorporated by reference.
ITEM 5 - OTHER EVENTS
On July 25, 1997, Wexford Management LLC ("Wexford"), the administrator
for Presidio Capital Corp. ("Presidio") the parent company of Resources
Capital Corp, RAM Funding, Inc. and Presidio AGP Corp., the
Administrative, Investment and Associate General Partners,
respectively, of Resources Accrued Mortgage Investors L.P. - Series 86
(the "Partnership"), received notice from Presidio Holding Company,
LLC, which stated that it is the holder of 63% of the outstanding Class
A common shares of Presidio, that it was seeking to remove the three
current Class A directors and replacing them with Edward Scheetz, David
Hamamoto and David King effective as of 12:00 p.m. on September 2,
1997. There exists substantial doubt as to the effectiveness of such
notice. On August 15, 1997, Presidio applied to the Judge of the High
Court in the British Virgin Islands for a declaration that the written
resolution of Presidio Holding LLC dated July 25, 1997 was invalid and
of no effect insofar as it purports to be a written resolution of the
Class A Members of Presidio.
As of August 18, 1997, there have been no changes in the composition of
the officers and directors of the general partners. In addition, the
administrative services agreement with Wexford remains in effect and is
scheduled to terminte in November 1997.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: A Form 8-K was filed on August 7, 1997.
A Form 8-K was filed on June 30, 1997.
<PAGE>
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.
RESOURCES ACCRUED MORTGAGE
INVESTORS, L.P. - SERIES 86
By: Resources Capital Corp.
Administrative General Partner
Dated: August 18, 1997 By: /s/ Joseph Jacobs
-----------------
Joseph Jacobs
President
(Duly Authorized Officer)
Dated: August 18, 1997 By: /s/ Jay L. Maymudes
-------------------
Jay L. Maymudes
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 June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10,310,919
<SECURITIES> 0
<RECEIVABLES> 30,805
<ALLOWANCES> 0
<INVENTORY> 15,984
<CURRENT-ASSETS> 10,357,708
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,947,925
<CURRENT-LIABILITIES> 4,110,723
<BONDS> 3,535,018
0
0
<COMMON> 0
<OTHER-SE> 7,509,021
<TOTAL-LIABILITY-AND-EQUITY> 16,947,925
<SALES> 0
<TOTAL-REVENUES> 1,220,672
<CGS> 0
<TOTAL-COSTS> 827,598
<OTHER-EXPENSES> 2,386,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,993,186)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,993,186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,993,186)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
