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, 1998
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, Suite 270, Greenwich, CT 06830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 862-7444
(Registrant's telephone number, including area code)
None
(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 - JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1998 and December 31, 1997 ................
STATEMENTS OF OPERATIONS - For the three months ended June 30, 1998
and 1997 and the six months ended June 30, 1998 and 1997 ....
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1998 .................................................
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 1998 and 1997 ........................................
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,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Investments in mortgage loans (net of an allowance
for loan losses of $6,050,832) ................ $ 1,437,351 $ 1,464,415
Cash and cash equivalents ........................ 8,497,973 8,273,293
Real estate - net ................................ 3,952,924 3,899,513
Other assets ..................................... 112,695 116,528
----------- -----------
$14,000,943 $13,753,749
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable ............................ $ 3,454,168 $ 3,495,478
Due to affiliates ................................ 1,951,467 1,843,290
Accounts payable and accrued expenses ............ 204,215 138,494
----------- -----------
Total liabilities ......................... 5,609,850 5,477,262
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (330,004 units
issued and outstanding) ....................... 7,971,589 7,862,713
General partners' equity ......................... 419,504 413,774
----------- -----------
Total partners' equity .................... 8,391,093 8,276,487
----------- -----------
$14,000,943 $13,753,749
=========== ===========
</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 six months ended
June 30, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues
<S> <C> <C> <C> <C>
Operating income - real estate .. $ 385,426 $ 557,960 $ 721,767 $ 834,627
Short-term investment interest .. 109,216 136,591 216,432 214,747
Mortgage loans interest income .. 19,120 18,847 39,290 93,757
Other income .................... 5,560 41,509 17,020 77,541
----------- ----------- ----------- -----------
519,322 754,907 994,509 1,220,672
----------- ----------- ----------- -----------
Costs and expenses
Operating expenses - real estate 259,691 345,796 469,993 457,813
Mortgage loan interest expense .. 73,765 75,392 147,878 159,977
General and administrative ...... 45,559 48,200 105,195 90,200
Asset management fees ........... 38,132 37,118 75,334 78,988
Depreciation expense ............ 24,432 23,000 48,660 46,000
Mortgage servicing fees ......... 16,624 17,597 32,843 40,620
Provision for loan losses ....... -- -- -- 2,340,260
----------- ----------- ----------- -----------
458,203 547,103 879,903 3,213,858
----------- ----------- ----------- -----------
Net income (loss) .................... $ 61,119 $ 207,804 $ 114,606 $(1,993,186)
=========== =========== =========== ===========
Net income (loss) attributable to
Limited partners ................ $ 58,063 $ 197,413 $ 108,876 $(1,893,527)
General partners ................ 3,056 10,391 5,730 (99,659)
----------- ----------- ----------- -----------
$ 61,119 $ 207,804 $ 114,606 $(1,993,186)
=========== =========== =========== ===========
Net income (loss) per unit of limited
partnership interest (330,004
units outstanding) .............. $ .18 $ .60 $ .33 $ (5.74)
=========== =========== =========== ===========
</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, 1998 .......... $ 413,774 $7,862,713 $8,276,487
Net income for the six months ended
June 30, 1998 ................. 5,730 108,876 114,606
---------- ---------- ----------
Balance, June 30, 1998 ............ $ 419,504 $7,971,589 $8,391,093
========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
------------------------------
1998 1997
------------ ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ............................................ $ 114,606 $ (1,993,186)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Provision for loan losses ............................. -- 2,340,260
Mortgage loan interest accrued ........................ 27,064 (37,694)
Depreciation .......................................... 48,660 46,000
Deferred asset management and mortgage
servicing fees, net of payments ................... 108,177 (330,318)
Changes in assets and liabilities
Other assets .............................................. 3,833 23,009
Accounts payable and accrued expenses ..................... 65,721 (24,691)
------------ ------------
Net cash provided by operating activities ......... 368,061 23,380
------------ ------------
Cash flows from investing activities
Principal payments on mortgage loan payable .................. (41,310) (35,705)
Additions to real estate ..................................... (102,071) (99,447)
Proceeds from repayment of mortage loans ..................... -- 6,861,997
------------ ------------
Net cash (used in) provided by investing activities (143,381) 6,726,845
------------ ------------
Net increase in cash and cash equivalents ......................... 224,680 6,750,225
Cash and cash equivalents, beginning of period .................... 8,273,293 3,769,118
------------ ------------
Cash and cash equivalents, end of period .......................... $ 8,497,973 $ 10,519,343
============ ============
Supplemental disclosure of cash flow information
Interest paid ................................................ $ 147,878 $ 159,977
============ ============
</TABLE>
See notes to financial statements.
<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 Mortgage Mortgage
Interest Compound Loan Maturity Prepayment is Amount Purchased Placement
Description Rate Period Date Date Permissable Advanced Interest Fee
----------- ---- ------ ---- ---- ----------- -------- -------- ---
Shopping Centers
Big Valley Associates (b) 13.40% Monthly 16-Dec-87 31-Dec-99 1-Jan-97 $ 1,305,000 $ - $ 57,185
Wilmington, DE
Residential
West Palm (c) (a) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-97 9,200,000 - 539,589
----------- -- --------
Los Angeles, CA
$ 10,505,000 $ - $ 596,774
============ === =========
<CAPTION>
Interest recognized
------------------------------
June 30, 1997 and Write-offs, Payments
1998 Prior Reserves net of recoveries Received
<S> <C> <C> <C> <C> <C>
Shopping Centers
Big Valley Associates (b) $ 39,290 $ 1,153,062 $ (1,050,832) $ - $ (66,354)
Wilmington, DE
Residential
West Palm (c) (a) - - (5,000,000) (4,739,589) -
-------- ----------- ------------ ----------- ---------
Los Angeles, CA
$ 39,290 $ 1,153,062 $ (6,050,832) $(4,739,589) $ (66,354)
======== =========== ============ =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Contractual
Carrying value Balance (a)
------------------------------ --------------------------
June 30, December 31, June 30, December 31,
1998 1997 1998 1997
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Shopping Centers
Big Valley Associates (b) $ 1,437,351 $ 1,464,415 886,724 $ 913,585
Wilmington, DE
Residential
West Palm (c) (a) - - 5,518,466 5,331,781
----------- ----------- --------- -----------
Los Angeles, CA
$ 1,437,351 $ 1,464,415 6,405,190 $ 6,245,366
=========== =========== ========= ===========
</TABLE>
(a) This loan is accounted for under the investment method.
(b) This loan is accounted for under the interest method.
(c) This loan was restructured during 1997 to reduce the indebtedness to
$5,000,000 with interest accruing at 7% per annum and the maturity date was
extended to February 2017.
(d) 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.
<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, 1997. The results of operations for the six months ended
June 30, 1998 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 June
30, 1998. Accordingly, the Partnership may provide additional losses in
subsequent periods and such provisions could be material.
No allowance was required for the six months ended June 30, 1998.
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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
indirect ownership of the General Partners. Effective July 31, 1998,
Presidio is indirectly controlled by NorthStar Capital Investment
Corp., ("NorthStar") a Maryland Corporation.
Effective on August 28, 1997, Presidio entered into a management
agreement with NorthStar Presidio Management Company, LLC, ("NorthStar
Presidio"), an affiliate of NorthStar, pursuant to which NorthStar
Presidio provides the day-to-day management of Presidio and its direct
and indirect subsidiaries and affiliates. For the six months ended June
30, 1998 reimbursable expenses due NorthStar Presidio amounted to
$3,000.
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 $75,334 and
$78,988, including accrued interest of $73,504 and $73,503 for the six
months ended June 30, 1998 and 1997, 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 $32,843 and $40,620, including
accrued interest of $10,536 and $24,094 for the six months ended June
30, 1998 and 1997, respectively.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
Amounts due to affiliates for asset management and mortgage servicing
fees consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Asset management fee ................. $1,526,800 $1,451,466
Mortgage servicing fee ............... 424,667 391,824
---------- ----------
$1,951,467 $1,843,290
========== ==========
</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, 1998 and 1997 the Administrative General Partner, Investment
General Partner and Associate General Partner were allocated net income
of $2,934, $61 and $61 and $9,975, $208 and $ 208, 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
loans held 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. Other 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 certain
circumstances, by establishing an allowance for loan losses on its
entire investment in certain mortgages.
Big Valley Loan
In August 1998, the property underlying the Big Valley loan was sold.
The Partnership received approximately $3,790,000 of which $1,437,000
was applied towards principal, $1,051,000 applied to recovery of loan
losses and the balance of $1,302,000 applied to interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4 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, 1998 December 31, 1997
---------------------------------------------- -------------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Total Total
<S> <C> <C> <C> <C> <C> <C>
Opening balance ........... $ -- $ 1,464,415 $ 1,464,415 $ 7,977,396 $ 3,976,124 $ 11,953,520
(Provision for) recovery of
loan losses ........... -- -- -- (2,340,260) 604,155 (1,736,105)
Interest recognized ....... -- 39,290 39,290 56,063 75,408 131,471
Interest Repayments ....... -- (66,354) (66,354) -- --
Loan repayments ........... -- -- -- (5,693,199) (3,191,272) (8,884,471)
------------ ------------ ------------ ------------ ------------ ------------
Ending balance ............ $ -- $ 1,437,351 $ 1,437,351 $ -- $ 1,464,415 $ 1,464,415
============ ============ ============ ============ ============ ============
</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.
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Land ................................... $ 444,700 $ 444,700
Building and improvements .............. 3,978,364 3,876,293
----------- -----------
4,423,064 4,320,993
Less: accumulated depreciation ......... (470,140) (421,480)
----------- -----------
$ 3,952,924 $ 3,899,513
=========== ===========
</TABLE>
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
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 $3,454,168 at June 30, 1998.
Interest rates on the loan are adjustable every five years, with a
current interest rate of 9.49%, through the next adjustment period.
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, 1998 amounted to $147,878. 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.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership invested 100% of the net proceeds of its public
offering in zero coupon Junior Mortgage Loans secured by properties
owned principally by privately syndicated limited partnerships
sponsored by affiliates of the General Partners.
In August 1998, the property underlying the Big Valley loan was sold.
The Partnership received approximately $3,790,000 of which $1,437,000
was applied towards principal, $1,051,000 applied to recovery of loan
losses and the balance of $1,302,000 applied to interest.
The Partnership originally invested its net proceeds in sixteen
Mortgage Loans, which aggregated $70,332,103. Presently, the
Partnership holds two mortgage loans outstanding, and one additional
possible equity participation, and owns a hotel which it acquired
through foreclosure. Because the Partnership's loans are zero-coupon
loans, the Partnership receives no guaranteed cash flow from such
investments. However, in accordance with the restructuring, the Big
Valley loan does pay interest on an annual basis based upon the cash
flow of the property.
In August 1998, the property underlying the Big Valley loan was sold.
The Partnership received approximately $3,790,000 of which $1,437,000
was applied towards principal, $1,051,000 applied to recovery of loan
losses and the balance of $1,302,000 applied to interest.
The Partnership uses working capital reserves provided from the
proceeds of its public offering, any undistributed cash from temporary
investments plus any cash flow from the operation of its hotel as its
primary measure of liquidity. As of June 30, 1998 the Partnership's
working capital reserves equaled approximately $8,294,000. 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 on properties which are currently experiencing
difficulties or to pay fees. The Partnership's cash flow from the
operations of its motel property is anticipated to be sufficient to
meet such property's capital expenditure needs in 1998.
In July 1998, the Partnership paid a cash distribution of $7,000,000
($20.15 per limited partnership unit.) A substantial portion of the
distribution represents the undistributed portion of the proceeds of
the Tri-State, Research Triangle and BP loan repayments (approximately
$4,708,000.) The remainder represents excess working capital reserves.
The Partnership will determine on a quarterly basis 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 may use its working capital reserves in the future to
pay deferred fees relating to loans, the collateral for which has been
foreclosed by senior lenders. Except as discussed above, management is
not aware of any other known trends, events, commitments or
uncertainties that will have a significant impact on liquidity.
<PAGE>
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, 1998.
There was no provision for loan losses recorded for the quarter ended
June 30, 1998.
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 net income for the six months ended June 30, 1998 as opposed
to net loss for the six months ended June 30, 1997, primarily due to
the provision for loan losses, net of recoveries, which was recorded in
1997. Net income decreased for the three months ended June 30, 1998,
primarily due to a decrease in revenues.
Revenues decreased for both the six and three months ended June 30,
1998 compared with the prior year. The decrease is primarily due to a
decrease in operating income from real estate, mortgage interest income
(for the six months ended June 30, 1998) and other income. Operating
revenue decreased in proportion with the decrease in operating expenses
at the Richmond Comfort Inn for the three months ended June 30, 1998.
Mortgage interest decreased due to the payoff of the Tri-State loan in
1997. Other income decreased primarily as a result of the payoff of the
Research Triangle loan in 1997 which eliminated the participation
interest income.
Costs and expenses decreased for both the six and three months ended
June 30, 1998 compared to the prior year. For the six month period the
decrease was primarily due to the provision for loan losses, which was
recorded during the first quarter 1997. Operating expenses decreased in
proportion to the decrease in operating income for the three months
ended June 30, 1998.
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 7 in the
Partnership's 10-K for the year end December 31, 1997.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
<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: August 12, 1998 By: /s/ Richard Sabella
-------------------
Richard Sabella
President
(Duly Authorized Officer)
Dated: August 12, 1998 By: /s/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the June 30 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,497,973
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,610,668
<PP&E> 0
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<TOTAL-ASSETS> 14,000,943
<CURRENT-LIABILITIES> 204,215
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,391,093
<TOTAL-LIABILITY-AND-EQUITY> 14,000,943
<SALES> 0
<TOTAL-REVENUES> 994,509
<CGS> 0
<TOTAL-COSTS> 831,243
<OTHER-EXPENSES> 48,660
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,993,186)
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<INCOME-CONTINUING> (1,993,186)
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<NET-INCOME> (1,993,186)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
