UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 or principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-862-7444
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
- ------------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest, $250 per Unit
(Title of Class)
Indicate by check mark whether 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 registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
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PART I
Item 1. Business.
General
Registrant is a Delaware limited partnership formed on September 25, 1985. RAM
Funding, Inc., a Delaware corporation, is Registrant's investment general
partner ("Investment General Partner") and is a wholly-owned subsidiary of
Presidio Capital Corp. ("Presidio"). Resources Capital Corp., a Delaware
corporation, is Registrant's administrative general partner ("Administrative
General Partner") and is also a wholly-owned subsidiary of Presidio. RAM Funding
Inc., and Resources Capital Corp., were until November 3, 1994 wholly owned
subsidiaries of Integrated Resources Inc. ("Integrated"). On November 3, 1994,
Integrated consummated its plan of reorganization under Chapter 11 of the United
States Bankruptcy Code, at which time, pursuant to such plan of reorganization,
the newly formed Presidio purchased substantially all of Integrated's assets.
Presidio AGP Corp. ("Presidio AGP"), a Delaware corporation is the Registrant's
associate general partner ("Associate General Partner"), which replaced Z Square
G Partners II, a New York general partnership whose partners were formerly
associated with Integrated. Presidio AGP is also a wholly-owned subsidiary of
Presidio.
In December 1994, Z Square G Partners II notified Registrant of its withdrawal
as the associate general partner of Registrant. The withdrawal became effective,
after 60 days prior written notice to Limited Partners, on February 28, 1995.
Upon the effective date of such withdrawal, Presidio AGP became the Associate
General Partner. (The Investment General Partner, Administrative General Partner
and Associate General Partner are hereinafter collectively referred to as the
"General Partners").
Registrant invested in "zero-coupon" junior mortgage loans ("Mortgage Loans") on
properties owned or acquired principally by privately syndicated limited
partnerships originally sponsored by Integrated. The Mortgage Loans generally
had original terms of approximately twelve years (with a right to prepay with
payment of a prepayment penalty between the eighth and ninth years and without
penalty beginning in the tenth year) with all interest and principal due and
payable at the maturity or prepayment of the Mortgage Loan.
Effective with the consummation of Integrated's plan of reorganization, Presidio
entered into an Administrative Services Agreement with Concurrency Management
Corp. ("Concurrency"). Effective January 1, 1996, Wexford Management Corp.
(formerly Concurrency) assigned this agreement to Wexford Management LLC
("Wexford").
On August 28, 1997, an affiliate of the NorthStar Capital Partners acquired all
of the Class B shares of Presidio, the corporate parent of the General Partners.
This acquisition, when aggregated with previous acquisitions, caused NorthStar
Capital Partners to acquire indirect control of the General Partners. On
November 2, 1997, the Administrative Services Agreement between Presidio and
Wexford 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 a new Administrative Services Agreement (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 affiliates, including
the General Partners and Registrant. On August 28, 1997, Presidio also entered
into a management agreement with NorthStar Presidio Management Company, LLC
("NorthStar Presidio"). Under the terms of the management agreement, NorthStar
Presidio will provide the day-to-day management of Presidio and its direct or
indirect subsidiaries and affiliates.
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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 of Presidio appointed new
individuals to serve as officers and/or directors of the General Partners.
Beginning January 21, 1986, Registrant offered 500,000 units of limited
partnership interest (the "Units") pursuant to the Prospectus (the "Prospectus")
of Registrant dated January 21, 1986, as supplemented by Supplements dated March
14, 1986, April 9, 1986, July 25, 1986, August 1, 1986, September 8, 1986,
October 29, 1986 and December 30, 1987 (collectively, the "Supplements"), which
were filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933,
as amended. The Prospectus was filed as part of Registrant's Registration
Statement on Form S-11, Commission File No. 33-00836, as amended (the
"Registration Statement"). The offering terminated on May 1, 1987 with 329,994
Units having been sold (excluding the 10 Units sold to the initial limited
partner) representing net proceeds of $78,582,310 (gross proceeds of $82,501,000
less organization and offering costs of $3,918,690). All underwriting and sales
commissions were paid by Integrated or its affiliates and not by Registrant.
Investments of Registrant
Registrant originally invested 100% of its net proceeds in sixteen Mortgage
Loans which aggregated $70,332,103, three of which, the 595 Madison Loan, the
Bellekirk Loan and the Pace Loan, were prepaid on November 30, 1989, July 2,
1992 and January 23, 1997, respectively. In addition, Registrant has foreclosed
on one Mortgage Loan, and three Mortgage Loans have been converted to possible
equity participations with BP Shopping Center's participation being paid on
February 20, 1997, and Research Triangle's participation interest being paid on
September 17, 1997. Registrant has lost its entire investment in seven Mortgage
Loans as a result of foreclosures or discounted payoffs of senior lenders. A
brief discussion of these events follows.
On December 31, 1991, the senior mortgage lender on one of Registrant's Mortgage
Loans, the Century Park Loan, foreclosed on the property securing its loan, and
Registrant lost its entire investment. In December 1992, the BP Loan was
converted to an equity participation pursuant to the borrower's bankruptcy plan
of reorganization and on February 20, 1997 Registrant was paid for this equity
participation. On January 13, 1993, the senior mortgage lender on another of
Registrant's investments, the Clovine Loan, foreclosed on the property securing
its loan and Registrant lost its entire investment. On April 1, 1993, Registrant
foreclosed on the Southern Inns Loan and assumed ownership of the Richmond
Comfort Inn, located in Richmond, Virginia. In July 1993, the Boram Loan was
converted to an equity participation in the future sale of the property pursuant
to a settlement agreement. The first mortgage lender of the Boram Property was
subsequently paid off at a discount and Registrant lost any potential recovery
from its equity participation interest. On January 13, 1994 and April 5, 1994,
the respective senior lenders associated with the Park Place and Lenox Loans,
foreclosed on the respective properties securing such loans and Registrant lost
its entire investment. In November 1994, the Berkeley Loan was restructured to
convert the Registrant's original investment to a new $550,000 loan and an
equity participation in the future sale of the property. In 1995 the Airport
Center Loan was foreclosed upon by the senior lender and Registrant lost its
entire investment and the RT Loan was exchanged for a 20% interest in the net
wrap cash flow of the senior Wrap Mortgages which was paid in September 1997.
During 1996, the Pike Creek Loan was amended and reduced to $500,000 with
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interest to accrue at 7% per annum. In addition, an additional $330,000 was
advanced to the Pike Creek borrower which bears interest at 12% per annum. In
January 1997 the Pace Loan was prepaid in its entirety. In April 1997, the
senior mortgage lender foreclosed on the property securing the Stockfield loan
and the Partnership lost its entire investment. In September 1997, the West Palm
loan was restructured and reduced to $5,000,000 with interest accruing at 7% per
annum and the maturity date was extended to February 2017.
Current Investments
As of March 1, 1998, Registrant's investments consisted of one zero coupon
Mortgage Loan (West Palm) in the original amount of $9,200,000 (restructured
during 1997 to a $5,000,000 loan with all interest accruing at 7% per annum and
principal due and payable at maturity in February 2017). There is no current
payment due on this Mortgage Loan and equity participation interests in two
properties (Berkeley and Pike Creek) which originally secured two other Mortgage
Loans. In addition, Registrant owns a hotel located in Richmond, Virginia as a
result of the Southern Inns foreclosure. During 1996, the Pike Creek Loan was
amended and reduced to $500,000 with interest to accrue at 7% per annum. In
addition, $330,000 was advanced to the Pike Creek borrower which bears interest
at 12% per annum. Set forth below is a description of the status of Registrant's
current investments.
Berkeley Loan
Originally a $2,250,000 (plus accrued interest) second mortgage loan (the
"Berkeley Loan") to Berkeley Western Associates Limited Partnership ("BW
Associates"), a private limited partnership sponsored by Integrated which was
secured by an office building commonly known as the Great Western Savings
Building located in Berkeley, California (the "BW Property"). The BW Property
consists of a thirteen-story office building, an adjacent six-level parking
garage and the 1.31 acres of land underlying the building and garage located in
downtown Berkeley. The land consists of two separate contiguous parcels, the
larger one of which (approximately 46,100 square feet) is owned by BW Associates
in fee simple and the smaller parcel (approximately 10,700 square feet) lies
under a portion of the garage and is leased by BW Associates pursuant to a
ground lease. The building contains approximately 120,300 square feet of office
space, 13,000 square feet of retail space and 3,770 square feet of basement
space. The garage contains parking space for 586 automobiles and approximately
9,400 square feet of retail space.
The Berkeley Loan originally bore interest at the rate of 14.5% compounded
annually and was due December 31, 1997 at which time a balloon payment of
$11,474,491, together with additional interest (as described below), if any,
would be due and payable. The Berkeley Loan was allowed to be prepaid without
penalty beginning January 1, 1996 and provided for the payment by BW Associates
of additional interest reflecting a participation in the appreciation, if any,
of the BW Property. The maximum annual compounded rate of interest, including
additional interest with respect to the Berkeley Loan, was not to exceed 16.41%.
The total amount, including fees, allocated to the loan from the gross proceeds
of Registrant's offering was $2,749,653.
The BW Property was also encumbered by a first mortgage loan in the amount of
$14,750,000 originally held by Guaranty Federal Savings and Loan Association
("Guaranty Federal"). The first mortgage was to mature on January 1, 1996, bore
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interest at the rate of 12.25% per annum and was payable at the following pay
rates: (i) for years 1 and 2, payments of interest only at the rate of 10.5% per
annum; (ii) years 3 through 5, payments of interest only at the rate of 11.0%,
11.5% and 12.0% per annum, respectively; and (iii) years 6 through 10, payments
of interest at 12.25% and principal payments based on a 30-year amortization
schedule. At maturity, a balloon payment equal to approximately $15,000,275
would be due and payable.
BW Associates had been unable to make payments on its first mortgage since May
1989. Notices of default with respect to the first mortgage held by Guaranty
Federal and the loan held by Registrant were issued shortly thereafter. Guaranty
Federal was placed under receivership by the Federal Savings and Loan Insurance
Corporation, which entity was subsequently absorbed by the Resolution Trust
Company. Shortly thereafter, BW Associates, Guaranty Federal and Registrant
entered into a cash flow arrangement whereby all cash flow from the property was
placed into an escrow account to be drawn down for payment of capital
improvements and asbestos abatement work only with the approval of Guaranty
Federal. In May 1992, Guaranty Federal elected to pursue its default remedies
under its first mortgage.
In January 1993, BW Associates filed for protection under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). The Bankruptcy Court
entered a cash collateral order which permitted use of the cash flow from the BW
Property to pay operating and other expenses pursuant to a court approved
budget. On May 18, 1993, Registrant filed a Proof of Claim for all outstanding
principal, accrued interest, prepayment penalties and other costs and
obligations of BW Associates to Registrant. In September 1993, BW Associates and
Guaranty Federal signed a Memorandum of Understanding to restructure the first
mortgage loan. BW Associates has incorporated the Memorandum of Understanding
into a plan of reorganization. The plan of reorganization (the "Plan") was
confirmed by the Court on November 14, 1994. A copy of the Plan is on file with
the bankruptcy court for the District of Connecticut. The Plan entitles
Registrant to certain economic benefits after Guaranty Federal is repaid upon a
sale or refinancing.
Some of the more relevant terms of the Plan are summarized as follows:
Guaranty Federal, a first priority mortgage holder which was owed in
excess of $22 million, consented to a claim of $10 million, the approximate
value (at that time) of the BW Property which constitutes BW Associates
major asset. A new promissory note (the "New Note"), in the principal sum
of $10 million and secured by a first mortgage on the BW Property,
superseded the existing note.
The New Note has a term of four years and requires payments of interest
only at 5% per annum for the first two years, and 11% per annum for the latter
two years.
Upon repayment of all outstanding principal and interest of the New Note,
all economic benefits (net sale proceeds, refinancing proceeds and distributable
net cash flow) shall be apportioned as follows:
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a) The Registrant will receive a total and maximum priority distribution
of $550,000 (inclusive of any previous priority distributions paid
from net refinancing proceeds and from distributable net cash flow,
if any). A non-interest bearing note for $550,000 replaced the
original loan of $2,250,000 made by the Registrant to BW Associates.
b) The next $6 million of proceeds will be allocated pari passu, 25% to
Guaranty Federal, 44% to the Registrant, and 31% to BW Associates.
c) Any additional amounts will be allocated pari passu, 12.5% to
Guaranty Federal, 43.75% each to BW Associates and the Registrant.
The entire carrying value of $2,481,562 was written off by Registrant during
1990. Registrant is unable to determine at the present time whether any amount
will be recovered upon the ultimate sale or disposition of the BW Property.
Pike Creek Loan
Originally, a $975,000 third mortgage loan (the "Pike Creek Loan") to Big Valley
Associates Limited Partnership ("Big Valley Associates"), a private limited
partnership originally sponsored by Integrated which was secured by the Pike
Creek Shopping Center located in Pike Creek Valley, Delaware, bore interest at
13.4% per annum compounded monthly, and was originally scheduled to mature on
December 31, 1999 at which time a balloon payment equal to the entire principal
balance plus accrued interest thereon (approximately $4,824,806), together with
additional interest, if any, would have been due and payable.
The property securing the Pike Creek Loan was 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 Big Valley Associates obtaining continued financing
would have been difficult. Therefore, Registrant had determined that interest on
this loan should not be accrued.
Due to the uncertainty associated with the ultimate collectibility 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 Pike
Creek 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 Registrant and $330,000 of new funds advanced by
Registrant. 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 of Big Valley Associates which was in default.
Additionally, it allowed for the satisfaction of the second mortgage loan. The
$330,000 advanced to Big Valley Associates was used, in addition to funds
provided by Big Valley Associates, to satisfy its second mortgage loan payable.
<PAGE>
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 Big Valley Associates exceeds all costs and
expenses incurred in connection with the property, including debt service. In
addition, various provisions were made for Registrant to receive additional
interest from Big Valley Associates upon the ultimate sale or refinancing of the
property. Registrant is presently carrying this investment at $1,464,415 at
December 31, 1997.
West Palm Loan
Originally a $9,200,000 second mortgage loan (the "West Palm Loan") to West Palm
Associates Limited Partnership ("West Palm Associates"), a private limited
partnership originally sponsored by Integrated which is secured by a 582 unit
apartment complex known as The West Palm located in Los Angeles, California (the
"West Palm Property").
The West Palm Loan originally bore simple interest at varying rates that were
the equivalent of 13.46% per annum compounded monthly and is due July 1, 2000,
at which time a balloon payment of approximately $46,021,411, together with
additional interest (as described below), if any, was payable.
The West Palm Loan may not have been prepaid, except in the event of a
condemnation or casualty, until after July 1, 1997 and then may be prepaid, in
whole only, without penalty.
The West Palm Loan provided for the payment by West Palm Associates of
additional interest reflecting a participation in the appreciation, if any, of
the West Palm Property. The percentage of the additional interest in the
appreciation of the West Palm Property was 13.63%. The maximum annual compounded
rate of interest, including additional interest, with respect to the West Palm
Loan was not to exceed 16.29%.
The total amount, including fees, allocated to the West Palm Loan from the gross
proceeds from Registrant's offering was $10,791,789.
The first mortgage matured in December 31, 1995, since which time West Palm had
been engaged in extensive negotiations with the first mortgage holder (Hancock)
in an effort to obtain a long term restructuring. Hancock was unwilling to
modify the first mortgage and on July 1, 1996, declared the mortgage to be in
default, and informed West Palm Associates that it would immediately seek the
appointment of a receiver and begin foreclosure proceedings. As a result, on
July 2, 1996, West Palm Associates filed for protection under Chapter 11 of the
United States Bankruptcy Code. Although the bankruptcy protection enabled West
Palm Associates to avoid an imminent foreclosure, there was no assurance that
West Palm Associates would be able to successfully restructure its debt service
obligations on the Hancock Mortgage. Registrant had reserved the entire carrying
value of the West Palm Loan in 1993. Registrant filed a proof of claim for all
outstanding principal, accrued interest, prepayment penalties, additional
interest and all other costs and obligations of West Palm Associates to
Registrant.
In February 1997, a Plan for Reorganization was filed which called for a
restructuring of Registrant's mortgage, and in September 1997 the restructuring
agreement was executed. Registrant has reduced its indebtedness to $5,000,000,
with interest accruing at 7% per annum and extended the maturity date to
February 2017. Registrant is also entitled to a participation interest in the
event of a sale of the property. However, it is unlikely that the Registrant
will realize any proceeds from this investment.
<PAGE>
Investments Recently Terminated
RT Loan
Originally a $3,000,000 third mortgage loan (the "RT Loan") to Research Triangle
Associates Limited Partnership ("RT Associates"), a private limited partnership
originally sponsored by Integrated which was secured by seven leasehold
mortgages on an office complex commonly known as Research Triangle Park (the
"Complex") consisting of 16 office and commercial buildings of approximately
715,000 rentable square feet and a 200-room hotel located in Durham, North
Carolina.
The RT Loan bore interest from and after January 1, 1988 at the rate of 13.675%
per annum, compounded monthly and was due to mature on January 1, 1996 at which
time a balloon payment of $8,858,190, plus additional interest, if any, would
have been payable. As described below, during 1995, the RT Loan was exchanged
for a 20% Participation Interest.
The RT Loan provided for the payment by RT Associates of additional interest in
an amount equal to 3.3% of the appreciation, if any, of the Complex. The maximum
annual compounded rate of interest, including additional interest, on the RT
Loan, was not to exceed 16.22%.
The total amount, including fees, allocated to the RT Loan from the gross
proceeds of Registrant's offering was $3,519,062.
The Complex was also encumbered by seven purchase money wraparound leasehold
mortgages (the "Senior Wrap Mortgages") held by Teer Enterprises, Ltd. (an
entity not affiliated with Integrated), with an aggregate outstanding principal
balance of approximately $52,750,000. The Senior Wrap Mortgages bore interest at
the rate of 11.875% per annum and matured on January 1, 1996. The Senior Wrap
Mortgages were being negotiated to extend the maturity dates. While negotiations
were in progress, RT continued to make all debt service payments. The Senior
Wrap Mortgages were inclusive of and subordinate to seven first leasehold
mortgages.
The Complex was operating with positive cash flow and meeting all of its debt
service requirements on the Senior Wrap Mortgages. The RT Loan and the Senior
Wrap Mortgages matured January 1, 1996. Leases with IBM, that accounted for over
70% of the leased space at the Complex, were due to expire in 1997. Since
refinancing would be difficult without a longer lease commitment from IBM,
Registrant ceased accruing interest effective after the second quarter of 1993.
Due to the uncertainty associated with the ultimate recoverability, an
additional reserve for loan losses in the amount of $2,360,000 was established
for the quarter ended March 31, 1995. During 1996, the IBM leases were extended
for periods expiring in 2 to 5 years.
On August 1, 1995 (the "Closing Date"), the Registrant entered into a Loan
Acquisition and Participation Agreement (the "Participation Agreement") with the
owner of the Senior Wrap Mortgages ("Teer"), whereas the Registrant 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 (20%)
percent undivided interest in (a) 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 (b) the RAM Cash Flow, which was
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all amounts received by Teer under the RT Loan reduced by the amount of
Reimbursable Expenses attributable to the RT Loan. Reimbursable Expenses were
costs and expenses of Teer in connection with the performance of all obligations
under the Participation Agreement: 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.
Registrant also granted Teer an option to purchase the RAM Participation
Interest. Teer was able to exercise the purchase option at any time from the
Closing Date of the agreement through the third anniversary of the Closing Date.
The Option Prices were as follows: (i) on or prior to the first anniversary, an
amount equal to $1,750,000 (including cash payments made on 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 did not excercise its option
to acquire the RAM Participation Interest.
As a result of this transaction and an analysis of the value of the Complex, it
was determined that an additional allowance for loan losses was required for the
RT Loan in the amount of $1,260,000 for the quarter ended September 30, 1995.
The Complex was appraised in August 1995 and valued at $45,000,000. The
Registrant's 20% interest in the excess of market value over the first mortgage
at that time amounted to approximately $1,360,000. The carrying value was
approximately $2,620,000 resulting in a $1,260,000 provision.
In September 1997, the properties underlying the RAM Participation Interest were
sold. Accordingly, Registrant 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.
Stockfield Loan
A $4,200,000 (plus accrued interest) second mortgage loan (the "Stockfield
Loan") to Stockfield Associates Limited Partnership ("Stockfield Associates"), a
private limited partnership originally sponsored by Integrated which was secured
by an office complex located in Bakersfield, California, consisting of a
twelve-story, 193,830 square foot office building and related site improvements,
and the 2.34 acres of land underlying the building (the "Stockfield Property").
The Stockfield Property was 100% occupied by two tenants. Shell California
Production, Inc. ("Shell"), a division of Shell Oil Company, occupied a total of
186,420 square feet or approximately 96% of the building. Of this amount, 14,980
square feet is basement space. The lease expires in August 1999, and Shell has
two five-year renewal options available at market rent. California Republic Bank
occupies the remaining 7,410 square feet on the first floor. Its lease expires
on August 1, 1998, and California Republic Bank has one five-year renewal option
at market rent.
The Stockfield Loan bore interest at the rate of 14.5% per annum compounded
annually and was due March 31, 1998 at which time a balloon payment of
$21,326,281, together with additional interest (as described below), if any, was
payable.
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The Stockfield Loan was able to be prepaid beginning after March 31, 1996
without penalty and provided for the payment by Stockfield Associates of
additional interest reflecting a participation in the appreciation, if any, of
the Stockfield Property. The percentage of the additional interest in the
appreciation of the Stockfield Property was 10%. The maximum annual compounded
rate of interest, including additional interest with respect to the Stockfield
Loan, was not to exceed 14.79%.
The total amount, including fees, allocated to the loan from the gross proceeds
of Registrant's offering was $5,087,556.
The Stockfield Property was also encumbered by a first mortgage in the amount of
$29,030,000 held by Teacher's Annuity and Insurance Associates of America, which
matured on April 1, 1996, bore interest at the rate of 11.75% per annum and was
payable on a monthly basis, interest only, during the first five years.
Stockfield Associates was negotiating an extension on the first mortgage while
continuing to make debt service payments. During the sixth through tenth years,
monthly payments of interest and principal, based on a 30-year amortization
schedule, were due, until maturity at which time a balloon payment equal to
approximately $28,317,758 would have been due and payable. The Stockfield
Property was 96% occupied by Shell whose lease expires three years after the
first mortgage loan matured and one year after the Stockfield Loan was scheduled
to mature. 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' ability to
obtain refinancing. As a result, Registrant ceased accruing interest in 1993 on
the Stockfield Loan.
Due to the uncertainty associated with the ultimate collectibility of the
Stockfield Loan, an additional reserve for loan losses was established for the
quarter ended March 31, 1995, which reduced the carrying value of the Stockfield
Loan to $2,340,260. In August 1995, the Registrant entered into an agreement
with Stockfield Associates to restructure the Stockfield Loan (the "Stockfield
Restructuring"). The Stockfield Restructuring was premised upon Stockfield
Associates satisfying the following conditions (i) the existing lease with Shell
was to be replaced by a bond type net lease which extended the expiration date
of the property lease, (ii) the first mortgage was to be refinanced or
restructured and (iii) the net present value of the cash flow available to
Stockfield Associates from the restructured lease after payment of debt service
on the refinance/restructured first mortgage indebtedness (the "Net Cash Flow")
was to be equal to or greater than $8 million, using an annual discount factor
of 8% without regard to the final residual value of the Stockfield Property.
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, Registrant 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 Registrant lost its entire investment.
BP Loan
Originally a $1,900,000 second mortgage loan (the "BP Loan") to BP Shopping
Center Associates Limited Partnership ("BP Associates"), a private limited
partnership originally sponsored by Integrated which was secured by the
Brentwood Place Shopping Center, a 233,000 square foot shopping center located
on 30 acres in Brentwood, Tennessee (the "Brentwood Property").
<PAGE>
The total amount, including fees, allocated to the BP Loan from the gross
proceeds of Registrant's offering was $2,228,739.
The Brentwood Property was also encumbered by a first mortgage in the amount of
$16,162,338 held by The Northwestern Mutual Life Insurance Company
("Northwestern"). The first mortgage was schedule to mature on March 1, 1996 and
accrued interest at the rate of 11.25% per annum.
Decreasing rental rates combined with several merchant failures led to cash flow
problems at the Brentwood Property, which in turn caused BP Associates to
default on its first mortgage debt service obligations in February, 1991.
BP Associates' continuing operating problems and its inability to restructure
its existing financing led to BP Associates filing for protection under Chapter
11 of the Bankruptcy Code on May 16, 1991. In December 1992, a plan of
reorganization (the "BP Plan") was approved by all creditor classes (including
Registrant) and confirmed by the Bankruptcy Court.
Under the BP Plan, title and control of the Brentwood Property was transferred
to Northwestern which had the right to hold the Brentwood Property or sell it.
Registrant and certain other unsecured creditors received equity participation
certificates, of which Registrant had a majority interest. Under the BP Plan, if
Northwestern held the Brentwood Property for longer than 10 years and then sold
it, the holders of the equity participation certificates would receive a portion
of all excess proceeds from the ultimate sale of the Brentwood Property after
Northwestern received a specified return. If Northwestern sold the Brentwood
Property before holding it 10 years, Northwestern would pay the equity
participation certificate holders the greater of the excess proceeds described
in the preceding sentence or an alternate payment equal to a percentage of the
net sales price.
In February 1997, Registrant received $1,224,861 for its share of the equity
participation certificate after the Brentwood Property was sold by Northwestern.
In the 4th quarter of 1996, the Registrant recorded a recovery of prior loan
losses to reflect this receipt. The full carrying value of the BP Loan had been
previously written off for financial statement purposes.
Tri-State Loan
A $1,800,000 second mortgage loan (the "Tri-State Loan") to Tri-State Retail
Associates Limited Partnership ("Tri-State Associates"), a private limited
partnership originally sponsored by Integrated, secured by three second
mortgages on three wholesale/retail mass merchandising warehouse buildings
leased to Pace Membership Warehouses, Inc. ("Pace") and located in Omaha,
Nebraska, Lexington, Kentucky, and Ross Township, Pennsylvania (the "Tri-State
Properties").
The Tri-State Loan bore interest at 13.46% per annum compounded monthly and was
due June 30, 2000, at which time a balloon payment of $8,998,152, together with
additional interest (as described below), if any, would have been payable.
The total amount, including fees, allocated to the Tri-State Loan from the gross
proceeds of Registrant's offering was $2,111,437.
Tri-State Associates was obligated under a first mortgage to Trans Ohio Savings
Bank ("Trans-Ohio") secured by the Tri-State Properties, in the original
principal amount of $10,650,000. The Tri-State Loan bore interest at 10.5% and
<PAGE>
originally matured on July 1, 1993. Tri-State Associates extended this loan for
an additional 5 years at a lower interest rate of 8.10%. Lease revenue generated
from the use of the Pace warehouses was used by Tri-State Associates to make
payments under the first mortgage. K-Mart Corporation ("K-Mart"), the owner of
Pace, has sold most of its Pace warehouse operations. Of the three warehouses
owned by Tri-State Associates, one was sublet to Wal-Mart and the other two were
closed.
The vacant Lexington, Kentucky store's lease obligation had been guaranteed by
K-Mart, after Tri-State Associates agreed to limit increases in rent based on
increases in the consumer price index. In addition, the Omaha, Nebraska lease
had been assigned and rental obligations guaranteed by First Data Corporation.
At that time there was a substantial risk that the Registrant would lose its
entire investment in the Tri-State Loan at the time the first mortgage matured.
The entire carrying value of the Tri-State Loan in the amount of $1,963,522 was
reserved during 1993.
In June 1995 the Registrant entered into an agreement to restructure the
Tri-State Loan. The agreement, among other things, set certain release prices
for the three Tri-State Properties securing the Tri-State Loan, allowing
Tri-State Associates to sell one property alone. The release prices were 43% for
the Pennsylvania property, 33% for the Kentucky property and 24% for the
Nebraska property. The Registrant would also be entitled to a 25% acceleration
on the release prices for the first two properties that are sold.
The agreement also provided that Tri-State would not incur a prepayment penalty
in the event of a prepayment. In addition, Registrant waived its right to
receive additional interest (interest that represented a percentage of the
increase in the value of the Tri-State Properties). The restructuring enabled
Registrant to recoup all of its investment. In January 1997, Registrant received
the full contractual balance of the Tri-State loan of approximately $5,700,000.
In the 4th quarter of 1996, Registrant recorded a recovery of prior losses of
$1,963,522 and recorded $3,673,614 of interest income not previously accrued to
reflect the repayment of this loan.
Additional Information Regarding Investments
See table appearing on page I-10 for additional information with respect to the
Mortgage Loans.
All interest and principal on the Mortgage Loans accrues and is payable upon the
maturity or earlier prepayment of the loans. Interest on short-term investments
accounted for 19%, 3.5% and 10% of Registrant's revenues for the years ended
December 31, 1997, 1996 and 1995, respectively. (see Item 8, "Financial
Statements and Supplementary Data").
<PAGE>
The following table sets forth, as of March 1, 1998, the Mortgage Loans and
current investments acquired or made by Registrant:
<TABLE>
<CAPTION>
Date of Date Loan Balance
Property Sq. Type of Loan Original Acquired/ Maturity Interest Due at
Name/Location Ft./Use Investment Principal Loan Restructured Date Rate Maturity(1)
- ------------- ------- ---------- --------- ---- ------------ ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Great Western 146,470 Equity N/A N/A N/A N/A N/A N/A
Savings Building (Office Retail) Participation
Berkeley, CA
Pike Creek 232,000/ Note Payable $ 830,000 (3) 12/87 11/96 11/16 (3) (3)
Shopping Center Retail and Equity
Mill Creek, DE Participation
West Palm 582 units Second $ 5,000,000 (2) 6/88 9/97 2/17 7% (2) (2)
Los Angeles, CA Apartments Mortgage
(Residential)
</TABLE>
(1) Includes principal and accrued interest, but not any additional
interest which may be payable.
(2) Loan restructured in September 1997, reducing principal balance to
$5,000,000 with interest accruing at 7% per annum.
(3) Loan restructured in November 1996 to consist of a note payable in two
portions ($500,000 and $330,000) bearing interest at 7% and 12%,
respectively, both compounded annually, and serviced by the cash flow
of the property.
THIS TABLE SETS FORTH INFORMATION WITH RESPECT TO THE MORTGAGE LOANS AND CURRENT
INVESTMENTS ACQUIRED OR MADE BY REGISTRANT. HOWEVER, PLEASE SEE PAGES I-2
THROUGH I-11 FOR A DISCUSSION OF ADVERSE CONDITIONS AFFECTING THE VALUE OF
REGISTRANT'S INVESTMENT IN ITS MORTGAGE LOANS.
<PAGE>
Competition
The properties which secure Registrant's mortgage loans may face competition
from similar properties in the vicinity. To the extent such competition reduces
the gross revenue from the operation of such properties, and/or decreases any
appreciation in the value of such properties, such competition may reduce any
contingent interest, principal or base interest otherwise paid to Registrant. In
addition, Registrant would encounter competition should it sell its Mortgage
Loans.
Because Presidio is the parent of other corporations in addition to the
Investment and Administrative General Partners, such General Partners are or may
become affiliated with other entities which are engaged in businesses that are,
or may in the future be, in direct competition with Registrant.
Employees
Registrant does not have any employees. Certain services are currently performed
by the General Partners and/or their affiliates for Registrant in connection
with the servicing of the Mortgage Loans pursuant to a mortgage servicing
agreement. NorthStar Presidio currently performs accounting, secretarial,
transfer and administrative services for Registrant and Registrant pays its pro
rata portion of such services. NorthStar Presidio also performs similar services
for other affiliates of the General Partners. See Item 10, "Directors and
Executive Officers of Registrant", Item 11, "Executive Compensation" and Item
13, "Certain Relationships and Related Transactions."
Item 2. Properties
On April 1, 1993, Registrant acquired title by foreclosure and assumed ownership
responsibilities of a motel property, the Richmond Comfort Inn Executive Center,
located in Richmond, Virginia which had been part of Registrant's collateral for
the Southern Inns Loan. Registrant had originally loaned Southern Inns
Associates $4,000,000 secured by seven properties, one of which was this motel.
Registrant acquired title by foreclosure to this property subject to a first
mortgage. The Comfort Inn is a limited service motel situated on approximately
2.5 acres of land and it contains 123 guest rooms.
Item 3. Legal Proceedings
For discussion of Legal Proceedings, please see Item 8, "Financial Statements
and Supplementary Data."
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Common Securities and Related Security
Holder Matters
There is no established public trading market for the Units of Registrant.
There are certain restrictions set forth in the Partnership Agreement which may
limit the ability of a limited partner to transfer units. Such restrictions
could impair the ability of a limited partner to liquidate its investment in the
event of an emergency on for any other reason.
As of March 1, 1998, there were approximately 11,500 holders of Units of
Registrant (including the initial limited partner), owning an aggregate of
330,004 Units.
On December 28, 1992, Registrant made a special distribution of $1,719,495 or
$4.95 per Unit to holders of record as of October 1, 1992 that was paid from the
proceeds of the prepayment of the Bellekirk Loan. The allocation between limited
partners and general partners was $1,633,520 and $85,975, respectively. No
distributions were made in 1993, 1994, 1995 or 1996. The Partnership declared a
$12.00 per Unit interim distribution on June 30, 1997. The distribution
represented a portion of the proceeds Registrant received during 1997 from the
repayment of the Tri-State and BP loans, which had previously been fully
reserved. There are no material legal restrictions set forth in the Partnership
Agreement upon Registrant's present or future ability to make distributions.
However, no additional distributions were anticipated to be made prior to the
maturity of the Mortgage Loans, except in the event of the prepayment of a
Mortgage Loan, in as much as all payments due from borrowers under the Mortgage
Loans were deferred and payable upon maturity or prepayment of the respective
Mortgage Loans. Registrant 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. Registrant 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 a short-term money
market instruments and are expected to be sufficient to pay administrative
expenses during the term of Registrant.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,242,929 $ 5,764,309 (3) $ 1,997,835 $ 1,858,087 $ 2,233,474
Net Income (Loss) $ (1,225,720) $ 7,113,916 (1) $ (6,713,010) (4) $ (239,929) $ (10,826,310) (2)
Net Income (Loss)
Per Unit (1) (2) (3) (4) $ (3.53) $ 20.48 (1) $ (19.33) (4) $ (.69) $ (31.17) (2)
Distribution Per Unit $ 12.00 $ - $ - $ - $ -
Total Assets
Net of Reserves $ 13,753,749 $ 19,540,249 $ 12,565,760 $ 19,536,535 $ 19,702,236
</TABLE>
<PAGE>
(1) Net of recovery of provision for loan losses of $3,188,383 or $91.79 per
Unit.
(2) Net of a provision for loan losses of $11,186,231 or $32.20 per Unit for
1993.
(3) 1996 revenues include mortgage interest income of $3,681,789, and is not
directly comparable with revenues in prior periods. which consisted
primarily of motel revenue and short-term interest income from 1993 to
1995.
(4) Net of a provision for loan losses of $6,672,014 or $19.21 per Unit for
1995.
Item 7. 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 Registrant. However, at the
inception of Registrant, the General Partners' equity account was credited with
only the actual capital contributed in cash, $1,000. Registrant's management
determined that this accounting does not appropriately reflect the Limited
Partners' and the General Partners' relative participations in Registrant's net
assets, since it does not reflect the General Partners' 5% equity interest in
Registrant. Thus, Registrant has restated its financial statements to reallocate
$4,124,051 (5% of the gross proceeds raised at Registrant's formation) of the
partners' equity to the General Partners' equity account. This reallocation was
made as of the inception of Registrant and all periods presented in the
financial statements have been restated to reflect the reallocation. The
reallocation has no impact on Registrant's financial position, results of
operations, cash flows, distributions to partners, or the partners' tax basis
capital accounts.
Registrant 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 Integrated.
The public offering commenced on January 21, 1986, and Registrant had its
initial admission of limited partners on March 28, 1986. The offering terminated
on May 1, 1987 at which time Registrant had accepted subscriptions for 329,994
Units (exclusive of the ten Units owned by the initial limited partner) for
aggregate gross proceeds of $82,501,000. This amount includes $2,475,030 of
evaluation fees paid in accordance with the Partnership Agreement and $4,125,000
of mortgage placement fees.
Registrant originally invested 100% of its net proceeds in sixteen Mortgage
Loans which aggregated $70,332,103, three of which, the 595 Madison Loan, the
Bellekirk Loan and the Pace Loan, were prepaid on November 30, 1989, July 2,
1992 and January 23, 1997, respectively. In addition, Registrant has foreclosed
on one Mortgage Loan, and three Mortgage Loans have been converted to possible
equity participations with BP Shopping Center's participation being paid on
February 20, 1997, and Research Triangle's participation interest being paid on
September 17, 1997. Registrant has lost its entire investment in seven Mortgage
Loans as a result of foreclosures or discounted payoffs of senior lenders. A
brief discussion of these events follows.
<PAGE>
On December 31, 1991, the senior mortgage lender on one of Registrant's Mortgage
Loans, the Century Park Loan, foreclosed on the property securing its loan, and
Registrant lost its entire investment. In December 1992, the BP Loan was
converted to an equity participation pursuant to the borrower's bankruptcy plan
of reorganization and on February 20, 1997 Registrant was paid for this equity
participation. On January 13, 1993, the senior mortgage lender on another of
Registrant's investments, the Clovine Loan, foreclosed on the property securing
its loan and Registrant lost its entire investment. On April 1, 1993, Registrant
foreclosed on the Southern Inns Loan and assumed ownership of the Richmond
Comfort Inn, located in Richmond, Virginia. In July 1993, the Boram Loan was
converted to an equity participation in the future sale of the property pursuant
to a settlement agreement. The first mortgage lender of the Boram Property was
subsequently paid off at a discount and Registrant lost any potential recovery
from its equity participation interest. On January 13, 1994 and April 5, 1994,
the respective senior lenders associated with the Park Place and Lenox Loans,
foreclosed on the respective properties securing such loans and Registrant lost
its entire investment. In November 1994, the Berkeley Loan was restructured to
convert the Registrant's original investment to a new $550,000 loan and an
equity participation in the future sale of the property. In 1995 the Airport
Center Loan was foreclosed upon by the senior lender and Registrant lost its
entire investment and the RT Loan was exchanged for a 20% interest in the net
wrap cash flow of the senior Wrap Mortgages which was paid in September 1997.
During 1996, the Pike Creek Loan was amended and reduced to $500,000 with
interest to accrue at 7% per annum. In addition, an additional $330,000 was
advanced to the Pike Creek borrower which bears interest at 12% per annum. In
January 1997 the Pace Loan was prepaid in its entirety. In April 1997, the
senior mortgage lender foreclosed on the property securing the Stockfield loan
and the Partnership lost its entire investment. In September 1997, the West Palm
loan was restructured and reduced to $5,000,000 with interest accruing at 7% per
annum and the maturity date was extended to February 2017. Because Registrant's
loans are zero-coupon loans, Registrant receives no current cash flow from such
investments.
Registrant 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 motel as its primary measure of liquidity. As of
December 31, 1997 Registrant's working capital reserves equaled approximately
$8,200,000. Registrant may utilize its working capital reserves in the event
Registrant 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.
Registrant'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 December 1993, Registrant paid the Clovine related deferred mortgage
servicing fee to the Administrative General Partner in the amount of $75,028. On
March 8, 1994, Registrant paid $57,077 to the Administrative General Partner
representing the deferred mortgage servicing fee on its Park Place Loan. On May
17, 1994 Registrant paid $107,394 representing the deferred mortgage servicing
fee on its Lenox Loan. In March 1995, Registrant paid $75,919, $69,118, $29,219
and $137,918 which represented the mortgage servicing fees associated with the
Berkeley Western, Southern Inns, BP Shopping Center and Boram loans,
respectively. In September 1995, Registrant paid $175,423 representing the
mortgage servicing fee associated with the Airport Center loan. On May 5, 1997
and June 26, 1997 Registrant paid $58,898 and $197,000 which represented the
mortgage servicing fees associated with the Tri-State and Stockfield loans,
respectively. (See Notes to Financial Statements - Note 3).
<PAGE>
During 1997, Registrant paid $93,568, $71,561, $28,297 and $54,134 to the
Administrative General Partner representing the asset management fees for the
Airport Center, Southern Inns, BP and Berkeley loans, respectively.
Registrant declared a $12.00 per Unit interim distribution on June 30, 1997. The
distribution represented a portion of the proceeds Registrant received during
1997 from the repayment of the Tri-State and BP Loans, which had previously been
fully reserved.
Registrant has placed the undistributed portion of the proceeds of the
Tri-State, Research Triangle and BP loan repayments (approximately $2,742,000)
in working capital reserves in order to retain sufficient funds to protect and
maximize the value of its remaining investments. Registrant 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 a short-term money
market instruments and are expected to be sufficient to pay administrative
expenses during the term of Registrant.
Registrant 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. As discussed more fully in the Notes to Financial Statements - Note 4,
the borrower under the West Palm Loan is experiencing cash flow problems. If as
a result of these cash flow problems an eventual foreclosure should occur,
Registrant may not have sufficient capital to bid at a foreclosure. This would
result in a total loss of Registrant's investment in that particular mortgage if
the amount bid at the foreclosure by the successful bidder is the amount of the
first mortgage holder's lien. 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.
Real Estate Market
The real estate market has begun to recover from the effects of the recession
which included a substantial decline in the market values of existing
properties. However, high vacancy rates continue to exist in some areas. As a
result, investors will not recover a significant portion of their original
investment in Registrant.
Allowance for Loan Losses
Registrant invested principally in zero-coupon, non-recourse junior Mortgage
Loans. Collection of amounts due on Registrant's Loans is solely dependent upon
the sale or refinancing of collateral at amounts sufficient to satisfy
Registrant's mortgage loans after payment of the senior mortgage notes owned by
unaffiliated third parties.
An allowance for loan losses is established based upon a quarterly review of
each mortgage in Registrant's portfolio. In performing this 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
estimated 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 December 31,
1997.
<PAGE>
The allowance is inherently subjective and is based on management's best
estimate of current conditions and assumptions about expected future conditions.
Registrant may provide additional losses in subsequent years and such provisions
could be material.
Certain of the properties, as described in the Notes to Financial Statements -
Note 4, to which Registrant has made loans are experiencing varying degrees of
operating problems. In one case the first mortgage holder has agreed to a
modification of their terms. Management has provided for some contingencies by
establishing an allowance for loan losses on its entire investment in Mortgage
Loans.
During 1996, the property securing the Pike Creek Loan was operating with
positive cash flow and is meeting all debt service requirements. However, the
first mortgage matured on February 15, 1996 and the second mortgage matured on
December 15, 1995. During 1996, Big Valley Associates was negotiating with the
first mortgage lender to obtain permanent replacement debt. Based on internal
valuations, the likelihood of Big Valley Associates obtaining continued
financing at that time would be difficult. Based on this factor, the
Registrant's management determined as of March 31, 1995, that an additional
reserve in the amount of $946,000 was required. This reserve reduced the
carrying value of the Pike Creek Loan to $1,050,832. In November 1996, the Pike
Creek Loan was amended and restructured (See Note 4 to the Financial
Statements).
While the property securing the RT Loan was operating with positive cash flow
and meeting debt service requirements, the senior wrap mortgages and the RT Loan
matured on January 1, 1996. In March 1995, the IBM lease, which by itself
accounted for over 70% of the leased space at the property, was due to expire
one year after the current debt matured. The Senior Wrap Mortgages were
negotiated to extend the maturity dates. While negotiations were in progress, RT
Associates continued to make debt service payments. Since refinancing would be
difficult without a longer lease commitment from IBM, the Registrant's
management determined that as of March 31, 1995, an additional reserve in the
amount of $2,360,000 was required which reduced the carrying value of the RT
Loan to $2,622,257. In August 1995, the RT Loan was acquired by the senior wrap
mortgage holders, with the Registrant obtaining a 20% participating interest
(See Note 4 to the Financial Statements). As a result of this transaction and an
analysis of the value of the investment, it was determined that a provision for
loan losses was required for the quarter ended September 30, 1995 for the RT
Loan in the amount of $1,260,000, reducing the carrying value to $1,362,256.
During 1996, the IBM leases were extended for periods expiring between 2 and 5
years. In September 1997, the properties underlying the RAM Participation
Interest were sold. Accordingly, Registrant 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.
In addition, the property securing the Stockfield Loan is 96% occupied by Shell
California Productions, Inc., whose lease expires in 1999. It was unlikely that
Shell would exercise its renewal option with renegotiating the rental downward
toward market rates. The first mortgage matured on April 1, 1996, and without a
long-term commitment from Shell, refinancing would be difficult. Stockfield
Associates was attempting to negotiate an extension of the first mortgage, but
was unable to reach an agreement and the first mortgage lender commenced
foreclosure proceedings and ultimately foreclosed on the property in April of
<PAGE>
1997. Registrant's management decided at March 31, 1995, to reserve an
additional $2,106,000 on the Stockfield Loan, which reduced the carrying value
to $2,340,260. Due to the foreclosure, the Registrant lost its entire investment
in this loan and recorded a provision for the entire carrying value of
$2,340,260.
During 1996, the Registrant recorded recoveries of prior provisions for loan
losses of $1,963,522 and $1,224,861 for the Tri-State and BP Loans,
respectively. Additionally, the Registrant recorded $3,673,614 of interest
income during 1996 with respect to the Tri-State Loan. All such amounts were
received by the Registrant during the first quarter of 1997. During 1997,
Registrant recorded a recovery of loan losses in the amount of $604,155 on the
RT Loan and a provision for loan losses in the amount of $2,340,260 on the
Stockfield loan, as more fully discussed above.
Year 2000
Costs associated with the year 2000 conversion are not expected to have any
impact on the operations of the Registrant.
Results of Operations
1997 vs. 1996
There was a net loss for the year ended December 31, 1997 as opposed to net
income for the year ended December 31, 1996 primarily due to the provision for
loan losses, net of recoveries recorded in 1997 as opposed to a recovery of loan
losses recorded in 1996.
Revenues decreased for the year ended December 31, 1997 compared to the prior
year primarily due to a decrease in mortgage interest income only partially
offset by an increase in short-term investment interest. Mortgage interest
income decreased due to the payoff of the Tri-State Loan and thus the recording
of $3,673,614 in mortgage interest income in 1996. Short-term investment income
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 payments received in connection with the equity
participations in BP Shopping Center and Research Triangle Loans.
Costs and expenses increased in 1997 compared to the prior year primarily due to
a provision for loan losses recorded on the Stockfield loan in 1997 compared to
a recovery of loan losses recorded in 1996 as discussed below. This increase was
primarily offset by decreases in operating expenses and general and
administrative expenses. Operating expenses decreased in proportion to the
decrease in operating income. General and administrative expenses decreased
primarily due to a decrease in payroll costs.
1996 vs. 1995
The Registrant experienced net income for the year ended December 31, 1996
compared with a net loss in the prior year primarily due to the allowance for
loan losses recorded during 1995 as discussed above, versus the recovery of the
loan provision related to the Tri-State and BP Loans, and the mortgage interest
income related to the Tri-State Loan recorded in 1996.
Revenues increased for the year ended December 31, 1996 compared to the same
period in 1995, due to both the recovery of the loan provision related to the
Tri-State and the BP Loans, and the recording of mortgage interest income
related to the Tri-State Loan during 1996. The Tri-State Loan, which had
<PAGE>
previously been entirely reserved for, was satisfied in January 1997. The
recovery of the loan provision was $1,963,522 and $3,673,614 in mortgage
interest income was recognized for the year ended December 31, 1996. In
addition, in February 1997, $1,224,861 was received which related to the BP loan
equity participation certificates. The BP Loan had also previously been
written-off, and as such this amount was recorded as a recovery of loan
provision. Other income increased due to the interest income received during
1996 on the Research Triangle participation interest, which began in August 1995
and the receipt of approximately $55,000 in August 1996, in settlement of the
Registrant's claim against Integrated related to the Boram Loan.
Costs and expenses decreased for the year ended December 31, 1996 when compared
to the same period in 1995, primarily as a result of the allowance for loan
losses that was taken in 1995. In addition, there was a decrease in mortgage
servicing fees, and general and administrative expenses partially offset by an
increase in operating expenses. Mortgage servicing fees decreased as a result of
the payment of fees in March of 1995 and in February 1996 related to several
mortgages, thus eliminating interest accumulating on the deferred fees. General
and administrative expenses decreased as a result of a decrease in payroll
costs.
Other Legal Proceedings
Legal Proceedings
On or about May 11, 1993, three public real estate partnerships (the "HEP
Registrants") 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 Registrants
(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 ("Consolidated
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
Registrant. 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.
<PAGE>
Only approximately 2.5% of the limited partners of the HEP Registrants 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 granted the request of one of the Plaintiffs' law firm to
withdraw as class counsel.
Thereafter, in June 1997, the Plaintiffs again amended their complaint ("Amended
Complaint"). The Amended Complaint asserts substantially the same claims as the
Consolidated Complaint, except that it no longer contains causes of action for
fraud, except on behalf of the two original plaintiffs, or for negligence. In
February 1998, the Court certified three Plaintiff classes consisting of current
unit holders in each of the three HEP Registrants. On March 11, 1998, the Court
stayed the action through June 30, 1998 to permit the parties to engage in
renewed settlement discussions.
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
Registrant.
<PAGE>
Item 8. Financial Statements and Supplementary Data
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
I N D E X
Independent Auditor's Report
Financial Statements - years ended
December 31, 1997, 1996 and 1995
Balance sheets
Statements of operations
Statement of partners' equity
Statements of cash flows
Notes to financial statements
Financial statement schedules
Schedule III
Real Estate and Accumulated Depreciation
All other financial statement schedules are omitted because they are not
applicable or the required information is shown in the financial statements or
notes thereto.
<PAGE>
To the Partners of
Resources Accrued Mortgage Investors L.P. - Series 86
Greenwich, Connecticut
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Resources Accrued Mortgage
Investors L.P. - Series 86 (a limited partnership) as of December 31, 1997 and
1996, and the related statements of operations, partners' equity and cash flows
for each of the three years in the period ended December 31, 1997. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)2. These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resources Accrued Mortgage
Investors L.P. - Series 86 as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Hays & Company
- -----------------
Hays & Company
February 18, 1998
New York, New York
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $6,050,832 and $17,012,938) .......... $ 1,464,415 $11,953,520
Cash and cash equivalents .................................. 8,273,293 3,769,118
Real estate - net .......................................... 3,899,513 3,730,284
Other assets ............................................... 116,528 87,327
----------- -----------
$13,753,749 $19,540,249
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable ...................................... $ 3,495,478 $ 3,570,723
Due to affiliates .......................................... 1,843,290 2,123,481
Accounts payable and accrued expenses ...................... 138,494 175,366
----------- -----------
Total liabilities ....................................... 5,477,262 5,869,570
----------- -----------
Commitments and contingencies (Notes 3, 4, 6 and 8 )
Partners' equity
Limited partners' equity (as restated) (330,004 units issued
and outstanding) ........................................ 7,862,713 12,987,195
General partners' equity (as restated) ..................... 413,774 683,484
----------- -----------
Total partners' equity .................................. 8,276,487 13,670,679
----------- -----------
$13,753,749 $19,540,249
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Operating income - real estate .............. $ 1,570,960 $ 1,712,325 $ 1,706,256
Short-term investment interest .............. 424,271 202,876 203,077
Mortgage loan interest income ............... 131,471 3,681,789 --
Other income ................................ 116,227 167,319 88,502
----------- ----------- -----------
2,242,929 5,764,309 1,997,835
----------- ----------- -----------
Costs and expenses
Provision for (recovery of) loan losses ..... 1,736,105 (3,188,383) 6,672,014
Operating expenses - real estate ............ 929,557 958,418 982,438
Mortgage loan interest expense .............. 309,566 342,110 347,730
General and administrative expenses ......... 175,926 192,836 330,727
Asset management fees ....................... 151,989 162,567 165,023
Mortgage servicing fees ..................... 71,880 93,527 124,829
Depreciation expense ........................ 93,626 89,318 88,084
----------- ----------- -----------
3,468,649 (1,349,607) 8,710,845
----------- ----------- -----------
Net (loss) income ................................ $(1,225,720) $ 7,113,916 $(6,713,010)
=========== =========== ===========
Net (loss) income attributable to
Limited partners ............................ $(1,164,434) $ 6,758,220 $(6,377,359)
General partners ............................ (61,286) 355,696 (335,651)
----------- ----------- -----------
$(1,225,720) $ 7,113,916 $(6,713,010)
=========== =========== ===========
Net (loss) income per unit of limited partnership
interest (330,004 units outstanding) ........ $ (3.53) $ 20.48 $ (19.33)
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1995 .................... $ (3,460,612) $ 16,730,385 $ 13,269,773
Reallocation of partners' equity ............ 4,124,051 (4,124,051) --
------------ ------------ ------------
Balance, January 1, 1995 (as restated) ...... 663,439 12,606,334 13,269,773
Net loss - 1995 ............................. (335,651) (6,377,359) (6,713,010)
------------ ------------ ------------
Balance, December 31, 1995 (as restated) .... 327,788 6,228,975 6,556,763
Net income - 1996 ........................... 355,696 6,758,220 7,113,916
------------ ------------ ------------
Balance, December 31, 1996 (as restated) .... 683,484 12,987,195 13,670,679
Net loss - 1997 ............................. (61,286) (1,164,434) (1,225,720)
Distributions to partners ($12.00 per limited
partnership unit) ...................... (208,424) (3,960,048) (4,168,472)
------------ ------------ ------------
Balance, December 31, 1997 .................. $ 413,774 $ 7,862,713 $ 8,276,487
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash from operating activities:
Net (loss) income ..................................... $(1,225,720) $ 7,113,916 $(6,713,010)
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities
Mortgage loan interest accrued ................ (131,471) (3,681,789) --
Provision for (recovery of) loan losses ....... 1,736,105 (3,188,383) 6,672,014
Deferred asset management and
mortgage servicing fees, net of
payments made .............................. (280,191) (43,739) (197,745)
Depreciation expense .......................... 93,626 89,318 88,084
Changes in assets and liabilities
Other assets ...................................... (29,201) (48,485) 21,197
Accounts payable and accrued expenses ............. (36,872) (33,379) 1,137
----------- ----------- -----------
Net cash provided by (used in)
operating activities .................... 126,276 207,459 (128,323)
----------- ----------- -----------
Cash from investing activities:
Principal payments on mortgage loan payable ........... (75,245) (62,309) (61,157)
Additions to real estate .............................. (262,855) (81,786) (16,651)
Investment in mortgage loans .......................... -- (330,000) --
Payments received on mortgage loans ................... 8,884,471 -- --
----------- ----------- -----------
Net cash provided by (used in)
investing activities .................... 8,546,371 (474,095) (77,808)
----------- ----------- -----------
Cash flows from financing activities
Distributions to partners ............................. (4,168,472) -- --
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... 4,504,175 (266,636) (206,131)
3,769,118 4,035,754 4,241,885
Cash and cash equivalents, beginning of year ........... -- -- --
Cash and cash equivalents, end of year ................. $ 8,273,293 $ 3,769,118 $ 4,035,754
=========== =========== ===========
Supplemental disclosure of cash flow information
Interest paid ......................................... $ 309,566 $ 342,110 $ 347,730
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1 ORGANIZATION
Resources Accrued Mortgage Investors L.P. - Series 86, a Delaware limited
partnership (the "Partnership"), was formed in September 1985 under the
Delaware Revised Uniform Limited Partnership Act for the purpose of
investing primarily in nonrecourse, zero-coupon junior accrued interest
mortgage loans on properties owned or acquired principally by privately
and publicly syndicated limited partnerships sponsored by affiliates of
Integrated Resources Inc. ("Integrated"), the former parent of the General
Partners.
Beginning on January 21, 1986, the Partnership offered 500,000 units of
limited partnership interest (the "Units") pursuant to the Prospectus
dated January 21, 1986 (the "Prospectus"), as supplemented by Supplements
dated March 14, 1986, April 9, 1986, July 25, 1986, August 1, 1986,
September 8, 1986, October 29, 1986 and December 30, 1987 (collectively,
the "Supplements"), which were filed pursuant to Rules 424 (b) and 424 (c)
under the Securities Act of 1933, as amended. The Prospectus was filed as
part of the Partnership's Registration Statement on Form S-11, Commission
File No. 33-00836, as amended (the "Registration Statement"). The offering
terminated on May 1, 1987 with 329,994 Units having been sold (excluding
the 10 Units sold to the initial limited partner) representing net
proceeds of $78,582,310 (gross proceeds of $82,501,000 less organization
and offering costs of $3,918,690). All underwriting and sales commissions
were paid by Integrated or its affiliates and not by the Partnership.
The Partnership invested 100% of its net proceeds in sixteen mortgage
loans, three of which were prepaid. The 595 Madison loan was prepaid on
November 30, 1989, the Bellekirk loan was prepaid July 2, 1992 and the
Tri-State loan was prepaid on January 28, 1997. In addition, on December
31, 1991, January 13, 1993, January 13, 1994, April 5, 1994, July 26, 1995
and in April 1997, the senior mortgage lenders on properties securing six
of the Partnership's loans foreclosed on the properties securing their
loans, and the Partnership lost its entire investment in these loans. In
December 1992, the Brentwood Place loan was converted into equity
participation certificates (on which the Partnership was paid
approximately $1.2 million in 1997) pursuant to the borrower's bankruptcy
Plan of Reorganization. On April 1, 1993 the Partnership foreclosed on the
Southern Inns loan and assumed ownership of the Richmond Comfort Inn,
located in Richmond, Virginia. The Richmond property foreclosure and
acquisition were part of a restructuring agreement. In July 1993, the
Boram loan was restructured and the Partnership received an equity
participation in the future sale of the property. The Partnership
subsequently lost any equity participation in this property as the senior
mortgage lender was paid off at a discount. In November, 1994 the Berkeley
Western loan was restructured to convert the Partnership's original
investment to a new $550,000 loan and an equity participation in the
future sale or refinancing of the property. In August 1995, the Research
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1 ORGANIZATION (continued)
Triangle loan was restructured to convert the Partnership's original
investment to a 20% cash flow participation. In September 1997, the
Partnership received $1,966,441 in full satisfaction of its participation
interest in the sale of the properties originally underlying the Research
Triangle loan. In November 1996, the Big Valley Loan was amended and
reduced to $500,000 and an additional $330,000 was advanced to the Big
Valley Associates. Also, in September 1997, the West Palm loan was
restructured and the Partnership received a participation interest in the
event of a sale of the property.
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
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 this 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 at each year end. Accordingly,
the Partnership may provide additional losses in subsequent years 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, which was acquired through foreclosure, 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 for losses in subsequent years and
such provisions could be material.
Financial statements
The financial statements include only those assets, liabilities and
results of operations which relate to the business of the Partnership.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Cash and cash equivalents
For the purpose of the statements of cash flows, the Partnership considers
all short-term investments which have original maturities of three months
or less to be cash equivalents.
Principally all of the Partnership's cash and cash equivalents are held at
one financial institution.
Fair value of financial instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The
Partnership's financial instruments include cash and cash equivalents,
investments in mortgage loans and a mortgage loan payable. Unless
otherwise disclosed, the fair value of financial instruments approximates
their recorded values.
Net income (loss) per unit of limited partnership interest
Net income (loss) per unit of limited partnership interest is computed
based upon the number of units outstanding (330,004) for the year.
Income taxes
No provisions have been made for federal, state and local income taxes,
since they are the personal responsibility of the partners.
The income tax returns of the Partnership are subject to examination by
federal, state and local taxing authorities. Such examinations could
result in adjustments to Partnership income or losses, which changes could
affect the income tax liability of the individual partners.
Recently issued accounting pronouncements
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 128, "Earnings Per Share"
established standards for computing and presenting earnings per share, and
became effective for financial statements for both interim and annual
periods ending after December 15, 1997. Statement No. 129, "Disclosure of
Information about Capital Structure" established standards for disclosing
information about an entity's capital structure, and became 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
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements
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 have,
or will have a material effect on the Company's reported operating
results, per unit amounts, financial position or cash flows.
Reclassifications
Certain reclassifications have been made to the financial statements shown
for the prior years in order to conform to the current year's
classifications.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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"). RAM
Funding, Inc. and Resources Capital Corp. were, until November 3, 1994,
wholly-owned subsidiaries of Integrated. On November 3, 1994, Integrated
consummated its plan of reorganization under Chapter 11 of the United
States Bankruptcy Code, at which time, pursuant to such plan of
reorganization, the newly formed Presidio purchased substantially all of
Integrated's assets. As of February 28, 1995, the Associate General
Partner of the Partnership is Presidio AGP Corp. ("Presidio AGP"), a
Delaware Corporation, which replaced Z Square G Partners II, a New York
general partnership comprised of a general partnership and individuals who
were all former officers, directors and significant shareholders of
Integrated. Presidio AGP is 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Presidio controls the Partnership through its direct and indirect
ownership of the General Partners. On August 28, 1997, an affiliate of
NorthStar Capital Partners acquired all of the Class B shares of Presidio.
This acquisition, when aggregated with previous acquisitions, caused
NorthStar Capital Partners to acquire indirect control of the General
Partners.
Wexford Management Corp. had been engaged to perform management and
administrative services for Presidio and its direct and indirect
subsidiaries as well as the Partnership under an Administrative Services
Agreement. Wexford Management Corp. was engaged to perform similar
services for other similar entities that may be in competition with the
Partnership. Effective January 1, 1996, Wexford Management Corp., formerly
Concurrency Management Corp., assigned its agreement to provide management
and administrative services to Presidio and its subsidiaries to Wexford
Management LLC ("Wexford"). Under this agreement, Wexford also had the
authority to designate directors of the General Partner.
On November 2, 1997, the Administrative Services Agreement with Wexford
expired. Effective November 3, 1997, Wexford and Presidio entered into a
new Administrative Services Agreement (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 affiliates, including the
General Partners and the Partnership. Presidio also entered into a
management agreement with NorthStar Presidio Management Company, LLC
("NorthStar Presidio"). Under the terms of the management agreement,
NorthStar Presidio will provide the day-to-day management of Presidio and
its direct and indirect subsidiaries and affiliates. During 1997 and 1996,
amounts paid to Wexford for management and administrative services
amounted to $23,230 and $36,799, 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 of Presidio
appointed new individuals to serve as officers and/or directors of the
General Partners.
Presidio is a liquidating company. Although it has no immediate plans to
do so, it will ultimately seek to dispose of the interest it acquired from
Integrated through liquidation; however, there can be no assurance of the
timing of such transaction or the effect it may have on the Partnership.
The Partnership has invested principally in mortgage loans on properties
owned or acquired by privately syndicated limited partnerships originally
sponsored by Integrated. Transactions entered into between the Partnership
and affiliates of Integrated were subject to inherent conflicts of
interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICT OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
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 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 asset management fees of $151,989,
$162,567 and $165,023, including accrued interest of $144,758, $158,607
and $149,402 for the years ended December 31, 1997, 1996 and 1995,
respectively.
In May 1997, the Administrative General Partner was paid $193,426 which
represented the asset management fees previously accrued by the
Partnership for the Airport Center, Southern Inns and BP Shopping Center
Loans. In July 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.
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
mortgage servicing fees of $71,880, $93,527 and $124,829, including
accrued interest of $42,817, $28,120 and $71,857, for the years ended
December 31, 1997, 1996 and 1995, respectively.
In May 1997, the Administrative General Partner was paid $58,900 which
represented the mortgage servicing fee accrued by the Partnership 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. In June 1996, the Administrative General Partner was paid $86,827
which represented the mortgage servicing fee accrued by the Partnership
for the RT Loan. In March 1995, the Administrative General Partner was
paid $75,919, $69,118, $29,219 and $137,918, which represented the
mortgage servicing fees accrued by the Partnership for the Berkeley
Western, Southern Inns, Brentwood Place and Boram Loans, respectively. In
September 1995, the Administrative General Partner was paid $175,423,
which represented the mortgage servicing fee accrued by the Partnership
for the LAX loan. On March 8, 1994, the Partnership paid $57,077 to the
Administrative General Partner representing the mortgage servicing fee on
the Park Place loan. On May 17, 1994, the Partnership paid $107,394
representing the mortgage servicing fee on the Lenox Towers loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amounts due to Administrative General Partner for asset management and
mortgage servicing fees (including accrued interest), consist of the
following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Asset management fee ................... $1,451,466 $1,547,037
Mortgage servicing fee ................. 391,824 576,444
---------- ----------
$1,843,290 $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.
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. The Stockfield, Century
Park, Clovine, Park Place, Lenox Towers and LAX loans were ultimately lost
when the senior lenders foreclosed on the properties securing the
Partnership's mortgage loans. The Brentwood Place, Berkeley Western,
Research Triangle, West Palm, Big Valley and Boram loans have been
restructured to allow the Partnership a possible equity participation in
the future sales or refinancing of the properties. The Partnership
subsequently lost its equity participation in the Boram loan, as the
senior lender was paid off at a discount. The Brentwood Place and Research
Triangle participation interests were paid to the Partnership after the
underlying properties securing the respective loans were sold.
The Partnership has provided for these contingencies, in some
circumstances, by establishing an allowance for loan losses on its
investments.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Berkeley Western loan
The Berkeley Western loan, in an original principal amount of $2,250,000,
was secured by an office building in downtown Berkeley, California. The
Borrower, Berkeley Western Associates ("BW Associates") had been unable to
make payments on its first mortgage loan since May, 1989. Notices of
Default with respect to the first mortgage held by Guaranty Federal
Savings and Loan Association ("Guaranty Federal") and the loan held by the
Partnership were issued shortly thereafter. Guaranty Federal was placed
under Receivership by the Federal Savings and Loan Insurance Corporation,
which entity was subsequently absorbed by the Resolution Trust
Corporation.
Shortly thereafter, BW Associates and Guaranty Federal entered into a Cash
Flow Arrangement whereby all cash flow from the property was placed into
an escrow account to be drawn down for payment of capital improvements and
asbestos abatement work only with the approval of Guaranty Federal. In May
1992, Guaranty Federal elected to pursue its default remedies under its
first mortgage and issued a Notice of Default and Election to Sell Under
Deed of Trust, and commenced a foreclosure action.
In January 1993, BW Associates filed for protection under Chapter 11 of
the United States Bankruptcy Code. Upon BW Associates' request, the
bankruptcy court entered a cash collateral order which permitted use of
the property's cash flow to pay operating and other expenses pursuant to a
court approved budget. On May 18, 1993, the Partnership filed a Proof of
Claim for all outstanding principal, accrued interest, prepayment
penalties and other costs and obligations of BW Associates to the
Partnership. In September 1993, BW Associates and Guaranty Federal signed
a Memorandum of Understanding to restructure the first mortgage loan. The
restructuring entitled the Partnership to certain economic benefits, after
Guaranty Federal is repaid, upon a sale or refinancing of the property. BW
Associates had incorporated the Memorandum of Understanding into a plan of
reorganization. The plan of reorganization (the "Plan") was confirmed by
the bankruptcy court on November 14, 1994. A copy of the Plan is on file
with the bankruptcy court for the District of Connecticut. Some of the
more relevant terms of the Plan, which was consummated in December 1994,
are summarized as follows:
Guaranty Federal, a first priority mortgage holder, which was owed in
excess of $22 million, consented to a claim of $10 million, the
approximate value of the property which constitutes BW Associates major
asset. A new promissory note (the "New Note"), in the principal sum of $10
million, and secured by a mortgage on the Property, supersedes the
existing note.
The New Note has a term of four years and requires payments of interest
only at 5% per annum for the first two years, and 11% per annum for the
latter two years.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Berkeley Western loan (continued)
Upon repayment of all outstanding principal and interest of the New Note,
all economic benefits (net sale proceeds, refinancing proceeds and
distributable net cash flow) shall be apportioned as follows:
a) The Partnership will receive a total and maximum priority
distribution of $550,000 (inclusive of any previous priority
distributions paid from net refinancing proceeds and from
distributable net cash flow, if any). A non-interest bearing note for
$550,000 replaced the original loan of $2,250,000 made by the
Partnership to BW Associates.
b) The next $6,000,000 of proceeds will be allocated pari passu, 25% to
Guaranty Federal, 44% to the Partnership, and 31% to BW Associates.
c) Any additional amounts will be allocated pari passu, 12.5% to
Guaranty Federal, 43.75% each to BW Associates and the Partnership.
The entire carrying value of this loan of $2,481,562 had been written off
during 1990. The Partnership is unable to determine at the present time
whether any amounts will be received upon the ultimate sale or disposition
of the property.
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 operating
problems and its inability to restructure its existing indebtedness led to
BP Associates 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 for its equity
participation certificate due to the sale of the BP Shopping Center by
Northwestern. For the year ended December 31, 1996, the Partnership
recorded a recovery of prior loan losses to reflect this receipt.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
LAX loan
The LAX loan, in an original principal amount of $6,500,000, was made to
Airport Center Associates L.P. ("Airport") and was secured by three office
buildings near the Los Angeles Airport.
These properties had been experiencing serious operating deficits due to
market softness and capital upgrades required by new municipal codes,
including the installation of sprinkler systems and tenant procurement
costs. Under a separate, unsecured loan arrangement, Integrated advanced
to Airport $6,300,000 to fund certain short-falls.
On May 5, 1992, Airport filed for protection under Chapter 11 of the
United States Bankruptcy Code in Los Angeles, California. On September 28,
1992, the Partnership filed a proof of claim for all outstanding
principal, accrued interest, prepayment penalties, additional interest and
all other costs and obligations of Airport to the Partnership. In December
1992, a Plan of Reorganization was approved by all classes of creditors,
including the Partnership, and confirmed by the court. The terms of the
Plan of Reorganization entailed General Electric Capital Corp. ("GECC")
the first mortgage lender, agreeing to advance additional funds, up to a
maximum of $16,550,000, for improvements and tenant procurement costs.
GECC further agreed to modify the interest rate on its loan as well as the
pay rate.
In accordance with the Plan of Reorganization, the Partnership was
required to reduce the outstanding balance of its mortgage loan (including
accrued and unpaid interest thereon) to an amount equal to (i)
$11,061,194, the outstanding principal plus accrued and unpaid interest as
of December 31, 1991, plus (ii) the amount of accrued interest as of
December 31, 1992. Interest ceased to accrue as of such date unless the
loan was extended past December 31, 1995. Additional interest, as
originally defined in the loan, was eliminated.
The Partnership's loan, as part of the restructuring, was to mature on the
earlier of (i) December 31, 1995 or (ii) the acceleration of the GECC loan
(as a result of the occurrence of an event of default thereunder).
The Partnership had been notified during the first quarter of 1995, that
Airport had defaulted on its first mortgage obligation to GECC, due to
non-payment of its debt service obligations. The Partnership subsequently
received a Notice of Trustees Sale of the property securing the LAX loan
scheduled for July 20, 1995. The property was sold on July 26, 1995 and
the Partnership lost its entire investment in the LAX loan, which had been
fully reserved since 1990.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
West Palm loan
The West Palm loan, in the original principal amount of $9,200,000, was
made to West Palm Associates Limited Partnership ("West Palm"). The loan
is secured by a 582 unit apartment complex located in Los Angeles,
California.
Beginning in 1990, West Palm became entitled to draw on a cash flow
guarantee from the Seller in the amount of $1.5 million. Since that time,
West Palm has continuously drawn down on and almost depleted
that amount to meet operating and debt-service requirements.
Through a loan modification, debt service payments to the first mortgage
holder were modified to require interest only payments for a five month
period from August 1993 through December 1993. In addition, one debt
service payment due in July 1993, was deferred entirely and added to the
outstanding principal of the first mortgage. In January 1994, payments of
principal and interest resumed. However, beginning in February 1994, a new
modification with essentially the same terms as the first modification was
implemented. This modification required interest only payments at the rate
of 10.5% per annum through January 1995 except for the payment due June
1994, which has been deferred entirely and added to the outstanding
principal balance of the first mortgage. The payments of principal and
interest resumed with the payment due February 1, 1995.
The first mortgage matured in December 31, 1995, since which time West
Palm had been engaged in extensive negotiations with the first mortgage
holder (Hancock) in an effort to obtain a long term restructuring. Hancock
was unwilling to modify the first mortgage and on July 1, 1996, declared
the mortgage to be in default, and informed West Palm that it would
immediately seek the appointment of a receiver and begin foreclosure
proceedings. As a result, on July 2, 1996, West Palm filed for protection
under Chapter 11 of the United States Bankruptcy Code. Although the
bankruptcy protection enabled West Palm to avoid an imminent foreclosure,
there was no assurance that West Palm will be able to successfully
restructure its debt service obligations on the first mortgage. The
Partnership had reserved the entire carrying value of the West Palm loan
in 1993. The Partnership filed a proof of claim for all outstanding
principal, accrued interest, prepayment penalties, additional interest and
all other costs and obligations of West Palm to the Partnership.
In February 1997, a Plan of 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. However, it is unlikely that the Partnership will realize any
proceeds from this investment.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
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 release prices were 43% for the Pennsylvania
property, 33% for the Kentucky property and 24% for the Nebraska property.
The Partnership would also be entitled to a 25% acceleration on the
release prices for the first two properties that were sold.
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). The
restructuring enabled the Partnership to recoup all of its investment. In
January 1997, the Partnership received the full contractual balance of the
Tri-State loan of approximately $5,700,000. In the 4th quarter of 1996,
the Partnership recorded a recovery of prior loan losses of $1,963,522 and
recorded $3,673,614 of interest income not previously accrued to reflect
the repayment of this loan.
Research Triangle loan
The Complex securing the Research Triangle loan ("RT Loan"), was operating
with positive cash flow and was 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, RT 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, an
additional allowance 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan (continued)
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 (20%) percent 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. Reimbursable expenses were costs and expenses
of Teer in connection with the 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 was able to exercise the purchase option at any time from
the Closing Date through the third anniversary of the Closing Date. The
option prices were 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 did not
excercise 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
complex 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. The
Partnership received $65,750, $80,459 and $35,759, during 1997, 1996 and
1995, respectively, from the RAM Participation Interest, which amounts are
included in other income in the accompanying statements of operations.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan (continued)
In September 1997, the Complex 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 that time of the sale was $1,362,256,
resulting in a recovery of loan losses of $604,155.
Pike Creek loan
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
schedule to mature on December 31, 1999.
The property securing the Pike Creek loan was currently operating with
positive cash flow and was 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.
Due to the uncertainty associated with the ultimate collectibility 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 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 ultimate sale or
refinancing of the property. Interest earned on the Pike Creek loan for
the year ended December 31, 1997 amounted to $75,408.
The net carrying value of the Pike Creek loan at December 31, 1997 amunted
to $1,464,415 inclusive of accrued interest of $83,583.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Stockfield loan
The property securing the Stockfield loan was 96% occupied by Shell
California Productions, Inc. ("Shell") whose lease was to expire 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 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
have not made a decision with respect to renewal before the first mortgage
or the Stockfield loan matured. 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 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. In August 1995, the Partnership entered into an
agreement with Stockfield to restructure the Stockfield loan (the
"Restructuring"). The Restructuring was premised upon Stockfield
satisfying the following conditions (i) the existing lease with Shell was
to be replaced by a bond type net lease which extended the expiration date
of the property lease, (ii) the first mortgage was to be refinanced or
restructured and (iii) the net present value of the cash flow available to
Stockfield from the restructured lease, after payment of debt service on
the refinanced/restructured first mortgage indebtedness (the "Net Cash
Flow"), was to be equal to or greater than $8 million, using an annual
discount factor of 8% without regard to the final residual value of the
property owned by Stockfield.
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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's investments in mortgage
loans is summarized as follows:
<TABLE>
<CAPTION>
Mortgage
Interest Compound Loan Maturity Amount
Description Rate Period Date Date Advanced
----------- ---- ------ ---- ---- ---------
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) 14.50% Annual 20-Dec-85 (i) $2,250,000
Berkeley, CA
Stockfield Associates (h) 14.50% Annual 1-Apr-86 (h) 4,200,000
Bakersfield, CA
Research Triangle (j) 13.675% Monthly 1-Jan-88 (j) 3,000,000
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(b) 13.40% Monthly 16-Dec-87 31-Dec-99 1,305,000
Wilmington, DE
B.P. Associates (e) 13.40% Monthly (e) (e) 1,900,000
Brentwood, TN
Residential
West Palm (c) (f) 7.00% Annual 1-Jul-2000 1-Jul-2000 9,200,000
Los Angeles, CA
<CAPTION>
Interest recognized
---------------------------
Mortgage Year Ended
Purchased Placement December 31, 1996 and
Description Interest Fee 1997 Prior
----------- -------- --- ---------- -----
<S> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) $ 94,079 $ 137,483 - $ -
Berkeley, CA
Stockfield Associates (h)
Bakersfield, CA 137,142 254,378 - 89,000
Research Triangle (j)
Raleigh Durham, NC - 175,953 - 2,068,560
Shopping Centers
Big Valley Associates (d)(b) - 57,185 75,408 1,077,654
Wilmington, DE
B.P. Associates (e) - 111,437 - 69,693
Brentwood, TN
Residential
West Palm (c) (f) - 539,589 -
Los Angeles, CA
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying Value Balance (a)
December 31, December 31,
Write-offs Payments -------------------------------------------------
Description Reserves net of recoveries Received 1997 1996 1997 1996
----------- -------- ----------------- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Office Buildings
Berkeley Western (i) - $(2,481,562) $ - $ - - - (i)
Berkeley, CA
Stockfield Associates (h) - (4,680,520) - - 2,340,260 - 18,035,899
Bakersfield, CA
Research Triangle (j) - (3,278,102) (1,966,411) - 1,362,256 913,595 (j)
Raleigh Durham, NC
Shopping Centers
Big Valley Associates (d)(b) (1,050,832) - - 1,464,415 1,389,007 - 838,175
Wilmington, DE
B.P. Associates (e) - (856,269) (1,224,861) - 1,224,861 (e)
Brentwood, TN
Residential
West Palm (c) (f) (5,000,000) (4,739,589) - - 5,331,781 28,826,915
Los Angeles, CA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Interest recognized
-------------------
Original Mortgage Mortgage Year ended
Interest Compound Loan Maturity Amount Purchased Placement Dec. 31, 1996 and
Description Rate % Period Date Date Advanced Interest Fees 1997 Prior
- ----------- ------ ------ ---- ---- ---------- ---------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(continued)
Industrial/Commercial
Tri-State (c)(g) 13.46% Monthly 22-Jun-88 30-Jun-2000 1,800,000 - 105,572 56,063 3,731,564
Kentucky, Nebraska,
Pennsylvania
----------- -------- ---------- -------- ----------
$23,655,000 $231,221 $1,381,597 $131,471 $7,036,471
=========== ======== ========== ========= ==========
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 86, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying Value Balance (a)
Write-offs December 31, December 31,
net of Payments ------------------- ----------------------
Description Reserves recoveries Received 1997 1996 1997 1996
- ----------- ---------- ---------- ---------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial/Commercial
Tri-State (c)(g) - - (5,693,199) - 5,637,136 - 5,631,611
Kentucky, Nebraska,
Pennsylvania
------------ ------------ ----------- ----------- ----------- ----------- -----------
$(6,050,832) $(16,036,042) $(8,884,471) $1,464,415 $11,953,520 $ 6,245,366 $53,332,600
============ ============ =========== =========== =========== =========== ===========
</TABLE>
(a) Contractual balance represents the amount to be paid by the borrower if the
loan were liquidated as of December 31, of each year, including principal plus
interest earned to such date but not including any appreciation interest.
(b) During 1996, the Partnership amended and restated this loan. The new loan of
$830,000 consists of two components, $500,000 and $300,000 bearing interest at
7% and 12% per annum, respectively, plus equity participation.
(c) This loan is accounted for under the investment method.
(d) This loan is 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 Equity
Participation Certificates.
(f) 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.
(g) This loan was repaid in January, 1997.
(h) The property securing this loan was foreclosed upon by the senior lender in
April 1997. The Partnership lost its entire investment in this loan.
(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
and in September 1997 the Partnership received a $1,966,411 in satisfaction of
such participation interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Investment Interest
Method Method Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1995 .............. $ 4,446,494 $ 6,978,868 $ 11,425,362
Provision for loan losses ............. (2,106,234) (4,565,780) (6,672,014)
------------ ------------ ------------
Balance, December 31, 1995 ............ 2,340,260 2,413,088 4,753,348
Additional funding .................... -- 330,000 330,000
Recovery of loan loss provision ....... 1,963,522 -- 1,963,522
Recovery of loan previously written-off -- 1,224,861 1,224,861
Interest recognized ................... 3,673,614 8,175 3,681,789
------------ ------------ ------------
Balance, December 31, 1996 ............ 7,977,396 3,976,124 11,953,520
(Provision for) recovery of
loan loss ........................... (2,340,260) 604,155 (1,736,105)
Payments received on mortgage loans ... (5,693,199) (3,191,272) (8,884,471)
Interest recognized ................... 56,063 75,408 131,471
------------ ------------ ------------
Balance, December 31, 1997 ............ $ -- $ 1,464,415 $ 1,464,415
============ ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Unaudited financial information for mortgage loans accounted for under the
investment method, which exceed 10% of the Partnership's original capital
contributions, is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1997 1996 1995
West Palm (Unaudited) (Unaudited) (Unaudited)
--------- ----------- ----------- -----------
<S> <C> <C> <C>
Real estate assets $ * $ 48,330,750 $ *
Total liabilities $ * $ 81,139,155 $ *
Rental income $ * $ 5,927,455 $ *
Net operating loss $ * $ 3,909,067 $ *
</TABLE>
* 1997 and 1995 unaudited financial information for West Palm is not
available to the Partnership.
5 REAL ESTATE - NET
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 has recorded the land and buildings 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>
December 31,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Land ................................... $ 444,700 $ 444,700
Buildings and improvements ............. 3,876,293 3,613,438
----------- -----------
4,320,993 4,058,138
Less: accumulated depreciation ......... (421,480) (327,854)
----------- -----------
$ 3,899,513 $ 3,730,284
=========== ===========
</TABLE>
The land, building and improvements are pledged to collateralize the
mortgage loan payable (Note 6).
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
Interest rates on the loan are adjustable every five years with a current
interest rate of 8.5% effective through April 2002. Interest is based on a
2% premium over the Federal Home Loan Bank of Atlanta Five Year Advance
Rate. The loan presently requires monthly payments of interest and
principal aggregating $33,701. Interest expense for the years ended
December 31, 1997, 1996 and 1995 amounted to $309,566, $342,110 and
$347,730, respectively. The loan is held by the Resolution Trust Company
and the lender was permitted to accelerate the note as of April 1, 1997,
and thereafter with six months notice. The Partnership has not received
any notice of acceleration from the lender. 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.
Minimum principal payments on the mortgage loan payable during the next
five years and thereafter, based upon the current interest rate, are as
follows:
Year ending December 31,
1998 $ 77,200
1999 91,300
2000 99,300
2001 108,100
2002 117,700
Thereafter 3,001,878
------------
$ 3,495,478
============
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 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.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8 COMMITMENTS AND CONTINGENCIES
HEP Action
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
("Consolidated 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 Partnership. 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
granted the request of one of the Plaintiffs' law firm to withdraw as
class counsel.
Thereafter, in June 1997, the Plaintiffs again amended their complaint
("Amended Complaint"). The Amended Complaint asserts substantially the
same claims as the Consolidated Complaint, except that it no longer
contains causes of action for fraud, except on behalf of the two original
plaintiffs, or for negligence. In February 1998, the Court certified three
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8 COMMITMENTS AND CONTINGENCIES (continued)
HEP Action (continued)
Plaintiff classes consisting of current unit holders in each of the three
HEP Partnerships. On March 11, 1998, the Court stayed the action through
June 30, 1998 to permit the parties to engage in renewed settlement
discussions.
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 not possible 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.
9 RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX BASIS
The Partnership recognizes interest income on all of its investments in
mortgage loans for tax purposes using the interest method. For financial
statement purposes mortgage loans accounted under the investment method
recognize income as described in Note 2.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A reconciliation of net (loss) income per financial statements to the tax
basis of accounting is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net (loss) income per financial
statements ....................... $(1,225,720) $ 7,113,916 $ (6,713,010)
Interest income recognized for
tax purposes in excess of
(less than) financial statements 271,203 (749,971) 2,911,647
Fees to affiliates not recognized
for tax purposes ................ 141,213 256,094 --
Provision for loan losses not
recognized for tax purposes ..... 2,340,260 -- 6,672,014
Tax depreciation in excess of
financial statement depreciation (57,622) (23,410) (23,311)
Recovery of loan loss provision
for financial statement purposes (604,155) (1,963,522) --
Tax write-off of loans previously
reserved for financial statements (32,474,044) (1,837,010) (17,876,091)
------------ ------------ ------------
Net (loss) income per tax basis ....... $(31,608,865) $ 2,796,097 $(15,028,751)
============ ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9 RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX BASIS (continued)
The differences between the Partnership's net assets per financial
statements to the tax basis of accounting are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Net assets per financial statements ......... $ 8,276,487 $ 13,670,679
Interest income recognized for financial
statement purposes (in excess) less than
amounts recognized for tax purposes .... (749,147) 18,755,482
Allowance for loan losses ................... 6,050,832 17,012,938
Syndication costs ........................... 3,918,690 3,918,690
Due to affiliates ........................... 397,307 256,094
Cumulative tax depreciation in excess of
financial statement depreciation ....... (140,901) (83,279)
------------ ------------
Net assets per tax basis .................... $ 17,753,268 $ 53,530,604
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
COSTS CAPITALIZED GROSS AMOUNT AT
INITIAL COST TO SUBSEQUENT TO CLOSE OF
PARTNERSHIP ACQUISITION PERIOD
------------------------ ---------------------- ----------------------------------------
ENCUMB- BUILDING AND CARRYING BUILDING AND
DESCRIPTION RANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND IMPROVEMENTS TOTAL
----------- ------ ---- ------------ ------------ ----- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn
Hotel
Richmond, VA $3,495,478 $ 444,700 $3,303,821 $ 572,472 $ -- $ 444,700 $3,876,293 $4,320,993
<CAPTION>
LIFE ON WHICH
DEPRECIATION IN
LATEST STATEMENT
ACCUMULATED DATE OF DATE OF OPERATIONS IS
DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
------------ ------------ -------- --------
<S> <C> <C> <C> <C>
Comfort Inn
Hotel
Richmond, VA $ 421,480 N/A 4/1/93 40 YEARS
==========
Straight - line
method
<CAPTION>
Year ended December 31,
--------------------------------------
(A) RECONCILIATION OF REAL ESTATE OWNED 1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year ...... $3,959,701 $3,976,352 $4,058,138
Additions during year
Improvements ................. 16,651 81,786 262,855
---------- ---------- ----------
Balance at end of year ............ $3,976,352 $4,058,138 $4,320,993
========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(continued)
Year ended December 31,
--------------------------------------
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ...... $150,452 $238,536 $327,854
Additions during year
Depreciation ................. 88,084 89,318 93,626
-------- -------- --------
Balance at end of year ............ $238,536 $327,854 $421,480
======== ======== ========
</TABLE>
Aggregate cost for federal income tax purposes is $4,320,993 at December 31,
1997.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
There are no officers or directors of Registrant. The Administrative General
Partner has overall administrative responsibility for Registrant and for
operations and for resolving conflicts of interest after the net proceeds of the
offering are invested in Mortgage Loans. The Investment General Partner has
responsibility for the selection, evaluation, negotiation and disposition of
Mortgage Loans. The Associate General Partner will not devote any material
amount of its business time and attention to the affairs of Registrant. The
Administrative General Partner and the Investment General Partner are
wholly-owned subsidiaries of Presidio and were incorporated in Delaware in
September 1985. The Administrative General Partner also serves as the
administrative general partner of High Equity Partners L.P. -- Series 86 and
Resources Pension Shares 5, L.P. The Investment General Partner also serves as
the managing general partner of Resources Accrued Mortgage Investor 2 L.P. ("RAM
2").
Based on a review of Forms 3 and 4 and amendments thereto furnished to
Registrant pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") during its most recent fiscal year and Forms 5
and amendments thereto furnished to Registrant with respect to its most recent
fiscal year and written representations received pursuant to Item 405(b)(2)(i)
of Regulation S-K, none of the General Partners, directors or officers of the
General Partners or beneficial owners of more than 10% of the Units failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal or prior fiscal years. However, no written
representations were received from the partners of the former Associate General
Partner.
As of March 15, 1998, the executive officers and directors of the
Administrative, Investment and Associate General Partners were as follows:
<TABLE>
<CAPTION>
Has served as a
Director and/or
Name Age Position Held Officer since
---- --- ------------- -------------
<S> <C> <C> <C>
W. Edward Scheetz 33 Director November 1997
David Hamamoto 38 Director November 1997
Richard Sabella 42 President, Director November 1997
David King 35 Executive VP, Director, Assistant Treasurer November 1997
Lawrence R. Schachter 41 Senior VP, Chief Financial Officer January 1998
Kevin Reardon 39 VP, Secretary, Treasurer, Director November 1997
Allan B. Rothschild 36 Executive VP December 1997
Marc Gordon 33 VP November 1997
Charles Humber 24 VP November 1997
Adam Anhang 24 VP November 1997
Gregory Peck 23 Assistant Secretary November 1997
</TABLE>
W. Edward Scheetz co-founded NorthStar Capital Partners with David Hamamoto in
July 1997, having previously been a partner at Apollo Real Estate Advisors L.P.
since 1993. From 1988 to 1993, Mr. Scheetz was a principal with Trammell Crow
Ventures.
<PAGE>
David Hamamoto co-founded NorthStar Capital Partners with W. Edward Scheetz in
July 1997, having previously been a partner and a co-head of the Real Estate
Principal Investment Area at Goldman, Sachs & Co., where he initiated the effort
to build a real estate principal investment business in 1988 under the auspices
of the Whitehall Funds.
Richard Sabella joined NorthStar Capital Partners in November 1997, having
previously been the head of real estate and a partner at the law firm of Cahill,
Gordon & Reindel since 1989. Mr. Sabella has also been associated with the law
firms of Milgrim, Thomajian, Jacobs & Lee, P.C. and Cravath, Swaine & Moore.
David King joined NorthStar Capital Partners in November 1997, having previously
been a Senior Vice President of Finance at Olympia & York Companies (USA). Prior
to joining Olympia & York in 1990, Mr. King worked for Bankers Trust in its real
estate finance group.
Lawrence R. Schachter joined NorthStar Presidio in January 1998, having
previously held the position as Controller at CB Commercial/Hampshire, LLC from
1996 to 1997. Prior to joining CB, Mr. Schachter held the position of Controller
at Goodrich Associates in 1996 and at Greenthal/Harlan Realty Services Co. from
1992 to 1995. Mr. Schachter, who holds a CPA, graduated from Miami University
(Ohio).
Kevin Reardon joined NorthStar Capital Partners in October 1997, having
previously held the position of Controller at Lazard Freres Real Estate
Investors from 1996 to 1997. Prior to joining Lazard Freres, Mr. Reardon was the
Director of Finance in charge of European expansion at the law firm of Dewey
Ballantine from 1993 to 1996. Prior to 1993, Mr. Reardon held a financial
position at Hearst - ABC - Viacom Entertainment Services. Mr. Reardon, who holds
a CPA, graduated from Fordham University with a B.S. in Accounting.
Allan B. Rothschild joined NorthStar Presidio in December 1997, having
previously been the Senior Vice President and General Counsel of Newkirk Limited
Partnership where he managed a large portfolio of net-leased real estate assets.
Prior to joining Newkirk, Mr. Rothschild was associated with the law firm of
Proskauer, Rose LLP in its real estate group.
Marc Gordon joined NorthStar Capital Partners in October 1997, having previously
been a Vice President in the Real Estate Investment Banking Group at Merrill
Lynch where he executed corporate finance and strategic transactions for public
and private real estate ownership companies, including REITs, real estate
service companies, and real estate intensive operating companies. Prior to
joining Merrill Lynch in 1993, Mr. Gordon was in the Real Estate and Banking
Group at the law firm of Irell & Manella. Mr. Gordon graduated from Dartmouth
College with an A.B. in economics and also holds a J.D. from the UCLA School of
Law.
Charles Humber joined NorthStar Capital Partners in September 1997, having
previously worked for Merrill Lynch's Real Estate Investment Banking Group from
1996 to 1997. Mr. Humber graduated from Brown University with a B.A. in
international relations and organizational behavior and management which is
where he was prior to 1996.
Adam Anhang joined NorthStar Capital Partners in August 1997, having previously
worked for The Athena Group's Russia and Former Soviet Union development team
from 1996 to 1997. Mr. Anhang graduated from the Wharton School of the
University of Pennsylvania with a B.S. in economics with concentrations in
finance and real estate, which is where he was prior to 1996.
<PAGE>
Gregory Peck joined NorthStar Capital Partners in July 1997, having previously
worked for the Morgan Stanley Realty Real Estate Funds (MSREF) and Morgan
Stanley's Real Estate Investment Banking Group from 1996 to 1997. Prior to
joining Morgan Stanley, Mr. Peck worked for Lazard Freres & Co. LLC in the Real
Estate Investment Banking Group from 1994 to 1996. Mr. Peck graduated from
Columbia College with an A.B. in mathematics and an A.B. in economics.
There are no family relations between any executive officer and any other
executive officer or any director of the Administrative, Investment and
Associate General Partners.
Many of the above officers and directors of the Administrative, Investment and
Associate General Partners are also officers and/or directors of the general
partners of other public partnerships affiliated with Presidio or of various
subsidiaries of Presidio.
Item 11. Executive Compensation
Registrant is not required to and did not pay remuneration to the officers and
directors of the Investment General Partner, the Administrative General Partner
or the general partners of the former or current Associate General Partner.
Certain executive officers and directors of the General Partners receive
compensation from affiliates of the General Partners (but not from Registrant)
for services performed for various affiliated entities, which may include
services performed for Registrant; however, the Administrative General Partner
believes that any compensation attributable to services performed for Registrant
is not material. See Item 13, "Certain Relationships and Related Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1998, no person owned of record or was known by Registrant to own
beneficially more than 5% of the Units of Registrant.
As of March 1, 1998, neither the General Partners nor their officers and
directors was know by Registrant to be beneficially own Units or shares of
Presidio, the parent of the General Partners.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1998, no person owned of record or was known by
Registrant to own beneficially more than 5% of the Units of Registrant.
As of March 1, 1998, neither the General Partners nor their
officers and directors was known by Registrant to beneficially own Units or
shares of Presidio, the parent of the General Partners.
To the knowledge of the Registrant, the following sets forth
certain information regarding ownership of the Class A shares of Presidio as of
March 11, 1998 (except as otherwise noted) by (i) each person or entity who owns
of record or beneficially five percent or more of the Class A shares, (ii) each
director and executive officer of Presidio, and (iii) all directors and
executive officers of Presidio as a group. To the knowledge of Presidio, each of
such shareholders has sole voting and investment power as to the shares shown
unless otherwise noted.
All outstanding shares of Presidio are owned by Presidio
Capital Investment Company, LLC ("PCIC"), a Delaware limited liability company.
The interest in PCIC (and beneficial ownership in Presidio) are held as follows:
<TABLE>
<CAPTION>
Percentage Ownership
in PCIC and Percentage
Beneficial Ownership
Name of Beneficial Owner in Presidio
------------------------ -----------------------
<S> <C>
Five Percent Holders:
Presidio Holding Company, LLC(1) 71.93%
AG Presidio Investors, LLC(2) 14.12%
DK Presidio Investors, LLC(3) 8.45%
Stonehill Partners, LP(4) 5.50%
</TABLE>
The holdings of the directors and executive officers of Presidio are as follows:
<TABLE>
<CAPTION>
<S> <C>
Directors and Officers:
Adam Anhang(5) 0%
Marc Gordon(5) 0%
David Hamamoto(5) 71.93%
Charles Humber(5) 0%
David King(5) 0%
Gregory Peck(5) 0%
Kevin Reardon(5) 0%
Allan Rothschild(5) 0%
Richard J. Sabella(5) 0%
Lawrence Schachter(5) 0%
W. Edward Scheetz(5) 71.93%
Directors and Officers as a group: 71.93%
</TABLE>
(1) Presidio Holding Company, LLC is a New York limited liability
company whose address is 527 Madison Avenue, 16th Floor, New
York, New York 10022. PHC has two members, Polaris Operating
LLC ("Polaris") which holds a 1% interest, and Northstar
Operating, LLC ("Northstar") which holds a 99% interest.
Polaris is a Delaware limited liability company whose address
is 527 Madison Avenue, 16th Floor, New York, New York 10022.
Polaris has two members, Sextant Operating Corp. ("Sextant"),
<PAGE>
which holds a 1% interest, and Northstar, which holds a 99%
interest. Sextant is a Delaware corporation whose address is
527 Madison Avenue, 16th Floor, New York, New York 10022 and
whose sole shareholder is Northstar. Northstar is a Delaware
limited liability company whose address is527 Madison Avenue,
16th Floor, New York, New York 10022. Northstar has two
members, Northstar Capital Partners ("NCP"), which holds a 99%
interest, and Northstar Capital Holdings I, LLC ("NCHI"),
which holds a 1% interest. Both NCP and NCHI are Delaware
limited liability companies, whose business address is 527
Madison Avenue, 16th Floor, New York, New York 10022. NCP has
two members, NCHI, which holds a 74.75% interest, and
Northstar Capital Holdings II LLC ("NCHII"), which holds a
25.25% interest. The business address for NCHII, a Delaware
limited liability company is 527 Madison Avenue, 16th Floor,
New York, New York 10022. NCHII has three members, NCHI, which
holds a 99% interest, Edward Scheetz, who holds a 0.5%
interest and David Hamamoto, who holds a 0.5% interest. Mr.
Scheetz, a U.S. citizen whose business address is 527 Madison
Avenue, 16th Floor, New York, New York 10022, is a founding
member of NCP. Mr. Hamamoto, a U.S. citizen whose business
address is 527 Madison Avenue, 16th Floor, New York, New York
10022, is a founding member of NCP. NCHI has two members, Mr.
Scheetz and Mr. Hamamoto, each of whom holds a 50% interest.
Pursuant to that certain Amended and Restated Pledge and
Security Agreement (the "Pledge Agreement") dated March 5,
1998 made by PHC in favor of Credit Suisse First Boston
Mortgage Capital LLC ("CSFB"), PHC pledged all of its
membership interest in PCIC to CSFB as security for loans
issued under the Loan Agreement dated as of February 20, 1998
by and among PHC and CSFB and the First Amendment thereon
dated March 5, 1998 (together, the "Loan Agreement"). The
Pledge Agreement and Loan Agreement contain standard default
and event of default provisions which may at a subsequent date
result in a change of control of PCIC and, therefore, the
Registrant.
(2) Each of Angelo, Gordon & Company, LP, as sole manager of AG
Presidio Investors, LLC, and John M. Angelo and Michael L.
Gordon, as general partners of the general partner of Angelo,
Gordon & Company, LP may be deemed to beneficially own for
purposes of rule 13 d-3 of the Exchange Act, the securities
beneficially owned by AG Presidio Investors, LLC. Each of John
M. Angelo and Michael L. Gordon disclaim such beneficial
ownership. The business address for such persons is c/o
Angelo, Gordon & Company, LP, 345 Park Avenue, 26th Floor, New
York, New York 10167.
(3) M.H. Davidson & Company, Inc., as sole manager of DK Presidio
Investors, LLC may be deemed to beneficially own for purposes
of Rule 13d-3 of the Exchange Act, the securities beneficially
owned by DK Presidio Investors, LLC. The business address for
such person is c/o M.H. Davidson & Company, 885 Third Avenue,
New York, New York 10022.
<PAGE>
(4) Includes shares of PCIC beneficially owned by Stonehill
Offshore Partners Limited and Stonehill Institutional
Partners, LP. John A. Motulsky is a managing general partner
of Stonehill Partners, LP, a managing member of the investment
advisor to Stonehill Offshore Partners Limited and is a
general partner of Stonehill Institutional Partners, LP. John
A. Motulsky disclaims beneficial ownership of the shares held
by these entities. The business address for such person is c/o
Stonehill Investment Corporation, 110 East 59th Street, New
York, New York 10022.
(5) The business address for such person is 527 Madison Avenue,
16th Floor, New York, New York 10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The General Partners have, during Registrant's year ended December 31, 1997,
earned or received compensation or payments for services from or with respect to
Registrant or Integrated as follows:
<TABLE>
<CAPTION>
Name of Recipient Capacity in Which Served Compensation
- ----------------- ------------------------ -------------
<S> <C> <C>
Resources Capital Corp. Servicing of Mortgage Loans $ 71,880 (1)
Resources Capital Corp. Management of Registrants' Assets $ 151,989 (2)
Resources Capital Corp. General Partner $(58,834) (3)
RAM Funding, Inc. General Partner $ (1,226) (3)
Presidio AGP Corp. General Partner $ (1,226) (3)
</TABLE>
(1) This amount represents fees (and interest) earned during 1997 by the
Administrative General Partner for servicing Mortgage Loans, which fees
equal 1/4 of 1% of the outstanding principal amount of the Mortgage
Loans. Payment of this fee is deferred until disposition of the
applicable Mortgage Loan, with interest on the amount deferred at 10%
per annum, compounded annually.
(2) This amount represents fees (and interest) earned during 1997 by the
Administrative General Partner for managing the affairs of Registrant,
which fees equal 1/4 of 1% of the Net Asset Value per annum of
Registrant (as defined in Registrant's Partnership Agreement). Payment
of this fee is deferred until disposition of the Mortgage Loans
commences, with interest on the amount deferred at 10% per annum
compounded annually.
(3) The General Partners, pursuant to the Partnership Agreement, are
entitled to receive 5% of Registrant's income, loss, capital and
distributions (4.8% to the Administrative General Partner, .1% to the
Investment General Partner and .1% to the Associate General Partner)
including, without limitation, Registrant's cash flow from operations
and disposition proceeds. Generally, no distributions are expected to
be made from operations inasmuch as all interest and principal due on
the Mortgage Loans is deferred until maturity and distributions
attributable to principal and interest payments are not expected to be
made, unless there are prepayments of Mortgage Loans. However, during
1997 Registrant made a distribution of $200,088, $4,168 and $4,168 to
the Administrative General Partner, Investment General Partner and
Associate General Partner, respectively. In addition, for the year
ended December 31, 1997, the General Partners were allocated taxable
loss of $1,581,801, representing $1,518,529 to the Administrative
General Partner, $31,636 to the Investment General Partner and $31,636
to the Associate General Partner.
In addition, certain officers and directors of the General Partners receive
compensation from the General Partners and/or their affiliates (but not from
Registrant) for services performed for various affiliated entities, which may
include services performed for Registrant.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8, "Financial Statements and Supplementary Data."
(a)(2) Financial Statement Schedules
III. Real Estate and Accumulated Depreciation (with notes)
All other schedules have been omitted because they are inapplicable, not
required, or the information is included in the Financial Statements or Notes
thereto.
(a)(3) Exhibits:
3. Amended and Restated Certificate of Limited Partnership (incorporated
by reference to Exhibit 3B to Amendment No. 1 to the Registration
Statement on Form S-11 (No. 33-00836) dated January 28, 1986 (Such
Registration Statement, as amended, is referred to herein as the
"Registration Statement")).
4. (A) Amended and Restated Partnership Agreement of Registrant dated as
of September 25, 1985 ("Partnership Agreement") (incorporated by
Reference to Exhibit 3A to the Registration Statement).
(B) Amendment to Partnership Agreement dated as of March 10, 1986
(incorporated by reference to Exhibit 3(a) to Post Effective Amendment
No. 1 to the Registration Statement).
(C) Amendment to Partnership Agreement dated as of April 1, 1988
(incorporated by reference to Exhibit 4(c) of Registrant's Annual
Report on Form 10-K for the period ended December 31, 1988
(hereinafter referred to as the "1988 10-K")).
(D) Amendment to Partnership Agreement dated as of January 23, 1989
(incorporated by reference to Exhibit 4(D) of 1988 10-K).
(E) Amendment to Partnership Agreement dated as of July 31, 1991
(incorporated by reference to Exhibit 4(E) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1991).
10. (A) Mortgage Services Agreement between Registrant and the
Administrative General Partner (incorporated by reference to Exhibit
10B to the Registration Statement).
(B) Agreement among the Administrative General Partner, the Associate
General Partner and Integrated Resources, Inc. (incorporated by
reference to Exhibit 10C to the Registration Statement).
<PAGE>
(C) Agreement dated as of March 1, 1986 among Registrant, the
Administrative General Partner, the Investment General Partner and
Rosenberg and Rosenberg, P.C. (incorporated by reference to Exhibit
10D to Post Effective No. 1 to the Registration Statement). (D)
Amendment to Agreement dated as of June 20, 1990 among Registrant, the
Administrative General Partner, the Investment General Partner and
Rosenberg and Rosenberg, P.C. (incorporated by reference to Exhibit
10(D) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
(E) Assignment dated April 25, 1986 by MAR Corp. to Registrant of the
Amendment and Restatement of Deed of Trust and Replacement Deed of
Trust Note Second Note and Second Mortgage (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated May
15, 1986).
(F) Replacement Deed of Trust Note dated as of December 20, 1985, payable
by Berkeley Western Associates Limited Partnership to the order of
Resources Real Estate Finance Group, Inc. in the original principal
amount of $2,250,000 (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated May 15, 1986).
(G) Amendment and Restatement of Deed of Trust and Assignment of Rents
entered into as of February 28, 1986 between Berkeley Western
Associates Limited Partnership and Resources Real Estate Finance
Group, Inc. (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated May 15, 1986).
(H) Assignment dated April 1, 1986 by Resources Real Estate Finance Group,
Inc., to Registrant of the Amendment and Restatement Deed of Trust
Note Second Note and Second Mortgage (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated August
5, 1986).
(I) Deed of Trust Note dated as of April 1, 1986, payable by Stockfield
Associates Limited Partnership to the order of Resources Real Estate
Finance Group, Inc. in the original principal amount of $4,200,000
(incorporated by reference to Exhibit 10(b) to Registrant's Current
Report on Form 8-K dated August 5, 1986).
(J) Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing entered into as of April 1, 1986 between Stockfield Associates
Limited Partnership and Resources Real Estate Finance Group, Inc.
(incorporated by reference to Exhibit 10(c) to Registrant's Current
Report on Form 8-K dated August 5, 1986).
(K) Mortgage Note dated December 16, 1987 in the amount of $975,000 made
by Big Valley Associates and Registrant (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated
February 10, 1988).
(L) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Big Valley Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated February 10, 1988).
<PAGE>
(M) NW Settlement Agreement, attached as an exhibit to the Third Amended
Plan of Reorganization of BP Shopping Center Associates Limited
Partnership, dated November 10, 1992, confirmed by an Order of the
U.S. Bankruptcy Court, District of Connecticut, entered November 13,
1992 (incorporated by reference to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1992).
(N) Settlement Agreement, dated as of July 27, 1993, among Boram Corp.,
Pierre Property Corporation, Enmass, Inc. (successor by merger to
Gram-Brent Corp.), the Bank of New York and Registrant incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.
(O) Full Release of Liens and Intercreditor Agreement, dated December 4,
1992, executed by Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992). (P) Release, dated December 22, 1992, by The
Northwestern Mutual Life Insurance Company in favor of Registrant
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
(Q) Release, dated December 4, 1992, by Registrant in favor of The
Northwestern Mutual Life Insurance Company (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(R) Certificate of Participation, dated December 28, 1992, issued to
Registrant (incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
(S) Amended and Restated Mortgage Note dated January 1, 1988 in the amount
of $3,000,000 between Research Triangle Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated February 17, 1988).
(T) Seven Modifications of Deeds of Trust, Security Agreements and
Financing Statements dated January 1, 1988 between Research Triangle
Associates and Registrant (incorporated by reference to Exhibit 10(b)
to Registrant's Current Report on Form 8-K dated February 17, 1988).
(U) Note dated as of January 1, 1988 between Airport Center Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated
February 17, 1988).
(V) Leasehold Deed of Trust, Assignment of Rents, Security Agreements and
Fixtures dated January 1, 1988 between Airport Center Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Current Report on Form 8-K dated
February 17, 1988).
(W) First Amendment to Note, Leasehold Deed of Trust, Assignment of Rents,
Security Agreement and Fixture Filing dated as of December 26, 1990
between Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(Y) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
<PAGE>
(X) Second Amendment to Note, Leasehold Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of December 29,
1992, between Airport Center Associates Limited Partnership and
Registrant (incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
(Y) Subordination Agreement dated as of December 26, 1990 between Airport
Center Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(Z) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990).
(Z) Subordination Agreement dated as of December 29, 1992, between Airport
Center Associates Limited Partnership and Registrant (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(AA) Intercreditor Agreement dated as of December 26, 1990 between Airport
Center Associates Limited Partnership, Registrant and General Electric
Capital Corporation (incorporated by reference to Exhibit 10(AA) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
(BB) Letter Agreement dated as of December 26, 1990 between Airport Center
Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(BB) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990).
(CC) Termination Agreement dated December 29, 1992, between Airport Center
Associates Limited Partnership and Registrant (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(DD) Release dated December 29, 1992, by Airport Center Associates Limited
in favor of Registrant (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(EE) Release dated December 29, 1992, by Registrant in favor of Airport
Center Associates Limited (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992).
(FF) Note dated as of January 1, 1988 in the amount of $5,000,000 between
Clovine Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 23, 1988).
(GG) Open-End Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Clovine Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(b) to Registrant's Current
Report on Form 8-K dated February 23, 1988).
(HH) Note dated as of February 24, 1988 in the amount of $3,030,000 made by
Park Place Associates and Registrant (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated March
9, 1988).
(II) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated March 9, 1988).
(JJ) Registered Note dated August 26, 1988 in the amount of $6,045,832 made
by Lenox Tower Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's Current
Report on Form 8-K dated August 26, 1988).
(KK) Assignment of Leases and Rents between Lenox Towers Associates and
Registrant (incorporated by reference to Exhibit 10(b) to Registrant's
Current Report on Form 8-K dated August 26, 1988).
(LL) Deed to Secure Debt and Security Agreement between Lenox Towers
Associates and Registrant (incorporated by reference to Exhibit 10(c)
to Registrant's Current Report on Form 8-K dated August 26, 1988).
(MM) Note dated June 16, 1988 between Registrant and West Palm Associates
Limited Partnership (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(NN) Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing dated June 16, 1988 between Registrant and West Palm Associates
Limited Partnership (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(OO) Note dated June 29, 1988 between Southern Inns Associates Limited
Partnership and Registrant (incorporated by reference to Exhibit 10(a)
to Registrant's Current Report on Form 8-K dated June 30, 1988).
(PP) Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing between Southern Inns Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b) to Registrant's
Current Report on Form 8-K dated June 30, 1988). (QQ) Mortgage,
Assignment of Rents, Security Agreement and Fixture Filing between
Southern Inns Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(c) to Registrant's Current
Report on Form 8-K dated June 30, 1988).
(RR) Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing between Southern Inns Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(d) to Registrant's
Current Report on Form 8-K dated June 30, 1988).
(SS) Note dated as of June 22, 1988 in the amount of $1,800,000 made by
Tri-State Associates Limited Partnership and Registrant (incorporated
by reference to Exhibit 10(a) to Registrant's Current Report on Form
8-K dated June 22, 1988).
(TT) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Tri-State Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(b)(1) to Registrant's Current
Report on Form 8-K dated June 22, 1988).
(UU) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Tri-State Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(b)(2) to Registrant's Current
Report on Form 8-K dated June 22, 1988).
(VV) Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Tri-State Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(b)(3) to Registrant's Current
Report on Form 8-K dated June 22, 1988).
(WW) Loan Acquisition and Participation Agreement dated August 1, 1995
between 800 Park Group, 600 Park Group, 500 Park Group, 400 Park
Group, 200 Park Group, Teer Shareholders, and Registrant.
(XX) Amended and Restated Note between Big Valley Associates and Registrant
dated November 21, 1996.
(YY) Amended and Restated Note between West Palm Associates Limited
Partnership and Registrant dated February 19, 1997. *
(b) Reports on Form 8-K
Registrant filed the following reports on Form 8-K during the last
quarter of the fiscal year:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 27th day of March, 1998.
RESOURCES ACCRUED MORTGAGE
INVESTORS L.P. - SERIES 86
By: RESOURCES CAPITAL CORP.
Administrative General Partner
Date
By: /s/ Richard Sabella March 27, 1998
-------------------
Richard Sabella
Director, President
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant in their
capacities (with respect to The Administrative and Investment General Partners)
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kevin Reardon Director, Vice President, March 27, 1998
- -----------------
Kevin Reardon Treasurer and Secretary
/s/ Larry Schachter Senior Vice President, March 27, 1998
- -------------------
Larry Schachter (Principal Financial Officer
and Principal Accounting Officer)
/s/ Richard Sabella Director, President, March 27, 1998
- ------------------- (Chief Executive Officer)
Richard Sabella
/s/ David King Director, Executive Vice March 27, 1998
- --------------
David King President and Assistant Treasurer
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
3. Amended and Restated Certificate of Limited Partnership (incorporated
by reference to Exhibit 3B to Amendment No. 1 to the Registration
Statement on Form S-11 (No. 33-00836) dated January 28, 1986 (Such
Registration Statement, as amended, is referred to herein as the
"Registration Statement")).
4. (A) Amended and Restated Partnership Agreement of Registrant dated as
of September 25, 1985 ("Partnership Agreement") (incorporated by
Reference to Exhibit 3A to the Registration Statement).
(B) Amendment to Partnership Agreement dated as of March 10, 1986
(incorporated by reference to Exhibit 3(a) to Post Effective Amendment
No. 1 to the Registration Statement).
(C) Amendment to Partnership Agreement dated as of April 1, 1988
(incorporated by reference to Exhibit 4(c) of Registrant's
Annual Report on Form 10-K for the period ended December 31,
1988 (hereinafter referred to as the "1988 10-K")).
(D) Amendment to Partnership Agreement dated as of January 23,
1989 (incorporated by reference to Exhibit 4(D) of 1988 10-K).
(E) Amendment to Partnership Agreement dated as of July 31, 1991
(incorporated by reference to Exhibit 4(E) to Registrant's
Report on Form 10-K for the fiscal year ended December 31,
1991).
10. (A) Mortgage Services Agreement between Registrant and the
Administrative General Partner (incorporated by reference to
Exhibit 10B to the Registration Statement).
(B) Agreement among the Administrative General Partner, the
Associate General Partner and Integrated Resources, Inc.
(incorporated by reference to Exhibit 10C to the Registration
Statement).
(C) Agreement dated as of March 1, 1986 among Registrant, the
Administrative General Partner, the Investment General Partner
and Rosenberg and Rosenberg, P.C. (incorporated by reference
to Exhibit 10D to Post Effective No. 1 to the Registration
Statement).
(D) Amendment to Agreement dated as of June 20, 1990 among
Registrant, the Administrative General Partner, the Investment
General Partner and Rosenberg and Rosenberg, P.C.
(incorporated by reference to Exhibit 10(D) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990).
<PAGE>
(E) Assignment dated April 25, 1986 by MAR Corp. to Registrant of
the Amendment and Restatement of Deed of Trust and Replacement
Deed of Trust Note Second Note and Second Mortgage
(incorporated by reference to Exhibit 10(a) to Registrant's
Current Report on Form 8-K dated May 15, 1986).
(F) Replacement Deed of Trust Note dated as of December 20, 1985,
payable by Berkeley Western Associates Limited Partnership to
the order of Resources Real Estate Finance Group, Inc. in the
original principal amount of $2,250,000 (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on
Form 8-K dated May 15, 1986).
(G) Amendment and Restatement of Deed of Trust and Assignment of
Rents entered into as of February 28, 1986 between Berkeley
Western Associates Limited Partnership and Resources Real
Estate Finance Group, Inc. (incorporated by reference to
Exhibit 10(c) to Registrant's Current Report on Form 8-K dated
May 15, 1986).
(H) Assignment dated April 1, 1986 by Resources Real Estate
Finance Group, Inc., to Registrant of the Amendment and
Restatement Deed of Trust Note Second Note and Second Mortgage
(incorporated by reference to Exhibit 10(a) to Registrant's
Current Report on Form 8-K dated August 5, 1986).
(I) Deed of Trust Note dated as of April 1, 1986, payable by
Stockfield Associates Limited Partnership to the order of
Resources Real Estate Finance Group, Inc. in the original
principal amount of $4,200,000 (incorporated by reference to
Exhibit 10(b) to Registrant's Current Report on Form 8-K dated
August 5, 1986).
(J) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing entered into as of April 1, 1986 between
Stockfield Associates Limited Partnership and Resources Real
Estate Finance Group, Inc. (incorporated by reference to
Exhibit 10(c) to Registrant's Current Report on Form 8-K dated
August 5, 1986).
(K) Mortgage Note dated December 16, 1987 in the amount of
$975,000 made by Big Valley Associates and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's
Current Report on Form 8-K dated February 10, 1988).
(L) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Big Valley Associates and Registrant
(incorporated by reference to Exhibit 10(b) to Registrant's
Current Report on Form 8-K dated February 10, 1988).
(M) NW Settlement Agreement, attached as an exhibit to the Third
Amended Plan of Reorganization of BP Shopping Center
Associates Limited Partnership, dated November 10, 1992,
confirmed by an Order of the U.S. Bankruptcy Court, District
of Connecticut, entered November 13, 1992 (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
<PAGE>
(N) Settlement Agreement, dated as of July 27, 1993, among Boram
Corp., Pierre Property Corporation, Enmass, Inc. (successor by
merger to Gram-Brent Corp.), the Bank of New York and
Registrant incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.
(O) Full Release of Liens and Intercreditor Agreement, dated
December 4, 1992, executed by Registrant (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
(P) Release, dated December 22, 1992, by The Northwestern Mutual
Life Insurance Company in favor of Registrant (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
(Q) Release, dated December 4, 1992, by Registrant in favor of The
Northwestern Mutual Life Insurance Company (incorporated by
reference to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992).
(R) Certificate of Participation, dated December 28, 1992, issued
to Registrant (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1992).
(S) Amended and Restated Mortgage Note dated January 1, 1988 in
the amount of $3,000,000 between Research Triangle Associates
Limited Partnership and Registrant (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 17, 1988).
(T) Seven Modifications of Deeds of Trust, Security Agreements and
Financing Statements dated January 1, 1988 between Research
Triangle Associates and Registrant (incorporated by reference
to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated February 17, 1988).
(U) Note dated as of January 1, 1988 between Airport Center
Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on
Form 8-K dated February 17, 1988).
(V) Leasehold Deed of Trust, Assignment of Rents, Security
Agreements and Fixtures dated January 1, 1988 between Airport
Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(b) to Registrant's
Current Report on Form 8-K dated February 17, 1988).
(W) First Amendment to Note, Leasehold Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing dated as of
December 26, 1990 between Airport Center Associates Limited
Partnership and Registrant (incorporated by reference to
Exhibit 10(Y) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990).
<PAGE>
(X) Second Amendment to Note, Leasehold Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Filing, dated as of
December 29, 1992, between Airport Center Associates Limited
Partnership and Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(Y) Subordination Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(Z) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990).
(Z) Subordination Agreement dated as of December 29, 1992, between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
(AA) Intercreditor Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership, Registrant and
General Electric Capital Corporation (incorporated by
reference to Exhibit 10(AA) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1990).
(BB) Letter Agreement dated as of December 26, 1990 between Airport
Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(BB) to Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1990).
(CC) Termination Agreement dated December 29, 1992, between Airport
Center Associates Limited Partnership and Registrant
(incorporated by reference to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992).
(DD) Release dated December 29, 1992, by Airport Center Associates
Limited in favor of Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(EE) Release dated December 29, 1992, by Registrant in favor of
Airport Center Associates Limited (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
(FF) Note dated as of January 1, 1988 in the amount of $5,000,000
between Clovine Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's
Current Report on Form 8-K dated February 23, 1988).
(GG) Open-End Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing between Clovine Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated February 23,
1988).
<PAGE>
(HH) Note dated as of February 24, 1988 in the amount of $3,030,000
made by Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on
Form 8-K dated March 9, 1988).
(II) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Park Place Associates and Registrant
(incorporated by reference to Exhibit 10(b) to Registrant's
Current Report on Form 8-K dated March 9, 1988).
(JJ) Registered Note dated August 26, 1988 in the amount of
$6,045,832 made by Lenox Tower Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated August 26,
1988).
(KK) Assignment of Leases and Rents between Lenox Towers Associates
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated August 26,
1988).
(LL) Deed to Secure Debt and Security Agreement between Lenox
Towers Associates and Registrant (incorporated by reference to
Exhibit 10(c) to Registrant's Current Report on Form 8-K dated
August 26, 1988).
(MM) Note dated June 16, 1988 between Registrant and West Palm
Associates Limited Partnership (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated
June 22, 1988).
(NN) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated June 16, 1988 between Registrant and West
Palm Associates Limited Partnership (incorporated by reference
to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated June 22, 1988).
(OO) Note dated June 29, 1988 between Southern Inns Associates
Limited Partnership and Registrant (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated June 30, 1988).
(PP) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited
Partnership and Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Current Report on Form 8-K dated
June 30, 1988).
(QQ) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Southern Inns Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated June 30, 1988).
<PAGE>
(RR) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited
Partnership and Registrant (incorporated by reference to
Exhibit 10(d) to Registrant's Current Report on Form 8-K dated
June 30, 1988).
(SS) Note dated as of June 22, 1988 in the amount of $1,800,000
made by Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(TT) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(1) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(UU) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(2) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(VV) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(3) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(WW) Loan Acquisition and Participation Agreement dated August 1,
1995 between 800 Park Group, 600 Park Group, 500 Park Group,
400 Park Group, 200 Park Group, Teer Shareholders, and
Registrant.
(XX) Amended and Restated Note between Big Valley Associates and
Registrant dated November 21, 1996.
(YY) Amended and Restated Note between West Palm Associates Limited
Partnership and Registrant dated February 19, 1997. *
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the December 31, 1997 Form 10-K 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> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,273,293
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,398,821
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,753,749
<CURRENT-LIABILITIES> 138,494
<BONDS> 3,495,478
0
0
<COMMON> 0
<OTHER-SE> 8,276,487
<TOTAL-LIABILITY-AND-EQUITY> 13,753,749
<SALES> 0
<TOTAL-REVENUES> 2,242,929
<CGS> 0
<TOTAL-COSTS> 1,329,352
<OTHER-EXPENSES> 2,139,297
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,225,720)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,225,720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,225,720)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
