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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED).
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(NO FEE REQUIRED).
For the transition period from to
WHITEHALL INCOME FUND-86
(Exact name of registrant as specified in its charter)
33-3377 LA
(Commission File Number)
CALIFORNIA 86-053325
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6418 E. TANQUE VERDE, SUITE 105, TUCSON, AZ 85715
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (602) 750-0500
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
LIMITED PARTNERSHIP INTERESTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or (for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
As of December 31, 1997, all shares of registrants's Limited Partnership
interest were outstanding and held by non-affiliates (the officers, directors
and general partner of the registrant, and owners of over 10% of the
registrant's common stock, are considered affiliates for purposes of this
calculation).
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WHITEHALL INCOME FUND - 86
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C>
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
</TABLE>
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ITEM 1. BUSINESS
GENERAL
Whitehall Income Fund-86 Limited (the "Registrant" or the "Partnership") is a
limited partnership formed in 1985 under the Limited Partnership Act of the
State of California to acquire, improve, operate and hold for investment income
producing real property. The Partnership's purpose is to purchase Properties and
to own and operate the Properties for a period of five to ten years. Currently,
the Partnership employs approximately 9 individuals.
The Registrant has acquired two self storage facilities, a shopping center and
two office buildings for a total cost of $5,876,388 as further described in Item
2.
COMPETITION AND MARKET CONDITIONS
Occupancy rates and the Partnership's ability to maintain or increase rental
rates are affected by numerous factors. These include seasonal demand and
economic conditions. In seeking tenants, the Partnership relies on both internal
and external sources for its properties. Long-term leases with established
tenants for the Pan American Office Building and The Original Honey Baked Ham
Store and McRae Square Shopping Center have provided steady rental rates and
cash flow from operations. The Capitol Self Storage facility continues to
maintain occupancy levels exceeding 85%.
ITEM 2. PROPERTIES
During 1997, the Registrant owned five income producing real properties as
described below.
MCRAE SQUARE SHOPPING CENTER
On December 30, 1986, the Partnership purchased, from an unaffiliated third
party, the commercial income project known as McRae Square Shopping Center (the
"Shopping Center") located in the southeastern area of Georgia in McRae for a
total of $793,840. The building has a cost basis of $734,611 and the land was
allocated a cost of $59,229 based upon an independent appraisal dated March
1986. The Shopping Center is located directly across the street from the local
Winn Dixie Shopping Center on U.S. Highway 341-Oak Street, one of the primary
traffic arteries in the area. The Shopping Center is approximately two acres in
size and encompasses approximately 12,630 square feet of leasable area with room
for expansion. The Shopping Center was completed in December of 1985 and
commenced operation on December 31, 1985.
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The Shopping Center's current tenants include Rite Aid Drug, the drugstore chain
subsidiary of Rite Aid Corporation. Another major tenant is Family Dollar
Stores, Inc., a discount variety store. Family Dollar Store's initial lease term
expired during December 31, 1994, with six (6) five-year options; Rite Aid
Drug's initial lease term expired May 25, 1995, with four (4) five-year options.
Each tenant has exercised its first option for a period of five (5) years.
Family Dollar's annual base rent is $26,000; Rite Aid's $48,067.50, with no
change during the first option period.
The Partnership, under the terms of the Shopping Center leases and options, is
entitled to receive as additional rental, subject to certain offsets, percentage
rental participation of two percent (2%) to two and one-half percent (2.5%) of
annual gross sales, above certain sales levels.
The Shopping Center is directly across the highway from the Winn Dixie Shopping
Center which contains two department stores similar to the Family Dollar and
Rite Aid Drug. There are retail shopping areas in Helens, .5 miles to the west
and in McRae .3 miles east, which contain two drug stores. These retail
establishments compete with the establishments which are lessees of the McRae
Square Shopping Center.
Rental income for the Shopping Center was $82,887, $79,886 and $78,396 for 1997,
1996 and 1995, respectively. Operating expenses for the same years were $48,522,
$39,547 and $43,177 respectively.
As of December 31, 1997 the Shopping Center is 100% occupied.
The Partnership paid to, in prior years, an affiliate of the General Partner an
acquisition fee of $44,000 for its efforts in the negotiation, execution and
purchase of the Shopping Center.
The property was unencumbered as of December 31, 1997.
TANQUE VERDE SELF STORAGE
On March 31, 1987, the Partnership acquired the Tanque Verde/Kolb Self Storage
facility (the "Property") in Tucson, Arizona. The original purchase price of the
Property was $1,945,000 plus legal, title, and recording fees of $17,140. Of the
original purchase price, $194,031 was allocated to land and $1,768,109 to the
building, based upon an independent appraisal. The Property is located on a
parcel of land comprising approximately 60,209 square feet, which consists of
approximately 43,200 square feet of self-storage facilities, approximately 950
square feet of office/residence space, and approximately 16,059 square feet of
non-rentable space.
The Property was completed in December 1984, and commenced
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operations during that month. There are 875 self-storage units within the
Property. One hundred twenty-eight (14.6%) are 4'x5'x9' units, 110 (12.6%) are
3'x 4' units and 90 (10.3%) are 5'x12' units. The remainder of the units vary in
size from 4'x4' to 11'x18'.
Monthly rents vary from $22.00 to $172.00 per unit. During 1997, the Property
was over 90% occupied.
There are four self-storage facilities in the eastern Tucson, Arizona area which
are in direct competition with the Property. They currently have occupancy
ranges of approximately 90% to 95%, with rents substantially similar to the
those charged by the Partnership.
The Property was sold on August 15, 1997 for $1,945,000 realizing a gain of
$543,526.
Rental income from the Property was $301,756, $366,560 and $374,824 for 1997,
1996 and 1995, respectively. Operating expenses for the same years were
$186,947, $306,377 and $324,237, respectively. Expenses in 1997 were lower due
to appointment of new resident managers at lower salaries.
The Partnership paid, in prior years, an affiliate of the General Partner an
acquisition fee of $144,900 for its efforts in negotiations and purchase of the
facility.
CAPITOL SELF STORAGE
On December 19, 1995, the Partnership exchanged Athens Self Storage for Capitol
Self Storage, a 43,890 square foot storage facility on 1.5 acres in Tucson,
Arizona. The purchase price was $1,925,000 which was accounted for in a tax-free
exchange whereby the land, building and improvements were recorded at
$1,725,108. The property consists of 471 storage units and 43 parking spaces.
The storage buildings are built of block with metal roofs, with perimeter
fencing and electronic gates with touch pads. The driveway areas are of both
asphalt and concrete. The managers are a husband and wife who reside at the
apartment on site.
The facility, built in 1984 has maintained an occupancy of 85% to 95% over the
past three years, as have the four area facilities which are in direct
competition with Capitol. Partnership rate ranges are similar to those of the
competing facilities. Located on a main east-west thoroughfare with a traffic
count of 30,000 per day, the facility attracts customers from a heavy
concentration of apartments in the area, winter visitors and a military base.
Occupancy rates were over 85% and rental income from Capitol Self Storage was
$305,996 and $269,112 for 1997 and 1996, respectively.
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Operating expenses for the same years were $279,424 and $259,841, respectively.
Revenue was increased in 1997 due to rental increases and strict collection
policies. Expenses were higher in 1997 due to computerization of on-site
records. Rental income and operating expenses for 1995 were immaterial.
The exchange property, known as Capitol Self Storage, was acquired with a debt
of $1,250,000 payable in monthly installments of principle and interest of
$10,490 at nine percent (9%)annually, amortized over a twenty-five (25) year
period with a ten (10) year balloon payment.
The property is held as collateral for a $1,250,000 mortgage with an outstanding
balance of $1,220,801 as of December 31, 1997.
PAN AMERICAN OFFICE BUILDING
The office building is 16,315 square feet on a 1.39 acre tract of land (the "Pan
Am Plaza") in Edinburgh, Texas. The Pan Am Plaza is fully occupied by the
Department of Human Resources of the State of Texas on a five year
noncancellable lease with annual increases. The lease was renewed in August of
1993 for a five-year period and also contains options for future renewal. The
original lease commenced on September 9, 1988.
The office building was built specifically for the State of Texas to meet all
its requirements and includes all systems as dictated by the State of Texas.
Rental revenue for the Pan Am Plaza was $83,597, $83,064 and $82,446 for 1997,
1996 and 1995, respectively. Operating expenses for the same years were $79,811,
$72,423 and $65,793, respectively. Operating expenses include a five percent
(5%) management fee and depreciation of approximately $14,000 annually.
The property was held as collateral for a mortgage of $327,337 outstanding as of
December 31, 1997, which the Partnership assumed in 1995. The Partnership holds
as collateral against said mortgage a collateral interest in a mortgage note
against a Krogers in Atlanta, Georgia.
THE RAX/HONEY BAKED HAM IN LOUISIANA
On December 29, 1988, the Partnership purchased land and a 3,500 square foot
building in Gretna, Louisiana for a purchase price of $600,000. The building's
cost basis is $455,072 (including improvements totaling $5,072 made subsequent
to acquisition) and the land cost is $150,000. During 1991, The Original Honey
Baked Ham Co. of Georgia signed a three year lease providing for monthly
payments of $3,000. On July 30, 1993, The Original Honey Baked Ham
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Co. of Georgia signed a First Amendment to the Lease adding an additional option
period of two years commencing on January 1, 1994 and ending on December 31,
1995 for $36,000 per year. The amendment also provided the lessee with three
options to extend the lease for additional five year terms, which the tenant did
not exercise for 1996. However, the tenant did extend the lease for a one-year
period at the same rate commencing January 1, 1996 and ending December 31, 1996.
The lessee extended its lease for two years commencing January 1, 1997 and
ending December 31, 1998 at an annual rental rate of $37,800.
Rental revenue for this property was $40,606, $36,000 and $36,150 for 1997, 1996
and 1995, respectively. Operating expenses for the same years were $23,198,
$18,628 and $30,897 respectively.
The property was not held as collateral for any mortgages outstanding as of
December 31, 1997.
ATHENS SELF STORAGE
On May 23, 1988, the Partnership purchased a self-storage facility ("Athens Self
Storage") in Athens, Georgia for a purchase price of $1,132,974. Of the original
purchase price, $862,974 was allocated to the building and $270,000 was
allocated to the land. The Athens Self Storage is comprised of a 3.4 acre parcel
of land and mini storage warehouse, which is a 31,630 square foot storage
facility. The property was purchased subject to a first mortgage for $643,872
and the mortgage was paid in full in 1989.
The Athens Self Storage was exchanged for a larger storage facility in Tucson,
Arizona on December 19, 1995 at a difference of $535,000.
ORACLE OFFICE PLAZA IN TUCSON, ARIZONA
On November 29, 1993 the Partnership acquired a 50% undivided preferential
interest in an office building ("Oracle") in Tucson, Arizona for $300,000.
The Partnership's investment was accounted for under the equity method. The
Partnership was entitled to an annual return of 10% of its original investment.
If the available net cash flow from the property was insufficient to pay the
preferred return, 5600 N. Oracle Group, LLC ("5600"), the holder of the
remaining undivided 50% interest, must contribute additional capital to pay the
remainder. In the event the net cash flow exceeded the preferred return, the
excess was to be distributed first to "5600" until they received distributions
equal to the Partnership's preferred return and thereafter in accordance with
the ownership percentages.
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Operating deficits, if any, were to be funded by "5600" during the ownership of
the property. A preferred return of $44,715, which was collected in monthly
payments of $2,500, was received in 1995. A preferred return of $12,500, which
was collected in monthly payments of $2,500, was received for the months of
January through May of 1996.
The property incorporated three separate buildings, consisting of 6,800, 12,000
and 6,000 square feet, comprising approximately 2 acres located in the northwest
region of Tucson, Arizona.
The Partnership sold its undivided 50% interest to the other 50% holder in
interest on June 15, 1996 for $246,473, realizing a gain of $75,756.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Registrant did not solicit proxies and the Directors/Officers, as previously
reported to the Commission, was re-elected in its entirety.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
There has not been a public market and it is not anticipated that a public
market for Limited Partnership Interests will develop.
As of December 31, 1997 the number of holders of record of Limited Partnership
Interests of the Registrant was 741.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected operations data with respect to the
Partnership for each of the five years in the period ended December 31, 1997:
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For the Years Ending December 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
TOTAL RENTAL REVENUES $814,842 $834,622 $755,653 $793,294 $785,080
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RENTAL REVENUES LESS
RENTAL OPERATING EXPENSES 196,940 137,806 90,439 159,947 65,779
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INTEREST INCOME 42,644 46,501 44,629 3,741 7,143
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ADMINISTRATION EXPENSES 75,355 115,386 100,347 45,651 42,125
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NET INCOME (LOSS) 357,132 (8,171) (237,018) (46,799) (105,083)
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NET INCOME(LOSS)PER 29.63 ( .68) (19.06) ( 3.92) ( 0.01)
LIMITED PARTNER
UNITS
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DISTRIBUTIONS TO 966,942 83,534 41,762 125,206 41,762
LIMITED PARTNERS
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DISTRIBUTIONS TO
LIMITED PARTNERS
PER LIMITED
PARTNER UNIT 81.00 7.00 3.50 10.50 3.50
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WEIGHTED AVERAGE
NUMBER OF LIMITED
PARTNER UNITS 11,932 11,932 11,932 11,932 11,932
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INVESTMENT PROPERTIES 3,179,037 4,550,355 4,601,517 4,212,531 4,405,677
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TOTAL ASSETS 3,845,719 5,504,064 5,630,206 4,012,790 5,037,511
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LONG-TERM
OBLIGATIONS 1,548,138 2,509,922 2,537,422 1,464,792 1,494,373
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NUMBER OF PROPERTIES
OWNED 4 5 6 6 6
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</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
A real estate limited partnership passes through four phases during its life
cycle. These phases are:
1. Sale of limited partnership interests (equity-raising).
2. Acquisition of income producing property and property management.
3. Management of acquired property.
4. Sale of appreciated property.
The partnership is currently entering the sale of appreciated property phase of
its life cycle.
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RESULTS OF OPERATIONS
The Partnership commenced its operations January 1, 1987 with the acquisition of
McRae Shopping Center in McRae, Georgia. Since that time, the Partnership has
acquired five additional income producing properties. As of December 31, 1997,
the Partnership has distributed $2,995,388 to the Limited Partners and $9,763 to
the General Partner.
Revenues for the year ended December 31, 1997 decreased by $19,780 from the year
ended December 31, 1996. The decrease was due primarily to a decrease in rental
revenue from Tanque Verde Self Storage as a result of the sale of the property
and offset somewhat by an increase in other rental income.
Revenues for the year ended December 31, 1996 increased by $154,725 over the
year ended December 31, 1995. The increase in revenue was primarily due to the
increase in rental revenue resulting from the exchange of Athens Self Storage
with Capitol Self Storage and the gain on the sale of the investment in the
Oracle Office Building.
Rental Operating Expenses for the year ended December 31, 1997 increased by
$59,134 over the year ended December 31, 1996. The increase was due primarily to
increased rental operating expenses occurred at the all of the partnership's
properties.
Expenses for the year ended December 31, 1996 decreased by $72,692 from the year
ended December 31, 1995. The decrease was due primarily to a decrease in
operating expenses resulting from a reduction in management fees incurred in
1995 on the exchange of Athens Self Storage with Capitol Self Storage. The
decrease was offset by an increase in rental operating expenses resulting
primarily from the exchange of Athens Self Storage with Capitol Self Storage.
Net income for the year ended December 31, 1997 improved by $365,303 from the
year ended December 31, 1996 because of the decreased expenses discussed above
and the gain on the sale of Tanque Verde Self Storage.
Net loss for the year ended December 31, 1996 increased by $228,847 from the
year ended December 31, 1995 primarily due to the increased revenues and
decreased expenses discussed above.
LIQUIDITY AND CAPITAL RESOURCES
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The cash position of the Partnership and distributions to Limited Partners
should remain constant or decrease during 1998 depending whether sales of
remaining real properties occur.
Net cash provided by operating activities was $75,899 for the year ended
December 31, 1997 compared to $35,699 for the year ended December 31, 1996. Net
cash provided by investing activities was $1,778,110 for the year ended December
31, 1997 and consisted of proceeds from the sale of the investment in the Tanque
Verde Self Storage and distributions from the investment offset by purchases of
property and equipment and deposits on rental property. Net cash used in
financing activities was $1,938,039 for the year ended December 31, 1997 and
consisted of distributions to partners and repayments of notes payable offset by
proceeds from notes payable.
Net cash provided by operating activities was $35,699 for the year ended
December 31, 1996 compared to($17,955)for the year ended December 31, 1995. Net
cash provided by investing activities was $196,244 for the year ended December
31, 1996 and consisted of proceeds from the sale of the investment in the Oracle
Office Buildings and distributions from the investment offset by purchases of
property and equipment and deposits on rental property. Net cash used in
financing activities was $111,024 for the year ended December 31, 1996 and
consisted of distributions to partners and repayments of notes payable offset by
proceeds from notes payable.
Net cash used in operating activities was $17,955 for the year ended December
31, 1995. Net cash provided by investing activities was $155,725 for the year
ended December 31, 1995 and consisted of proceeds from the sale of rental
property and distributions from the investment in the Oracle Office Building
offset by payments for organization and loan closing costs. Net cash used in
financing activities was $67,092 for the year ended December 31, 1995 and
consisted of distributions to partners and payment on notes payable.
The liquidity of the Partnership relies almost entirely on the financial market
fluctuation and availability of funds with regard to lending and investing in
commercial property. Funds appear to be more readily available and therefore may
provide greater liquidity to the Partnership in 1998 through the sale of the
Partnership assets.
The Partnership believes that it has adequate cash reserves to meet working
capital requirements as they arise.
Inflation has historically been a contributing factor to the increase in capital
appreciation of income producing real estate and may continue to be a
contributing factor in the future. The
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Partnership's intention is to own and operate the properties for a period of
five to ten years. At this time it is not possible to anticipate what the real
estate market and capital appreciation will be in the future. Currently, the
properties are generating sufficient cash flow to cover their own cash operating
expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Reports of Independent Auditors and the financial statements as set forth on
pages F-1 to F-17 are hereby incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The Partnership changed accountants to Hein + Associates LLP from BDO Seidman,
with no disagreement, on January 10, 1996. The form 8-K was filed with the
Securities and Exchange Commission on January 11, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a)Neither the Registrant nor W & C Income Company Ltd., its General Partner,
has a Board of Directors.
(b,c,d,&e)The General Partner of the Registrant is W&C Income Company, Ltd., a
California Limited Partnership.
W & C INCOME COMPANY, LTD: a California Limited Partnership, does not have an
operations history; however, the resources from Whitehall Capital Investment
Group, Inc. have been utilized by the Partnership.
JACK C. WEST: Mr. West, age 48, a Managing Member, has been a private investor
since 1988. From 1986 to 1988, Mr. West was President and Director of Whitehall
Capital Corporation. Before that time Mr. West was Senior Vice
President/National Marketing Director as well as director of the Whitehall
Capital Corporation's Irvine, California offices, in charge of the company's
marketing programs. Prior to joining Whitehall Capital Corporation in 1982, he
was active from 1977 until 1982 as a Senior Account Manager-portfolio
management with First National Corporation, an asset portfolio management
corporation.
WHITEHALL CAPITAL INVESTMENT GROUP: The corporation has an
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interest in over $500 million of income producing real estate projects.
Whitehall Capital Investment Group's investment portfolio includes an interest
in over 100 major credit tenant commercial projects located primarily throughout
the Sun Belt States.
(f)No Managing Members of the General Partner were involved with legal
proceedings.
(g)There were no transactions with promoters or control persons.
ITEM 11. EXECUTIVE COMPENSATION
(a,b,c, & d)The Registrant has not paid and does not propose to pay any
compensation or retirement benefits to members of the General Partner.
(e)There were no termination of employment or change of control arrangements
with members of the General Partner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a)No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the Registrant:
(b)W & C Income Company, Ltd. and its members own as a group or individually, 1%
of the Limited Partnership Interests of the Registrant.
(c)There were no changes in control or arrangements for changes in control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
incorporated herein by reference to and is set forth in Note 7 of Notes to the
Financial Statements on page F-13 of this Form 10-K.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
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(a) Financial Statements:
(1) The index to the Financial Statements is included on F-1
of this report.
(2) Financial Statement Schedules - F-15 through F-17.
(b) Reports on Form 8-K:
The Registrant did file a Form 8-K report during the fiscal
year ended December 31, 1997.
(c) Exhibits required by Item 601 of Regulation S-K:
The Registrant does not have any exhibits attached to Form
10-K.
(d) Financial Statement Schedules required by Regulation S-X:
All required information is included in the financial
statements on pages F-12 through F-19, or the financial statements and notes
thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Whitehall Income Fund - 86, A California Limited Partnership
(Registrant)
By W & C Income Company, Ltd.
General Partner of the Registrant
Date: 4/13/98 By: /s/ Jack C. West
------------------ --------------------------------
Jack C. West
Managing Member
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WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
<PAGE> 16
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT..................................................................... F-2
BALANCE SHEETS - December 31, 1997 and 1996...................................................... F-3
STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1997, 1996 and 1995.................. F-4
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) - For the Years Ended December 31, 1997,
1996 and 1995........................................................................... F-5
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1997, 1996 and 1995.................. F-6
NOTES TO FINANCIAL STATEMENTS.................................................................... F-7
FINANCIAL STATEMENT SCHEDULES:
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ......................................... F-17
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE...................................................... F-19
</TABLE>
F-1
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INDEPENDENT AUDITOR'S REPORT
The Partners
Whitehall Income Fund - 86
(A California limited partnership)
Tucson, Arizona
We have audited the accompanying balance sheets of Whitehall Income Fund - 86 (a
California limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, changes in partners' capital (deficit), and
cash flows for each of the years in the three year period ended December 31,
1997. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Whitehall Income Fund - 86 (a
California limited partnership) at December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the years in the three year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
Our audits referred to above included audits of the financial statement
schedules listed under Item 14(a)(2) of Form 10-K. In our opinion, these
financial statement schedules present fairly, in all material respects, in
relation to the financial statements taken as a whole, the information required
to be stated therein.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
February 11, 1998
F-2
<PAGE> 18
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Rental properties, net of accumulated depreciation $ 3,179,037 $ 4,550,355
Cash and cash equivalents 429,057 513,087
Accounts receivable 8,574 13,461
Note receivable 161,456 346,268
Organization and loan closing costs, net of accumulated
amortization of $9,615 and $46,396 36,537 51,693
Deposits and other assets 31,058 30,000
----------- -----------
TOTAL ASSETS $ 3,845,719 $ 5,504,864
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Notes payable $ 1,548,138 $ 2,509,922
Accounts payable 6,082 24,480
Accrued property taxes 18,678 53,073
Due to general partner 10,607 844
Due to related party 26,828 --
Other liabilities 10,798 72,834
----------- -----------
Total liabilities 1,621,131 2,661,153
COMMITMENTS -- --
PARTNERS' CAPITAL
Limited partners, 11,932 equity units authorized and
outstanding for 1997 and 1996 2,271,287 2,884,218
General partner, 1 equity unit authorized and outstanding for
1997 and 1996 (46,699) (40,507)
----------- -----------
Total partners' capital 2,224,588 2,843,711
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 3,845,719 $ 5,504,864
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-3
<PAGE> 19
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
---------- --------- -----------
<S> <C> <C> <C>
REVENUES:
Rental $ 814,842 $ 834,622 $ 755,653
Gain on sale of investment in office building -- 75,756 --
Share of net income of office building -- -- 3,201
Gain on sale of rental property 543,526 -- --
Other income 54,127 51,212 46,581
---------- --------- -----------
Total Revenues 1,412,495 961,590 805,435
---------- --------- -----------
EXPENSES:
Rental operating:
Depreciation 135,676 153,141 171,912
Payroll and related taxes 49,636 64,373 58,858
Interest 198,138 229,664 183,074
Other rental operating expenses 95,857 110,915 97,330
Taxes other than payroll 100,442 106,455 110,440
Repairs and maintenance 25,729 12,932 19,879
Advertising 12,424 19,336 15,721
Operating Expenses:
General and administrative 75,355 115,386 100,347
Payroll and related taxes 126,360 94,678 210,290
Professional fees 35,778 31,830 46,405
Amortization 15,156 10,387 28,197
Share of net loss of office building -- 20,664 --
Write down of note receivable to fair value 184,812 -- --
---------- --------- -----------
Total expenses 1,055,363 969,761 1,042,453
---------- --------- -----------
NET INCOME (LOSS) $ 357,132 $ (8,171) $ (237,018)
========== ========= ===========
NET INCOME (LOSS) ATTRIBUTED TO:
Limited partners $ 353,561 $ (8,089) $ (234,648)
========== ========= ===========
General partner $ 3,571 $ (82) $ (2,370)
========== ========= ===========
NET INCOME (LOSS) PER LIMITED PARTNER UNIT $ 29.63 $ (0.68) $ (19.86)
========== ========= ===========
DISTRIBUTIONS PER LIMITED PARTNER UNIT $ 81.00 $ 7.00 $ 3.50
========== ========= ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNER UNITS 11,932 11,932 11,932
========== ========= ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-4
<PAGE> 20
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE (DEFICIT), January 1, 1995 $(36,789) $ 3,252,241 $ 3,215,452
Net loss for 1995 (2,370) (234,648) (237,018)
Capital distributions (422) (41,762) (42,184)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1995 (39,581) 2,975,831 2,936,250
Net loss for 1996 (82) (8,089) (8,171)
Capital distributions (844) (83,524) (84,368)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1996 (40,507) 2,884,218 2,843,711
Net income for 1997 3,571 353,561 357,132
Capital distributions (9,763) (966,492) (976,255)
-------- ----------- -----------
BALANCE (DEFICIT), December 31, 1997 $(46,699) $ 2,271,287 $ 2,224,588
======== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-5
<PAGE> 21
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 357,132 $ (8,171) $(237,018)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 150,832 163,528 200,109
Share of net (income) loss of office building -- 20,664 (3,201)
Gain on sale of investment in office building -- (75,756) --
Gain on sale of rental property (543,526) -- --
Write down of note receivable to fair value 184,812 -- --
Changes in assets and liabilities:
Accounts receivable 4,887 (1,209) (12,252)
Note receivable -- (49,130) --
Accounts payable (18,398) 8,126 7,723
Accrued property taxes (34,395) (13,856) 4,882
Due to general partner 9,763 (31,087) 422
Due to related party 26,828
Other liabilities (62,036) 22,590 21,380
----------- --------- ---------
Net cash provided by (used in)
operating activities 75,899 35,699 (17,955)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (43,116) (21,979) --
Payments for organization and loan closing costs -- -- (46,152)
Deposit on rental property -- (30,000) --
Proceeds from sale of rental property 1,821,226 -- 160,363
Proceeds from sale of investment in office building -- 235,723 --
Distribution from investment in office building -- 12,500 41,514
----------- --------- ---------
Net cash provided by investing activities 1,778,110 196,244 155,725
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (976,255) (84,368) (42,184)
Proceeds from notes payable -- 113,413 --
Repayments of notes payable (961,784) (140,069) (24,908)
----------- --------- ---------
Net cash used in financing activities (1,938,039) (111,024) (67,092)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH (84,030) 120,919 70,678
CASH AND CASH EQUIVALENTS, beginning of year 513,087 392,168 321,490
----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 429,057 $ 513,087 $ 392,168
=========== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest $ 207,000 $ 230,000 $ 183,000
=========== ========= =========
Non-cash activity:
Financing of note payable with a note
receivable $ -- $ -- $ 337,035
=========== ========= =========
Exchange of property and notes payable, net $ -- $ -- $ 595,962
=========== ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.
F-6
<PAGE> 22
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICES:
Nature of Business - Whitehall Income Fund - 86 (the "Partnership") was
organized in the State of California on December 15, 1985 for the purpose
of investing in, holding, developing and managing income producing
properties.
Allocations and Distributions - Generally, net losses are allocated 1% to
W&C Income Company, Ltd. (the "General Partner") and 99% to the Limited
Partners. Net income is allocated in the same proportion as net losses
until all such losses have been recaptured, and then in proportion to
distributions of cash from operations until the partners' capital accounts
equal their original invested capital. Finally, the remaining net income is
allocated 15% to the General Partner and 85% to the Limited Partners.
Distributions of cash from operations, as defined, are divided 1% to the
General Partner and 99% to the Limited Partners until the Limited Partners
have received their priority return. The Limited Partners are entitled to a
non-cumulative non-compounded return on adjusted invested capital, as
defined in the Partnership Agreement, of 7% in 1986, 8% in 1987, and 9% in
1988, and 10% per annum thereafter. After this priority return is received,
distributions are divided 5% to the General Partner and 95% to the Limited
Partners. As of December 31, 1997 the Limited Partners had not received
their non-cumulative priority return.
Fees - The General Partner provides property management and leasing
services to the Partnership and is compensated at the rate of 5% of the
gross receipts from the properties (see Note 7). Such fee was paid and
recognized as an expense for the years ended December 31, 1997, 1996 and
1995. The General Partner is also entitled to a partnership management fee
of 5% of all distributions of cash from operations after the Limited
Partners have received their priority return. As of December 31, 1997, the
limited partners had not received their non-cumulative priority return (see
allocations and distributions above); therefore, the general partner is not
entitled to the partnership management fee.
The Partnership reimburses the General Partner for a portion of payroll
relating to an in-house legal counsel and a managing agent and certain
general and administrative expenses (see Note 7).
Impairment of Long-Lived Assets - In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to
market value or discounted cash flow is required.
Rental Properties - Rental properties and improvements are recorded at
cost. The Partnership capitalizes and depreciates all buildings used for
investment income over thirty-one to thirty-nine years, the estimated
useful lives of the properties, using an accelerated method for financial
reporting purposes. Depreciation of improvements is calculated using the
same accelerated method over the estimated useful lives (ranging from 5 to
10 years) of the respective assets. The cost of normal maintenance and
repairs is charged to operating expenses as incurred. Material expenditures
which increase the life of an asset are capitalized
F-7
<PAGE> 23
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
and depreciated over the estimated remaining useful life of the asset. The
cost of properties sold, or otherwise disposed of, and the related
accumulated depreciation or amortization are removed from the accounts, and
any gains or losses are reflected in current operations.
Investment in Office Building - Until June 15, 1996, the Partnership owned
a fifty percent undivided preferential interest in an office building in
Tucson, Arizona. The Partnership's investment was accounted for under the
equity method. The Partnership sold its interest in this investment as of
June 15, 1996. The Partnership's share of earnings or losses and its gain
on sale of its investment are included in the accompanying financial
statements.
Net Income (Loss) Per Limited Partner Unit - Net income (loss) per limited
partner unit has been computed for each fiscal year on the basis of the
weighted average number of limited partner units outstanding.
Amortization - Organization costs of the Partnership are capitalized and
amortized over five years using the straight line method. Loan closing
costs are amortized over the lives of the loans using the straight line
method.
Income Taxes and Other - The activity of the Partnership is included in the
respective tax returns of the partners and no income taxes are provided or
imposed at the Partnership level. These financial statements do not give
effect to any assets that the partners may have outside their interests in
the Partnership, nor to any obligations, including income taxes, of the
partners.
Use of Estimates - The preparation of the Partnership's financial
statements in conformity with generally accepted accounting principles
requires the Partnership's management to make estimates and assumptions
that affect the amounts reported in these financial statements and
accompanying notes. Actual results could differ from those estimates.
The Partnership's financial statements are based upon a number of
significant estimates, including the estimated useful lives selected for
property and equipment and intangible assets. Due to the uncertainties
inherent in the estimation process, it is at least reasonably possible that
these estimates will be further revised in the near term and such revisions
could be material.
Statement of Cash Flows - For purposes of the statement of cash flows, the
Partnership considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents
consist of certificates of deposit.
Reclassifications - Certain reclassifications were made to the 1996 and
1995 financial statements in order to conform to the 1997 presentation.
Such reclassifications had no effect on the net loss previously reported.
Impact of Recently Issued Standards - The FASB recently issued Statement of
Financial Accounting Standards 130 "Reporting Comprehensive Income"
(FASB130) and Statement of Financial Accounting Standards 131 "Disclosures
About Segments of an Enterprise and Related Information" (FASB131). FASB130
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those
F-8
<PAGE> 24
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
resulting from investments by owners and distributions to owners. Among
other disclosures, FASB130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. FASB131 supersedes
Statement of Financial Accounting Standards 14 "Financial Reporting for
Segments of a Business Enterprise". FASB131 establishes standards on the
way that public companies report financial information about operating
segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial statements issued
to the public. It also establishes standards for disclosures regarding
products and services, geographic areas and major customers. FASB131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance.
FASB130 and FASB131 are effective for financial statement for period
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected
by implementation of these standards.
2. RENTAL PROPERTIES:
The Partnership currently owns four rental properties. On August 14, 1997,
the Partnership sold Tanque Verde Self Storage for $1,945,000, net of
related expenses. The gain on the sale of the property was $543,526.
During 1995, the Partnership exchanged Athens Self Storage for Capitol Self
Storage in a tax-free transaction. Capitol Self Storage and its related
note payable (Note 5) were recorded at the net carrying value of Athens
Self Storage at the time of transfer. No gain or loss was recognized.
F-9
<PAGE> 25
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Below is a summary of the properties' cost and related depreciation as of
December 31, 1997, 1996 and 1995, and revenue and related expenses,
consisting of rental, depreciation and interest, for the years ended
December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
1997
MCRAE PAN AMERICAN HONEY BAKED
SHOPPING TANQUE VERDE OFFICE HAM IN CAPITOL
TOTAL CENTER SELF-STORAGE BUILDING LOUISIANA SELF-STORAGE
----------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Buildings and improvements $ 3,304,266 $ 734,611 $ -- $ 464,228 $ 468,614 $ 1,636,813
Accumulated depreciation (610,146) (254,929) -- (126,531) (134,180) (94,506)
Land 484,917 59,229 -- 162,850 150,000 112,838
----------- --------- ----------- --------- --------- -----------
Net property $ 3,179,037 $ 538,911 $ -- $ 500,547 $ 484,434 $ 1,655,145
=========== ========= =========== ========= ========= ===========
Rental revenue $ 814,842 $ 82,887 $ 301,756 83,597 $ 40,606 $ 305,996
Expenses 617,902 48,522 186,947 79,811 23,198 279,424
----------- --------- ----------- --------- --------- -----------
$ 196,940 $ 34,365 $ 114,809 $ 3,786 $ 17,408 $ 26,572
=========== ========= =========== ========= ========= ===========
1996
Buildings and improvements $ 5,182,390 $ 734,611 $ 1,921,240 $ 459,197 $ 455,072 $ 1,612,270
Accumulated depreciation (1,325,983) (231,608) (815,366) (111,626) (119,153) (48,230)
Land 693,948 59,229 209,031 162,850 150,000 112,838
----------- --------- ----------- --------- --------- -----------
Net property $ 4,550,355 $ 562,232 $ 1,314,905 $ 510,421 $ 485,919 $ 1,676,878
=========== ========= =========== ========= ========= ===========
Rental revenue $ 834,622 $ 79,886 $ 366,560 $ 83,064 $ 36,000 $ 269,112
Expenses 696,816 39,547 306,377 72,423 18,628 259,841
----------- --------- ----------- --------- --------- -----------
$ 137,806 $ 40,339 $ 60,183 $ 10,641 $ 17,372 $ 9,271
=========== ========= =========== ========= ========= ===========
</TABLE>
F-10
<PAGE> 26
<TABLE>
<CAPTION>
1995
TANQUE PAN HONEY
MCRAE VERDE AMERICAN BAKED CAPITOL ATHENS
SHOPPING SELF OFFICE HAM IN SELF SELF
TOTAL CENTER STORAGE BUILDING LOUISIANA STORAGE STORAGE
----------- --------- ----------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Buildings and improvements $ 5,160,411 $ 734,611 $ 1,921,240 $ 437,218 $ 455,072 $ 1,612,270 $ --
Accumulated depreciation (1,172,842) (208,287) (755,375) (97,746) (104,544) (6,890) --
Land 693,948 59,229 209,031 162,850 150,000 112,838 --
----------- --------- ----------- --------- --------- ----------- --------
Net property $ 4,681,517 $ 585,553 $ 1,374,896 $ 502,322 $ 500,528 $ 1,718,218 $ --
=========== ========= =========== ========= ========= =========== ========
Rental revenue $ 755,653 $ 78,396 $ 374,824 82,446 $ 36,150 $ 8,518 $175,319
Expenses 657,214 43,177 324,237 65,793 30,897 24,074 169,036
----------- --------- ----------- --------- --------- ----------- --------
$ 98,439 $ 35,219 $ 50,587 $ 16,653 $ 5,253 $ (15,556) $ 6,283
=========== ========= =========== ========= ========= =========== ========
</TABLE>
During 1997 and 1996, two tenants each accounted for approximately 10% of
rental revenue. During 1995 one tenant accounted for approximately 11% of
rental revenue.
F-11
<PAGE> 27
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENT
3. INVESTMENT IN OFFICE BUILDING:
On November 29, 1993 the Partnership acquired a 50% undivided preferential
interest in an office building ("Oracle") in Tucson, Arizona for $300,000.
On June 15, 1996, the Partnership sold its investment in the office
building for $246,473, net of related expenses. The gain on the sale of the
investment was $75,756.
The condensed statement of operations of Oracle for the periods ended June
15, 1996 and December 31, 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Revenues $ 107,947 $205,362
Expenses 149,275 198,960
--------- --------
Net income (loss) $ (41,328) $ 6,402
========= ========
Partnership's share of net income (loss) $ (20,664) $ 3,201
========= ========
</TABLE>
A condensed balance sheet of Oracle has not been provided due to the
immateriality of the Company's 50% undivided interest in the office
building.
4. NOTE RECEIVABLE:
Prior to 1995, one of the properties of the Partnership was held as
collateral for a note payable of the original owner. During 1995, the
Partnership assumed this note payable in exchange for a note receivable
with collateral of a second trust deed on an operating property in Atlanta
from the original note holder. When the note receivable became due in June
1997, the original owner could not pay the balance due on the note. The
Partnership took the collateral and wrote down the note receivable to the
estimated fair value of the collateral.
The second trust deed has an interest rate of 9.5%. The principal and
interest is received in monthly installments of $14,074 through November 4,
2004. Since the second trust deed wraps the first trust deed on the Atlanta
property, the monthly installments of the second trust deed are reduced by
the monthly payments of $12,400 to the first trust deed through February
2004.
F-12
<PAGE> 28
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENT
5. NOTES PAYABLE:
Notes payable consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
$1,250,000 non-recourse note payable to bank with interest at 9% through
February 2006; principal and interest payable in monthly installments of
$10,490 through February 2006, at which time the remaining balance becomes
due; collateralized by Capitol real and personal property $1,220,801 $1,237,265
$1,000,000 non-recourse note payable to bank with interest adjusted
semi-annually to 3.5% above the coupon rate with a 16.65% maximum and 9.66%
minimum rate, 9.66% at December 31, 1996; principal and interest payable
monthly with the unpaid balance due September 1999; collateralized by
Tanque Verde real and personal property. This note was
paid in full on August 14, 1997 -- 940,714
$337,035 note payable to life insurance company with interest at 9% through
August 2000; principal and interest due in monthly installments of $2,828
through August 2000, at which time the remaining balance becomes due;
collateralized by Pan American real property 327,337 331,943
---------- ----------
$1,548,138 $2,509,922
========== ==========
</TABLE>
Future maturities of notes payable are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 $ 19,500
1999 23,184
2000 337,814
2001 21,672
2002 23,705
Thereafter 1,122,263
------------
$ 1,548,138
============
</TABLE>
F-13
<PAGE> 29
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
6. LEASES:
Future minimum lease payments to be received on non-cancelable leases are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 $ 167,805
1999 74,080
2000 20,028
---------
$ 261,913
=========
</TABLE>
7. RELATED PARTY TRANSACTIONS:
At December 31, 1997 and 1996 the General Partner was owed $9,763 and $844,
respectively, for distributions of cash from operations, as defined in the
partnership agreement.
In 1997, 1996 and 1995 the Partnership was charged property management and
leasing fees of $36,921, $43,159 and $42,230 by an affiliate of the former
General Partner. In 1997, 1996 and 1995, the Partnership incurred payroll
expenses relating to certain of the former General Partner's employees and
other administrative expenses totaling $195,728, $267,213, and $275,125,
respectively. Additionally during 1995, costs related to the exchange of
Capitol Self Storage for Athens Self Storage of $46,152 were paid to a
former General Partner and capitalized by the Partnership as organization
costs. Certain amounts of the administrative expenses paid a former General
Partner are allocated to the Partnership based upon a former General
Partner's estimates.
8. FINANCIAL INSTRUMENTS:
Concentrations of Credit Risk
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet)
that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would
cause their ability to meet contractual obligations to be similarly
effected by changes in economic or other conditions. In accordance with
FASB Statement No. 105, Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, the credit risk amounts shown do not take
into account the value of any collateral or security.
F-14
<PAGE> 30
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Financial instruments that subject the Partnership to credit risk consist
principally of a note and accounts receivable and cash on deposit.
At December 31, 1997, the Partnership maintained cash balances with a
commercial bank which were approximately $315,393 in excess of FDIC
insurance limits.
The Partnership's note receivable is described in Note 4.
The Partnership's properties are located in the states of Texas, Arizona,
Georgia and Louisiana. A downturn in the economies in any of these states
could have an adverse impact on the Partnership.
Fair Value of Financial Instruments
The estimated fair values of the Partnership financial instruments were
determined by management using available market information and appropriate
valuation methodologies. The estimates are not necessarily indicative of
the amount the Partnership could realize in a current market exchange.
At December 31, 1997, cash, accounts receivable, accounts payable and notes
payable have fair values that approximate book values based on their short
term or demand maturity.
The fair value of the note receivable is based on estimated discounted cash
flows. The fair value of these instruments approximates book value at
December 31, 1997.
F-15
<PAGE> 31
FINANCIAL STATEMENT SCHEDULES
<PAGE> 32
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
The following shows the changes in the total amounts at which real estate was
carried during the periods:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 5,671,427
Purchases 1,725,108
Cost of real estate sold (1,542,176)
-----------
Balance at December 31, 1995 5,854,359
Purchases 21,979
-----------
Balance at December 31, 1996 5,876,338
Purchases 43,116
Cost of real estate sold (2,130,271)
------------
Balance at December 31, 1997 $ 3,789,183
===========
</TABLE>
The following shows changes in accumulated depreciation during the periods:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 1,458,896
Depreciation during the period 171,912
Deductions for real estate sold (457,966)
-----------
Balance at December 31, 1995 1,172,842
Depreciation during the period 153,141
-----------
Balance at December 31, 1996 1,325,983
Depreciation during the period 135,676
Deductions for real estate sold (851,513)
-----------
Balance at December 31, 1997 $ 610,146
===========
</TABLE>
F-18
<PAGE> 33
WHITEHOUSE INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
<TABLE>
<CAPTION>
FINAL PERIODIC FACE CARRYING
INTEREST MATURITY PAYMENT PRIOR AMOUNT OF AMOUNT OF
DESCRIPTION RATE DATE TERMS LIENS MORTGAGES MORTGAGES
- ----------------------- --------- ---------- ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial loans:
Capital Self
Storage 9% 2006 $ 10,490 - $ 1,250,000 $ 1,220,801
Pan American
Office Building 9% 2000 2,828 - 337,035 327,337
</TABLE>
The following shows the changes in the carrying amounts of mortgage loans
during the periods:
<TABLE>
<S> <C>
Balance at January 1, 1995 $ 1,464,792
New mortgage loan 1,587,035
Payments of principal (24,908)
Payoff old mortgage loan (489,497)
-----------
Balance at December 31, 1995 2,537,422
Payments of principal (27,500)
-----------
Balance at December 31, 1996 2,509,922
Payments of principal (961,784)
-----------
Balance at December 31, 1997 $ 1,548,138
===========
</TABLE>
F-19
<PAGE> 34
WHITEHALL INCOME FUND - 86
(A CALIFORNIA LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS CAPITALIZED
INITIAL COST TO PARTNERSHIP SUBSEQUENT TO ACQUISITION
---------------------------------------------------- -------------------------------
BUILDING AND
DESCRIPTION INCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS CARRYING COSTS
----------- ------------ ---- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
McRae Shopping
Center $ -- $ 59,229 $ 734,611 $ -- $ --
Pan American
Office Building 327,337 162,850 437,217 27,011 --
Honey Baked Ham
in Louisiana -- 150,000 450,000 18,614 --
Capitol Self
Storage 1,220,801 112,838 1,612,270 24,543 --
---------- ---------- ---------- ------- --------
$1,548,138 $ 484,917 $3,234,098 $70,168 --
========== ========== ========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
GROSS AMOUNTS AT WHICH CARRIED AT CLOSED OF PERIOD DEPRECIATION
--------------------------------------------------------------- IN LATEST INCOME
BUILDING AND ACCUMULATED DATE OF DATE STATEMENTS IS
DESCRIPTION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
----------- ---- ------------ ----- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
McRae Shopping
Center $ 59,229 $ 734,611 $ 793,840 $254,929 1985 1986 31.5 years
Pan American
Office Building 162,850 464,228 627,078 126,531 1984 1987 31.5 years
Honey Baked Ham
in Louisiana 150,000 468,614 618,614 134,180 1978 1988 31.5 years
Capitol Self
Storage 112,838 1,636,813 1,749,651 94,506 1984 1995 39.0 years
---------- ---------- ---------- -------- ---- ---- ----------
$ 484,917 $3,304,266 $3,789,183 $610,146
========== ========== ========== ========
</TABLE>
(CONTINUED)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 429,057
<SECURITIES> 0
<RECEIVABLES> 161,456
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,169
<PP&E> 3,043,361
<DEPRECIATION> 135,676
<TOTAL-ASSETS> 3,845,719
<CURRENT-LIABILITIES> 72,993
<BONDS> 1,548,138
0
0
<COMMON> 0
<OTHER-SE> 2,224,588
<TOTAL-LIABILITY-AND-EQUITY> 3,845,719
<SALES> 0
<TOTAL-REVENUES> 1,412,495
<CGS> 0
<TOTAL-COSTS> 672,413
<OTHER-EXPENSES> 184,812
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,138
<INCOME-PRETAX> 357,132
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357,132
<EPS-PRIMARY> 81
<EPS-DILUTED> 81
</TABLE>
