<PAGE>   1
                                  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, 1999.

                                       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, 1999 all units of registrant's Limited Partnership 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 units, are
considered affiliates for purposes of this calculation).

                                       1
<PAGE>   2
WHITEHALL INCOME FUND - 86


                                    FORM 10-K
                                TABLE OF CONTENTS

PART I
         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

                                       2
<PAGE>   3
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 7 individuals.

The Registrant currently owns a self storage facility, a shopping center, a
restaurant building and one office building for a total cost of $3,880,690 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 1999, the Registrant owned four 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.

                                       3
<PAGE>   4
The Shopping Center's current tenant is Rite Aid Drug, the drugstore chain
subsidiary of Rite Aid Corporation. Another major tenant, Family Dollar Stores,
Inc., a discount variety store vacated the premises on December 31, 1999 at
expiration of its lease term due to poor sales. 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. Rite Aid Drug has not exercised its second (5) five-year option and is
subject to cancellation of lease if notice is not received by March 30, 2000.
Each tenant exercised its first option for a period of five (5) years. Family
Dollar's annual base rent was $26,000; Rite Aid's is $48,067.50, with no change
during the first option period.

The Partnership, under the terms of the Rite Aid lease 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 that contains two department stores similar to the Family Dollar. 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 that are lessees of the McRae Square Shopping Center.

Rental income for the Shopping Center was $80,113, $79,841 and $82,887 for 1999,
1998, and 1997, respectively. Operating expenses for the same years were
$41,777, $39,461 and 48,522, respectively.

As of December 31, 1999 the Shopping Center was 53% 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, 1999.

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

                                       4
<PAGE>   5
a husband and wife who reside at the apartment on site.

The facility, built in 1984 has maintained 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
$330,270, $333,264 and $305,996 for 1999, 1998 and 1997, respectively. Operating
expenses for the same years were $319,721, $284,124 and $279,424, respectively.
Revenue was increased in 1998 due to rental increases and strict collection
policies. Expenses were higher in 1999 due to increased repairs and maintenance
costs related to the office, apartment and parking lot.

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 $1,187,451 as of December 31, 1999.


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
1999 for a two-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 $156,998, $107,293 and $83,597 for 1999,
1998 and 1997, respectively. Operating expenses for the same years were $89,034,
$93,086 and $79,811 respectively. Operating expenses include a five percent (5%)
management fee and depreciation of approximately $14,000 annually.

Income increased in 1998 due to the rental rate being increased by $4.51 per
square foot, because the lease term was reduced. Income increased again in 1999
due to the August 1998 lease increase and

                                       5
<PAGE>   6
an additional increase in August 1999. Expenses will remain high due to tenant's
continued demands for upgrades and heavy client use.

The property was held as collateral for a mortgage of $317,559 outstanding as of
December 31, 1999, 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 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, then exercised its first five-year option commencing
January 1, 1999 through December 31, 2004 at an annual rental rate of $37,800.

Rental revenue for this property was $43,863, $43,746 and $40,606 for 1999, 1998
and 1997, respectively. Operating expenses for the same years were $25,083,
25,294 and 23,198,respectively.

The property was not held as collateral for any mortgages outstanding as of
December 31, 1999.


ITEM 3.  LEGAL PROCEEDINGS

None


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                       6
<PAGE>   7
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, 1999 the number of holders of record of Limited Partnership
Interests of the Registrant was 457.


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, 1999:

                                       7
<PAGE>   8
<TABLE>
<CAPTION>
                                                             For the Years Ending December 31,
                                   -----------------------------------------------------------------------------------
                                      1999              1998              1997              1996               1995
                                   -----------       -----------       -----------       -----------       -----------
<S>                                <C>               <C>               <C>               <C>               <C>
TOTAL RENTAL REVENUES              $   611,244       $   564,144       $   814,842       $   834,622       $   755,653


RENTAL REVENUES LESS
   RENTAL OPERATING  EXPENSES          128,807           123,237           196,940           137,806            90,439


INTEREST INCOME                         27,535            31,852            45,323            46,501            44,629


ADMINISTRATION EXPENSES                 74,433            64,567            75,355           115,386           100,347

NET INCOME (LOSS)                      (79,169)          (81,538)          357,132            (8,171)         (237,018)

NET INCOME(LOSS)PER
  LIMITED PARTNER
  UNITS                                  (6.57)            (6.77)            29.63              (.68)           (19.06)

DISTRIBUTIONS TO
  LIMITED PARTNERS                           0                 0           966,472            83,534            41,762

DISTRIBUTIONS TO
  LIMITED PARTNERS
  PER LIMITED
  PARTNER UNIT                               0                 0             81.00              7.00              3.50


WEIGHTED AVERAGE
  NUMBER OF LIMITED
  PARTNER UNITS                         11,932            11,932            11,932            11,932            11,932


INVESTMENT PROPERTIES                3,079,805         3,113,601         3,179,037         4,550,355         4,601,517

TOTAL ASSETS                         3,652,964         3,821,400         3,845,719         5,504,064         5,630,206

LONG-TERM
  OBLIGATIONS                        1,505,010         1,526,784         1,548,138         2,509,922         2,537,422


NUMBER OF PROPERTIES
  OWNED                                      4                 4                 4                 5                 6
</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.

                                       8
<PAGE>   9
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, 1999,
the Partnership has distributed $2,978,943 to the Limited Partners and $9,763 to
the General Partner.

Revenues for the year ended December 31, 1999 increased by $48,401
from the year ended December 31, 1998. The increase was due primarily to the
increased rental income at Pan American Plaza.

Revenues for the year ended December 31, 1998 decreased by $250,698
from the year ended December 31, 1997. The decrease was due primarily to the
sale of Tanque Verde/Kolb Self-Storage. This decrease would have been greater,
but for increases in revenue at three of the four remaining properties.

Rental Operating Expenses for the year ended December 31, 1999 increased by
$40,793 from the year ended December 31, 1998. The increase was primarily due to
the capital improvements made at Capitol Self-Storage.

Rental Operating Expenses for the year ended December 31, 1998 decreased by
$179,995 from the year ended December 31, 1997. The decrease was primarily due
to the elimination of two employees who were previously employed by Tanque
Verde/Kolb Self Storage and the elimination of operating expenses at the
property due to sale of the property.


LIQUIDITY AND CAPITAL RESOURCES

The cash position of the Partnership and distributions to Limited Partners
should remain constant or decrease during 2000 depending on whether sales of
remaining real properties occur.

Net cash provided by operating activities was ($44,360) for the year ended
December 31, 1999 compared to $85,557 for the year ended December 31, 1998. Net
cash provided by investing activities was ($56,344) for the year ended December
31, 1999, compared to $6,747 for the year ended December 31, 1998.

Net cash provided by operating activities was $85, 557 for the year ended
December 31, 1998 compared to $75,899 for the year ended December 31, 1997. Net
cash provided by investing activities was

                                       9
<PAGE>   10
$6,747 for the year ended December 31, 1998 compared to $1,778,110 for the year
ended December 31, 1997. The year ended December 31, 1997 net cash 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.

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 2000 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 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.

YEAR 2000 ISSUES

The Company has experienced no disruptions in its operations that management can
attribute to Year 2000 software issue. In addition, the Company has seen no Year
2000 related problems itself or received any reports of such problems from its
customers.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURES

None

                                    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.

                                       10
<PAGE>   11
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 51, 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 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.

                                       11
<PAGE>   12
(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-14 of this Form 10-K.


ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K


         (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-18.

         (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
Financial Data Schedule

         (d)      Financial Statement Schedules required by Regulation S-X:

                  All required information is included in the financial
statements or schedules on pages F-13 through F-18.



                                   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

                                       12
<PAGE>   13
Date: January 28, 2000                            By: /S/ Jack C. West
      ----------------                               ---------------------------
                                                     Jack C. West
                                                      Managing Member

                                       13
<PAGE>   14
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)


                              FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                        DECEMBER 31, 1999, 1998 AND 1997
<PAGE>   15
                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                                     PAGE
                                                                                                                     ----
<S>                                                                                                                  <C>
INDEPENDENT AUDITOR'S REPORT.......................................................................................  F-2

BALANCE SHEETS - December 31, 1999 and 1998........................................................................  F-3

STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1999, 1998 and 1997....................................  F-4

STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) - For the Years Ended December 31, 1999, 1998 and 1997.........  F-5

STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1999, 1998, and 1997...................................  F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................................................................  F-7

FINANCIAL STATEMENT SCHEDULES:

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION...........................................................  F-16

SCHEDULE IV -  MORTGAGE LOANS ON REAL ESTATE......................................................................  F-18
</TABLE>

                                      F-1
<PAGE>   16
                          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, 1999 and 1998, 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,
1999. 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, 1999 and 1998, and the results
of its operations and its cash flows for each of the years in the three year
period ended December 31, 1999 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.

\s\HEIN + ASSOCIATES LLP
-------------------------------
   HEIN + ASSOCIATES LLP
   Certified Public Accountants

Orange, California
January 28, 2000

                                      F-2
<PAGE>   17
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                           -----------------------------------------
                                                                                  1999                   1998
                                                                           ----------------        -----------------
<S>                                                                        <C>                     <C>
                              ASSETS
     Rental properties,  net of accumulated depreciation                   $      3,079,805        $       3,113,601
     Cash and cash equivalents                                                      377,529                  500,005
     Accounts receivable                                                             19,077                   21,032
     Note receivable                                                                149,546                  155,140
     Loan closing costs, net of accumulated amortization
         of $19,145 and $14,530                                                      27,007                   31,622
                                                                           ----------------        -----------------

TOTAL ASSETS                                                               $      3,652,964        $       3,821,400
                                                                           ================        =================

                              LIABILITIES AND PARTNERS' CAPITAL

     Notes payable                                                         $      1,505,010        $       1,526,782
     Accounts payable                                                                19,222                    5,515
     Accrued property taxes                                                          22,273                   19,862
     Due to general partner                                                          -                        10,607
     Due to related party                                                            28,328                  107,045
     Other liabilities                                                               14,250                    8,539
                                                                           ----------------        -----------------
         Total liabilities                                                        1,589,083                1,678,350

COMMITMENT (Note 6)

PARTNERS' CAPITAL
     Limited partners, 11,932 equity units authorized and
         outstanding for 1999 and 1998                                            2,112,187                2,190,564

     General partner, 1 equity unit authorized and outstanding for
         1999 and 1998                                                              (48,306)                 (47,514)
                                                                           -----------------       -----------------

TOTAL LIABILITIES AND PARTNERS' CAPITAL                                    $      3,652,964        $       3,821,400
                                                                           ================        =================
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.

                                      F-3
<PAGE>   18
                          WHITEHALL INCOME FUND -- 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                   For the Years Ended December 31,
                                                                                1999               1998              1997
                                                                           ------------        -----------      -------------
<S>                                                                        <C>                 <C>              <C>
REVENUES:
     Rental                                                                $    612,545        $   564,144      $     814,842
     Gain on sale of rental property                                              --                 --               543,526
     Other income                                                                27,534             32,773             54,127
                                                                           ------------        -----------      -------------
         Total Revenues                                                         640,079            596,917          1,412,495
                                                                           ------------        -----------      -------------

EXPENSES:
     Rental operating:
         Depreciation                                                            95,734             95,006            135,676
         Payroll and related taxes                                               38,052             31,889             49,636
         Interest                                                               136,463            135,656            198,138
         Other rental operating expenses                                         90,224             76,241             95,857
         Taxes other than payroll                                                71,695             69,860            100,442
         Repairs and maintenance                                                 22,335             21,325             25,729
         Advertising                                                             12,269             10,930             12,424
     Operating Expenses:
         General and administrative                                              74,434             64,567             75,355
         Payroll and related taxes                                              136,999            130,260            126,360
         Professional fees                                                       36,429             36,748             35,778
         Depreciation and amortization                                            4,614              5,973             15,156
     Write down of note receivable to fair value                                  --                 --               184,812
                                                                           ------------        -----------      -------------
              Total expenses                                                    719,248            678,455          1,055,363
                                                                           ------------        -----------      -------------

NET INCOME (LOSS)                                                          $    (79,169)       $   (81,538)     $     357,132
                                                                           ============        ===========      =============

NET INCOME (LOSS) ATTRIBUTED TO:
     Limited partners                                                      $    (78,377)       $   (80,723)     $     353,561
                                                                           ============        ===========      =============
     General partner                                                       $       (792)       $      (815)     $       3,571
                                                                           ============        ===========      =============

NET INCOME (LOSS) PER LIMITED PARTNER UNIT                                 $      (6.57)       $     (6.77)     $       29.63
                                                                           ============        ===========      =============

DISTRIBUTIONS PER LIMITED PARTNER UNIT                                     $      --            $     --        $       81.00
                                                                           ============        ===========      =============

WEIGHTED AVERAGE NUMBER OF LIMITED PARTNER UNITS                                 11,932             11,932             11,932
                                                                           ============        ===========      =============
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.

                                      F-4
<PAGE>   19
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

               STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                          General              Limited
                                                          Partner              Partners               Total
                                                     ---------------       -------------        ---------------
<S>                                                  <C>                   <C>                  <C>
BALANCE (DEFICIT), December 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 1997                             (46,699)          2,271,287              2,224,588

       Net loss for 1998                                        (815)            (80,723)               (81,538)
                                                     ---------------       -------------        ---------------

BALANCE (DEFICIT), December 1998                             (47,514)          2,190,564              2,143,050

       Net loss for 1999                                        (792)            (78,377)               (79,169)
                                                     ---------------       -------------        ---------------

BALANCE (DEFICIT), December 31, 1999                 $       (48,306)      $   2,112,187        $     2,063,881
                                                     ===============       =============        ===============
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.

                                      F-5
<PAGE>   20
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                                  -----------------------------------------------
                                                                     1999              1998              1997
                                                                  -----------       -----------       -----------
<S>                                                               <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                            $   (79,169)      $   (81,538)      $   357,132
     Adjustments to reconcile net income (loss) to net
         cash provided by operating activities:
         Depreciation and amortization                                100,348           100,979           150,832
         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                                       1,955           (12,458)            4,887
              Accounts payable                                         13,708              (568)          (18,398)
              Accrued property taxes                                    2,411             1,184           (34,395)
              Due to general partner                                  (10,607)             --               9,763
              Due to related party                                    (78,717)           80,217            26,828
              Other liabilities                                         5,711            (2,259)          (62,036)
                                                                  -----------       -----------       -----------
         Net cash provided by (used in) operating activities          (44,360)           85,557            75,899
                                                                  -----------       -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchase of rental properties                                    (61,938)          (29,569)          (43,116)
     Deposit on rental property                                          --              30,000              --
     Proceeds from sale of rental property                               --                --           1,821,226
     Note receivable                                                    5,594             6,316              --
                                                                  -----------       -----------       -----------
         Net cash provided by (used in) investing activities          (56,344)            6,747         1,778,110
                                                                  -----------       -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
     Distribution to partners                                            --                --            (976,255)
     Repayments of notes payable                                      (21,772)          (21,356)         (961,784)
                                                                  -----------       -----------       -----------
         Net cash used in financing activities                        (21,772)          (21,356)       (1,938,039)
                                                                  -----------       -----------       -----------

NET INCREASE (DECREASE) IN CASH                                      (122,476)           70,948           (84,030)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                          500,005           429,057           513,087
                                                                  -----------       -----------       -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                            $   377,529       $   500,005           429,057
                                                                  ===========       ===========       ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid for interest                                       $   127,557       $   135,656           207,000
                                                                  ===========       ===========       ===========
</TABLE>

              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.

                                      F-6
<PAGE>   21
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS

1.       SUMMARY OF ACCOUNTING POLICIES:

         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, 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,
         1999, 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, 1999, 1998
         and 1997. 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, 1999, 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 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.

                                      F-7
<PAGE>   22
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO 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 - Loan closing costs are amortized over the lives of the
         loans using the interest 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 1998 and
         1997 financial statements in order to conform to the 1999 presentation.
         Such reclassifications had no effect on the net income (loss)
         previously reported.


2.       BASIS OF PRESENTATION

         As reflected in the accompanying financial statements, the Company has
         incurred net losses the past two years and the cash flow from
         operations was negative for 1999. Other factors that could affect the
         liquidity of the Company in the near future are the loan balance due in
         August 2000 for the PanAm property and the reduction of rental income
         due to potential vacancies at the McRae property. Management believes
         that the Company will generate sufficient cash flow to fund its
         operations through December 31, 2000. In addition, management has taken
         the following actions to improve the Company's cash flow and operating
         results:

                The Company has begun discussions to refinance the PanAm loan
                with two lenders.

                To reduce the possible vacancies at the McRae property,
                management is concentrating their efforts to lease the spaces
                and is engaging a leasing agent to assist in obtaining tenants.

                The general partner has represented that it has the intent and
                means to fund any cash shortfall.

                                      F-8
<PAGE>   23
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

         The Company believes these efforts will enable it to meet its
         obligations as they come due and continue as a going concern.


3.       RENTAL PROPERTIES AND OTHER SEGMENT INFORMATION:

         Each rental property is an operating segment. The Partnership's
         management evaluates the performance of each segment based on profit or
         loss from operations before allocation of Partnership general and
         administrative expenses, unusual and extraordinary items. The
         accounting policies of the segments are the same as those described in
         the summary of significant accounting policies.

                                      F-9
<PAGE>   24
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

         Below is the segment information:

         1999

<TABLE>
<CAPTION>
                                                                    McRae          Pan American      Honey Baked          Capitol
                                               Partnership        Shopping            Office           Ham In              Self
                                Total           Overhead           Center            Building         Louisiana          Storage
                             -----------       -----------       -----------       ------------      ------------      -----------
<S>                          <C>               <C>               <C>               <C>               <C>               <C>
Buildings and improvements   $ 3,395,773       $      --         $   750,731       $   504,697       $   468,614       $ 1,671,731
Accumulated depreciation        (800,885)             --            (302,191)         (156,492)         (178,496)         (163,706)
Land                             484,917              --              59,229           162,850           150,000           112,838
                             -----------       -----------       -----------       -----------       -----------       -----------
Net Property                 $ 3,079,805       $      --         $   507,769       $   511,055       $   440,118       $ 1,620,863
                             ===========       ===========       ===========       ===========       ===========       ===========

Rental Revenue               $   611,244       $      --         $    80,113       $   156,998       $    43,863       $   330,270
Other income                       1,300             1,300              --                --                --                --
Interest Income                   27,535            12,863               173            14,499              --                --
                             -----------       -----------       -----------       -----------       -----------       -----------
                                 640,079            14,163            80,286           171,497            43,863           330,270
                             -----------       -----------       -----------       -----------       -----------       -----------

Operating expenses               482,437           243,633            18,043            46,214            10,320           164,227
Interest expense                 136,463              --                --              28,833              --             107,630
Depreciation and
  amortization                   100,348              --              23,734            13,987            14,763            47,864
                             -----------       -----------       -----------       -----------       -----------       -----------
                                 719,248           243,633            41,777            89,034            25,083           319,721
                             -----------       -----------       -----------       -----------       -----------       -----------

Net income (loss)            $   (79,169)      $  (229,470)      $    38,509       $    82,463       $    18,780       $    10,549
                             ===========       ===========       ===========       ===========       ===========       ===========
</TABLE>

                                      F-10
<PAGE>   25
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS


         1998

<TABLE>
<CAPTION>
                                                                    McRae          Pan American      Honey Baked          Capitol
                                               Partnership        Shopping            Office           Ham In              Self
                                Total           Overhead           Center            Building         Louisiana          Storage
                             -----------       -----------       -----------       ------------      ------------      -----------
<S>                          <C>               <C>               <C>               <C>               <C>               <C>
Buildings and improvements   $ 3,333,835       $      --         $   750,731       $   477,677       $   468,614       $ 1,636,813
Accumulated depreciation        (705,151)             --            (278,457)         (141,276)         (148,943)         (136,475)
Land                             484,917              --              59,229           162,850           150,000           112,838
                             -----------       -----------       -----------       -----------       -----------       -----------
Net property                 $ 3,113,601       $      --         $   531,503       $   499,251       $   469,671       $ 1,613,176
                             ===========       ===========       ===========       ===========       ===========       ===========

Rental revenue               $   564,144       $      --         $    79,841       $   107,293       $    43,746       $   333,264
Other income                         933               933              --                --                --                --
Interest income                   31,840            17,874               188            13,778              --                --
                             -----------       -----------       -----------       -----------       -----------       -----------
                                 596,917            18,807            80,029           121,071            43,746           333,264
                             -----------       -----------       -----------       -----------       -----------       -----------

Operating expenses               441,820           230,517            15,933            48,814            10,531           136,025
Interest expense                 135,656              --                --              29,527              --             106,129
Depreciation and
  amortization                   100,979             5,973            23,528            14,745            14,763            41,970
                             -----------       -----------       -----------       -----------       -----------       -----------
                                 678,455           236,490            39,461            93,086            25,294           284,124
                             -----------       -----------       -----------       -----------       -----------       -----------

Net income (loss)            $   (81,538)      $  (217,683)      $    40,568       $    27,985       $    18,452       $    49,140
                             ===========       ===========       ===========       ===========       ===========       ===========
</TABLE>

                                      F-11
<PAGE>   26
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

         1997
<TABLE>
<CAPTION>
                                                           McRae                    Pan American      Honey Baked
                                          Partnership    Shopping     Tanque Verde     Office           Ham in            Capitol
                               Total        Overhead      Center      Self-Storage    Building         Louisiana        Self-Storage
                            -----------   -----------   -----------   ------------  ------------      -----------       ------------
<S>                         <C>           <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
Gain on sale of property        543,526          --            --         543,526          --                --                --
Other income                     10,804           800          --            --          10,004              --                --
Interest income                  43,323        22,183           217          --          20,923              --                --
                            -----------   -----------   -----------   -----------   -----------       -----------       -----------
                              1,412,495        22,983        83,104       845,282       114,524            40,606           305,996
                            -----------   -----------   -----------   -----------   -----------       -----------       -----------

Operating expenses              521,581       237,493        25,201        94,959        33,939             8,171           121,818
Interest expense                198,138          --            --          56,545        30,967              --             110,626
Depreciation and
  amortization                  150,832        15,156        23,321        35,443        14,905            15,027            46,980
Write down of note
  receivable                    184,812       184,812          --            --            --                --                --
                            -----------   -----------   -----------   -----------   -----------       -----------       -----------
                              1,055,363       437,461        48,522       186,947        79,811            23,198           279,424
                            -----------   -----------   -----------   -----------   -----------       -----------       -----------

Net income (loss)           $   357,132   $  (414,478)  $    34,582   $   658,335   $    34,713       $    17,408       $    26,572
                            ===========   ===========   ===========   ===========   ===========       ===========       ===========
</TABLE>

                                      F-12
<PAGE>   27
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

         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 1999, two tenants each accounted for approximately 19% of rental
         revenue. During 1998 and 1997, two tenants each accounted for
         approximately 16% and 10% of the rental revenue, respectively.


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.

5.       NOTES PAYABLE:

         Notes payable consisted of:

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                  -------------------------------
                                                                                                       1999                1998
                                                                                                  -----------         -----------
<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 2006, at which time the remaining balance becomes due;
        collateralized by Capital real and personal property                                      $ 1,187,451         $ 1,204,115

        $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                                     317,559             322,667
                                                                                                  -----------         -----------

                                                                                                  $ 1,505,010         $ 1,526,782
                                                                                                  ===========         ===========
</TABLE>

                                      F-13
<PAGE>   28
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

         Future maturities of notes payable are as follows:

<TABLE>
<CAPTION>
                                        Year                                                 Amount
                                        ----                                           -----------------
<S>                                                                                    <C>
                                        2000                                           $         337,372
                                        2001                                                      21,672
                                        2002                                                      23,705
                                        2003                                                      25,928
                                        2004                                                      28,360
                                        Thereafter                                             1,067,973
                                                                                       -----------------
                                                                                       $       1,505,010
                                                                                       =================
</TABLE>

         All interest incurred for the years ending December 31, 1999, 1998 and
1997 was charged to expense.


6.       LEASES:

         The Partnership has long-term operating lease agreements with
         unaffiliated lessees to occupy space in its operating real estate
         properties.

         Future minimum lease payments to be received on non-cancelable leases
are as follows:

<TABLE>
<CAPTION>
                                        Year                                                 Amount
                                        ----                                           -----------------
<S>                                                                                    <C>
                                        2000                                           $          222,907
                                        2001                                                      150,931
                                        2002                                                       37,800
                                        2003                                                       37,800
                                                                                       ------------------
                                                                                       $          449,438
                                                                                       ==================
</TABLE>

7.       RELATED PARTY TRANSACTIONS:

         At December 31, 1998 the General Partner was owed $10,607 for
         distributions of cash from operations, as defined in the partnership
         agreement.

         In 1999, 1998 and 1997 the Partnership was charged property management
         and leasing fees of $29,404, $26,744 and $36,921 by an affiliate of the
         former General Partner. In 1999, 1998 and 1997, the Partnership
         incurred payroll expenses relating to certain of the former General
         Partner's employees and other administrative expenses totaling
         $203,938, $189,217 and $195,728, respectively. Certain amounts of the
         administrative expenses paid by a former general Partner are allocated
         to the Partnership based upon the former General Partner's estimates.
         At December 31, 1999 and 1998, the affiliate of the former General
         Partners was owed $28,328 and $107,045, respectively.

                                      F-14
<PAGE>   29
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

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.

         Financial instruments that subject the Partnership to credit risk
         consist principally of a note and accounts receivable and cash on
         deposit.

         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, 1999, 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 this instrument approximates book value
         at December 31, 1999.

                                      F-15
<PAGE>   30
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                  DECEMBER 1999

<TABLE>
<CAPTION>


                                  Initial Cost to Partnership              Subsequent to Acquisition
                          --------------------------------------------    ---------------------------
                                                          Building and                     Carrying
     Description          Incumbrances       Land         Improvements    Improvements       Costs
                          ------------     ---------      ------------    ------------     ----------
<S>                       <C>             <C>             <C>             <C>              <C>
McRae Shopping
     Center               $     --        $   59,229      $  734,611      $   16,120       $    --

Pan American
     Office Building         322,665         162,850         437,217          67,480            --

Honey Baked Ham
     in Louisiana               --           150,000         450,000          18,614            --

Capitol Self Storage       1,204,116         112,838       1,612,270          59,461            --
                           ----------      ----------      ----------      ----------      ----------

                           $1,526,781      $  484,917      $3,234,098      $  161,675      $     --
                           ==========      ==========      ==========      ==========      ==========
</TABLE>


<TABLE>
<CAPTION>

                                                                                                                      Life on Which
                            Gross Amounts at Which Carried at Close 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       $  750,731      $  809,960      $  302,191        1985             1986         31.5 years

Pan American
     Office Building     162,850          504,697         667,547         156,492        1984             1987         31.5 years

Honey Baked Ham
     in Louisiana        150,000          468,614         618,614         163,706        1978             1988         31.5 years

Capitol Self Storage     112,838        1,671,731       1,784,569         178,496        1984             1995         39.0 years
                       ----------      ----------      ----------      ----------

                      $   484,917      $3,395,773      $3,880,690      $  800,885
                       ==========      ==========      ==========      ===========
</TABLE>

                                      F-16
<PAGE>   31
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                DECEMBER 31, 1999


         The following shows the changes in the total amounts in which real
estate was carried during the periods:

<TABLE>
<S>                                                                               <C>
         Balance at January 1, 1997                                               $      5,876,338
                  Purchases                                                                 43,116
                  Cost of real estate sold                                              (2,130,271)
                                                                                  -----------------
         Balance at December 31, 1997                                                    3,789,183
                  Purchases                                                                 29,569
                                                                                  ----------------
         Balance at December 31, 1998                                                    3,818,752
                  Purchases                                                                 61,938
                                                                                  ----------------
         Balance at December 31, 1999                                             $      3,880,690
                                                                                  ================
</TABLE>

         The following shows changes in accumulated depreciation during the
periods:

<TABLE>
<CAPTION>
<S>                                                                               <C>
         Balance at January 1, 1997                                               $      1,325,983
                  Depreciation during the period                                           135,676
                  Deductions for real estate sold                                         (851,514)
                                                                                  -----------------
         Balance at December 31, 1997                                                      610,145
                  Depreciation during the period                                            95,006
                                                                                  -----------------
         Balance at December 31, 1998                                                      705,151
                  Depreciation during the period                                            95,734
                                                                                  -----------------
         Balance at December 31, 1999                                             $        800,885
                                                                                  ================
</TABLE>

                                      F-17
<PAGE>   32

                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                   SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                                DECEMBER 31, 1999


<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          $ 1,187,451

Pan American Office
     Building                          9%            2000             2,828            --           337,035              317,559
</TABLE>


         The following shows the changes in the carrying amounts of mortgage
loans during the periods:

<TABLE>
<S>                                 <C>
Balance at January 1, 1997          $ 2,509,922
         Payments of principal         (961,784)
                                    -----------
Balance at December 31, 1997          1,548,138
         Payments of principal          (21,356)
                                    -----------
Balance at December 31, 1998          1,526,782
         Payments of principal          (21,772)
                                    -----------
Balance at December 31, 1999        $ 1,505,010
                                    ===========
</TABLE>

                                      F-18
<PAGE>   33
EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Number            Description
--------------            -----------
<S>                       <C>
     27                   Financial Data Schedule
</TABLE>