<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  Form 10-K/A

(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, 1996.

                                       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, 1996, 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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<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




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<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 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 self storage facilities, Capitol and Tanque
Verde, continue to maintain occupancy levels exceeding 95% and 85%,
respectively.

ITEM 2.  PROPERTIES

The Registrant owns 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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<PAGE>   4
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 $79,886, $78,396 and $87,568 for 1996,
1995 and 1994, respectively. Operating expenses for the same years were $39,547,
$43,177 and $42,992 respectively. The rental income increase for 1994 reflected
collection of $14,376 from Rite Aid for reimbursement of their share of real
estate taxes and general insurance for previous years.

As of December 31, 1996 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, 1996.

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


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<PAGE>   5
office/residence space, and approximately 16,059 square feet of non-rentable
space.

The Property was completed in December 1984, and commenced 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'x4' 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. The Property is 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 has a $1,000,000 note payable which is collateralized by the
Property's real and personal property. The note calls for interest adjusted
semi-annually to 3.5% above the coupon rate with a maximum rate of 16.65% and
minimum of 9.66%. Monthly principal and interest payments of $8,528 are due
until the interest rate is adjusted then the monthly installment will be
adjusted accordingly. The entire unpaid balance is due September 1999. The
outstanding balance on this note at December 31, 1996 was $940,714.

Rental income from the Property was $366,560, $374,824 and $354,097 for 1996,
1995 and 1994, respectively. Operating expenses for the same years were
$306,377, $324,237 and $373,034, respectively. Rental income increased based on
rental rate increases in July of 1995; while, expenses decreased due to no
capital expenditures being required at the facility.

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.


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<PAGE>   6
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
$269,112 for 1996. Operating expenses for the same year were $259,841. Rental
income and operating expenses for 1995 were immaterial.

The property is held as collateral for a mortgage of $1,250,000 with an
outstanding balance of $1,237,265 as of December 31, 1996.

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 $83,064, $82,446 and $81,906 for 1996,
1995 and 1994, respectively. Operating expenses for the same years were $42,358,
$42,423 and $40,097 respectively. Operating expenses include a five percent (5%)
management fee and depreciation of approximately $14,000 annually.

The Pan Am Plaza is held by a public partnership whose books are audited
annually by an outside accounting firm which results are reported to the
Securities and Exchange Commission.

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


                                        6
<PAGE>   7
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 $36,000, $36,150 and $38,112 for 1996, 1995
and 1994, respectively. Operating expenses for the same years were $18,628,
$30,897 and $21,111, respectively.

The property was not held as collateral for any mortgages outstanding as of
December 31, 1996.

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 subject to a first mortgage for $643,872 and the
mortgage was paid in full in 1989.

During 1990, the Partnership signed a $575,000 note payable to obtain funds to
assist in expanding the Athens facility. In connection with this note, the
Partnership acquired additional land for approximately $73,000. The note
required monthly principal and interest installments of $6,717 through November
1995, at which time the interest was adjusted to prime plus 1.5% and monthly
principal and interest payments were based on a ten year amortization period.
The remaining balance of the note was due November 2000.

Rental income from Athens Self Storage was $175,319 and $231,611 for 1995 and
1994, respectively. Operating expenses for the same years were $169,036 and
$206,634 respectively.

The Athens Self Storage was exchanged for a larger storage facility in Tucson,
Arizona on December 19, 1995 at a difference of $535,000. The exchange property,
known as Capitol Self Storage, was acquired with a debt of $1,250,000 payable in
monthly installments of principal 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.


                                       7
<PAGE>   8
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 is accounted for under the equity method. The
Partnership is entitled to an annual return of 10% of its original investment.
If the available net cash flow from the property is 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 exceeds the preferred return, the
excess will be distributed first to "5600" until they have received
distributions equal to the Partnership's preferred return and thereafter in
accordance with the ownership percentages.

Operating deficits, if any, will be funded by "5600" during the ownership of the
property. A preferred return of $44,715, which is 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 incorporates 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. Selling expenses were $29,276.


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.


                                        8
<PAGE>   9
As of December 31, 1996 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, 1996:




<TABLE>
<CAPTION>
                                                                  For the Years Ending December 31,
                                                                  ---------------------------------
                                          1996               1995               1994               1993               1992

<S>                                 <C>                <C>                <C>                <C>                <C>        
TOTAL RENTAL REVENUES               $   834,622        $   755,653        $   793,294        $   785,080        $   784,936

RENTAL REVENUES LESS
   RENTAL OPERATING  EXPENSES           137,806             98,439            159,947             65,779            (66,381)
INTEREST INCOME                          46,581             44,629              3,741              7,143                 --
ADMINISTRATION EXPENSES                 115,386            100,347             45,651             42,125             26,590
ABORTED PROJECTS                             --                 --                 --                 --                 --
NET INCOME (LOSS)                        (8,171)          (237,018)           (46,799)          (105,083)          (130,407)

NET INCOME (LOSS) PER                      (.68)            (19.86)             (3.92)             (8.81)            (10.93)
  LIMITED PARTNER
  UNITS
DISTRIBUTIONS TO                         83,524             41,762            125,286             41,762            119,320
  LIMITED PARTNERS
DISTRIBUTIONS TO
  LIMITED PARTNERS
  PER LIMITED
  PARTNER UNIT                             7.00               3.50              10.50               3.50              10.00
WEIGHTED AVERAGE
  NUMBER OF LIMITED
  PARTNER UNITS                          11,932             11,932             11,932             11,932             11,932
INVESTMENT PROPERTIES                 4,550,355          4,681,517          4,212,531          4,405,677          5,103,654
TOTAL ASSETS                          5,504,864          5,638,286          4,812,790          5,073,511          5,257,950
LONG-TERM
  OBLIGATIONS                         2,509,922          2,537,422          1,464,792          1,494,373          1,522,904
NUMBER OF PROPERTIES
  OWNED                                       5                  6                  6                  6                  6
</TABLE>




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<PAGE>   10
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.





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, 1996,
the Partnership has distributed $2,028,446 to the Limited Partners and $28,369
to the General Partner.

Revenues for the year ended December 31, 1996 increased by $156,155 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.

Revenues for the year ended December 31, 1995 decreased by $4,183 from the year
ended December 31, 1994. The decrease was due primarily to a decrease in rental
revenue from Athens Self Storage offset somewhat by an increase in other income.

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.


                                       10
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Expenses for the year ended December 31, 1995 increased by $186,036 over the
year ended December 31, 1994. The increase was due primarily to increased
management fees incurred on the exchange of Athens Self Storage with Capitol
Self Storage and increased rental operating expenses.

Net loss for the year ended December 31, 1996 improved by $228,847 from the year
ended December 31, 1995 because of the increased revenues and decreased expenses
discussed above.

Net loss for the year ended December 31, 1995 increased by $190,219 from the
year ended December 31, 1994 primarily due to the increase in expenses discussed
above.



LIQUIDITY AND CAPITAL RESOURCES

The cash position of the Partnership and distributions to Limited Partners
should remain constant or increase during 1997 due to the majority of the
proceeds of the offering remaining invested in the income producing real
properties and most of the cash flow from the properties being distributed
quarterly to the Limited Partners. The cash position of the Partnership could
increase in 1997 as a result of the sale of the Oracle property and the prospect
for other sales of real properties.

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 Building 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.

Net cash provided by operating activities was $133,815 for the year ended
December 31, 1994. Net cash provided by investing activities


                                       11
<PAGE>   12
was $30,000 for the year ended December 31, 1994 and was from distributions from
the investment in the Oracle Office Building. Net cash used in financing
activities was $156,133 for the year ended December 31, 1994 and consisted of
distributions to partners and repayments of 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 1997 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.


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-18 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.


                                       12
<PAGE>   13
                                    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 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.


                                       13
<PAGE>   14
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-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-17 through F-19.

         (b)      Reports on Form 8-K:
                  The Registrant did file a Form 8-K report during the fiscal
year ended December 31, 1996.

         (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 or notes thereto.


                                       14
<PAGE>   15
                                   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:_________________                      By: _______________________
                                                 Jack C. West
                                                 Managing Member


                                       15
<PAGE>   16
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)


                              FINANCIAL STATEMENTS
                              FOR THE YEARS ENDED
                        DECEMBER 31, 1996, 1995 AND 1994
<PAGE>   17
                          INDEX TO FINANCIAL STATEMENTS






<TABLE>
<CAPTION>
                                                                                                             PAGE
                                                                                                             ----

<S>                                                                                                          <C>
INDEPENDENT AUDITOR'S REPORT - HEIN + ASSOCIATES LLP.......................................................  F-2

INDEPENDENT AUDITOR'S REPORT - BDO SEIDMAN.................................................................  F-3

BALANCE SHEETS - December 31, 1996 and 1995................................................................  F-4

STATEMENTS OF OPERATIONS - For the Years Ended December 31, 1996, 1995 and 1994............................  F-5

STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) - For the Years Ended December 31, 1996,
         1995 and 1994.....................................................................................  F-6
                                                                                                             
STATEMENTS OF CASH FLOWS - For the Years Ended December 31, 1996, 1995 and 1994............................  F-7
                                                                                                             
NOTES TO FINANCIAL STATEMENTS..............................................................................  F-8
                                                                                                             
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>   18
                          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, 1996 and 1995, and the
related statements of operations, changes in partners' capital (deficit) and
cash flows for the years then ended. 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, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended 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). 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
Orange, California
February 26, 1997


                                       F-2

<PAGE>   19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Partners
Whitehall Income Fund - 86
(A California limited partnership)
Tucson, Arizona


We have audited the accompanying statements of operations, changes in partners'
capital (deficit) and cash flows of Whitehall Income Fund - 86 (a California
limited partnership) for the year ended December 31, 1994. 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 audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in 
all material respects, the results of operations and cash flows of Whitehall 
Income Fund - 86 (a California limited partnership) for the year ended December 
31, 1994 in conformity with generally accepted accounting principles.




Atlanta, Georgia
March 3, 1995

                                                      /s/ BDO SEIDMAN, LLP

                                                          BDO Seidman, LLP


                                      F-3

<PAGE>   20


                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                                        ------------------------------
                                                                            1996               1995
                                                                        -----------        -----------

                                          ASSETS

<S>                                                                     <C>                <C>
    Rental properties, net of accumulated depreciation                  $ 4,550,355        $ 4,681,517
    Cash and cash equivalents                                               513,087            392,168
    Investment in office building                                                --            193,132
    Accounts receivable                                                      13,461             12,252
    Note receivable                                                         346,268            297,138
    Organization and loan closing costs, net of accumulated
         amortization of $46,396 and $36,010                                 51,693             62,079
    Deposits                                                                 30,000                 --
                                                                        -----------        -----------

TOTAL ASSETS                                                            $ 5,504,864        $ 5,638,286
                                                                        ===========        ===========



                         LIABILITIES AND PARTNERS' CAPITAL


    Notes payable                                                       $ 2,509,922        $ 2,537,422
    Accounts payable                                                         24,480             16,354
    Accrued property taxes                                                   53,073             66,929
    Due to general partner                                                      844             31,087
    Other liabilities                                                        72,834             50,244
                                                                        -----------        -----------
         Total liabilities                                                2,661,153          2,702,036

COMMITMENTS (Note 6)                                                             --                 --

PARTNERS' CAPITAL
    Limited partners, 11,932 equity units authorized and
       outstanding for 1996 and 1995                                      2,884,218          2,975,831

    General partner, 1 equity unit authorized and outstanding for
       1996 and 1995                                                        (40,507)           (39,581)
                                                                        -----------        -----------
             Total partners' capital                                      2,843,711          2,936,250
                                                                        -----------        -----------


TOTAL LIABILITIES AND PARTNERS' CAPITAL                                 $ 5,504,864        $ 5,638,286
                                                                        ===========        ===========
</TABLE>



              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.


                                       F-4
<PAGE>   21
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS




<TABLE>
<CAPTION>
                                                                FOR THE YEARS ENDED DECEMBER 31,
                                                        ---------------------------------------------
                                                           1996              1995              1994
                                                        ---------        -----------        ---------
REVENUES:
<S>                                                     <C>              <C>                <C>
    Rental                                              $ 834,622        $   755,653        $ 793,294
    Gain on sale of investment in office building          75,756                 --               --
    Share of net income of office building                     --              3,201               --
    Other income                                           51,212             46,581           16,324
                                                        ---------        -----------        ---------
             Total Revenues                               961,590            805,435          809,618
                                                        ---------        -----------        ---------

EXPENSES:
    Rental operating:
         Depreciation                                     153,141            171,912          193,146
         Payroll and related taxes                         64,373             58,858           60,539
         Interest                                         229,664            183,074          153,156
         Other rental operating expenses                  110,915             97,330           93,267
         Taxes other than payroll                         106,455            110,440           84,174
         Repairs and maintenance                           12,932             19,879           33,618
         Advertising                                       19,336             15,721           15,447
    Operating Expenses:
         General and administrative                       115,386            100,347           45,651
         Payroll and related taxes                         94,679            210,290          108,581
         Professional fees                                 31,830             46,405           23,581
         Amortization                                      10,386             28,197           10,382
    Share of net loss of office building                   20,664                 --           34,875
                                                        ---------        -----------        ---------
             Total expenses                               969,761          1,042,453          856,417
                                                        ---------        -----------        ---------

NET LOSS                                                $  (8,171)       $  (237,018)       $ (46,799)
                                                        =========        ===========        =========

NET LOSS ATTRIBUTED TO:
    Limited partners                                    $  (8,089)       $  (234,648)       $ (46,331)
                                                        =========        ===========        =========
    General partner                                     $     (82)       $    (2,370)       $    (468)
                                                        =========        ===========        =========

NET LOSS PER LIMITED PARTNER UNIT                       $   (0.68)       $    (19.86)       $   (3.92)
                                                        =========        ===========        =========

DISTRIBUTIONS PER LIMITED PARTNER UNIT                  $    7.00        $      3.50        $   10.50
                                                        =========        ===========        =========

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


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.


                                       F-5
<PAGE>   22
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

               STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                            GENERAL          LIMITED
                                            PARTNER          PARTNERS             TOTAL
                                           --------        -----------        -----------
<S>                                        <C>             <C>                <C>
BALANCE (DEFICIT), January 1, 1994         $(35,055)       $ 3,423,858        $ 3,388,803

        Net loss for 1994                      (468)           (46,331)           (46,799)
        Capital distributions                (1,266)          (125,286)          (126,552)
                                           --------        -----------        -----------

BALANCE (DEFICIT), December 31, 1994        (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
                                           ========        ===========        ===========
</TABLE>


              SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS.


                                       F-6
<PAGE>   23
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                        FOR THE YEARS ENDED DECEMBER 31,
                                                                 -------------------------------------------
                                                                    1996             1995             1994
                                                                 ---------        ---------        ---------
<S>                                                              <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss                                                     $  (8,171)       $(237,018)       $ (46,799)
    Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
             Depreciation and amortization                         163,528          202,448          203,528
             Share of net (income) loss of office building          20,664           (3,201)          34,875
             Gain on sale of investment in office building         (75,756)              --               --
             Changes in assets and liabilities:                         --
                 Accounts receivable                                (1,209)         (12,252)              --
                 Note receivable                                   (49,130)              --               --
                 Accounts payable                                    8,126            7,723           (4,807)
                 Accrued property taxes                            (13,856)           4,882          (18,602)
                 Due to general partner                            (31,087)             422          (36,864)
                 Other liabilities                                  22,590           19,041            2,484
                                                                 ---------        ---------        ---------
         Net cash provided by (used in)
             operating activities                                   35,699          (17,955)         133,815
                                                                 ---------        ---------        ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                             (21,979)              --               --
    Payments for organization and loan closing costs                    --          (46,152)              --
    Deposit on rental property                                     (30,000)              --               --
    Proceeds from sale of rental property                               --          160,363               --
    Proceeds from sale of investment in office building            235,723               --               --
    Distribution from investment in office building                 12,500           41,514           30,000
                                                                 ---------        ---------        ---------
         Net cash provided by investing activities                 196,244          155,725           30,000
                                                                 ---------        ---------        ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Distributions to partners                                      (83,524)         (42,184)        (126,552)
    Proceeds from notes payable                                    113,413               --               --
    Repayments of notes payable                                   (140,913)         (24,908)         (29,581)
                                                                 ---------        ---------        ---------
         Net cash used in financing activities                    (111,024)         (67,092)        (156,133)
                                                                 ---------        ---------        ---------

NET INCREASE IN CASH                                               120,919           70,678            7,682

CASH AND CASH EQUIVALENTS, beginning of year                       392,168          321,490          313,808
                                                                 ---------        ---------        ---------

CASH AND CASH EQUIVALENTS, end of year                           $ 513,087        $ 392,168        $ 321,490
                                                                 =========        =========        =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
    INFORMATION:

         Cash paid for interest                                  $ 230,000        $ 183,000        $ 153,000
                                                                 =========        =========        =========
         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-7
<PAGE>   24
                           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
     cumulative noncompounded 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, 1996 the Limited Partners had not received
     their full cumulative priority return.

     Fees - The General Partner provides property management and leasing
     services to the Partnership and is compensated at 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, 1996, 1995 and 1994. 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, 1996, the limited
     partners had not received their full 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


                                       F-8
<PAGE>   25
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS


     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. Accordingly, the Partnership's share of earnings or losses
     and its gain on sale of its investment are included in the accompanying
     financial statements.

     Net Loss Per Limited Partner Unit - Net 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. This report does 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.

     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 1995 and
     1994 financial statements in order to conform to the 1996 presentation.
     Such reclassifications had no effect on the net loss previously reported.


2.   RENTAL PROPERTIES:

     The Partnership currently owns five rental properties. 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>   26
                           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, 1996, 1995 and 1994, and revenue and related expenses,
     consisting of rental, depreciation and interest, for the years ended
     December 31, 1996, 1995, and 1994:




1996
----
<TABLE>
<CAPTION>
                                                                                       Honey
                                                        Tanque           Pan           Baked
                                        McRae            Verde         American         Ham            Capitol  
                                       Shopping          Self           Office           in             Self    
                        Total           Center          Storage        Building       Louisiana        Storage  
                      -----------      ---------      -----------      ---------      ---------      -----------  
<S>                   <C>              <C>            <C>              <C>            <C>            <C>          
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>   27
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS


1995
----
<TABLE>
<CAPTION>
                                                                                       Honey
                                                        Tanque            Pan          Baked
                                          McRae          Verde          American         Ham           Capitol         Athens
                                        Shopping         Self            Office          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>




1994
----
<TABLE>
<CAPTION>
                                                                                        Honey
                                                        Tanque            Pan           Baked
                                          McRae          Verde          American         Ham           Capitol         Athens
                                        Shopping         Self            Office          in             Self            Self
                         Total           Center         Storage         Building      Lousiana         Storage         Storage
                      -----------      ---------      -----------      ---------      ---------      -----------      --------
<S>                   <C>              <C>            <C>              <C>            <C>            <C>           <C>

Buildings and
     Improvements     $ 4,747,190      $ 734,611      $ 1,913,334      $ 437,217      $ 455,077          $ --      $ 1,206,951

Accumulated
     Depreciation      (1,458,899)      (184,966)        (687,015)       (83,866)       (89,805)           --         (413,247)

Land                      924,240         59,229          209,031        162,850        150,000            --          343,130
                      -----------      ---------      -----------      ---------      ---------      -----------   -----------

Net Property          $ 4,212,531      $ 608,874      $ 1,435,350      $ 516,201      $ 515,272          $ --      $ 1,136,834
                      ===========      =========      ===========      =========      =========      ===========   ===========

Rental
     Revenue          $   793,294      $  87,568      $   354,097      $  81,906      $  38,112          $ --      $   231,611

Expenses                  633,347         42,992          308,513         54,097         21,111            --          206,634
                      -----------      ---------      -----------      ---------      ---------      -----------   -----------

                      $   159,947      $  44,576      $    45,584      $  27,809      $  17,001          $ --      $    24,977
                      ===========      =========      ===========      =========      =========      ===========   ===========
</TABLE>


During 1996, two tenants each accounted for approximately 10% of rental revenue.
During 1995 and 1994, one tenant accounted for approximately 11% and 10% of
rental revenue, respectively.


                                      F-11
<PAGE>   28
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS


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.

     The Partnership is entitled to an annual preferred return of 10% of its
     original investment. If the available net cash flow from the property is
     insufficient to pay the preferred return, 5600 N. Oracle Group, L. L. C.
     ("5600"), the holder of the remaining undivided 50% interest, must
     contribute additional capital to fund any remaining unpaid preferred
     return. In the event the Property's net cash flow exceeds the preferred
     return, the excess will be distributed first to 5600 until they have
     received distributions equal to the Partnership's preferred return and
     thereafter in accordance with ownership percentages.

     5600 acquired the building with a non-interest bearing note due to the
     seller totaling $1,000,000 and cash of $300,000. The present value of the
     note was approximately $752,000 at an interest rate of 9.59%. The basis of
     the building, including land, and the note were originally recorded at
     $1,052,000 and $752,000, respectively. The note is collateralized by the
     building.

     5600 is responsible for funding any debt service payments or operating
     deficits if the cash flow from the operations of the office building is not
     sufficient. The Partnership may elect to pay debt service payments or
     operating deficits if 5600 fails to provide the funding. As compensation
     for any payments, the Partnership can either attempt to recover any
     payments from 5600 or apply the amount of payments as additional
     preferential contributions which will bear interest at 20% per annum.

     The Partnership received $12,500 and $44,715 in preferred and excess
     distributions during 1996 and 1995, respectively. The Partnership did not
     pay any debt service payments or operating deficits for 1996 and 1995
     because these amounts were disbursed from the building's cash flow.

     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 and 1994 are presented below:

<TABLE>
<CAPTION>
                                                  1996            1995            1994
                                               ---------        --------       ---------

<S>                                            <C>              <C>            <C>
Revenues                                       $ 107,947        $205,362       $ 116,836
Expenses                                         149,275         198,960         186,586
                                               ---------        --------       ---------
Net income (loss)                              $ (41,328)       $  6,402       $ (69,750)
                                               =========        ========       =========

Partnership's share of net income (loss)       $ (20,664)       $  3,201       $ (34,875)
                                               =========        ========       =========
</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.


                                      F-12
<PAGE>   29
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                          NOTES TO FINANCIAL STATEMENTS



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
     from the original note holder. Interest payments of 5.871% are due monthly
     on the note receivable and the entire principal amount is due July 1997.


5.   NOTES PAYABLE:

     Notes payable consisted of:


<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                     -----------------------------------
                                                                                         1996                    1995
                                                                                     -----------              ----------
<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                       $ 1,237,265             $ 1,250,000

     $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                                          940,714                 951,603

     $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                                        331,943                 335,819
                                                                                     -----------              ----------

                                                                                     $ 2,509,922              $ 2,537,422
                                                                                     ===========              ===========
</TABLE>


                                      F-13
<PAGE>   30
                           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>
               1997                      $   31,364
               1998                          34,394
               1999                         938,711
               2000                         337,815
               2001                          21,672
               Thereafter                 1,145,966
                                         ----------

                                         $2,509,922
                                       ============
</TABLE>


6.   LEASES:

     Future minimum lease payments to be received on non-cancelable leases for
     each of the next five years and thereafter are as follows:

<TABLE>
<S>                                    <C>
               YEAR                        AMOUNT
               ----                    ------------
               1997                    $    194,670
               1998                         167,047
               1999                          74,000
               2000                          20,028
                                       ------------

                                       $    455,745
                                       ============
</TABLE>


7.    RELATED PARTY TRANSACTIONS:

      At December 31, 1996 and 1995 the General Partner was owed $844 and
      $17,767, respectively, for distributions of cash from operations, as
      defined in the partnership agreement.

      During 1995, one of the general partners sold its interest in the
      Partnership. At December 31, 1995 the Partnership owed $13,318 for various
      general and administrative expenses paid by this former General Partner.
      In 1996, 1995 and 1994 the Partnership was charged property management and
      leasing fees of $43,159, $42,230 and $40,069 by an affiliate of the former
      General Partner. In 1996, 1995 and 1994, the Partnership incurred payroll
      expenses relating to certain of the former General Partner's employees and
      other administrative expenses totaling $267,213, $275,125, and $216,612,
      respectively. Additionally during 1995, costs related to the exchange of
      Capitol Self Storage for Athens Self Storage of $46,152 were paid to the
      former General Partner and capitalized by the Partnership as organization
      costs. Certain amounts of the administrative expenses paid by the former
      General Partner are allocated to the Partnership based upon the former
      General Partner's estimates.


                                      F-14
<PAGE>   31
                           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 note and accounts receivable and cash on deposit.

      At December 31, 1996, the Partnership maintained cash balances with a
      commercial bank which were approximately $242,296 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, 1996, cash, accounts receivable and accounts payable have
      fair values that approximate book values based on their short term or
      demand maturity.

      The fair value of notes receivable and notes payable are based on
      estimated discounted cash flows. The fair value of these instruments
      approximates book value at December 31, 1996.


                                      F-15
<PAGE>   32
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1996


<TABLE>
<CAPTION>


                                                            Initial Cost to                       Costs Capitalized
                                                              Partnership                     Subsequent to Acquisition
                                                 --------------------------------------- -------------------------------------

                                                                        Buildings and                             Carrying
 Description                    Encumbrances           Land             Improvements        Improvements           Costs
--------------------        -------------------  -----------------  -------------------- ------------------  -----------------
<S>                         <C>                  <C>                <C>                   <C>                 <C> 
McRae Shopping
   Center                   $        -           $         59,229   $           734,611  $        -                  -

Tanque Verde
   Self Storage                        940,714            209,031             1,580,919            340,322           -

Pan American
   Office Building                     331,943            162,850               437,217             21,979           -

Honey Baked Ham
   in Louisiana                      -                    150,000               450,000              5,072           -

Capitol Self Storage                 1,237,265            112,838             1,612,270           -                  -
                              -----------------    ---------------    ------------------   ----------------   ----------------

                            $        2,509,922   $        693,948   $         4,815,017  $         367,373           -
                            ===================  =================  ==================== ==================  =================
</TABLE>



<TABLE>
<CAPTION>

                                                 Gross Amounts at which
                                               Carried at Close of Period
                              -------------------------------------------------------------

                                                     Buildings and                               Accumulated           Date of
 Description                         Land            Improvements             Total              Depreciation        Construction
--------------------------    -----------------  -------------------- ---------------------  -------------------  ------------------

<S>                           <C>                <C>                  <C>                    <C>                  <C>
McRae Shopping
   Center                     $         59,229   $           734,611  $            793,840   $          231,608         1985

Tanque Verde
   Self Storage                        209,031             1,921,241             2,130,272              815,366         1984

Pan American
   Office Building                     162,850               459,196               622,046              111,626         1980

Honey Baked Ham
   in Louisiana                        150,000               455,072               605,072              119,153         1978

Capitol Self Storage                   112,838             1,612,270             1,725,108               48,230         1984
                                ---------------    ------------------   -------------------    -----------------

                              $        693,948   $         5,182,390  $          5,876,338   $        1,325,983
                              =================  ==================== =====================  ===================

</TABLE>


<TABLE>
<CAPTION>
                                                    Life on which
                                                   depreciation in
                                                    latest income
                                     Date           statements in
 Description                       Acquired            computed
--------------------------    -----------------  -------------------
<S>                           <C>                <C>

McRae Shopping
   Center                            1986             31.5 years

Tanque Verde
   Self Storage                      1987             31.5 years

Pan American
   Office Building                   1988             31.5 years

Honey Baked Ham
   in Louisiana                      1988             31.5 years

Capitol Self Storage                 1995             39.0 years
</TABLE>

                                   (continued)


                                      F-16
<PAGE>   33
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 1996
                                   (continued)



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, 1994                            $     5,671,427
      Changes during the period                                -
                                                      ---------------
Balance at December 31, 1994                                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
                                                      ===============
</TABLE>



The following shows changes in accumulated depreciation during the periods:


<TABLE>
<S>                                                   <C>
Balance at January 1, 1994                            $     1,265,750
      Depreciation during the period                          193,146
                                                      ---------------
Balance at December 31, 1994                                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
                                                      ===============
</TABLE>


                                      F-17
<PAGE>   34
                           WHITEHALL INCOME FUND - 86
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                   SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                                December 31, 1996



<TABLE>

                                                                                                         Principal
                                                                                                         Amount of
                                                                                                       Loans Subject
                                       Final     Periodic                  Face          Carrying      to Delinquent
                           Interest  Maturity     Payment     Prior      Amount of       Amount of     Principal or
    Description              Rate      Date        Terms      Liens      Mortgages       Mortgages       Interest
    -----------              ----      ----        -----      -----      ---------       ---------       --------
<S>                        <C>       <C>         <C>          <C>       <C>              <C>           <C>
Commercial loans:

   Capitol Self Storage       9%       2006       $10,490       -       $1,250,000       $1,237,265         --

   Tanque Verde Self        9.66%-
     Storage                16.65%     1999       Various       -        1,000,000          940,714         --

   Pan American
     Office Building          9%       2000         2,828       -          337,035          331,943         --

</TABLE>



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


<TABLE>
<S>                                                        <C>
Balance at January 1, 1994                                  $ 1,494,373
      Payments of principal                                     (29,581)
                                                            -----------
Balance at December 31, 1994                                  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
                                                            ===========
</TABLE>


                                      F-18