<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
------------------
Commission file number 0-15615
-----------------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
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
and (2) has been subject to such filing requirements for the past
90 days. Yes X No
--- ---
As of August 10, 1994, 9,576,290 depository units of limited
partnership interest were outstanding.
<PAGE>
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED June 30, 1994
Page
----
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Balance Sheets - June 30, 1994 and
December 31, 1993 . . . . . . . . . . . . . 3
Statements of Operations - for the three and six
months ended June 30, 1994 and 1993 . . . . 4
Statement of Changes in Partners' Equity -
for the six months ended June 30,
1994 . . . . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the six months
ended June 30, 1994 and 1993 . . . . . . . 6
Notes to Financial Statements . . . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 20
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 29
Signature . . . . . . . . . . . . . . . . . . . . . . 30
<PAGE>
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
ASSETS
<CAPTION>
June 30, December 31,
1994 1993
------------- -------------
(Unaudited)
<S> <C> <C>
Investment in mortgages, at
fair value
Originated insured mortgages $ 120,096,288 $ --
Acquired insured mortgages 38,322,682 --
------------- -------------
Total 158,418,970 --
------------- -------------
Investment in mortgages, at
amortized cost, net of
unamortized premium and
discount:
Originated insured mortgages -- 113,074,158
Acquired insured mortgages -- 3,012,158
------------- -------------
Total --
116,086,316
------------- -------------
Mortgages held for disposition,
at lower of cost or market -- 18,955,472
Asset held for sale under
coinsurance program -- 32,103,528
Cash and cash equivalents 4,186,304 9,095,255
Investment in affiliate 480,000 1,730,087
Receivables and other assets
1,590,492 2,805,604
------------- -------------
Total assets $ 164,675,766 $ 180,776,262
============= =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 2,920,215 $ 2,819,518
Note payable and due to
affiliate 480,000 1,737,723
Accounts payable and accrued
expenses 120,903 212,428
------------- -------------
Total liabilities 3,521,118 4,769,669
------------- -------------
Partners' equity:
Limited partners' equity 176,360,718 176,783,204
General partner's deficit (798,380) (776,611)
Net unrealized losses on
investment in mortgages (14,407,690) --
------------- -------------
Total partners' equity 161,154,648 176,006,593
------------- -------------
Total liabilities and
partners' equity $ 164,675,766 $ 180,776,262
============= =============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<PAGE>4<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the three months ended
For the six months ended
June 30,
June 30,
---------------------------
---------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 3,388,294 $ 3,607,798 $ 6,499,667 $ 7,280,332
Interest and other income 82,434 17,073 265,405 22,025
------------ ------------ ------------ ------------
3,470,728 3,624,871 6,765,072 7,302,357
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 393,347 423,570 756,530 847,140
General and administrative 153,269 74,471 349,166 184,720
Interest expense to affiliate 34,754 35,191 69,509 69,509
------------ ------------ ------------ ------------
581,370 533,232 1,175,205 1,101,369
------------ ------------ ------------ ------------
Earnings before loan loss and
gain on mortgage disposition 2,889,358 3,091,639 5,589,867 6,200,988
Loan loss -- -- (115,301) --
Gain on mortgage disposition -- -- 1,129,973 --
------------ ------------ ------------ ------------
Net earnings $ 2,889,358 $ 3,091,639 $ 6,604,539 $ 6,200,988
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 2,747,780 $ 2,940,149 $ 6,280,917 $ 5,897,140
General partner - 4.9% 141,578 151,490 323,622 303,848
------------ ------------ ------------ ------------
$ 2,889,358 $ 3,091,639 $ 6,604,539 $ 6,200,988
============ ============ ============ ============
Net earnings per Unit of
limited partnership interest $ .29 $ .31 $ .66 $ .62
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 1994
(Unaudited)
<CAPTION>
Net
Unrealized
Losses on
General Limited Investment
Partner Partners in Mortgages Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ (776,611)
$176,783,204 $ -- $176,006,593
Net earnings 323,622 6,280,917 -- 6,604,539
Distributions paid or accrued,
including return of capital, of
$.70 per Unit (345,391) (6,703,403) -- (7,048,794)
Net unrealized losses on investment
in mortgages -- -- (14,407,690) (14,407,690)
------------ ------------ ------------ ------------
Balance, June 30, 1994 $ (798,380) $176,360,718 $(14,407,690) $161,154,648
============ ============ ============ ============
Limited Partnership Units outstanding -
June 30, 1994 9,576,290
============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months
ended June 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,604,539 $ 6,200,988
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Loan loss 115,301 --
Gain on mortgage disposition (1,129,973) --
Payments made and treated as an addition to
Asset Held for Sale Under Coinsurance Program -- (313,627)
Assets and liabilities:
Decrease (increase) in receivables and other assets 1,215,112 (1,559,640)
Decrease (increase) in investment in and due from affiliate 1,250,087 (248,068)
(Decrease) increase in note payable and due to affiliate (1,257,723) 215,339
Decrease in accounts payable and accrued expenses (91,525) (43,570)
------------ ------------
Net cash provided by operating activities 6,705,818 4,251,422
------------ ------------
</TABLE>
<PAGE>
<PAGE>7
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
For the six months
ended June 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from disposition of Asset Held for Sale
Under Coinsurance Program 33,233,501 --
Investment in Acquired Insured Mortgages (38,360,392) --
Receipt of mortgage principal from scheduled payments 460,219 209,259
------------ ------------
Net cash (used in) provided by investing activities (4,666,672) 209,259
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (6,948,097) (5,538,343)
------------ ------------
Net decrease in cash and cash equivalents (4,908,951) (1,077,662)
Cash and cash equivalents, beginning of period 9,095,255 2,557,009
------------ ------------
Cash and cash equivalents, end of period $ 4,186,304 $ 1,479,347
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the
Partnership) was formed under the Uniform Limited Partnership Act
of the state of Delaware on October 31, 1985. From inception
through September 6, 1991, affiliates of Integrated Resources,
Inc. served as managing general partner (with a partnership
interest of 4.8%), corporate general partner (with a partnership
interest of 0.1%) and associate general partner (with a
partnership interest of 0.1%). All of the foregoing general
partners are sometimes collectively referred to as former general
partners.
Effective September 6, 1991, CRIIMI, Inc. (the General
Partner) succeeded the former general partners to become the sole
general partner of the Partnership. CRIIMI, Inc. is a wholly-
owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE), formerly CRI
Insured Mortgage Association, Inc., which is managed by an
adviser whose general partner is C.R.I., Inc. (CRI).
AIM Acquisition Partners, L.P. (the Advisor) serves as the
adviser of the Partnership. The general partner of the Advisor
is AIM Acquisition Corporation (AIM Acquisition). A sub-advisory
agreement exists whereby CRI/AIM Management, Inc. (the Sub-
Advisor), an affiliate of CRI, manages the Partnership's
portfolio.
Until the change in the Partnership's investment policy, as
discussed below the Partnership was in the business of
originating mortgage loans (Originated Insured Mortgages) and
acquiring mortgage loans (Acquired Insured Mortgages, and
together with Originated Insured Mortgages, referred to herein as
Insured Mortgages). As of June 30, 1994, the Partnership had
invested in either Originated Insured Mortgages which are insured
or guaranteed, in whole or in part, by the Federal Housing
Administration (FHA) or Acquired Insured Mortgages which are
fully insured (as more fully described below).
Effective September 19, 1991, the General Partner changed,
at the Advisor's recommendation, the investment policies of the
Partnership to invest only in Acquired Insured Mortgages which
are fully insured or guaranteed by the Federal National Mortgage
Association, the Government National Mortgage Association (GNMA),
FHA or the Federal Home Loan Mortgage Corporation.
The Partnership's reinvestment period expires on
December 31, 1994 and the Partnership Agreement states that the
Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the Partnership
Agreement.
The United States Congress recently repealed portions of the
Federal tax code which have had an adverse impact on tax-exempt
investors in "publicly traded partnerships." This tax code
change, effective January 1, 1994, cleared away the major
impediment standing in the way of listing the Partnership's Units
for trading on a national stock exchange. As a result, the
General Partner listed the Partnership's Units for trading on the
American Stock Exchange on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's
original prospectus. The Units are traded under the symbol
"AIJ."
<PAGE>
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying
unaudited financial statements contain all adjustments of a
normal recurring nature necessary to present fairly the financial
position of the Partnership as of June 30, 1994 and December 31,
1993 and the results of its operations for the three and six
months ended June 30, 1994 and 1993 and its cash flows for the
six months ended June 30, 1994 and 1993.
These unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and note disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. While the General Partner believes that the
disclosures presented are adequate to make the information not
misleading, it is suggested that these financial statements be
read in conjunction with the financial statements and the notes
to the financial statements included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1993.
3. SIGNIFICANT ACCOUNTING POLICIES
Investment in Mortgages
-----------------------
In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). This statement requires that
investments in debt and equity securities be classified into
one of the following investment categories based upon the
circumstances under which such securities might be sold:
Held to Maturity, Available for Sale, and Trading.
Generally, certain debt securities that an enterprise has
both the ability and intent to hold to maturity should be
accounted for using the amortized cost method and all other
securities must be recorded at their fair values. This
statement is effective for fiscal years beginning after
December 15, 1993. As such, the Partnership has implemented
this statement as of January 1, 1994.
As of June 30, 1994, the weighted average remaining
term of the Partnership's Insured Mortgages was
approximately 34 years. However, the Partnership Agreement
states that the Partnership will terminate in approximately
26 years, on December 31, 2020, unless previously terminated
under the provisions of the Partnership Agreement. As the
Partnership is anticipated to terminate prior to the
weighted average remaining term of its Insured Mortgages,
the Partnership does not have the ability, at this time, to
hold its Insured Mortgages to maturity. Consequently, the
General Partner believes that the Partnership's Insured
Mortgages should be included in the Available for Sale
category. Although the Partnership's Insured Mortgages are
classified as Available for Sale for financial statement
purposes, the General Partner does not intend to voluntarily
sell such Insured Mortgages, other than those which may be
sold as a result of a default.
In connection with this classification, as of June 30,
1994, all of the Partnership's Insured Mortgages are
recorded at fair value, with the net unrealized gains or
losses on the Partnership's Investment in Mortgages reported
as a separate component of partners' equity. Subsequent
increases or decreases in the fair value of Insured
Mortgages shall be included as a separate component of
partners' equity. Realized gains and losses for Insured
Mortgages classified as Available for Sale will continue to
be reported in earnings. The amortized cost of the Insured
<PAGE>
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. SIGNIFICANT ACCOUNTING POLICIES - Continued
Mortgages in this category is adjusted for amortization of
discounts and premiums to maturity. Such amortization is
included in mortgage investment income. Prior to January 1,
1994, the Partnership accounted for its Investment in
Mortgages at amortized cost.
Reclassification
----------------
Certain amounts in the financial statements as of
December 31, 1993 have been reclassified to conform with the
1994 presentation.
Statements of Cash Flows
------------------------
Interest paid to an affiliate of the Partnership during
the six months ended June 30, 1994 was $46,586. No cash
payments were made for interest expense during the six
months ended June 30, 1993.
4. INVESTMENT IN MORTGAGES
In connection with the Partnership's implementation of SFAS
115 on January 1, 1994 (see Note 3), the Partnership's Investment
in Mortgages is recorded at fair value, as estimated below, as of
June 30, 1994. The difference between the amortized cost and the
fair value of the Insured Mortgages represents the net unrealized
losses on the Partnership's Insured Mortgages and is reported as
a separate component of partners' equity as of June 30, 1994.
The fair value of the fully insured mortgage investments is
based on quoted market prices.
In order to determine the fair value of the coinsured
mortgage portfolio, the Partnership valued the coinsured
mortgages as though they were fully insured (in the same manner
fully insured mortgages were valued). From this amount, the
Partnership deducted a discount factor from the face value of the
loan. This discount factor is based on the Partnership's
historical analysis of the difference in fair value between
coinsured loans and fully insured loans.
<TABLE><CAPTION>
As of June 30, 1994
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Investment in Mortgages:
Originated insured mortgages $131,565,272 $120,096,288
Acquired insured mortgages 41,261,388 38,322,682
------------ ------------
$172,826,660 $158,418,970
============ ============
</TABLE>
<PAGE>
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
The following is a discussion of the Partnership's Investment in
Mortgages as of June 30, 1994 and December 31, 1993:
A. Fully Insured Originated Insured Mortgages and Acquired
Insured Mortgages
The former managing general partner, on behalf of the Partnership,
had invested in eight fully insured Originated Insured Mortgages with
an aggregate amortized cost of $69,354,701 and $69,539,851 as of June
30, 1994 and December 31, 1993, respectively, and an aggregate face
value of $66,772,173 and $66,934,689, respectively. As of June 30,
1994, these mortgages had an aggregate fair value of $65,236,612.
As of June 30, 1994, the Partnership had invested in twelve fully
insured Acquired Insured Mortgages with an aggregate amortized cost of
$41,261,388, face value of $41,299,247 and fair value of $38,322,682.
As of December 31, 1993, the Partnership had invested in two fully
insured Acquired Insured Mortgages with an aggregate amortized cost of
$3,012,158 and face value of $3,034,084. In addition, approximately
$1.4 million was available for reinvestment in Acquired Insured
Mortgages as of June 30, 1994. On July 15, 1994, the Partnership
committed substantially all of the amount available for reinvestment to
fund fully insured Acquired Insured Mortgages.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development and
of the net proceeds from the refinancing, sale or other disposition of
the underlying development (referred to as Participations). During the
three and six months ended June 30, 1994, the Partnership received
$41,059 and $41,059, respectively, from the Participations. During the
three and six months ended June 30, 1993, the Partnership received
$30,772 and $113,822, respectively, from the Participations. These
amounts are included in mortgage investment income in the accompanying
statements of operations.
<PAGE>
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
During the six months ended June 30, 1994, the
Partnership purchased the following fully insured Acquired
Insured Mortgages:
<TABLE><CAPTION>
Effective
Date of Purchase Interest
Complex Name Acquisition Price Rate
------------------------------ ----------- ----------- ---------
<S> <C> <C> <C>
Acquired Insured Mortgages
--------------------------
Pleasantview Nursing Home January 1994 $ 3,496,416 7.847%
Oakwood Garden Apts. February 1994 10,130,271 7.601%
Cypress Cove February 1994 7,151,362 7.209%
Brighton Manor March 1994 1,034,042 7.565%
Maple Manor March 1994 1,264,331 7.343%
Regency Park Apts. March 1994 1,470,000 7.201%
Hickory Tree Apts. April 1994 3,519,405 7.478%
Oak Grove Apts. April 1994 7,111,913 7.539%
Mountain Village Apts. May 1994 1,351,350 7.596%
Sunflower Apts. May 1994 1,831,302 7.595%
-----------
Total 1994 investment in fully
insured Acquired Insured
Mortgages $38,360,392
===========
</TABLE>
<PAGE>
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
B. Coinsured Mortgages
-------------------
As discussed in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1993, under the HUD
coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits
if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the
first part of such loss in an amount up to 5% of the
outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is
acquired in lieu of foreclosure. For any loss greater than
5% of the outstanding principal balance, the responsibility
for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance
lender.
1. Coinsured by third parties
--------------------------
As of June 30, 1994 and December 31, 1993, the former
managing general partner, on behalf of the Partnership,
had invested in seven and eight coinsured mortgages,
respectively, five of which are coinsured by
unaffiliated third party coinsurance lenders under the
HUD coinsurance program. Two of the coinsured
mortgages which are coinsured by an unaffiliated third
party are discussed below. The remaining three
coinsured mortgages which are coinsured by unaffiliated
third parties are current with respect to the payment
of principal and interest. As of June 30, 1994 and
December 31, 1993, these three coinsured mortgages had
an aggregate amortized cost of $22,619,867 and
$22,680,052, respectively, and an aggregate face value
of $21,892,086 and $21,945,884, respectively. As of
June 30, 1994, these three coinsured mortgages had an
aggregate fair value of $19,746,129.
The following is a discussion of actual and potential
performance problems with respect to the remaining two
mortgage investments which are coinsured by an
unaffiliated third party:
The Originated Insured Mortgage on The Villas, a
405-unit apartment complex located in Lauderhill,
Florida, is coinsured by the Patrician Mortgage Company
(Patrician). The mortgage had a carrying value of
$15,811,482 and $15,856,842 as of June 30, 1994 and
December 31, 1993, respectively, and a face value of
$16,045,191 and $16,090,551 as of June 30, 1994 and
December 31, 1993, respectively. As of June 30, 1994,
this mortgage had a fair value of $14,449,437. Since
August 1, 1990, the mortgagor has not made the full
monthly payments of principal and interest to
Patrician. Patrician began collecting rents from the
project and continued to make the monthly debt service
payments to the Partnership through February 1992. The
Partnership and Patrician entered into a modification
agreement which provided for reduced payments through
July 1992, regular scheduled payments from August 1992
to December 1992, and then increased payments for a
period lasting approximately 10 years.
The mortgagor of the mortgage on The Villas was unable
to comply with the terms of the modification agreement,
and as a result, Patrician filed a foreclosure action
on October 14, 1993. On November 2, 1993, the
mortgagor of The Villas filed for protection under
<PAGE>
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
Chapter 11 of the Federal Bankruptcy Code. In November
1993, the bankruptcy court issued an order establishing
a cash collateral account for the deposit of rental
income and payment of operating expenses of the
property underlying the mortgage. Consequently, in
November 1993, the mortgagor began remitting the
property's net income before debt service to Patrician,
which in turn forwarded these funds to the Partnership.
As of August 10, 1994, the mortgagor has made payments
of principal and interest due on the original mortgage
through April 1994, and has made payments of principal
and interest due under the modification agreement
through August 1993. Patrician is currently litigating
the case in bankruptcy court in order to acquire and
dispose of the property.
The mortgagor of The Villas mortgage is also the
mortgagor of the Originated Insured Mortgage on St.
Charles Place-Phase II, a 156-unit apartment complex
located in Miramar, Florida, which is also coinsured by
Patrician. The St. Charles Place-Phase II mortgage had
a carrying value equal to its face value of $3,093,395
and $3,098,630 as of June 30, 1994 and December 31,
1993, respectively. As of June 30, 1994, this
mortgage had a fair value of $2,786,135. These amounts
represent the Partnership's approximately 45% ownership
interest in the mortgage. The remaining 55% ownership
interest is held by American Insured Mortgage Investors
L.P. - Series 88 (AIM 88), an affiliate of the
Partnership.
During 1993, the mortgagor of St. Charles Place-Phase
II paid its monthly principal and interest payments to
Patrician in arrears, and ceased making monthly debt
service payments in October 1993. As the mortgagor was
unable to bring the loan current, Patrician filed a
foreclosure action on October 14, 1993. On November 2,
1993, the mortgagor of the mortgage on St. Charles
Place-Phase II filed for protection under Chapter 11 of
the Federal Bankruptcy Code. In November 1993, the
bankruptcy court issued an order establishing a cash
collateral account for the deposit of rental income and
payment of operating expenses of the property
underlying the mortgage. Consequently, in November
1993, the mortgagor began remitting the property's net
income before debt service to Patrician, which in turn
forwarded these funds to the Partnership. As of August
10, 1994, the mortgagor has made payments of principal
and interest due on the mortgage through March 1994 to
the Partnership. Patrician is currently litigating the
case in bankruptcy court in order to acquire and
dispose of the property.
The General Partner is overseeing Patrician's efforts
to complete these foreclosure actions, including the
subsequent acquisition and disposition of the above two
properties. As the coinsurance lender, Patrician is
liable to the Partnership for the outstanding principal
balance of both mortgages plus all accrued but unpaid
interest through the date of such payment. If the sale
of the properties collateralizing the mortgages
produces insufficient net proceeds to repay the
mortgage obligations to the Partnership, Patrician will
be liable to the Partnership for the coinsurance
lender's share of the deficiency. Based on the General
Partner's assessment of the collateral underlying the
mortgages, including information related to the
financial condition of Patrician, the General Partner
believes the carrying value of these assets is
<PAGE>
<PAGE>15
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
realizable. As a result of Patrician's coinsurance
obligation, these mortgages were classified as
Investment in Mortgages as of June 30, 1994 and as
Mortgages Held for Disposition as of December 31, 1993.
The Partnership intends to reinvest any net disposition
proceeds from these mortgages in fully insured Acquired
Insured Mortgages, provided the net disposition
proceeds are received prior to the expiration of the
Partnership's reinvestment period on December 31, 1994.
The General Partner intends to continue to oversee the
Partnership's interest in these mortgages to ensure
that Patrician meets its coinsurance obligations. The
General Partner's assessment of the realizability of
The Villas and St. Charles Place-Phase II mortgages is
based on current information, and to the extent current
conditions change or additional information becomes
available, then the General Partner's assessment may
change. However, the General Partner does not believe
that there would be a material adverse impact on the
Partnership's financial condition or its results of
operations should Patrician be unable to comply with
its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
a. As of December 31, 1993, the former managing general
partner, on behalf of the Partnership, had invested in
three coinsured originated mortgages where the
coinsurance lender is Integrated Funding, Inc. (IFI).
As structured by the former managing general partner,
with respect to these mortgages, the Partnership bears
the risk of loss upon default for IFI's portion of the
coinsurance loss. In January 1994, the Partnership
disposed of one of these mortgages, One East Delaware,
which was classified as an Asset Held for Sale Under
Coinsurance Program as of December 31, 1993, as
discussed below.
<PAGE>
<PAGE>16
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
As of June 30, 1994 and December 31, 1993, the remaining
two IFI coinsured mortgages, as shown in the table
below, are classified as Investment in Mortgages and are
current with respect to the payment of principal and
interest. The General Partner believes there is adequate
collateral value underlying the mortgages. Therefore, no
loan losses, other than that described below, were
recognized on these mortgages during the six months
ended June 30, 1994 and 1993. As of June 30, 1994,
these two mortgages had an aggregate fair value of
$17,877,975.
<TABLE><CAPTION>
Amortized Face Amortized Face
Loan Losses Recognized
Cost Value Cost Value
for the six months ended
June 30, June 30, December 31, December 31, June 30, June 30,
1994 1994 1993 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,645,980 $ 15,027,553 $ 15,684,341 $ 15,060,875 $ -- $ --
Spring Lake Village (a) 5,039,847 5,039,847 5,169,914 5,054,317 115,301(a) --
(a) In March 1994, the mortgage note was amended to reduce the mortgage interest rate from 8.75% to 7.00%. In connection
with the refinancing, the Partnership recognized a loan loss of $115,301 on the accompanying statement of operations for
the six months ended June 30, 1994, primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE>
<PAGE>
<PAGE>17
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN MORTGAGES - Continued
b. Asset Held for Sale Under Coinsurance Program
----------------------------------------------
As of December 31, 1993, the former managing general
partner, on behalf of the Partnership, had invested in
one coinsured mortgage, One East Delaware, which was
accounted for as Asset Held for Sale Under Coinsurance
Program. In January 1994, the Partnership received net
proceeds of approximately $33.2 million from the
prepayment of this mortgage and recognized a gain of
$1,129,973 in the accompanying statement of operations
for the six months ended June 30, 1994. As of June 30,
1994, the Partnership has reinvested the net
disposition proceeds in fully insured Acquired Insured
Mortgages.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per
Limited Partnership Unit basis for the six months ended June 30,
1994 and 1993 were as follows:
<TABLE><CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Quarter ended March 31, $ .41(1) $ .23
Quarter ended June 30, .29(2) .21
-------- --------
Total $ .70 $ .44
======== ========
(1) This amount includes approximately $.19 per Unit comprised
of: (i) $.18 per Unit representing previously undistributed
accrued interest received from the disposition of the
mortgage on One East Delaware and (ii) $.01 per Unit
representing previously undistributed accrued interest
received from two delinquent mortgages.
(2) This amount includes approximately $.04 per Unit
representing previously undistributed accrued interest
received from two delinquent mortgages.
</TABLE>
The basis for paying distributions to Unitholders is cash
flow from operations, which is comprised of regular interest
income and principal from Insured Mortgages and gain, if any,
from mortgage dispositions. Although the Insured Mortgages yield
a fixed monthly mortgage payment once purchased, the cash
distributions paid to the Unitholders will vary during each
quarter due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payments received are
temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or
mortgage dispositions, (3) variations in the cash flow
attributable to the delinquency or default of Insured Mortgages
and the professional fees and foreclosure and acquisition costs
incurred in connection with those Insured Mortgages and (4)
variations in the Partnership's operating expenses.
<PAGE>
<PAGE>18
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE
Effective December 31, 1991, American Insured Mortgage
Investors-Series 85, L.P. (AIM 85), an affiliated entity,
transferred a GNMA mortgage-backed security (the GNMA security)
in the amount of $4,696,548 to IFI in order to capitalize IFI
with sufficient net worth under HUD regulations. The Partnership
and American Insured Mortgage Investors L.P. - Series 88 (AIM
88), affiliates of the Partnership, each issued a demand note
payable to AIM 85 and recorded an investment in IFI through an
affiliate (AIM Mortgage, Inc.) at an amount proportionate to each
entity's coinsured mortgages for which IFI was the mortgagee of
record as of December 31, 1991. The Partnership accounts for its
investment in IFI under the equity method of accounting. Interest
expense on the note payable was based on an interest rate of 8%
per annum.
In 1992, IFI entered into an expense reimbursement agreement
with the Partnership, AIM 85 and AIM 88 (the AIM Funds) whereby
IFI reimburses the AIM Funds for general and administrative
expenses incurred on behalf of IFI. The expense reimbursement is
allocated to the AIM Funds based on an amount proportionate to
each entity's coinsured mortgages. The expense reimbursement,
along with the Partnership's equity interest in IFI's net income
or loss, substantially equals the Partnership's interest expense
on the note payable.
In April 1994, IFI received net proceeds of approximately
$4.7 million from the prepayment of the GNMA security, which IFI
distributed to the AIM Funds, resulting in the recognition of
income of $16,151 by the Partnership, which is included in
interest and other income for the three and six months ended June
30, 1994 on the accompanying statements of operations. On June
30, 1994, the Partnership repaid its note payable to AIM 85.
In order to capitalize IFI with sufficient net worth under
HUD regulations, in April 1994 AIM 88 transferred a GNMA
mortgage-backed security in the amount of $2.0 million to IFI.
The Partnership and AIM 85 each issued a demand note payable to
AIM 88 and recorded an investment in IFI through an affiliate
(AIM Mortgage, Inc.) in proportion to each entity's coinsured
mortgages for which IFI was the mortgagee of record as of April
15, 1994. Interest expense on the note payable is based on an
interest rate of 7.25% per annum.
<PAGE>
<PAGE>19
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described
above in Note 6, the General Partner and certain affiliated
entities, during the three and six months ended June 30, 1994 and
1993, earned or received compensation or payments for services
from the Partnership as follows:
<TABLE>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
<CAPTION>
For the three months ended
For the six months ended
Capacity in Which
June 30,
June 30,
Name of Recipient Served/Item 1994 1993 1994 1993
----------------- ---------------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 143,091 $ 103,617 $ 345,391 $ 217,102
AIM Acquisition Advisor/Asset Management Fee 393,347(1) 423,570(1) 756,530(2) 847,140(2)
Partners, L.P.(1)
CRI Affiliate of General Partner/
Expense Reimbursement 40,184 48,613 105,093 71,240
(1) Of the amounts paid to the Advisor, the Sub-advisor, CRI/AIM
Management, Inc., earned a fee equal to $115,928 and
$124,833, or 28% of Total Invested Assets, for the three
months ended June 30, 1994 and 1993, respectively.
(2) Of the amounts paid to the Advisor, the Sub-advisor, CRI/AIM
Management, Inc., earned a fee equal to $222,965 and
$249,666, or 28% of Total Invested Assets, for the six months
ended June 30, 1994 and 1993, respectively.
</TABLE>
<PAGE>
<PAGE>20
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
-------
As of June 30, 1994, the Partnership had invested in 27
Insured Mortgages with an aggregate amortized cost of
approximately $172.8 million, face value of approximately $169.2
million and fair value of approximately $158.4 million.
approximately $1.4 million was available for reinvestment in
Acquired Insured Mortgages as of June 30, 1994. On July 15,
1994, the Partnership committed substantially all of the amount
available for reinvestment to fund fully insured Acquired Insured
Mortgages.
The United States Congress recently repealed portions of the
Federal tax code which have had an adverse impact on tax-exempt
investors in "publicly traded partnerships." This tax code
change, effective January 1, 1994, cleared away the major
impediment standing in the way of listing the Partnership's Units
for trading on a national stock exchange. As a result, the
General Partner listed the Partnership's Units for trading on the
American Stock Exchange on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's
original prospectus. The Units are traded under the symbol
"AIJ."
Results of Operations
---------------------
Net earnings increased for the six months ended June 30,
1994 as compared to the corresponding period in 1993 primarily
due to the gain recognized from the disposition of the mortgage
on One East Delaware in January 1994. Partially offsetting this
increase was a decrease in mortgage investment income as
described below.
Net earnings decreased for the three months ended June 30,
1994 as compared to the corresponding period in 1993 primarily
due to the decrease in mortgage investment income as described
below.
Mortgage investment income decreased for the three and six
months ended June 30, 1994, as compared to the corresponding
periods in 1993. This decrease was primarily due to a decrease
in total invested assets during the three and six months ended
June 30, 1994, as compared to the corresponding periods in 1993,
attributable to the timing of the reinvestment of net disposition
proceeds. Approximately $42.3 million of net disposition
proceeds were received in late December 1993 and January 1994
from the disposition of the mortgages on Victoria Pointe
Apartments-Phase II and One East Delaware, of which approximately
$38.4 million had been reinvested June 30, 1994.
Interest and other income increased for the three and six
months ended June 30, 1994, as compared to the corresponding
periods in 1993, primarily due to the short-term investment of
net disposition proceeds, as previously discussed.
Asset management fees decreased for the three and six months
ended June 30, 1994 as compared to the corresponding periods in
1993, primarily due to the decrease in total invested assets, as
described above.
General and administrative expenses increased for the three
and six months ended June 30, 1994, as compared to the
corresponding periods in 1993. This increase was due primarily to
an increase in payroll reimbursements and related expenses
incurred in connection with the mortgage dispositions, mortgage
acquisitions, and mortgages with performance problems, as
described below. Also contributing to the increase in general
and administrative expenses was the payment in 1994 of a one-time
fee in connection with the listing of the Partnership's units on
the American Stock Exchange.
As of December 31, 1993, the Partnership's Insured Mortgages
were recorded at amortized cost (excluding Mortgages Held for
<PAGE>
<PAGE>21
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
Disposition which were recorded at the lower of cost or market).
In connection with the Partnership's implementation of Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) on January
1, 1994, the Partnership's Investment in Mortgages is recorded at
fair value, as estimated below, as of June 30, 1994. The
difference between the amortized cost and the fair value of the
Insured Mortgages represents the net unrealized losses on the
Partnership's Insured Mortgages and is reported as a separate
component of partners' equity as of June 30, 1994.
The fair value of the fully insured mortgage investments is
based on quoted market prices.
In order to determine the fair value of the coinsured
mortgage portfolio, the Partnership valued the coinsured
mortgages as though they were fully insured (in the same manner
fully insured mortgages were valued). From this amount, the
Partnership deducted a discount factor from the face value of the
loan. This discount factor is based on the Partnership's
historical analysis of the difference in fair value between
coinsured loans and fully insured loans.
<TABLE><CAPTION>
As of June 30, 1994
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Investment in Mortgages:
Originated insured mortgages $131,565,272 $120,096,288
Acquired insured mortgages 41,261,388 38,322,682
------------ ------------
$172,826,660 $158,418,970
============ ============
</TABLE>
<PAGE>
<PAGE>22
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
The following is a discussion of the Partnership's Investment in
Mortgages as of June 30, 1994 and December 31, 1993:
A. Fully Insured Originated Insured Mortgages and Acquired
Insured Mortgages
The former managing general partner, on behalf of the Partnership,
had invested in eight fully insured Originated Insured Mortgages with
an aggregate amortized cost of $69,354,701 and $69,539,851 as of June
30, 1994 and December 31, 1993, respectively, and an aggregate face
value of $66,772,173 and $66,934,689, respectively. As of June 30,
1994, these mortgages had an aggregate fair value of $65,236,612.
As of June 30, 1994, the Partnership had invested in twelve fully
insured Acquired Insured Mortgages with an aggregate amortized cost of
$41,261,388, face value of $41,299,247 and fair value of $38,322,682.
As of December 31, 1993, the Partnership had invested in two fully
insured Acquired Insured Mortgages with an aggregate amortized cost of
$3,012,158 and face value of $3,034,084. In addition, approximately
$1.4 million was available for reinvestment in Acquired Insured
Mortgages as of June 30, 1994. On July 15, 1994, the Partnership
committed substantially all of the amount available for reinvestment to
fund fully insured Acquired Insured Mortgages.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development and
of the net proceeds from the refinancing, sale or other disposition of
the underlying development (referred to as Participations). During the
three and six months ended June 30, 1994, the Partnership received
$41,059 and $41,059, respectively, from the Participations. During the
three and six months ended June 30, 1993, the Partnership received
$30,772 and $113,822, respectively, from the Participations. These
amounts are included in mortgage investment income in the accompanying
statements of operations.
<PAGE>
<PAGE>23
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
During the six months ended June 30, 1994, the
Partnership purchased the following fully insured Acquired
Insured Mortgages:
<TABLE><CAPTION>
Effective
Date of Purchase Interest
Complex Name Acquisition Price Rate
------------------------------ ----------- ----------- ---------
<S> <C> <C> <C>
Acquired Insured Mortgages
--------------------------
Pleasantview Nursing Home January 1994 $ 3,496,416 7.847%
Oakwood Garden Apts. February 1994 10,130,271 7.601%
Cypress Cove February 1994 7,151,362 7.209%
Brighton Manor March 1994 1,034,042 7.565%
Maple Manor March 1994 1,264,331 7.343%
Regency Park Apts. March 1994 1,470,000 7.201%
Hickory Tree Apts. April 1994 3,519,405 7.478%
Oak Grove Apts. April 1994 7,111,913 7.539%
Mountain Village Apts. May 1994 1,351,350 7.596%
Sunflower Apts. May 1994 1,831,302 7.595%
-----------
Total 1994 investment in fully
insured Acquired Insured
Mortgages $38,360,392
===========
</TABLE>
<PAGE>
<PAGE>24
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
B. Coinsured Mortgages
-------------------
As discussed in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1993, under the HUD
coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits
if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the
first part of such loss in an amount up to 5% of the
outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is
acquired in lieu of foreclosure. For any loss greater than
5% of the outstanding principal balance, the responsibility
for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance
lender.
1. Coinsured by third parties
--------------------------
As of June 30, 1994 and December 31, 1993, the former
managing general partner, on behalf of the Partnership,
had invested in seven and eight coinsured mortgages,
respectively, five of which are coinsured by
unaffiliated third party coinsurance lenders under the
HUD coinsurance program. Two of the coinsured
mortgages which are coinsured by an unaffiliated third
party are discussed below. The remaining three
coinsured mortgages which are coinsured by unaffiliated
third parties are current with respect to the payment
of principal and interest. As of June 30, 1994 and
December 31, 1993, these three coinsured mortgages had
an aggregate amortized cost of $22,619,867 and
$22,680,052, respectively, and an aggregate face value
of $21,892,086 and $21,945,884, respectively. As of
June 30, 1994, these three coinsured mortgages had an
aggregate fair value of $19,746,129.
The following is a discussion of actual and potential
performance problems with respect to the remaining two
mortgage investments which are coinsured by an
unaffiliated third party:
The Originated Insured Mortgage on The Villas, a
405-unit apartment complex located in Lauderhill,
Florida, is coinsured by the Patrician Mortgage Company
(Patrician). The mortgage had a carrying value of
$15,811,482 and $15,856,842 as of June 30, 1994 and
December 31, 1993, respectively, and a face value of
$16,045,191 and $16,090,551 as of June 30, 1994 and
December 31, 1993, respectively. As of June 30, 1994,
this mortgage had a fair value of $14,449,437. Since
August 1, 1990, the mortgagor has not made the full
monthly payments of principal and interest to
Patrician. Patrician began collecting rents from the
project and continued to make the monthly debt service
payments to the Partnership through February 1992. The
Partnership and Patrician entered into a modification
agreement which provided for reduced payments through
July 1992, regular scheduled payments from August 1992
to December 1992, and then increased payments for a
period lasting approximately 10 years.
The mortgagor of the mortgage on The Villas was unable
to comply with the terms of the modification agreement,
and as a result, Patrician filed a foreclosure action
on October 14, 1993. On November 2, 1993, the
mortgagor of The Villas filed for protection under
Chapter 11 of the Federal Bankruptcy Code. In November
1993, the bankruptcy court issued an order establishing
<PAGE>
<PAGE>25
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
a cash collateral account for the deposit of rental
income and payment of operating expenses of the
property underlying the mortgage. Consequently, in
November 1993, the mortgagor began remitting the
property's net income before debt service to Patrician,
which in turn forwarded these funds to the Partnership.
As of August 10, 1994, the mortgagor has made payments
of principal and interest due on the original mortgage
through April 1994, and has made payments of principal
and interest due under the modification agreement
through August 1993. Patrician is currently litigating
the case in bankruptcy court in order to acquire and
dispose of the property.
The mortgagor of The Villas mortgage is also the
mortgagor of the Originated Insured Mortgage on St.
Charles Place-Phase II, a 156-unit apartment complex
located in Miramar, Florida, which is also coinsured by
Patrician. The St. Charles Place-Phase II mortgage had
a carrying value equal to its face value of $3,093,395
and $3,098,630 as of June 30, 1994 and December 31,
1993, respectively. As of June 30, 1994, this
mortgage had a fair value of $2,786,135. These amounts
represent the Partnership's approximately 45% ownership
interest in the mortgage. The remaining 55% ownership
interest is held by American Insured Mortgage Investors
L.P. - Series 88 (AIM 88), an affiliate of the
Partnership.
During 1993, the mortgagor of St. Charles Place-Phase
II paid its monthly principal and interest payments to
Patrician in arrears, and ceased making monthly debt
service payments in October 1993. As the mortgagor was
unable to bring the loan current, Patrician filed a
foreclosure action on October 14, 1993. On November 2,
1993, the mortgagor of the mortgage on St. Charles
Place-Phase II filed for protection under Chapter 11 of
the Federal Bankruptcy Code. In November 1993, the
bankruptcy court issued an order establishing a cash
collateral account for the deposit of rental income and
payment of operating expenses of the property
underlying the mortgage. Consequently, in November
1993, the mortgagor began remitting the property's net
income before debt service to Patrician, which in turn
forwarded these funds to the Partnership. As of August
10, 1994, the mortgagor has made payments of principal
and interest due on the mortgage through March 1994 to
the Partnership. Patrician is currently litigating the
case in bankruptcy court in order to acquire and
dispose of the property.
The General Partner is overseeing Patrician's efforts
to complete these foreclosure actions, including the
subsequent acquisition and disposition of the above two
properties. As the coinsurance lender, Patrician is
liable to the Partnership for the outstanding principal
balance of both mortgages plus all accrued but unpaid
interest through the date of such payment. If the sale
of the properties collateralizing the mortgages
produces insufficient net proceeds to repay the
mortgage obligations to the Partnership, Patrician will
be liable to the Partnership for the coinsurance
lender's share of the deficiency. Based on the General
Partner's assessment of the collateral underlying the
mortgages, including information related to the
financial condition of Patrician, the General Partner
believes the carrying value of these assets is
realizable. As a result of Patrician's coinsurance
obligation, these mortgages were classified as
Investment in Mortgages as of June 30, 1994 and as
Mortgages Held for Disposition as of December 31, 1993.
<PAGE>
<PAGE>26
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
The Partnership intends to reinvest any net disposition
proceeds from these mortgages in fully insured Acquired
Insured Mortgages, provided the net disposition
proceeds are received prior to the expiration of the
Partnership's reinvestment period on December 31, 1994.
The General Partner intends to continue to oversee the
Partnership's interest in these mortgages to ensure
that Patrician meets its coinsurance obligations. The
General Partner's assessment of the realizability of
The Villas and St. Charles Place-Phase II mortgages is
based on current information, and to the extent current
conditions change or additional information becomes
available, then the General Partner's assessment may
change. However, the General Partner does not believe
that there would be a material adverse impact on the
Partnership's financial condition or its results of
operations should Patrician be unable to comply with
its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
a. As of December 31, 1993, the former managing general
partner, on behalf of the Partnership, had invested in
three coinsured originated mortgages where the
coinsurance lender is Integrated Funding, Inc. (IFI).
As structured by the former managing general partner,
with respect to these mortgages, the Partnership bears
the risk of loss upon default for IFI's portion of the
coinsurance loss. In January 1994, the Partnership
disposed of one of these mortgages, One East Delaware,
which was classified as an Asset Held for Sale Under
Coinsurance Program as of December 31, 1993, as
discussed below.
<PAGE>
<PAGE>27
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
As of June 30, 1994 and December 31, 1993, the remaining
two IFI coinsured mortgages, as shown in the table
below, are classified as Investment in Mortgages and are
current with respect to the payment of principal and
interest. The General Partner believes there is adequate
collateral value underlying the mortgages. Therefore, no
loan losses, other than that described below, were
recognized on these mortgages during the six months
ended June 30, 1994 and 1993. As of June 30, 1994,
these two mortgages had an aggregate fair value of
$17,877,975.
<TABLE><CAPTION>
Amortized Face Amortized Face
Loan Losses Recognized
Cost Value Cost Value
for the six months ended
June 30, June 30, December 31, December 31, June 30, June 30,
1994 1994 1993 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,645,980 $ 15,027,553 $ 15,684,341 $ 15,060,875 $ -- $ --
Spring Lake Village (a) 5,039,847 5,039,847 5,169,914 5,054,317 115,301(a) --
(a) In March 1994, the mortgage note was amended to reduce the mortgage interest rate from 8.75% to 7.00%. In connection
with the refinancing, the Partnership recognized a loan loss of $115,301 on the accompanying statement of operations for
the six months ended June 30, 1994, primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE>
<PAGE>
<PAGE>28
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
Continued
b. Asset Held for Sale Under Coinsurance Program
----------------------------------------------
As of December 31, 1993, the former managing general
partner, on behalf of the Partnership, had invested in
one coinsured mortgage, One East Delaware, which was
accounted for as Asset Held for Sale Under Coinsurance
Program. In January 1994, the Partnership received net
proceeds of approximately $33.2 million from the
prepayment of this mortgage and recognized a gain of
$1,129,973 in the accompanying statement of operations
for the six months ended June 30, 1994. As of June 30,
1994, the Partnership has reinvested the net
disposition proceeds in fully insured Acquired Insured
Mortgages.
Liquidity and Capital Resources
-------------------------------
The Partnership's operating cash receipts, derived from
payments of principal and interest on Insured Mortgages, plus
cash receipts from interest on short-term investments, were
sufficient to meet operating requirements.
The basis for paying distributions to Unitholders is cash
flow from operations, which is comprised of regular interest
income and principal from Insured Mortgages and gain, if any,
from mortgage dispositions. Although the Insured Mortgages yield
a fixed monthly mortgage payment once purchased, the cash
distributions paid to the Unitholders will vary during each
quarter due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payments received are
temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or
mortgage dispositions, (3) variations in the cash flow
attributable to the delinquency or default of Insured Mortgages
and the professional fees and foreclosure and acquisition costs
incurred in connection with those Insured Mortgages and (4)
variations in the Partnership's operating expenses.
Net cash provided by operating activities increased for the
six months ended June 30, 1994 as compared to the corresponding
period in 1993. This increase was primarily due to a decrease in
receivables and other assets attributable to the receipt in
January 1994 of the remaining net disposition proceeds related to
the December 1993 disposition of the mortgage on Victoria Pointe
Apartments-Phase II and receipt of accrued interest related to
One East Delaware in connection with the disposition of the
mortgage as described below. Also contributing to the increase
in net cash provided by operating activities was an increase in
interest and other income and a decrease in asset management
fees, as previously discussed. This increase was partially
offset by a decrease in mortgage investment income, as discussed
above.
Net cash used in investing activities increased for the six
months ended June 30, 1994 as compared to the corresponding
period in 1993 due to the investment of approximately $38.4
million in Acquired Insured Mortgages, which was partially offset
by the receipt of net disposition proceeds of approximately $33.2
million from the disposition of the mortgage on One East
Delaware.
Net cash used in financing activities increased for the six
months ended June 30, 1994 as compared to the corresponding
period in 1993 as a result of an increase in distributions paid
to partners. This increase was primarily due to the 1994
distribution of proceeds from the disposition of the mortgage on
One East Delaware.
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<PAGE>29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1994.
All other items are not applicable.
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<PAGE>30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
August 10, 1994 By: /s/ Cynthia O. Azzara
---------------------- -------------------------
Date Cynthia O. Azzara
Chief Financial Officer
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