AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86, 10-K, 1995-03-28

AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86
10-K, 1995-03-28
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<PAGE>1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1994
------------------

Commission file number 1-12704
-----------------

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)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- -------------------------------- ---------------------------
Depositary Units of Limited American Stock Exchange
Partnership Interest

Securities registered pursuant to Section 12(g) of the Act:

NONE
- -----------------------------------------------------------------
(Title of class)

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
---- ----<PAGE>
<PAGE>2

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 24, 1995, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $117,303,427.<PAGE>
<PAGE>3
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

1994 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 5

PART II
-------
Item 5. Market for Registrant's Securities and
Related Security Holder Matters . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . . . 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 22

PART III
--------
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . 23
Item 11. Executive Compensation . . . . . . . . . . . 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 24
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . 24

PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . 25

Signatures . . . . . . . . . . . . . . . . . . . . . . 29 <PAGE>
<PAGE>4

PART I

ITEM 1. BUSINESS

Development and Description of Business
- ---------------------------------------
Information concerning the business of American Insured Mortgage Investors
L.P.-Series 86 (the Partnership) is contained in Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Notes 1 and 4 of the notes to the financial statements of the Partnership (filed
in response to Item 8 hereof), which is incorporated herein by reference. Also
see Schedule IV-Mortgage Loans on Real Estate, for the table of the Insured
Mortgages (as defined below), invested in by the Partnership as of December 31,
1994.

Employees
- ---------
The Partnership has no employees. The business of the Partnership is
managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages
is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an
advisory agreement (the Advisory Agreement) and CRI/AIM Management, Inc. (the
Sub-advisor) pursuant to a sub-advisory agreement (the Sub-advisory Agreement).
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). CRI and CRIIMI MAE are also
affiliates of the Sub-advisor.

During 1994, CRIIMI MAE's Board of Directors determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which CRIIMI
MAE would become a self-managed and self-administered real estate investment
trust (REIT). Under the terms of the proposed transaction, CRIIMI MAE and its
affiliates would acquire certain mortgage investment, servicing, origination and
advisory business from affiliates of CRI, including the Sub-advisory Agreement
in place with respect to the Partnership. This transaction will have no effect
on the Partnership's financial statements.

Competition
- -----------
In acquiring mortgage investments, the Partnership competes with private
investors, mortgage banking companies, mortgage brokers, state and local
government agencies, lending institutions, trust funds, pension funds, and other
entities, some with similar objectives to those of the Partnership and some of
which are or may be affiliates of the Partnership, its General Partner, the
Advisor or their respective affiliates. Some of these entities may have
substantially greater capital resources and experience than the Partnership in
acquiring mortgages which are fully insured or guaranteed by the Federal
National Mortgage Association, the Government National Mortgage Association
(GNMA), the Federal Housing Administration (FHA) or the Federal Home Loan
Mortgage Corporation.

Pursuant to the Sub-advisory Agreement, the Advisor retained the Sub-
advisor to perform the services required of the Advisor under the Advisory
Agreement. The Sub-advisor performs advisory services for American Insured
Mortgage Investors (AIM 84), American Insured Mortgage Investors - Series 85,
L.P. (AIM 85) and American Insured Mortgage Investors L.P.-Series 88 (AIM 88),
as well as the Partnership (collectively, the AIM Partnerships). CRI also
serves as a general partner of the advisers to CRIIMI MAE and CRI Liquidating
REIT, Inc., which have investment objectives similar to those of the AIM
Partnerships. CRI and its affiliates are also general partners of a number of
other real estate limited partnerships. CRI and its affiliates also may serve
as general partners, sponsors or managers of real estate limited partnerships,
REITs or other entities in the future. The Partnership may attempt to dispose
of mortgages at or about the same time that one or more of the other AIM
Partnerships and/or other entities sponsored or managed by CRI, including CRIIMI
<PAGE>
<PAGE>5

PART I

ITEM 1. BUSINESS - Continued

MAE and CRI Liquidating REIT Inc., are attempting to dispose of mortgages. As a
result of market conditions that could limit dispositions, the Sub-advisor and
its affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of. Both CRI and CRIIMI, Inc., however, are subject
to their fuduciary duties in evaluating the appropriate action to be taken when
faced with conflicts.

ITEM 2. PROPERTIES

Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are non-recourse
first liens on the respective multifamily residential developments or retirement
homes.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note 4 of the notes to the financial statements on
pages 42 through 50.

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

No matters were submitted to the security holders to be voted on during the
fourth quarter of 1994.

PART II

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS

Principal Market and Market Price for Units
- -------------------------------------------
Effective January 1, 1994 the United States Congress 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 cleared away the major
impediment standing in the way of listing the Partnership's Depositary Units of
Limited Partnership Interest (Units) for trading on a national stock exchange.
In an effort to allow pension funds and other tax-exempt organizations to invest
in publicly-traded partnerships, the Revenue Reconciliation Act of 1993 repealed
the rule that automatically treated income from publicly-traded partnerships as
gross income that is derived from an unrelated trade or business. As a result,
investments in publicly-traded partnerships such as the Partnership are now
treated the same as investments in other partnerships for purposes of the
unrelated business taxable income rules. The General Partner listed the
Partnership's Units for trading on the American Stock Exchange (AMEX) 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."

The high and low bid prices for the Units as reported on AMEX for each
quarterly period in 1994 were as follows:

1994
Period High Low
------------------- ------- -------
January 18 through
March 31, $14 $12 1/4<PAGE>
<PAGE>6

PART II

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS - Continued

April 1 through June 30, 12 5/8 12 1/8
July 1 through
September 30, 12 3/4 12
October 1 through
December 31, 12 11 1/8

Prior to listing of the Partnership's Units for trading on AMEX, the Units
were only tradable through an informal market called the "secondary market".

Distribution Information
- ------------------------

Distributions per Unit, payable out of the cash flow of the Partnership,
during 1994 and 1993 were as follows:<PAGE>
<PAGE>7

PART II

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS - Continued

Distributions for the Amount of Distribution
Quarter Ended Per Unit
--------------------- ----------------------

March 31, 1994 $ 0.41 (1)(2)
June 30, 1994 0.29 (2)
September 30, 1994 0.30 (2)
December 31, 1994 0.34 (2)
--------
$ 1.34
========

March 31, 1993 $ 0.23
June 30, 1993 0.21
September 30, 1993 0.29 (3)
December 31, 1993 0.28 (4)
--------
$ 1.01
========

(1) This amount includes approximately $0.18 per Unit representing
previously undistributed accrued interest received from the
disposition of the mortgage on One East Delaware.

(2) This amount includes approximately $0.01, $0.04, $0.03 and $0.03 per
Unit representing previously undistributed accrued interest received
from two delinquent mortgages for the quarters ended March 31, 1994,
June 30, 1994, September 30, 1994 and December 31, 1994, respectively.

(3) In September 1993, the Partnership received $591,872 (approximately
$0.06 per Unit) from the mortgage on Victoria Pointe Apartments-
Phase II, representing mortgage interest from October 1991 through
June 1992, and a partial payment for July 1992. The Partnership
distributed approximately $0.03 per Unit of this previously
undistributed interest and reserved approximately $0.03 per Unit for
the continued funding of coinsurance expenses. The Partnership
distributed the remaining interest of approximately $0.03 per Unit to
Unitholders as part of the fourth quarter distribution, as discussed
below.

(4) Includes a special distribution of approximately $0.10 per Unit
comprised of (i) $0.03 per Unit of previously undistributed accrued
interest from the mortgage on Victoria Pointe Apartments-Phase II
which was reserved as part of the third quarter distribution,
described above, and (ii) $0.07 per Unit representing previously
undistributed accrued interest received in December 1993 resulting
from the disposition of the mortgage on Victoria Pointe Apartments-
Phase II.

Approximate Number of Unitholders
Title of Class as of December 31, 1994
- --------------------------- -------------------------------
Depositary Units of Limited
Partnership Interest 13,000
<PAGE>
<PAGE>8

PART II

ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)

<PAGE><TABLE><CAPTION>
For the Years Ended December 31,

1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income $ 13,644 $ 14,430 $ 12,096 $ 13,776 $ 15,396

Loan losses (115) (63) (107) (4,922) (1,747)

Gain on mortgage disposition 1,130 -- -- -- --

Net earnings 12,450 12,170 9,536 6,086 10,944

Net earnings per Limited
Partnership Unit (1) 1.24 1.21 0.95 0.60 1.09

Distributions per Limited
Partnership Unit(1)(2) 1.34 1.01 1.14 1.262 1.35

As of December 31,

1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>

Total assets $165,694 $180,776 $179,146 $181,103 $186,973

Partners' equity 161,591 176,007 174,007 175,950 182,612

(1) Calculated based upon the weighted average number of Units outstanding.

(2) Includes distributions due the Unitholders for the Partnership's fiscal quarters ended December 31, 1994, 1993, 1992, 1991 and
1990, which were paid subsequent to year end. See Notes 5 and 7 of the notes to the financial statements of the Partnership.
</TABLE>

The selected statements of operations data presented above for the years
ended December 31, 1994, 1993 and 1992, and the balance sheet data as of
December 31, 1994 and 1993, are derived from and are qualified by reference to
the Partnership's financial statements which have been included elsewhere in
this Form 10-K. The statements of operations data for the years ended December
31, 1991 and 1990 and the balance sheet data as of December 31, 1992, 1991 and
1990 are derived from audited financial statements not included in this Form 10-
K. This data should be read in conjunction with the financial statements and
the notes thereto.<PAGE>
<PAGE>9

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

General
- -------

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. During the period from May 2, 1986 (the initial closing date
of the Partnership's public offering) through June 6, 1987 (the termination date
of the offering), the Partnership, pursuant to its public offerings of Units,
raised a total of $191,523,300 in gross proceeds. In addition, the initial
limited partner contributed $2,500 to the capital of the Partnership and
received 125 units of limited partnership interest in exchange therefor.

From inception through September 6, 1991, AIM Capital Management Corp.
served as managing general partner (with a partnership interest of 4.8%), IRI
Properties Capital Corp. served as corporate general partner (with a partnership
interest of 0.1%) and Second Group Partners, an affiliate of the former general
partners, served as the 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.

At a special meeting of the limited partners and Unitholders, as defined in
the Partnership Agreement, of the Partnership held on September 4, 1991, a
majority of these interests approved, among other items, the assignment of the
general partner interests and the shares of the company which acts as the
assignor limited partner in the Partnership.

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. purchased the interests of the former managing
general partner and the former corporate general partner pursuant to the terms
of the Partnership Agreement. 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). In
addition, the General Partner acquired the shares of the company which acts as
the assignor limited partner in the Partnership. The interest of the former
associate general partner (0.1%) was purchased by the Partnership on September
6, 1991 pursuant to the terms of the Partnership Agreement.

Also, on September 6, 1991, AIM Acquisition Partners, L.P. (the Advisor)
succeeded Integrated Funding, Inc. (IFI) as the advisor to the Partnership. AIM
Acquisition Corporation (AIM Acquisition) is the general partner of the Advisor
and the limited partners include, but are not limited to, AIM Acquisition, The
Goldman Sachs Group, L.P., Broad Inc. and a limited partnership formed by CRI
and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership
Agreement as discussed below, the General Partner is required to receive the
consent of the Advisor prior to taking certain significant actions which affect
the management and policies of the Partnership. The limited partners and
Unitholders of the Partnership approved the execution of a sub-advisory
agreement (the Sub-advisory Agreement) with CRI/AIM Management, Inc. (the
Sub-advisor), an affiliate of CRI, pursuant to which CRI/AIM Management, Inc.
manages the Partnership's portfolio and directs the disposition of the
Partnership's mortgage investments.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

advisory business from affiliates of CRI, including the Sub-advisory Agreement
in place with respect to the Partnership. This transaction will have no effect
on the Partnership's financial statements.

Prior to the expiration of the Partnership's reinvestment period on
December 31, 1994, the Partnership was engaged 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). After the expiration of the
reinvestment period, the Partnership is required (subject to the conditions set
forth in the Partnership Agreement) to distribute such proceeds to its
Unitholders. The Partnership Agreement states that the Partnership will
terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.

As of December 31, 1994, the Partnership had invested in 28 Insured
Mortgages, with an aggregate amortized cost of approximately $174 million, a
face value of approximately $170 million and a fair value of approximately $154
million, as discussed below.

Results of Operations
- ---------------------

1994 versus 1993
- ----------------

Net earnings increased for 1994 as compared to 1993 primarily due to the
gain recognized from the disposition of the insured mortgage on One East
Delaware in January 1994. Partially offsetting this increase was the decrease
in mortgage investment income, as described below.

Mortgage investment income decreased for 1994 as compared to 1993. This
decrease was primarily due to a decrease in total invested assets during 1994,
as compared to 1993, attributable to the timing of the reinvestment of net
proceeds from the disposition of the insured mortgages on One East Delaware and
Victoria Pointe Apartments-Phase II, which were received in December 1993 and
January 1994. These proceeds were reinvested throughout the first three
quarters of 1994. Also contributing to the decrease in mortgage investment
income was a reduction in mortgage interest rates on Acquired Insured Mortgages
purchased during 1994 as compared to the mortgage interest rates on Insured
Mortgages which were disposed of in late 1993 and early 1994.

Interest and other income increased for 1994 as compared to 1993 primarily
due to the short-term investment of net disposition proceeds prior to
reinvestment in Acquired Insured Mortgages, as previously discussed.

Asset management fees decreased for 1994 as compared to 1993 primarily due
to the decrease in total invested assets, as discussed above.

General and administrative expenses increased for 1994 as compared to
1993. This increase was due primarily to an increase in payroll and related
expenses incurred in connection with the mortgage dispositions, mortgage
acquisitions, and mortgages with performance problems, as described below, and
the payment in 1994 of a one-time fee in connection with the listing of the
Partnership's units on AMEX. Also contributing to the increase in general and
administrative expenses was an amendment to the expense reimbursement agreement
between the AIM Partnerships and IFI, effective April 1, 1994. The effect of
this amendment was to reduce the expense reimbursement the <PAGE>
<PAGE>11

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Partnership receives from IFI to reflect the reduction in the Partnership's
coinsured loans since the execution of the original reimbursement agreement in
1992. This reimbursement is presented as a reduction of general and
administrative expenses on the accompanying statements of operations for the
years ended December 31, 1994, 1993 and 1992. The decrease in the expense
reimbursement is offset by a decrease in interest expense to affiliate, as
discussed below.

Interest expense to affiliate decreased for 1994 as compared to 1993, as a
result of the paydown of the note payable to AIM 85 during the second quarter
of 1994, offset by the execution of a note payable to AIM 88. The note payable
to AIM 88 is in the approximate amount of $479,000, at an annual interest rate
of 7.25%, as compared to the note payable to AIM 85 of approximately $1.7
million at an annual interest rate of 8%. The reduction in the principal
amount of the notes reflects the reduction in the Partnership's coinsured
loans since the initial capitalization of IFI in 1991.

1993 versus 1992
- ----------------
Net earnings for 1993 increased as compared to 1992 primarily due to an
increase in mortgage investment income, as discussed below.

Mortgage investment income increased during 1993 as compared to 1992
primarily as a result of the Partnership beginning, effective January 1, 1993,
to recognize mortgage investment income for the insured mortgages classified as
Assets Held For Sale Under Coinsurance Program (AHFS) in the amount coinsured by
the United States Department of Housing and Urban Development (HUD). Given the
improved financial performance of the borrowers and the General Partner's
assessment of the collateral underlying the mortgages, the General Partner
determined that it was appropriate to begin recognizing interest income at least
to the level of insurance provided by HUD. To the extent the borrower remits
interest in excess of the HUD insured amount, this excess amount is recognized
as income on the cash basis of accounting.

Interest and other income decreased during 1993 as compared to 1992
primarily due to a reduction in funds available for short-term investment and a
reduction in short-term interest rates. In 1992, the Partnership held proceeds
from a December 1991 insured mortgage disposition approximating $3 million which
were invested in short-term investments pending the acquisition of two Acquired
Insured Mortgages during the first quarter of 1992.

General and administrative expenses decreased for 1993 as compared to 1992
due primarily to reductions in payroll reimbursements and nonrecurring
professional fees incurred in 1992 in connection with the insured mortgages with
performance problems, as discussed below. Also contributing to the decrease in
general and administrative expenses was a reduction in quarterly and annual
reporting expenses resulting primarily from reduced mailing costs.

Investment in Insured Mortgages
- -------------------------------

The Partnership's investment in insured mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to programs of
the Federal Housing Administration (FHA) (FHA-Insured Certificates), mortgage-
backed securities guaranteed by the Government National Mortgage Association
(GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-
Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA
<PAGE>
<PAGE>12

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Mortgage-Backed Securities, and FHA-Insured Loans are non-recourse first liens
on multifamily residential developments or retirement homes.

Payments of principal and interest on FHA-Insured Certificates and FHA-
Insured Loans are insured by HUD pursuant to Title 2 of the National Housing
Act. Payments of principal and interest on GNMA Mortgage-Backed Securities are
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

Prior to January 1, 1994, the Partnership accounted for its investment in
mortgages at amortized cost in accordance with Statement of Financial Accounting
Standard No. 65 "Accounting for Certain Mortgage Banking Activities" (SFAS 65)
since it had the ability and intent to hold these assets for the foreseeable
future. The difference between the cost and the unpaid principal balance, at
the time of purchase, is carried as a discount or premium and amortized over the
remaining contractual life of the mortgage using the effective interest method.
The effective interest method provides a constant yield of income over the term
of the mortgage. Mortgage investment income is comprised of amortization of the
discount plus the stated mortgage interest payments received or accrued, less
amortization of the premium.

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), effective for fiscal years beginning
after December 15, 1993. The Partnership adopted this statement as of January
1, 1994. 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.

As of December 31, 1994, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 33 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 investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, the Partnership does not have the
ability, at this time, to hold these investments to maturity. Consequently, the
General Partner believes that the Partnership's investments in GNMA Mortgage-
Backed Securities and FHA-Insured Certificates should be included in the
Available for Sale category. Although the Partnership's investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates are classified as
Available for Sale for financial statement purposes, the General Partner does
not intend to voluntarily sell these assets other than those which may be sold
as a result of a default or those which are eligible to be put to FHA at the
expiration of 20 years from the date of the final endorsement.

In connection with this classification, as of December 31, 1994, the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates are recorded at fair value, with the unrealized losses on these
investments reported as a separate component of partners' equity. Subsequent
increases or decreases in the fair value of GNMA Mortgage-Backed Securities and
FHA-Insured Certificates, classified as Available for Sale, will be included as
a separate component of partners' equity. Realized gains and losses on GNMA
Mortgage-Backed Securities and FHA-Insured Certificates, classified as
Available
<PAGE>
<PAGE>13

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

for Sale, will continue to be reported in earnings. The amortized cost of the
GNMA Mortgage-Backed Securities and FHA-Insured Certificates in this category is
adjusted for amortization of discounts and premiums to maturity. Such
amortization is included in mortgage investment income.

As of January 1, 1994, and for the first three quarters of 1994, the
Partnership adopted SFAS 115 for all its mortgage investments. Upon further
consideration and interpretation of SFAS 115, as of December 31, 1994, the
Partnership has only applied this accounting pronouncement to its investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates. The Partnership
continues to account for its FHA-Insured Loans in accordance with SFAS 65, or at
amortized cost, because such loans are not securities, and therfore are not
subject to SFAS 115. The impact of this change is immaterial to the 1994
financial statements of the Partnership.

The following is a discussion of the Partnership's mortgage investments,
along with the risks related to each type of investment:

A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
The Partnership's investment in fully insured Originated Insured
Mortgages consisted of eight FHA-Insured Loans as of December 31, 1994 and
1993. As of December 31, 1994, these investments had an aggregate
amortized cost of $69,162,106, an aggregate face value of $66,602,806, and
an aggregate fair value of $63,422,100. As of December 31, 1993, these
investments had an aggregate amortized cost of $69,539,851 and an aggregate
face value of $66,934,689.

The Partnership's investment in fully insured Acquired Insured
Mortgages consisted of ten GNMA Mortgage-Backed Securities, two FHA-Insured
Certificates and one FHA-Insured Loan, as of December 31, 1994. As of
December 31, 1994, these investments had an aggregate amortized cost of
$42,473,748, an aggregate face value of $42,415,356, and an aggregate fair
value of $37,875,856. The Partnership's investment in fully insured
Acquired Insured Mortgages consisted of one FHA-Insured Certificate and one
FHA-Insured Loan as of December 31, 1993. As of December 31, 1993, these
investments had an aggregate amortized cost of $3,012,158, and an aggregate
face value of $3,034,084. As of December 31, 1994, all of the fully
insured Originated Insured Mortgages and Acquired Insured Mortgages are
current with respect to the payment of principal and interest.

During the year ended December 31, 1994, the Partnership purchased the
following fully insured Acquired Insured Mortgages:

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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 7.595%
Sunflower Apts. May 1994 1,831,302 7.595%
Main Street Apts. September 1994 1,370,266 8.776%
-----------

Total 1994 investment in fully
insured Acquired Insured
Mortgages $39,730,658
===========
</TABLE>

In addition to base interest payments from 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 years
ended December 31, 1994, 1993 and 1992, the Partnership received additional
interest of $41,059, $113,822 and $104,350, respectively, from the
Participations. These amounts are included in mortgage investment income in
the accompanying statements of operations.

In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured Mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) at the date of a default, plus
the unamortized balance of acquisition fees and closing costs paid in
connection with the acquisition of the Insured Mortgage and the loss of
approximately 30-days accrued interest.

Coinsured Mortgages
-------------------
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.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

these developments, and others, could exceed its HUD-required minimum net
worth. In such case, the Partnership would bear the risk of loss if the
coinsurance lenders were unable to meet their coinsurance obligations. In
addition, HUD's obligation for the payment of its share of the loss could
be diminished under certain conditions, such as the lender not adequately
pursuing regulatory violations of the borrower or the failure to comply
with other terms of the mortgage. However, the General Partner is not aware
of any conditions or actions that would result in HUD diminishing its
insurance coverage.

1. Coinsured by third parties
--------------------------
As of December 31, 1994 and 1993, the former managing general partner,
on behalf of the Partnership, had invested in seven and eight FHA-
Insured Certificates secured by coinsured mortgages, respectively. As
of December 31, 1994, five of the seven FHA-Insured Certificates
secured by coinsured mortgages are coinsured by two unaffiliated third
party coinsurance lenders, M-West Mortgage Corporation (M-West) and
The Patrician Mortgage Company (Patrician), under the HUD coinsurance
program. As discussed below, however, one of these unaffiliated
coinsurance lenders (M-West) has informed the General Partner of its
intention to liquidate its assets. As such, the Partnership may incur
losses to the extent of M-West's obligation in the event of a default
on these loans. However, as discussed further below, the General
Partner believes that there is sufficient collateral underlying the
mortgages and that the carrying value of these assets is
realizable. As of December 31, 1994, the five coinsured mortgages
which are coinsured by M-West and Patrician were delinquent with
respect to the payment of principal and interest. The General Partner
is attempting to collect the delinquent payments from the respective
coinsuring lenders.

The following is a discussion of actual and potential performance
problems with respect to the mortgage investments which are coinsured
by M-West and Patrician.

The Originated Insured Mortgages on Carmen Drive Estates (The Forest),
Woodbine at Lakewood Apartments and Woodland Hills Apartments are
coinsured by M-West. As of December 31, 1994 and December 31, 1993,
the Partnership's investment in these three coinsured mortgages had an
aggregate amortized cost of $22,557,243 and $22,680,052, respectively,
and an aggregate face value of $21,836,016 and $21,945,884,
respectively. As of December 31, 1994, these three coinsured
mortgages had an aggregate fair value of $19,154,882.

On or about October 17, 1994, the Partnership was informed that M-West
was liquidating its assets and intended to assign the mortgage
servicing rights related to these coinsured loans to another
coinsurance lender, Whitehall Funding (Whitehall). Under the
participation agreements, the coinsurer is responsible to remit to the
Partnership monthly payments of principal and interest no later than
the 25th day of the calendar month. These payments are, in essence,
guaranteed to the Partnership by M-West. In the event the respective
borrower under a mortgage loan does not submit a mortgage payment, M-
West is obligated to advance the delinquent payment to the
Partnership. The failure of the coinsurance lender to remit a monthly
payment to the Partnership constitutes an event of default under the
participation agreements and the mortgage loans. As of March 21,
<PAGE>
<PAGE>16

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

1995, the Partnership has not received the October 1994, November
1994, December 1994 and January 1995 principal and interest payments
due under the mortgage loans and the participation agreements.

In October 1994, the Partnership's attorneys notified M-West that it
was in default under the participation agreements, and directed it to
prepare an assignment of M-West's interest in the mortgage loans to
IFI, a coinsuring mortgagee approved by HUD, and an affiliate of the
Partnership. To date, M-West has not complied with the Partnership's
direction. IFI has requested that this assignment be approved by HUD.
In November 1994, Whitehall filed a Complaint and a motion for a
Temporary Restraining Order (TRO) against M-West in California State
Court (the Court), which the Court granted, and which prohibited M-
West from transferring or disposing of any of its assets, including
the Partnership's coinsured loans, pending a further hearing.
Additionally, the Court required that Whitehall deposit the mortgage
payments it has received on account of two of these loans into an
account controlled by the Court.

In December 1994, attorneys for the Partnership filed a Complaint in
Intervention against Whitehall and M-West claiming that the
Partnership's interests were not adequately represented by the
existing parties and the Partnership should be a party to this action.
The Court concurred with this motion. The Complaint in Intervention
also requested that the Court compel M-West to compensate it for
damages and to specifically perform its obligations under the
participation agreements, directing it to assign its interest in the
mortgage loans and participation agreements to IFI. Additionally, the
Complaint in Intervention requested that the Court enter an order
directing M-West and Whitehall to account for, and to turn over to the
Partnership, any funds in their possession in any way related to the
Partnership's mortgage investments, and directing Whitehall to
compensate it for damages, including punitive damages, as a result of
Whitehall's tortious interference with its contractual rights under
the participation agreement.

On February 16, 1995, the Court dissolved the TRO and ordered M-West
to transfer all funds and loan servicing files held with respect to
these three coinsured mortgages to IFI. The Court also ordered the
Clerk of the Court to transfer all funds held by the Court with
respect to these coinsured mortgages to IFI. These transfers will be
effectuated upon execution of the Court's order.

Based on the General Partner's assessment of the collateral underlying
these mortgages, the General Partner believes the carrying value of
these assets is realizable. However, this assessment 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.

The Originated Insured Mortgage on The Villas, a 405-unit apartment
complex located in Lauderhill, Florida, is coinsured by Patrician. The
Partnership's investment in this mortgage had an amortized cost of
$15,732,782 and $15,856,842, as of December 31, 1994 and December 31,
1993, respectively, and a face value of $15,966,491 and $16,090,551,
as of December 31, 1994 and December 31, 1993, respectively. As of
December 31, 1994, this mortgage had a fair value of $14,012,209.
Since August 1, 1990, the mortgagor has not made the full monthly
<PAGE>
<PAGE>17

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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 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 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 March 21, 1995,
the mortgagor has made payments of principal and interest due on the
original mortgage through October 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 seeking 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 Partnership's investment in the St. Charles Place-
Phase II mortgage had an amortized cost equal to its face value of
$3,082,440 and $3,098,630 as of December 31, 1994 and December 31,
1993, respectively. As of December 31, 1994, this mortgage had a
fair value of $2,703,780. These amounts represent the Partnership's
approximate 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 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 March
21, 1995, the mortgagor has made payments of principal and interest
due on the mortgage through August 1994 to the Partnership. Patrician
is currently litigating the case in bankruptcy court seeking to
acquire and dispose of the property.

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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.

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, 1994 and 1993, respectively, the former managing
general partner, on behalf of the Partnership, had invested in two and
three FHA-Insured Certificates secured by coinsured mortgages where
the coinsurance lender is 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 AHFS as of
December 31, 1993, as discussed below.

As of December 31, 1994, the remaining two IFI coinsured mortgages, as
shown in the table below, 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
were recognized on these investments during the years ended December
31, 1994, 1993 and 1992, except as described below in connection with
a mortgage modification in 1994. As of December 31, 1994, these two
investments had an aggregate fair value of $17,311,781.

Amortized Face Amortized Face Loan Losses Recognized
Cost Value Cost Value for the year ended
December 31, December 31, December 31, December 31, December December 31,
1994 1994 1993 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,606,087 $ 14,992,832 $ 15,684,341 $15,060,875 $ -- --
Spring Lake Village (a) 5,022,918 5,022,919 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 year ended December 31, 1994,
primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE>
<PAGE>
<PAGE>19

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

b. Assets Held for Sale Under Coinsurance Program

As previously discussed, 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
AHFS. In January 1994, the Partnership received net proceeds of
$33,233,501 from the prepayment of this mortgage and recognized a gain
of $1,129,973 in the accompanying statement of operations for the year
ended December 31, 1994. As of December 31, 1994, the Partnership had
reinvested the net disposition proceeds in fully insured Acquired
Insured Mortgages.

Fair Value of Financial Instruments
- -----------------------------------
The Partnership implemented SFAS 115 as of January 1, 1994. The following
estimated fair values of the Partnership's financial instruments are presented
in accordance with generally accepted accounting principles which define fair
value as the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidation sale. These estimated fair values, however, do not represent the
liquidation value or the market value of the Partnership.

<TABLE><CAPTION>
As of December 31, 1994 As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>

Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Originated Insured Mortgages $ 62,001,470 $ 53,182,652 $ 62,489,779 $ 59,130,566
Acquired Insured Mortgages 41,472,892 36,919,453 2,006,185 2,107,084
------------ ------------ ------------ ------------
$103,474,362 $ 90,102,105 $ 64,495,964 $ 61,237,650
============ ============ ============ ============
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 69,162,106 $ 63,422,100 $ 69,539,851 $ 69,659,663
Acquired Insured Mortgages 1,000,856 956,403 1,005,973 1,054,179
------------ ------------ ------------ ------------
$ 70,162,962 $ 64,378,503 $ 70,545,824 $ 70,713,842
============ ============ ============ ============

Cash and cash equivalents $ 2,833,820 $ 2,833,820 $ 9,095,255 $ 9,095,255

Accrued interest receivable $ 1,910,398 $ 1,910,398 $ 1,311,345 $ 1,311,345

</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Investment in FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans<PAGE>
<PAGE>20

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

--------------------------------------------------
The fair value of the fully insured FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market
prices. In order to determine the fair value of the coinsured FHA-Insured
Certificates, the Partnership valued the coinsured FHA-Insured Certificates
as though they were fully insured (in the same manner fully insured FHA-
Insured Certificates 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 FHA-Insured Certificates and fully insured
FHA-Insured Certificates.

Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of the short
maturity of these instruments.<PAGE>
<PAGE>21

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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 during 1994 to meet operating
requirements.

The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages. Although 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 professional fees and foreclosure costs incurred in
connection with those Insured Mortgages and (4) variations in the Partnership's
operating expenses.

If necessary, the Partnership has the right to establish reserves either
from the Net Proceeds of the Offering or from Cash Flow (as defined in the
Partnership Agreement). However, the Partnership generally intends to
distribute substantially all of its Cash Flow from operations. If any reserves
are deemed to be necessary by the Partnership, they will be invested in
short-term, interest-bearing investments.

The Partnership anticipates that reserves generally would only be necessary
in the event the Partnership elected to foreclose on an Originated Insured
Mortgage insured by FHA and take over the operations of the underlying
development. In such case, there may be a need for additional capital. Since
foreclosure proceedings can be expensive and time-consuming, the Partnership
expects that it will generally assign the fully insured Originated Insured
Mortgages to HUD for insurance proceeds rather than foreclose. In the case of
an Originated Insured Mortgage insured under the HUD coinsurance program, the
likelihood of foreclosure (and the potential need for reserves) exists since
these coinsured mortgages generally cannot be assigned to HUD and the
coinsurance lender would be required to acquire title to the property and hold
the property for 12 months or until an earlier sale in order to realize the
benefit of HUD insurance. The determination of whether to assign the mortgage
to HUD or institute foreclosure procedures or whether to set aside any reserves
will be made on a case-by-case basis by the General Partner, the Advisor and the
Sub-advisor. As of December 31, 1994 and 1993, the Partnership had not set aside
any reserves.

Cash flow - 1994 versus 1993
- ----------------------------
Net cash provided by operating activities increased for 1994 as compared to
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 insured
mortgage on Victoria Pointe Apartments-Phase II and receipt of accrued interest
related to One East Delaware in connection with the disposition of the insured
mortgage, as described below. Also contributing to the increase in 1994 were
non-recurring payments made in 1993 on account of the Partnership's non-
performing loans (which were recorded as an addition to AHFS) and an increase in
interest and other income and a decrease in asset management fees, as previously
<PAGE>
<PAGE>22

PART II

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

discussed. These increases were partially offset by a decrease in mortgage
investment income and an increase in general and administrative expenses, as
discussed above.

Net cash used in investing activities increased for 1994 as compared to
1993 due to the 1994 investment of approximately $39.7 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 insured
mortgage on One East Delaware.

Net cash used in financing activities increased for the year ended December
31, 1994 as compared to 1993 as a result of an increase in distributions paid to
Unitholders. This increase was primarily due to the 1994 distribution of
proceeds from the disposition of the insured mortgage on One East Delaware.

Cash flow - 1993 versus 1992
- ----------------------------
Net cash provided by operating activities decreased during 1993 as compared
to 1992 principally due to mortgage investment income accrued for mortgages
classified as AHFS. Also contributing to the decrease was an increase in
receivables and other assets in 1993 due to the receipt of disposition proceeds,
received in January 1994, from the disposition of the insured mortgage on
Victoria Pointe Apartments-Phase II.

Net cash provided by investing activities increased in 1993 as compared to
1992 principally due to disposition proceeds received in 1993 of approximately
$9.0 million from the insured mortgage on Victoria Pointe Apartments-Phase II,
partially offset by the acquisition in 1992 of two Acquired Insured Mortgages of
approximately $3.0 million.

Net cash used in financing activities decreased during 1993 compared to
1992 as a result of a decrease in 1993 distributions to Unitholders as compared
to 1992. This decrease was due, in part, to the delinquencies and subsequent
cessation of the receipt of principal and interest from the mortgage on One East
Delaware and the delinquency of the monthly payments by the mortgagor of the
insured mortgages on The Villas and St. Charles Place-Phase II.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is contained on pages 30 through 61.

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

None. <PAGE>
<PAGE>23

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a),(b),(c),(e)

The Partnership has no officers or directors. The affairs of the
Partnership are generally managed by the General Partner, which is wholly-owned
by CRIIMI MAE, a company whose shares are listed on the New York Stock Exchange.
CRIIMI MAE is managed by an adviser whose general partner is CRI.

Effective September 6, 1991, the General Partner succeeded the former
general partners to become the sole general partner of the Partnership. CRIIMI,
Inc. purchased the interests of the former managing general partner and the
former corporate general partner pursuant to the terms of the Partnership
Agreement. CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE, formerly
CRI Insured Mortgage Association, Inc., which is managed by an adviser whose
general partner is CRI. In addition, the General Partner acquired the shares of
the company which acts as the assignor limited partner in the Partnership. The
interest of the former associate general partner (0.1%) was purchased by the
Partnership on September 6, 1991, pursuant to the terms of the Partnership
Agreement.

Also, on September 6, 1991, the Advisor succeeded IFI as the adviser of the
Partnership. AIM Acquisition is the general partner of the Advisor and the
limited partners include, but are not limited to, AIM Acquisition, The Goldman
Sachs Group, L.P., Broad Inc. and a limited partnership formed by CRI and CRIIMI
MAE. Pursuant to the terms of certain amendments to the Partnership Agreement,
as discussed below, the General Partner is required to receive the consent of
the Advisor prior to taking certain significant actions which affect the
management and policies of the Partnership. The limited partners and Unitholders
of the Partnership approved the execution of the Sub-advisory Agreement with
CRI/AIM Management, Inc. (the Sub-advisor), an affiliate of CRI, pursuant to
which CRI/AIM Management, Inc. manages the Partnership's portfolio and
directs disposition of the Partnership's Insured Mortgages and, prior to
December 31, 1994 (the expiration of the Partnership's reinvestment period)
directed the acquisition of the Partnership's Insured Mortgages.

During 1994, CRIIMI MAE's Board of Directors determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which CRIIMI
MAE would become a self-managed and self-administered REIT. Under the terms of
the proposed transaction, CRIIMI MAE and its affiliates would acquire certain
mortgage investment, servicing, origination and advisory business from
affiliates of CRI, including the Sub-advisory Agreement in place with respect to
the Partnership. This transaction will have no effect on the Partnership's
financial statements.

The General Partner is also the general partner of AIM 84, AIM 85 and AIM
88, limited partnerships with investment objectives similar to those of the
Partnership.

(d) There is no family relationship between any of the officers and
directors of the General Partner.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

(h) Based solely on its review of Forms 3 and 4 and amendments
thereto furnished to the Partnership, and written representations
<PAGE>
<PAGE>24

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued

from certain reporting persons that no Form 5s were required for
those persons, the Partnership believes that all reporting
persons have filed on a timely basis Forms 3, 4 and 5 as required
in the fiscal year ended December 31, 1994.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to
Note 7 of the notes to the financial statements of the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

As of December 31, 1994, no person was known by the Partnership to be the
beneficial owner of more than five percent (5%) of the outstanding Units of the
Partnership.

As of December 31, 1994, neither the officers and directors, as a group, of
the General Partner nor any individual director of the General Partner, are
known to own more than 1% of the outstanding Units of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

Note 7 of the notes to the Partnership's financial statements which
contains a discussion of the amounts, fees and other compensation paid
or accrued by the Partnership to the directors and executive officers
of the General Partner and their affiliates, is incorporated herein by
reference.

(b) Certain business relationships.

Other than as set forth in Item 11 of this report which is
incorporated herein by reference, the Partnership has no business
relationship with entities of which the former general partners or the
current General Partner of the Partnership are officers, directors or
equity owners.

None.

(d) Transactions with promoters.

Not applicable.

<PAGE 25>
PART IV

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

(a)(1) Financial Statements:

Page
Description Number
- ----------- --------------

Balance Sheets as of December 31, 1994
and 1993 32

Statements of Operations for the years
ended December 31, 1994, 1993 and 1992 33

Statements of Changes in Partners' Equity
for the years ended December 31, 1994,
1993 and 1992 34

Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 35

Notes to Financial Statements 36

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate

All other schedules have been omitted because they are
inapplicable, not required, or the information is included in the
Financial Statements or Notes thereto.<PAGE>
<PAGE>26

PART IV

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

(a)(3) Exhibits:

3. Amended and Restated Certificate of Limited Partnership is
incorporated by reference to Exhibit 4(a) to Amendment No. 1
to the Partnership's Registration Statement on Form S-11
(No. 33-1735) dated March 6, 1986 (such Registration
Statement, as amended, is referred to herein as the "Amended
Registration Statement").

4. Second Amended and Restated Agreement of Limited Partnership
is incorporated by reference in Exhibit 3 to the Amended
Registration Statement.

4.(a) Material Amendments to the Second Amended and Restated
Agreement of Limited Partnership are incorporated by
reference to Exhibit 4(a) to the Annual Report on Form 10-K
for the year ended December 31, 1987.

4.(b) Amendment to the Second Amended and Restated Agreement of
Limited Partnership of the Partnership dated February 12,
1990, incorporated by reference to Exhibit 4(b) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989.

10.(a) Escrow Agreement is incorporated by reference to Exhibit
10(a) to the Amended Registration Statement.

10.(b) Origination and Acquisition Services Agreement is
incorporated by reference to Exhibit 10(b) to the Amended
Registration Statement.

10.(c) Management Services Agreement is incorporated by reference
to Exhibit 10(c) to the Amended Registration Statement.

10.(d) Disposition Services Agreement is incorporated by reference
to Exhibit 10(d) to the Amended Registration Statement.

10.(e) Agreement among the former managing general partner, the
former associate general partner and Integrated Resources,
Inc. is incorporated by reference to Exhibit 10(e) to the
Amended Registration Statement.

10.(f) Reinvestment Plan is incorporated by reference to the
Prospectus contained in the Amended Registration Statement.

10.(g) Mortgagor-Participant Agreement regarding the One East
Delaware Originated Insured Mortgage is incorporated by
reference to Exhibit 10(g) to the Annual Report on Form 10-K
for the year ended December 31, 1987.

10.(h) Mortgage, Assignment of Rents and Security Agreements
regarding One East Delaware Originated Insured Mortgage is
incorporated by reference to Exhibit 10(h) to the Annual<PAGE>
<PAGE>27

PART IV

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

Report on Form 10-K for the year ended December 31, 1987.

10.(i) Pages A-1 - A-5 of the Partnership Agreement of Registrant,
incorporated by reference to Exhibit 28 to the Partnership's
Annual Report on Form 10-K for the year ended December 31,
1990.

10.(j) Purchase Agreement among AIM Acquisition, the former
managing general partner, the former corporate general
partner, IFI and Integrated dated as of December 13, 1990,
as amended January 9, 1991, incorporated by reference to
Exhibit 28(a) to the Partnership's Annual Report on Form 10-
K for the year ended December 31, 1990.

10.(k) Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the
former managing general partner, the former corporate
general partner, IFI and Integrated dated as of December 13,
1990 and executed as of March 1, 1991, incorporated by
reference to Exhibit 28(b) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.

10.(l) Amendment to Partnership Agreement dated September 4, 1991,
incorporated by reference to Exhibit 28(c), to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.

10.(m) Non-negotiable promissory note to American Insured Investors
- Series 85, L.P. in the amount of $1,737,722 dated December
31, 1991, incorporated by reference to Exhibit 28(d) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.

10.(n) Sub-Management Agreement by and between AIM Acquisition and
CRI/AIM Management, Inc., dated as of March 1, 1991,
incorporated by reference to Exhibit 28(e) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1992.

10.(o) Expense Reimbursement Agreement by Integrated Funding Inc.
and the AIM Funds, effective December 31, 1992, incorporated
by reference to Exhibit 28(f) to the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.

10.(p) Non-negotiable promissory note to American Insured Mortgage
Investors L.P. - Series 88 in the amount of $478,612.00
dated April 1, 1994 (filed herewith).

10.(q) Amendment to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective April 1, 1994 (filed
herewith).

27. Financial Data Schedule (filed herewith).<PAGE>
<PAGE>28

PART IV

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

(b) Reports on Form 8-K filed during the last quarter of the fiscal year:
None.

All other items are not applicable.<PAGE>
<PAGE>29

SIGNATURES

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

March 28, 1995 /s/ William B. Dockser
- --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer

March 28, 1995 /s/ H. William Willoughby
- --------------------------- -------------------------
DATE H. William Willoughby
President and Director

March 28, 1995 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer

March 28, 1995 /s/ Garrett G. Carlson, Sr.
- --------------------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director

March 28, 1995 /s/ G. Richard Dunnells
- --------------------------- -------------------------
DATE G. Richard Dunnells
Director

March 28, 1995 /s/ Robert F. Tardio
- --------------------------- -------------------------
DATE Robert F. Tardio
Director<PAGE>
<PAGE>30

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

Financial Statements as of December 31, 1994 and 1993

and for the Years Ended December 31, 1994, 1993 and 1992<PAGE>
<PAGE>31

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
American Insured Mortgage Investors L.P. - Series 86:

We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 86 (the Partnership) as of December 31, 1994
and 1993, and the related statements of operations, changes in partners' equity
and cash flows for the years ended December 31, 1994, 1993 and 1992. These
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1994 and 1993, and the results of its operations and its cash flows
for the years ended December 31, 1994, 1993 and 1992, in conformity with
generally accepted accounting principles.

As explained in Note 2 of the notes to the financial statements, effective
January 1, 1994, the Partnership changed its method of accounting for its
investment in insured mortgages.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real
Estate as of December 31, 1994 is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic financial statements. The information in this schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

Washington, D.C. Arthur Andersen LLP
March 21, 1995<PAGE>
<PAGE>32

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

BALANCE SHEETS

<TABLE><CAPTION>
As of December 31,
1994 1993
------------ ------------
ASSETS
<S> <C> <C>
Investment in insured mortgages, at
fair value:
Originated insured mortgages $ 53,182,652 $ --
Acquired insured mortgages 36,919,453 --
------------ ------------
90,102,105 --

Investment in insured mortgages, at
amortized cost:
Originated insured mortgages 66,602,806 127,951,237
Acquired insured mortgages 1,004,351 3,034,084
------------ ------------
67,607,157 130,985,321
Plus: unamortized premium, net
of unamortized discount 2,555,805 4,056,467
------------ ------------
70,162,962 135,041,788

Assets held for sale under
coinsurance program -- 32,103,528

Cash and cash equivalents 2,833,820 9,095,255

Investment in affiliate 478,612 1,730,087

Receivables and other assets 2,116,387 2,805,604
------------ ------------
Total assets $165,693,886 $180,776,262
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 3,423,700 $ 2,819,518

Note payable to affiliate 478,612 1,737,723

Accounts payable and accrued expenses 200,987 212,428
------------ ------------
Total liabilities 4,103,299 4,769,669
------------ ------------
Partners' equity:
Limited partners' equity 175,790,599 176,783,204
General partner's deficit (827,755) (776,611)
Unrealized losses on
investment in insured
mortgages (13,372,257) --
------------ ------------
Total partners' equity 161,590,587 176,006,593
------------ ------------
Total liabilities and
partners' equity $165,693,886 $180,776,262
============ ============

The accompanying notes are an integral part
of these financial statements.
</TABLE> <PAGE>

<PAGE>33

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF OPERATIONS
<TABLE><CAPTION>

For the years ended December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Mortgage investment income $ 13,311,387 $ 14,387,837 $ 11,995,704
Interest and other income 332,966 42,419 99,931
------------ ------------ ------------
13,644,353 14,430,256 12,095,635
------------ ------------ ------------
Expenses:
Asset management fee to related
parties 1,573,895 1,694,280 1,688,681
General and administrative 574,694 363,463 624,639
Interest expense to affiliate 60,779 139,018 139,018
------------ ------------ ------------
2,209,368 2,196,761 2,452,338
------------ ------------ ------------
Earnings before loan losses and gain on
mortgage disposition 11,434,985 12,233,495 9,643,297

Loan losses (115,301) (63,488) (106,870)

Gain on mortgage disposition 1,129,973 -- --
------------ ------------ ------------
Net earnings $ 12,449,657 $ 12,170,007 $ 9,536,427
============ ============ ============

Net earnings allocated to:
Limited partners - 95.1% $ 11,839,624 $ 11,573,677 $ 9,069,142
General partner - 4.9% 610,033 596,330 467,285
------------ ------------ ------------
$ 12,449,657 $ 12,170,007 $ 9,536,427
============ ============ ============
Net earnings per Limited
Partnership Unit $ 1.24 $ 1.21 $ .95
============ ============ ============

The accompanying notes are an integral part
of these financial statements.
</TABLE> <PAGE>

<PAGE>34

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 1994, 1993 and 1992

Unrealized
Losses on
Investment
General Limited in Insured
Partner Partners Mortgages Total
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>

Balance, January 1, 1992 $ (779,381) $ 176,729,433 $ -- $175,950,052

Net earnings 467,285 9,069,142 -- 9,536,427

Distributions paid or accrued of
of $1.14, including return of
capital of $.19 per Unit per Unit (562,495) (10,916,995) -- (11,479,490)
------------- ------------- ------------- ------------

Balance, December 31, 1992 (874,591) 174,881,580 -- $174,006,989

Net earnings 596,330 11,573,677 -- 12,170,007

Distributions paid or accrued of
$1.01 (498,350) (9,672,053) -- (10,170,403)
------------- ------------- ------------ ------------
Balance, December 31, 1993 (776,611) 176,783,204 -- 176,006,593

Net earnings 610,033 11,839,624 -- 12,449,657

Distributions paid or accrued of
$1.34, including return
of capital of $.10 per Unit (661,177) (12,832,229) -- (13,493,406)

Unrealized losses on
investment in insured
mortgages -- -- (13,372,257) (13,372,257)
------------- ------------- ------------ ------------

Balance, December 31, 1994 $ (827,755) $ 175,790,599 $(13,372,257) $161,590,587
============= ============= ============ ============

Limited Partnership Units outstanding -
December 31, 1994, 1993 and 1992 9,576,290
=========

The accompanying notes are an integral part
of these financial statements. <PAGE>

<PAGE>35

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CASH FLOWS

</TABLE>
<TABLE><CAPTION>

For the years ended December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:

Net earnings $ 12,449,657 $ 12,170,007 $ 9,536,427

Adjustments to reconcile net earnings to net cash
provided by operating activities:
Loan losses 115,301 63,488 106,870
Gain on mortgage disposition (1,129,973) -- --
Payments (made) received and treated as (an addition to)
a reduction of Assets Held for Sale under
Coinsurance program/mortgage investment income
accrued/accreted on AHFS -- (3,106,783) 1,623,486
Changes in assets and liabilities:
(Decrease) increase in note payable to affiliate (1,259,111) 6,813 --
(Decrease) increase in accounts payable and
accrued expenses (11,441) 26,722 (46,037)
Decrease (increase) in receivables and other assets 689,217 (1,699,772) 5,236
Decrease in investment in affiliate 1,251,475 823 --
------------ ------------ ------------
Net cash provided by operating activities 12,105,125 7,461,298 11,225,982
------------ ------------ ------------
Cash flows from investing activities:

Proceeds from disposition of Assets Held for Sale
under Coinsurance Program 33,233,501 9,049,783 --
Investment in Acquired Insured Mortgages (39,730,658) -- (3,038,297)
Receipt of principal from scheduled payments 1,019,821 600,361 573,537
------------ ------------ ------------
Net cash (used in) provided by investing activities (5,477,336) 9,650,144 (2,464,760)
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (12,889,224) (10,573,196) (11,441,106)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (6,261,435) 6,538,246 (2,679,884)

Cash and cash equivalents, beginning of year 9,095,255 2,557,009 5,236,893
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,833,820 $ 9,095,255 $ 2,557,009
============ ============ ============

</TABLE>

The accompanying notes are an
integral part of these
financial statements.
<PAGE>36

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

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, AIM Capital Management Corp.
served as the managing general partner (with a partnership interest of 4.8%),
IRI Properties Capital Corp. served as corporate general partner (with a
partnership interest of 0.1%) and Second Group Partners, an affiliate of the
former general partners, served as the 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.

At a special meeting of the limited partners and Unitholders of the
Partnership held on September 4, 1991, a majority of these interests approved,
among other items, assignment of the general partner interests and the shares of
the company which acts as the assignor limited partner in the Partnership.

Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the Partner-
ship. CRIIMI, Inc. purchased the interests of the former managing general
partner and the former corporate general partner pursuant to the terms of the
Partnership Agreement. 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). In addition,
the General Partner acquired the shares of the company which acts as the
assignor limited partner in the Partnership. The interest of the former
associate general partner (0.1%) was purchased by the Partnership on September
6, 1991, pursuant to the terms of the Partnership Agreement.

Also, on September 6, 1991, AIM Acquisition Partners, L.P. (the Advisor)
succeeded Integrated Funding, Inc. (IFI) as the advisor to the Partnership. AIM
Acquisition Corporation (AIM Acquisition) is the general partner of the Advisor
and the limited partners include, but are not limited to, AIM Acquisition, The
Goldman Sachs Group, L.P., Broad Inc. and a limited partnership formed by CRI
and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership
Agreement, as discussed below, the General Partner is required to receive the
consent of the Advisor prior to taking certain significant actions which affect
the management and policies of the Partnership. The limited partners and
Unitholders of the Partnership approved the execution of a sub-advisory
agreement (the Sub-advisory Agreement) with CRI/AIM Management, Inc. (the Sub-
advisor), an affiliate of CRI, pursuant to which CRI/AIM Management, Inc.
manages the Partnership's portfolio and directs the disposition of the
Partnership's mortgage investments.

During 1994, CRIIMI MAE's Board of Directors determined that it is in
CRIIMI MAE's best interest to consider a proposed transaction in which
CRIIMI MAE would become a self-managed and self-administered real
estate investment trust (REIT). Under the terms of the proposed
transaction, CRIIMI MAE and its affiliates would acquire certain
mortgage investment, servicing, origination and advisory business from
affiliates of CRI, including the Sub-advisory Agreement in place with respect to
the Partnership. This transaction will have no effect on the Partnership's
financial statements.<PAGE>
<PAGE>37

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION - Continued

Until the change in the Partnership's investment policy, as discussed
below, and through December 31, 1994, (the expiration of the Partnership's
reinvestment period) 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). After the expiration of the reinvestment period,
the Partnership is required (subject to the conditions set forth in the
Partnership Agreement) to distribute such proceeds to its Unitholders. The
Partnership Agreement states that the Partnership will terminate on December 31,
2020, unless previously terminated under the provisions of the Partnership
Agreement. As of December 31, 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.

Effective January 1, 1994, the United States Congress 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 cleared away the major
impediment standing in the way of listing the Partnership's Depositary Units of
Limited Partnership Interest (Units) for trading on a national stock exchange.
In an effort to allow pension funds and other tax-exempt organizations to invest
in publicly-traded partnerships, the Revenue Reconciliation Act of 1993 repealed
the rule that automatically treated income from publicly-traded partnerships as
gross income that is derived from an unrelated trade or business. As a result,
investments in publicly-traded partnerships such as the Partnership are now
treated the same as investments in other partnerships for purposes of the
unrelated business taxable income rules. 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."

2. SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------
The financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.

Investment in Insured Mortgages
-------------------------------
The Partnership's Investment in Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest
in government insured multifamily mortgages issued or sold pursuant to FHA
programs (FHA-Insured Certificates), mortgage-backed securities guaranteed
by GNMA (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans
(FHA-Insured Loans). The mortgages underlying the FHA-
Insured

<PAGE>38

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or
retirement homes.

Payments of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans are insured by the United States Department of Housing
and Urban Development (HUD) pursuant to Title 2 of the National Housing
Act. Payments of principal and interest on GNMA Mortgage-Backed Securities
are guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

Prior to January 1, 1994, the Partnership accounted for its investment
in Insured Mortgages at amortized cost in accordance with Statement of
Financial Accounting Standard No. 65 "Accounting for Certain Mortgage
Banking Activities" (SFAS 65) since it had the ability and intent to hold
these assets for the foreseeable future. The difference between the cost
and the unpaid principal balance, at the time of purchase, is carried as a
discount or premium and amortized over the remaining contractual life of
the mortgage using the effective interest method. The effective interest
method provides a constant yield of income over the term of the mortgage.
Mortgage investment income is comprised of amortization of the discount
plus the stated mortgage interest payments received or accrued, less
amortization of the premium.

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), effective for fiscal
years beginning after December 15, 1993. The Partnership adopted this
statement as of January 1, 1994. 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 for which 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.

As of December 31, 1994, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-
Insured Certificates is approximately 33 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
investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, the Partnership does not have the ability, at this time, to
hold these investments to maturity. Consequently, the General Partner
believes that the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates should be included in the Available
for Sale category. Although the Partnership's investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates is classified as
Available for Sale for financial statement purposes, the General Partner
does not intend to voluntarily sell these assets other than those which may
be sold as a result of a default or those which are eligible to be put
to
<PAGE>39

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

FHA at the expiration of 20 years from the date of the final endorsement.

In connection with this classification, as of December 31, 1994, the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-
Insured Certificates are recorded at fair value, with the unrealized losses
on these assets reported as a separate component of partners' equity.
Subsequent increases or decreases in the fair value of GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, classified as Available for Sale,
will be included as a separate component of partners' equity. Realized
gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured
Certificates classified as Available for Sale, will continue to be reported
in earnings. The amortized cost of the GNMA Mortgage-Backed Securities and
FHA-Insured Certificates in this category is adjusted for amortization of
discounts and premiums to maturity. Such amortization is included in
mortgage investment income.

As of January 1, 1994, and for the first three quarters of 1994, the
Partnership adopted SFAS 115 for all its mortgage investments. Upon
further consideration and interpretation of SFAS 115, as of December 31,
1994, the Partnership has only applied this accounting pronouncement to its
investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates. The Partnership continues to account for its FHA-Insured
Loans in accordance with SFAS 65, or amortized cost, because such loans are
not securities and therefore are not subject to SFAS 115. The impact of
this change is immaterial to the 1994 financial statements of the
Partnership.

Gains from dispositions of mortgage investments are recognized upon
the receipt of cash or HUD debentures.

Losses on dispositions of mortgage investments are recognized when it
becomes probable that a mortgage will be disposed of and that the
disposition will result in a loss. In the case of Insured Mortgages fully
insured by HUD, the Partnership's maximum exposure for purposes of
determining the loan losses would generally be an assignment fee charged by
HUD representing approximately 1% of the unpaid principal balance of the
Insured Mortgage at the date of default, plus the unamortized balance of
acquisition fees and closing costs paid in connection with the acquisition
of the Insured Mortgage and the loss of approximately 30-days accrued
interest (see discussion below for losses on mortgages accounted for as
AHFS, as defined below).

Assets Held for Sale Under Coinsurance Program (AHFS)
-----------------------------------------------------
As of December 31, 1993, the Partnership had invested in one coinsured
mortgage which was accounted for as AHFS. The coinsurer on this mortgage is
Integrated Funding, Inc. (IFI), an affiliate of the Partnership, and the
Partnership bears the risk of any coinsurance loss.

A coinsured mortgage loan is deemed to be AHFS when a determination
has been made that the borrower meets the following criteria:

1. The borrower has little or no equity in the collateral, considering
the current fair value of the collateral; and <PAGE>

<PAGE>40

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

2. proceeds for repayment of the loan can be expected to come only from
the operation or sale of the collateral; and
3. the borrower has either:
a. formally or effectively abandoned control of the collateral to
the creditor; or,
b. retained control of the collateral, but because of the current
financial condition of the borrower or the economic prospects for
the borrower and/or the collateral in the foreseeable future, it
is doubtful that the borrower will be able to rebuild equity in
the collateral or otherwise repay the loan in the foreseeable
future.

AHFS represent the estimated cash flow to be received from any claims
filed with HUD, including the estimated asset disposition proceeds. The
disposition proceeds are based on the estimated fair value of the
collateral underlying the mortgage which represents the amount that could
reasonably be expected to be received in a current sale between a willing
buyer and a willing seller. The General Partner initially determined the
estimated fair value of the AHFS and periodically assesses the estimated
current fair value of the properties to determine whether additional loan
losses are appropriate due to, among other factors, a change in market
conditions affecting the properties. The loan losses related to these AHFS
reduce their carrying values.

The Partnership accounts for AHFS at the lower of cost or market since
its intent is to dispose of the assets in the short term and file
coinsurance claims with HUD.

Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of time and demand deposits and
commercial paper with original maturities of three months or less. <PAGE>

<PAGE>41

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

Reclassification
----------------
Certain amounts in the financial statements for the years ended
December 31, 1993 and 1992 have been reclassified to conform with the 1994
presentation.

Income Taxes
------------
No provision has been made for Federal, state or local income taxes in
the accompanying statements of operations since they are the personal
responsibility of the Unitholders.

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.

<TABLE><CAPTION>
As of December 31, 1994 As of December 31, 1993
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>

Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Originated Insured Mortgages $ 62,001,470 $ 53,182,652 $ 62,489,779 $ 59,130,566
Acquired Insured Mortgages 41,472,892 36,919,453 2,006,185 2,107,084
------------ ------------ ------------ ------------
$103,474,362 $ 90,102,105 $ 64,495,964 $ 61,237,650
============ ============ ============ ============
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 69,162,106 $ 63,422,100 $ 69,539,851 $ 69,659,663
Acquired Insured Mortgage 1,000,856 956,403 1,005,973 1,054,179
------------ ------------ ------------ ------------
$ 70,162,962 $ 64,378,503 $ 70,545,824 $ 70,713,842
============ ============ ============ ============

Cash and cash equivalents $ 2,833,820 $ 2,833,820 $ 9,095,255 $ 9,095,255

Accrued interest receivable $ 1,910,398 $ 1,190,398 $ 1,311,345 $ 1,311,345

</TABLE> <PAGE>

<PAGE>42

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Investment in FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans
--------------------------------------------------------
The fair value of the fully insured FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market
prices. In order to determine the fair value of the coinsured FHA-Insured
Certificates, the Partnership valued the coinsured FHA-Insured Certificates
as though they were fully insured (in the same manner fully insured FHA-
Insured Certificates 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 FHA-Insured Certificates and fully insured
FHA-Insured Certificates.

4. INVESTMENT IN INSURED MORTGAGES

The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:

During the year ended December 31, 1994, the Partnership purchased the
following fully insured Acquired Insured Mortgages: <PAGE>

<PAGE>43

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

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 7.745%
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 7.595%
Sunflower Apts. May 1994 1,831,302 7.595%
Main Street Apts. September 1994 1,370,266 8.776%
-----------

Total 1994 investment in fully
insured Acquired Insured
Mortgages $39,730,658
===========
</TABLE> <PAGE>

<PAGE>44

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is
prohibited from entering into any workout arrangement with the borrower
without the Partnership's consent and must file a claim for coinsurance
benefits with HUD, upon default, if the Partnership so directs. As an
ongoing HUD-approved coinsurance lender, and under the terms of the
participation documents, the coinsurance lender is required to satisfy
certain minimum net worth requirements as set forth by HUD. However, it is
possible that the coinsurance lender's potential liability for loss on
these developments, and others, could exceed its HUD-required minimum net
worth. In such case, the Partnership would bear the risk of loss if the
coinsurance lenders were unable to meet their coinsurance obligations. In
addition, HUD's obligation for the payment of its share of the loss could
be diminished under certain conditions, such as the lender not adequately
pursuing regulatory violations of the borrower or the failure to comply
with other terms of the mortgage. However, the General Partner is not aware
of any conditions or actions that would result in HUD diminishing its
insurance coverage.<PAGE>
<PAGE>45

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

The following is a discussion of actual and potential performance
problems with respect to the mortgage investments which are coinsured
by M-West and Patrician.

In October 1994, the Partnership's attorneys notified M-West that
it
<PAGE>46

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

was in default under the participation agreements, and directed it to
prepare an assignment of M-West's interest in the mortgage loans to
IFI, a coinsuring mortgagee approved by HUD, and an affiliate of the
Partnership. To date, M-West has not complied with the Partnership's
direction. IFI has requested that this assignment be approved by HUD.
In November 1994, Whitehall filed a Complaint and a motion for a
Temporary Restraining Order (TRO) against M-West in California State
Court (the Court), which the Court granted, and which prohibited M-
West from transferring or disposing of any of its assets, including
the Partnership's coinsured loans, pending a further hearing.
Additionally, the Court required that Whitehall deposit the mortgage
payments it has received on account of two of these loans into an
account controlled by the Court.

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

The mortgagor 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 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 March 21, 1995,
the mortgagor has made payments of principal and interest due on the
original mortgage through October 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 seeking to acquire and dispose of the property.

<PAGE>48

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

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 of December 31, 1994, the remaining two IFI coinsured mortgages, as
shown in the table below, 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
were recognized on these mortgages during the years ended December 31,
1994, 1993 and 1992, except as described below in connection with a
mortgage modification in 1994. As of December 31, 1994, these two
investments had an aggregate fair value of $17,311,781. <PAGE>

<PAGE>49

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

Amortized Face Amortized Face Loan Losses Recognized
Cost Value Cost Value for the year ended
December 31, December 31, December 31, December 31, December 31, December 31,
1994 1994 1993 1993 1994 1993
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Pembrook Apartments $ 15,606,087 $ 14,992,832 $ 15,684,341 $ 15,060,875 $ -- $ --
Spring Lake Village (a) 5,022,918 5,022,919 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 year ended December 31, 1994, primarily representing the unamortized balance of acquisition and closing costs paid
in connection with the origination of this mortgage.
</TABLE> <PAGE>

<PAGE>50

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

b. Assets Held for Sale Under Coinsurance Program

5. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1994, 1993 and 1992 are as follows:

1994 1993 1992
------ ------ ______

Quarter ended March 31, $ 0.41(1)(2) $ 0.23 $ 0.30
Quarter ended June 30, 0.29(2) 0.21 0.22
Quarter ended September 30, 0.30(2) 0.29(3) 0.30
Quarter ended December 31, 0.34(2) 0.28(4) 0.32
------ ------ ------
$ 1.34 $ 1.01 $ 1.14
====== ====== ======

(1) This amount includes approximately $0.18 per Unit representing previously
undistributed accrued interest received from the disposition of the
mortgage on One East Delaware.

(2) This amount includes approximately $0.01, $0.04, $0.03 and $0.03 per Unit
representing previously undistributed accrued interest received from two
delinquent mortgages, for the quarters ending March 31, 1994, June 30,
1994, September 30, 1994 and December 31, 1994, respectively.

(3) In September 1993, the Partnership received $591,872 (approximately $0.06
per Unit) from the mortgage on Victoria Pointe Apartments-Phase II,
representing mortgage interest from October 1991 through June 1992, and a
partial payment for July 1992. The Partnership distributed approximately
$0.03 per Unit of this previously undistributed interest and reserved
approximately $0.03 per Unit for the continued funding of coinsurance
expenses. The Partnership distributed the remaining interest of
approximately $0.03 per Unit to Unitholders as part of the fourth quarter
distribution, as discussed below.

(4) This includes a special distribution of approximately $0.10 per Unit
comprised of (i) $0.03 per Unit of previously undistributed accrued
interest from the mortgage on Victoria Pointe Apartments-Phase II which was
reserved as part of the third quarter distribution, described above, and
(ii) $.07 per Unit representing previously undistributed accrued interest
received in December 1993 resulting from the disposition of the mortgage
on
<PAGE>51

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

5. DISTRIBUTIONS TO UNITHOLDERS - Continued

Victoria Pointe Apartments-Phase II.

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 approximately $4.7 million to IFI in order
to capitalize IFI with sufficient net worth under HUD regulations. The
Partnership and its affiliate, AIM 88, 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. AIM Mortgage, Inc. is
jointly owned by AIM 85, AIM 88 and the Partnership. 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 (collectively, 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 mortgage investments. 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. On
June 30, 1994, the Partnership repaid its note payable to AIM 85.

As a result of this distribution, in April 1994, AIM 88 transferred a GNMA
Mortgage-Backed Security in the amount of approximately $2.0 million to IFI in
order to recapitalize IFI with sufficient net worth under HUD regulations. The
Partnership and AIM 85 each issued a demand note payable to AIM 88 and recorded
an investment in IFI through AIM Mortgage, Inc., in proportion to each entity's
coinsured mortgages for which IFI was the mortgagee of record as of April 1,
1994. Interest expense on the note payable to AIM 88 is based on an annual
interest rate of 7.25%

In connection with these transactions, the expense reimbursement
agreement
<PAGE>52

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE -
Continued

was amended as of April 1, 1994 to adjust the allocation of the expense
reimbursement to the AIM Funds to an amount proportionate to each entity's
coinsured mortgage investments as of April 1, 1994. The expense reimbursement,
as amended, 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.

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 years ended
December 31, 1994, 1993 and 1992, earned or received compensation or payments
for services from the Partnership as follows: <PAGE>

<PAGE>53

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

7. TRANSACTIONS WITH RELATED PARTIES - Continued

COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
----------------------------------------------

Capacity in Which For the years ended December 31,
Name of Recipient Served/Item 1994 1993 1992
- ----------------- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CRIIMI, Inc.(1) General Partner/Distribution $ 661,177 $ 498,350 $ 562,495

AIM Acquisition Advisor/Asset Management Fee 1,573,895 1,694,280 1,688,681
Partners, L.P.(2)

CRI(3) Affiliate of General Partner/ 161,509 142,495 209,880
Expense Reimbursement

(1) The General Partner, pursuant to amendments to the Partnership Agreement, effective September 6, 1991, is entitled to
receive 4.9% of the Partnership's income, loss, capital and distributions including, without limitation, the Partnership's Adjusted
Cash from Operations and Proceeds of Mortgage Prepayments, Sales or Insurance (both as defined in the Partnership Agreement).

(2) The Advisor, pursuant to the Purchase Agreement and amendments to the Partnership Agreement, effective October 1, 1991, is
entitled to an Asset Management Fee equal to 0.95% of Total Invested Assets (as defined in the Partnership Agreement).

Of the amounts paid to the Advisor, the Sub-advisor earned a fee equal to $463,853, $499,332 and $497,716, or 0.28% of Total
Invested Assets, for the years ended December 31, 1994, 1993 and 1992.

(3) These amounts are paid to CRI as reimbursement for expenses incurred on behalf of the General Partner and the Partnership.
As discussed in Note 1, the proposed transaction in which CRIIMI MAE would become a self-managed and self-administered REIT has no
impact on the payments required to be made by the Partnership, other than that the expense reimbursement currently paid by the
Partnership to CRI in connection with the provision of services by the Sub-advisor will be paid to affiliates of CRIIMI MAE
subsequent to the consummation of the proposed transaction.
</TABLE> <PAGE>

<PAGE>54

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

8. PARTNERS' EQUITY

Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 9,576,165
Units were issued for an aggregate capital contribution of $191,523,300. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor and the former general
partners contributed a total of $1,000 to the Partnership.<PAGE>
<PAGE>55

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1994, 1993 and 1992:

<TABLE><CAPTION>
(In Thousands, Except Per Unit Data)
1994
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income $ 3,294 $ 3,471 $ 3,454 $ 3,425
Loan losses (115) -- -- --
Gain on mortgage
disposition 1,130 -- -- --
Net earnings 3,715 2,889 2,912 2,934
Net earnings per Limited
Partnership Unit 0.37 0.29 0.29 0.29
</TABLE>

<TABLE><CAPTION>
1993
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income $ 3,677 $ 3,625 $ 3,989 $ 3,139
Loan losses -- -- -- (63)
Net earnings 3,109 3,092 3,410 2,559
Net earnings per Limited
Partnership Unit 0.31 0.31 0.34 0.25

</TABLE>

<TABLE><CAPTION>
1992
Quarter ended
March 31* June 30* September 30* December 31*
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income $ 3,163 $ 2,792 $ 2,930 $ 3,211
Loan losses -- -- -- (107)
Net earnings 2,532 2,144 2,352 2,508
Net earnings per Limited
Partnership Unit 0.25 0.21 0.23 0.26

*Certain amounts in the statement of operations for the quarters ended March 31, 1992, June 30, 1992, September 30, 1992 and
December 31, 1992 were reclassified to conform with the 1993 presentation. These reclassifications are reflected herein.
/TABLE
<PAGE>
<PAGE>56

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
<TABLE>
<CAPTION> Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ORIGINATED INSURED MORTGAGES
Coinsured Mortgages
- -------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Woodland Apts.
Minnetonka, MN(6) 5/29 10/02 8.25% $ 11,885,577 $ 10,426,266 $ -- $1,043,897
Woodbine at Lakewood Apts.
Boise, ID(6) 5/29 10/02 8.25% 5,049,840 4,429,850 -- 443,917
Carmen Drive Estates
Lake Oswego, OR(6) 4/29 12/02 8.50% 4,900,599 4,298,766 -- 440,780
Pembrook Apts.
Gurnee, IL(7) 6/30 10/05 8.25% 14,992,832 13,151,376 -- 1,308,031
Spring Lake Village
St. Petersburg, FL(7) 7/29 5/03 7.00% 5,022,919 4,160,405 115,301 463,226
The Villas
Lauderhill, FL (6) 7/29 8/02 8.75% 15,966,491(12) 14,012,209 842,709 1,491,805(13)
St. Charles Place-Phase II
Miramar, FL (6) 2/30 12/03 8.625% 3,082,440(8)(12) 2,703,780(8) 106,000 279,571(8)
----------- -----------
Total investment in FHA-Insured
Certificates-Originated Insured
Mortgages 60,900,698 53,182,652
----------- ----------
</TABLE> <PAGE>

<PAGE>57

<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994

<CAPTION> Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ACQUIRED INSURED
MORTGAGES:
- -----------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Southampton Apts.
Grove City, OH 4/27 -- 8.50% $ 2,013,164 $ 1,917,136 -- $ 183,038
Pleasantview Nursing Home
Union, NJ 6/29 -- 7.75% 3,486,246 3,148,947 -- 290,532
------------ -------------
Total investment in FHA-Insured
Certificates - Acquired Insured
Mortgages 5,499,410 5,066,083
------------ -------------
Investment in GNMA Mortgage-Backed
Securities (carried at fair value)
Brighton Manor
Petersburg, VA 3/29 -- 7.50% 1,035,926 915,245 -- 84,243
Cyress Cove
Jacksonville, FL 2/28 -- 7.30% 7,037,818 6,218,404 -- 564,582
Hickory Tree Apts.
Indianapolis, IN 4/27 -- 7.375% 3,537,653 3,125,860 -- 287,772
Main Street Square
Roundrock, TX 9/29 -- 8.75% 1,371,689 1,331,741 -- 126,165
Maple Manor
Syracuse, NY 4/29 -- 7.375% 1,254,101 1,108,017 -- 100,599
Mountain Village Apts.
Tucson, AZ 5/29 -- 7.50% 1,359,504 1,201,118 -- 110,441
Oak Grove Apts.
Baltimore, MD 6/23 -- 7.50% 7,080,648 6,257,777 -- 603,107
Oakwood Garden Apts.
San Jose, CA 10/23 -- 7.75% 9,903,233 8,751,798 -- 860,914
Regency Park Apts.
North St. Paul, MN 4/24 -- 7.00% 1,488,672 1,315,697 -- 119,754
Sunflower Apts.
Tucson, AZ 5/29 -- 7.50% 1,842,351 1,627,713 -- 149,666
------------ ------------
Total investment in GNMA Mortgage-
Backed Securities-Acquired Insured
Mortgages 35,911,595 31,853,370
------------ ------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities $102,311,703 $ 90,102,105
============ ============
</TABLE> <PAGE>

<PAGE>58

<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
<CAPTION>
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ORIGINATED INSURED
MORTGAGES:
- ------------------
Fully Insured Mortgages
- -----------------------
Investment in FHA-Insured
Loans (carried at amortized cost)(2)
Iroquois Club Apts.
Naperville, IL 3/29 12/03 8.25% $ 18,565,562 $ 19,244,552 -- $ 1,629,873
Colony Square Apts.
Rocky Mount, NC 10/28 4/02 8.25% 4,231,909 4,404,666 -- 372,352
Lakewood Villas
Vernon Hills, IL 6/28 5/02 8.50% 5,968,482 6,195,321 -- 539,123
Argyle Place
Hickory, NC 4/29 7/03 8.25% 4,949,499 5,130,254 -- 434,902
Skyridge Club
Crystal Lake, IL 7/29 7/05 8.25% 8,888,128 9,259,160 -- 778,940
Arbor Station
Montgomery, AL 10/29 7/02 8.25% 8,785,382 9,128,375 -- 771,270
Greenbriar Place
Glen Ellyn, IL 4/29 7/02 8.25% 5,793,079 6,020,252 -- 508,353
Ridgeview Chase Apts.
Westminster, MD 2/30 10/04 8.375% 9,420,765 9,779,526 -- 833,588
------------ ------------
Total investment in FHA-Insured Loans -
Fully Insured Mortgages 66,602,806 69,162,106
------------ ------------
ACQUIRED INSURED MORTGAGE
- -------------------------
Investment in FHA-Insured
Loan - (carried at amortized cost)(2)

Winburn Square
Lexington, KY 1/27 -- 9.00% 1,004,351 1,000,856 -- 95,829
------------ ------------

Total investment in FHA-Insured Loans 67,607,157 70,162,962
============ ============

TOTAL INVESTMENT IN INSURED MORTGAGES $169,918,860 $160,265,067
============ ============

</TABLE> <PAGE>

<PAGE>59

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1994

(1) Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage (put) to FHA at the
expiration of 20 years from the date of final endorsement if the insured
mortgage is not in default at such time. Any insured mortgagee electing to
assign an FHA-insured mortgage to FHA will receive in exchange HUD
debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the
date of assignment. These HUD debentures will mature 10 years from the
date of assignment and will bear interest at the "going Federal" rate at
such date. This assignment procedure is applicable to a mortgage which had
a firm or conditional FHA commitment for insurance on or before November
30, 1983 and, in the case of insured mortgages sold in a GNMA auction, was
sold in an auction prior to February 1984. Certain of the Partnership's
mortgages may have the right of assignment under this program. Certain
mortgages that do not qualify under this program possess a special
assignment option, in certain mortgage documents, which allows the
Partnership, anytime after this date, to require payment of the unpaid
principal balance of the mortgages. At such time, the borrowers must make
payment to the Partnership or the Partnership may cancel the FHA insurance
and institute foreclosure proceedings.

(2) Inclusive of closing costs and acquisition fees.

(3) Prepayment of these insured mortgages would be based upon the unpaid
principal balance at the time of prepayment.

(4) This represents the base interest rate during the permanent phase of this
insured mortgage loan. Additional interest (referred to as Participations)
measured as a percentage of the net cash flow from the development and of
the net proceeds from sale, refinancing or other disposition of the
underlying development (as defined in the participation agreements), will
also be due. During the years ended December 31, 1994, 1993 and 1992, the
Partnership received additional interest of $41,059, $113,822 and $104,350,
respectively, from the Participations.

(5) In addition, the servicer or the sub-servicer of the insured mortgage,
primarily unaffiliated third parties, is entitled to receive compensation
for certain services rendered. Effective January 1993, CRICO Mortgage
Company, Inc., an affiliate of CRI, became the sub-servicer of two of the
seven coinsured mortgages.

(6) These mortgages are insured under the HUD coinsurance program, as
previously discussed. The <PAGE>

<PAGE>60

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1994

HUD-approved coinsurance lenders for these mortgages are The Patrician
Mortgage Company (The Villas and St. Charles Place-Phase II) and M-West
Mortgage Corporation (Woodland Hills Apartments, Woodbine at Lakewood
Apartments and Carmen Drive Estates).

(7) These insured mortgages are insured under the HUD coinsurance program, as
previously discussed. IFI is the HUD-approved coinsurance lender, and the
Partnership bears the risk of any principal loss, as previously discussed.

(8) This amount represents the Partnership's 45% interest in this insured
mortgage. The remaining 55% interest was acquired by AIM 88.

(9) A reconciliation of the carrying value of the Insured Mortgages and Assets
Held for Sale Under Coinsurance Program, for the years ended December 31,
1994 and 1993, is as follows:

1994 1993
------------ ------------
Beginning balance $167,145,316 $173,752,165

Investment in Acquired
Insured Mortgages 39,730,658 --

Principal receipts on
Insured Mortgages (1,019,821) (600,361)

Payments made for AHFS/
mortgage investment
income accrued/accreted
on AHFS -- 3,106,783

Loan losses (115,301) (63,488)

Gain on mortgage
disposition 1,129,973 --

Disposition of AHFS (33,233,501) (9,049,783)

Unrealized losses
on investment in
Insured Mortgages (13,372,257) --
------------ ------------
Ending balance $160,265,067 $167,145,316
============ ============

(10) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or
retirement homes. <PAGE>

<PAGE>61

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1994

(11) Principal and interest are payable at level amounts over the life of the
Insured Mortgages.

(12) Represents principal amount subject to delinquent principal or interest.
See Note 4 to the financial statements.

(13) Annual payment reflects required principal and interest payments for 1994
as per the modification agreement.

(14) As of December 31, 1994 and 1993, the tax basis of the Insured Mortgages
and Assets Held for Sale Under Coinsurance Program, was approximately
$174.3 million and $168.0 million, respectively.<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE 1994 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 1994 ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 2,834
<SECURITIES> 90,102
<RECEIVABLES> 72,279
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 165,694
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 161,591
<TOTAL-LIABILITY-AND-EQUITY> 165,694
<SALES> 0
<TOTAL-REVENUES> 14,774
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,148
<LOSS-PROVISION> 115
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 12,450
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,450
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 0

</TABLE>

AMENDMENT TO REIMBURSEMENT AGREEMENT
------------------------------------

THIS AMENDMENT TO REIMBURSEMENT AGREEMENT is made effective as of April 1,
1994 by and among Integrated Funding, Inc., a New York corporation ("IFI"), and
American Insured Mortgage Investors - Series 85, L.P. ("AIM 85"), American
Insured Mortgage Investors L.P. - Series 86 ("AIM 86"), and American Insured
Mortgage Investors L.P. - Series 88 ("AIM 88") (AIM 85, AIM 86 and AIM 88
collectively referred to as the "AIM Funds").

RECITALS
--------

A. The parties hereto entered into the Expense Reimbursement Agreement
effective as of December 31, 1992 (the "Agreement") in order to allocate to IFI
a portion of the expenses incurred by the AIM Funds in connection with the
Subadvisor's management of the funds.

B. The parties seek to change the allocation of expenses to each fund
based on the outstanding principal balance of coinsured loans for which IFI acts
as the mortgagee of record as of April 1, 1994.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

1. Section 1 of the Agreement is hereby deleted in its entirety and the
following is substituted in lieu thereof:

"1. Reimbursement. IFI will reimburse the AIM Funds a total expense
amount calculated as .1723% annually of the outstanding principal
balance of the coinsured loans for which IFI acts as the mortgagee of
record (approximately $83 million as of April 1, 1994). The total
expense reimbursement shall be allocated to each AIM Fund as follows:

AIM FUND % OF COINSURED LOAN BALANCE
-------- ---------------------------

AIM 85 16%
AIM 86 24%
AIM 88 60%

2. Except as modified above, all other provisions of the Agreement shall
remain in full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.

- 2 -

INTEGRATED FUNDING, INC.

By: /s/ Frederick J. Burchill
-------------------------
Frederick J. Burchill
Vice President

AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.

By: CRIIMI, Inc., its
General Partner

By: /s/ Jay R. Cohen
-------------------------
Jay R. Cohen
Executive Vice President

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86

By: CRIIMI, Inc., its
General Partner

By: /s/ Jay R. Cohen
-------------------------
Jay R. Cohen
Executive Vice President

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 88

By: CRIIMI, Inc., its
General Partner

By: /s/ Jay R. Cohen
-------------------------
Jay R. Cohen
Executive Vice President

i:\wpdocs\sak\reimbagr.amd<PAGE>

NON-NEGOTIABLE PROMISSORY NOTE
------------------------------

US $478,612.00 April 1, 1994
Rockville, Maryland

FOR VALUE RECEIVED, the undersigned hereby promises to pay to the
order of American Insured Mortgage Investors L.P. - Series 88, a Delaware
limited partnership (the "Partnership"), the principal sum of Four Hundred
Seventy-Eight Thousand Six Hundred Twelve Dollars and no cents ($478,612.00)
plus interest computed on the basis of a year consisting of 360 days at a rate
of interest equal to seven and one quarter percent (7.25%) per annum.

This Note is payable upon demand. Payment shall be made in legal
tender of the United States at the offices of the Partnership, c/o C.R.I., Inc.,
The CRI Building, 11200 Rockville Pike, Rockville, Maryland 20852.

Accrued interest only on the outstanding principal amount shall be
payable on the fifteenth day of each month commencing on April 15, 1994 provided
that Integrated Funding, Inc. has received on a timely basis the interest
payment due from the Government National Mortgage Association on GNMA Pool
Number 280640 in the face amount of $1,994,216.68 as of the date hereof.

If any payment of principal or interest on this Note is due on a
Saturday, Sunday or legal holiday under the laws of Maryland, such payment shall
be made on the next succeeding business day. The Note may be prepaid at any
time, without penalty.

The undersigned hereby waives presentment, demand for payment, notice
of dishonor, notice of protest, and all other notices on demand in connection
with the delivery acceptance, performance, default and endorsement of this Note.

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86

By: CRIIMI, Inc., its
General Partner

By: /s/ William B. Dockser
-------------------------
William B. Dockser
Chairman<PAGE>