<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997
------------------
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) 816-2300
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of September 30, 1997, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1997 (unaudited)
and December 31, 1996 . . . . . . . . . . . 3
Statements of Operations - for the three and
nine months ended September 30, 1997
and 1996 (unaudited) . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30,
1997 (unaudited) . . . . . . . . . . . . . 5
Statements of Cash Flows - for the nine
months ended September 30, 1997
and 1996 (unaudited) . . . . . . . . . . . 6
Notes to Financial Statements
(unaudited) . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 19
Signature . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Originated insured mortgages $ 33,096,893 $ 33,076,697
Acquired insured mortgages 40,246,971 40,014,207
-------------- --------------
73,343,864 73,090,904
-------------- --------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
premium and discount:
Originated insured mortgages 52,772,342 53,047,822
Acquired insured mortgage 984,156 989,128
-------------- --------------
53,756,498 54,036,950
Cash and cash equivalents 1,990,602 38,580,668
Investment in affiliate 658,486 471,109
Receivables and other assets 4,340,458 3,103,526
-------------- --------------
Total assets $ 134,089,908 $ 169,283,157
============== ==============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 2,215,335 $ 33,532,120
Note payable and due to affiliate 671,236 478,612
Accounts payable and accrued expenses 164,896 135,694
-------------- --------------
Total liabilities 3,051,467 34,146,426
-------------- --------------
Partners' equity:
Limited partners' equity 136,519,270 141,161,141
General partner's deficit (2,851,200) (2,612,029)
Unrealized gains on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities 291,534 103,741
Unrealized losses on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities (2,921,163) (3,516,122)
-------------- --------------
Total partners' equity 131,038,441 135,136,731
-------------- --------------
Total liabilities and
partners' equity $ 134,089,908 $ 169,283,157
============== ==============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 2,550,925 $ 3,226,818 $ 7,734,762 $ 10,032,741
Interest and other income 18,639 28,147 331,253 214,583
------------ ------------ ------------ ------------
2,569,564 3,254,965 8,066,015 10,247,324
------------ ------------ ------------ ------------
Expenses:
Asset management fee to
related parties 247,605 395,670 742,815 1,187,010
General and administrative 90,008 55,113 288,632 310,393
Interest expense to affiliate 12,750 8,675 33,360 26,025
------------ ------------ ------------ ------------
350,363 459,458 1,064,807 1,523,428
------------ ------------ ------------ ------------
Earnings before gain on
mortgage disposition 2,219,201 2,795,507 7,001,208 8,723,896
Gain on mortgage disposition -- -- -- 37,325
------------ ------------ ------------ ------------
Net earnings $ 2,219,201 $ 2,795,507 $ 7,001,208 $ 8,761,221
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 2,110,460 $ 2,658,527 $ 6,658,149 $ 8,331,921
General partner - 4.9% 108,741 136,980 343,059 429,300
------------ ------------ ------------ ------------
$ 2,219,201 $ 2,795,507 $ 7,001,208 $ 8,761,221
============ ============ ============ ============
Net earnings per Limited
Partnership Unit $ 0.22 $ 0.28 $ 0.70 $ 0.87
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partners Mortgages Mortgages Total
------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (2,612,029) $ 141,161,141 $ 103,741 $ (3,516,122) $135,136,731
Net earnings 343,059 6,658,149 -- -- 7,001,208
Distributions paid or
accrued of $1.18 per
Unit, including return of
of capital of $0.48 per Unit (582,230) (11,300,020) -- -- (11,882,250)
Adjustment to unrealized
gains on investment in
Insured Mortgages -- -- 187,793 -- 187,793
Adjustment to unrealized
losses on investment in
Insured Mortgages -- -- -- 594,959 594,959
------------- ------------- ------------- ------------ ------------
Balance, September 30, 1997 $ (2,851,200) $ 136,519,270 $ 291,534 $ (2,921,163) $131,038,441
============= ============= ============= ============ ============
Limited Partnership Units outstanding -
September 30, 1997 9,576,290
=============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE><CAPTION>
For the nine months ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,001,208 $ 8,761,221
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on mortgage disposition -- (37,325)
Changes in assets and liabilities:
Increase in note payable and due
to affiliate 192,624 8,675
Increase (decrease) in accounts payable and accrued expenses 29,202 (33,074)
Increase in receivables and other assets (1,200,932) (485,200)
Increase in investment in affiliate (187,377) --
------------ ------------
Net cash provided by operating activities 5,834,725 8,214,297
----------- ------------
Cash flows from investing activities:
Proceeds from mortgage disposition -- 37,325
Receipt of principal from scheduled payments 774,244 805,219
------------ ------------
Net cash provided by investing activities 774,244 842,544
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (43,199,095) (15,507,347)
------------ ------------
Net cash used in financing activities (43,199,035) (15,507,347)
------------ ------------
Net decrease in cash and cash equivalents (36,590,066) (6,450,506)
Cash and cash equivalents, beginning of period 38,580,668 8,774,654
------------ ------------
Cash and cash equivalents, end of period $ 1,990,602 $ 2,324,148
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. The Partnership Agreement states that the Partnership will
terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc., is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE).
The Partnership's investment in mortgages includes participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (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 and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of September 30,
1997 and December 31, 1996 and the results of its operations for the three and
nine months ended September 30, 1997 and 1996 and its cash flows for the nine
months ended September 30, 1997 and 1996.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the General Partner believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the financial statements and the
notes to the financial statements included in the Partnership's Annual Report
filed on Form 10-K for the year ended December 31, 1996.
New Accounting Standards
------------------------
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" (FAS
128). FAS 128 changes the requirements for calculation and disclosure of
earnings per share. This statement eliminates the calculation of primary
earnings per share and requires the disclosure of basic earnings per share
and diluted earnings per share. There will be no impact to the earnings
per Unit of limited partnership interest.
During 1997 FASB issued SFAS No. 129 "Disclosure of Information about
Capital Structure" (FAS 129). FAS 129 continues the existing requirements
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
to disclose the pertinent rights and privileges of all securities other
than ordinary common stock but expands the number of companies subject to
portions of its requirements. The Partnership does not anticipate an
impact to its current disclosures.
During 1997 FASB issued SFAS No. 130 "Reporting Comprehensive Income"
(FAS 130). FAS 130 states that all items that are required to be
recognized under accounting standards as components of comprehensive income
are to be reported in either the statement of income or in another
statement of comprehensive income. This would include net income as
currently reported by the Partnership adjusted for unrealized gains and
losses related to the Partnership's mortgages accounted for as "available
for sale". FAS 130 is effective beginning January 1, 1998.
3. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's investment in FHA-
Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities as
of September 30, 1997 and December 31, 1996:
Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in fully
Insured Mortgages as of September 30, 1997 and December 31, 1996:
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE><CAPTION> September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages 6 6
Amortized Cost $ 52,772,342 $ 53,047,822
Face Value 50,917,207 51,162,234
Fair Value 52,473,542 52,063,040
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed
Securities 10 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 41,440,488 $ 41,743,903
Face Value 41,387,668 41,689,508
Fair Value 41,264,642 41,024,194
</TABLE>
As of November 1, 1997, all of the Partnership's fully insured
mortgage investments are current with respect to the payment of principal
and interest.
In addition to base interest payments from fully insured originated
Insured Mortgages, the Partnership is entitled to additional interest based
on a percentage of the net cash flow from the underlying development and of
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as Participations). During the three
and nine months ended September 30, 1997, the Partnership received
additional interest of $1,996 and $72,927 from the fully insured
Participations. During the three and nine months ended September 30, 1996
the Partnership received additional interest of $3,817 and $144,631,
respectively, from the fully insured Participations. These amounts are
included in mortgage investment income on the accompanying statements of
operations.
Originated Coinsured FHA-Insured Certificates
---------------------------------------------
As of September 30, 1997 and December 31, 1996, the Partnership had
invested in four FHA-Insured Certificates secured by coinsured mortgages.
As of September 30, 1997 and December 31, 1996, two of the four FHA-Insured
Certificates secured by coinsured mortgages are coinsured by an
unaffiliated third party coinsurance lender, The Patrician Mortgage Company
(Patrician), under the HUD coinsurance program.
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
1. Coinsured by third party
------------------------
As of September 30, 1997, the two originated coinsured mortgages which
are coinsured by Patrician, The Villas and St. Charles Place - Phase
II, were delinquent with respect to the payment of principal and
interest. The following is a discussion of actual and potential
performance problems with respect to the mortgage investments.
Listed below are the originated Insured Mortgages co-insured by
Patrician:
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE><CAPTION>
September 30, 1997 December 31, 1996
--------------------------------------------- ------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
The Villas(1) $ 15,442,784 $ 15,676,493 $ 14,975,039 $ 15,528,982 $ 15,762,692 $ 14,859,882
St. Charles Place -
Phase II(2) 3,040,060 3,040,060 2,904,631 3,052,629 3,052,629 2,877,102
(1) As of November 1, 1997, the mortgagor has made payments of principal and interest due on the original mortgage through November
1995, and has made payments of principal and interest due under a modification agreement through August 1993. Patrician is
litigating the case in bankruptcy court while pursuing negotiations on a modification agreement with the borrower.
(2) 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, an affiliate of the Partnership. As of November 1,
1997, the mortgagor has made payments of principal and interest due on the mortgage through November 1995 to the Partnership.
Patrician is litigating the case in bankruptcy court while pursuing negotiations on a modification agreement with the borrower.
</TABLE>
The General Partner intends to continue to oversee the Partnership's
interest in these mortgages in an effort 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 the most recent information available, and to
the extent these 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
----------------------
As of September 30, 1997 and December 31, 1996, the Partnership held
investments in two FHA-Insured Certificates secured by coinsured
mortgages, where the coinsurance lender is Integrated Funding, Inc.
(IFI), an affiliate of the Partnership.
As of November 1, 1997, Woodland Apartments was current with respect
to the payment of principal and interest. Spring Lake Village has
been delinquent since June 1997 with respect to principal and
interest. The mortgage on Spring Lake Village had been modified a
second time as of February 1996. The interest rate on this mortgage
was reduced to 6.75% for 1997 and will return to the previous rate of
7% for all subsequent years. Delinquent principal and interest
payments from September 1, 1996 through December 1, 1996 have been
deferred with quarterly payments to be paid out of available cash flow
on the deferred amount. No payments have been made on the deferred
amount due to insufficient cash flows. The impact of this
modification resulted in a decrease in mortgage interest income for
the first two years of the modification commencing February 1996.
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
In October 1997, IFI agreed with Spring Lake Associates (the borrower)
to suspend foreclosure proceedings to afford the borrower the
opportunity to sell Spring Lake Village Apartments and payoff the
mortgage note, including the unpaid principal balance and accrued
interest, and related expenses. If the borrower has not entered into
a written contract to sell by February 6, 1998, IFI intends to
initiate foreclosure proceedings.
The General Partner believes there is adequate collateral value
underlying these coinsured mortgages. Accordingly, no loan losses
were recognized on these mortgages during the nine months ended
September 30, 1997 and 1996. As of September 30, 1997 and December
31, 1996, these two investments had an aggregate fair value of
$15,217,223 and $15,339,713, respectively.
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE><CAPTION>
September 30, 1997 December 31, 1996
---------------------------- ----------------------------- Cumulative
Amortized Face Amortized Face Loan Losses
Cost Value Cost Value Recognized
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Woodland Apartments $ 12,102,359 $ 11,690,807 $ 12,166,667 $ 11,748,365 $ --
Spring Lake Village 4,931,957 4,900,849 5,000,233 4,933,126 115,301
</TABLE>
In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest
payments, additional interest (commonly termed Participations) based
on a percentage of the net cash flow from the development and the net
proceeds from the refinancing, sale or other disposition of the
underlying development. All of the FHA-Insured Certificates secured
by coinsured mortgages contain such Participations. During the three
and nine months ended September 30, 1997, the Partnership has not
received additional interest from the Participations. During the
three and nine months ended September 30, 1996, the Partnership
received additional interest of $0 and $110,253, respectively, from
the Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.
4. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD regulations,
in April 1994, American Insured Mortgage Investors L.P. - Series 88 (AIM 88), an
affiliate of the Partnership, transferred a GNMA mortgage-backed security in the
amount of $2.0 million to IFI. The Partnership and American Insured Mortgages
Investors L.P. - Series 85 (AIM 85), an affiliate of the Partnership, each
issued a demand note payable to AIM 88 and recorded an investment in IFI through
an affiliate (AIM Mortgage, Inc.) in proportion to each entity's coinsured
mortgages for which IFI was mortgagee of record as of April 15, 1994. Interest
expense on the note payable is based on an interest rate of 7.25% per annum. In
April 1997, the GNMA mortgage-backed security, with a current balance of $1.9
million, was reallocated between the Partnership and AIM 88. As a result, a new
demand note payable to AIM 88 was issued and the investment in IFI was updated.
IFI had 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 IFI coinsured mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net income or loss, substantially equals the mortgage principal and
interest on the GNMA mortgage-backed security transferred to IFI. In April
1997, this agreement was amended to exclude AIM 85 which no longer holds
coinsured mortgages.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 1997 and 1996 are as follows:
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
1997 1996
--------- ---------
Quarter ended March 31, $ 0.75(1) $ 0.91(3)
Quarter ended June 30, 0.21 0.30(4)
Quarter ended September 30, 0.22(2) 0.29(5)
--------- ---------
$ 1.18 $ 1.50
========= =========
(1) This amount includes approximately $0.53 per Unit return of capital and
gain from the prepayment of the mortgage on Carmen Drive Estates. In
addition, this amount includes $0.01 per Unit representing previously
undistributed accrued interest from St. Charles Place-Phase II and The
Villas.
(2) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest received from two delinquent mortgages.
(3) This amount includes $0.61 cents per Unit return of capital due to the
prepayment of the mortgage on Lakewood Villas, as well as $0.03 per unit
representing previously undistributed accrued interest received from two
delinquent mortgages.
(4) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest received from two delinquent mortgages.
(5) This amount includes approximately $0.02 per Unit representing previously
undistributed accrued interest received from two delinquent mortgages.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, 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
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from 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.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
nine months ended September 30, 1997 and 1996, earned or received compensation
or payments for services from the Partnership as follows:
<PAGE>15
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES - Continued
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
----------------------------------------------
For the three months For the nine months
Capacity in Which ended September 30, ended September 30,
Name of Recipient Served/Item 1997 1996 1997 1996
- ----------------- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $108,551 $143,091 $582,230 $ 740,124
AIM Acquisition Advisor/Asset Management Fee 247,605 395,670 742,815 1,187,010
Partners, L.P. (1)
CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 15,722 6,501 47,166 63,781
(1) The Advisor, pursuant to the Partnership Agreement, effective October 1, 1991, is entitled to an Asset Management Fee equal to
0.75% and 0.95% of Total Invested Assets (as defined in the Partnership Agreement) for the nine months ended September 30, 1997
and 1996, respectively. CRIIMI MAE Services Limited Partnership, the sub-advisor to the Partnership (the Sub-advisor) is
entitled to a fee of 0.28% of Total Invested Assets. Of the amounts paid to the Advisor, the Sub-advisor earned a fee equal to
$92,430 and $277,290, for the three and nine months ended September 30, 1997, respectively, and earned a fee equal to $116,610
and $349,830, for the three and nine months ended September 30, 1996, respectively. The Sub-advisor is an affiliate of CRIIMI
MAE.
</TABLE>
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties
as discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially.
General
- -------
As of September 30, 1997, the Partnership had invested in 23 insured
mortgages, with an aggregate amortized cost of approximately $130 million, an
aggregate face value of approximately $128 million and an aggregate fair value
of approximately $127 million, as discussed below.
As of November 1, 1997, all of the fully insured FHA-Insured Certificates,
GNMA Mortgage Backed Securities and FHA-Insured Loans were current with respect
to payment of principal and interest. As of November 1, 1997, three of the four
coinsured FHA-Insured Certificates were delinquent with respect to payment of
principal and interest. As discussed in Note 3 to the financial statements,
management does not anticipate that these delinquencies will have an adverse
material impact on the Partnership's financial statements.
Results of Operations
- ---------------------
Net earnings decreased for the three and nine months ended September 30,
1997, as compared to the corresponding periods in 1996. This decrease was
primarily due to the reduction in the mortgage base, as discussed below.
Mortgage investment income decreased for the three and nine months ended
September 30, 1997, as compared to the corresponding periods in 1996, primarily
due to the prepayment of the mortgage on Woodbine at Lakewood Apartments in
November 1996 and the mortgages on Pembrook Apartments, Carmen Drive Estates and
Skyridge Club in December 1996.
Interest and other income increased for the nine months ended September 30,
1997, as compared to the corresponding period in 1996, primarily due to the
investment of proceeds received from three mortgages which prepaid in November
and early December 1996 and were distributed on February 3, 1997, as previously
discussed. The fourth mortgage prepaid in late December 1996, the proceeds of
which were distributed on May 1, 1997. This compares to the investment of
proceeds from one mortgage which prepaid in December 1995 and whose proceeds
were distributed in May 1996.
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Asset management fees to related parties decreased for the three and nine
months ended September 30, 1997, as compared to the corresponding periods in
1996. As of January 1, 1997, the asset management fee to the Advisor was
reduced to 0.75% from 0.95% of Total Invested Assets, pursuant to the
Partnership Agreement dated October 1, 1991. In addition, the asset management
fee decreased due to the disposition of four mortgages in late 1996, as
discussed above.
General and administrative expenses decreased for the nine months ended
September 30, 1997, as compared to the corresponding period in 1996, primarily
due to the reduction of legal-related expenses associated with the transfer to
IFI certain coinsured mortgages in 1995. The increase for the three months
ended September 30, 1997, as compared to the corresponding period in 1996, is
due primarily to the adjustment and reallocation of annual expenses.
Interest expense to affiliate increased for the three and nine months ended
September 30, 1997, as compared to the corresponding periods in 1996. This
increase is primarily due to the revision of the note payable to affiliate, as
discussed in Note 4 to the financial statements.
Gain on mortgage disposition decreased for the nine months ended September
30, 1997, as compared to the corresponding period in 1996, due to additional
gain recognized in the first quarter of 1996 related to the December 1995
prepayment of the mortgage on Lakewood Villas. No mortgage investments were
disposed of during the nine months ended September 30, 1997.
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 the first nine months of 1997 to
meet operating requirements.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, 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
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from 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.
Net cash provided by operating activities decreased for the nine months
ended September 30, 1997, as compared to the corresponding period in 1996,
primarily due to the decrease in net earnings, as discussed above. In addition,
receivables and other assets increased as a result of the increased dollar
amount of delinquent mortgage payments from The Villas, St. Charles Place-Phase
II and Spring Lake Village mortgages. Further, investment in affiliate
increased due to an amendment to an agreement with IFI, as discussed in Note 4
to the financial statements.
Net cash provided by investing activities decreased for the nine months
ended September 30, 1997, as compared to the corresponding period in 1996. This
decrease is primarily due to additional proceeds received from the prepayment of
the mortgage on Lakewood Villas in January 1996. In addition, the receipt of
<PAGE>18
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
scheduled principal payments decreased due to the prepayment of four mortgages
in late 1996, as previously discussed.
Net cash used in financing activities increased for the nine months ended
September 30, 1997, as compared to the corresponding period in 1996. This
increase is due to the distribution of return of capital and gain from the
prepayment of four mortgages during late 1996, as discussed previously.
<PAGE>19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1997.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
<PAGE>20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
November 14, 1997 /s/ Cynthia O. Azzara
- ----------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,991
<SECURITIES> 73,344
<RECEIVABLES> 58,755
<ALLOWANCES> 0
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<TOTAL-ASSETS> 134,090
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0
0
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<OTHER-SE> 131,038
<TOTAL-LIABILITY-AND-EQUITY> 134,090
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