AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86, 10-K, 1998-03-31

AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86
10-K, 1998-03-31
INVESTORS, NEC

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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, 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)

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>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 6, 1998, 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 $87,977,571.

<PAGE>3
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

1997 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . 6

PART II
-------
Item 5. Market for Registrant's Securities and
Related Security Holder Matters . . . . . . 6
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 . . . . . . . . . . . . . . . . . . . 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 17

PART III
--------
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 18
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . 19

PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . 20

Signatures . . . . . . . . . . . . . . . . . . . . . . 23

<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,
1997.

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). CRIIMI, Inc. is a wholly owned
subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).

The general partner of the Advisor is AIM Acquisition Corporation (AIM
Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement
(the Sub-Advisory Agreement) existed whereby CRI/AIM Management, Inc., an
affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered real estate
investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory
Agreement. As a consequence to this transaction, effective June 30, 1995,
CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the
Partnership's portfolio. These transactions had no effect on the Partnership's
financial statements.

Competition
- -----------
In disposing of 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 in disposing of Federal
Housing Administration (FHA) insured mortgages than the Partnership.

CRIIMI MAE 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 CRIIMI MAE, and/or other entities sponsored or managed by CRIIMI
MAE, are attempting to dispose of mortgages. As a result of market conditions
that could limit dispositions, CRIIMI MAE Services Limited Partnership and its
affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of. Both CRIIMI MAE Services Limited Partnership
and CRIIMI, Inc., however, are subject to their fiduciary duties in evaluating
the appropriate action to be taken when faced with such conflicts.

Forward-Looking Statements
- --------------------------
In accordance with the Private Securities Litigation Reform Act of 1995,
the Partnership can obtain a "Safe Harbor" for forward-looking statements by
identifying those statements and by accompanying those statements with
cautionary statements which identify factors that could cause actual results to

<PAGE>5

PART I

ITEM 1. BUSINESS - Continued

differ from those in the forward-looking statements. Accordingly, the following
information contains or may contain forward-looking statements: (1) information
included or incorporated by reference in this Annual Report on Form 10-K,
including, without limitation, statements made under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, (2)
information included or incorporated by reference in future filings by the
Partnership with the Securities and Exchange Commission including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans and (3) information contained in
written material, releases and oral statements issued by or on behalf of, the
Partnership, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans.
The Partnership's actual results may differ materially from those contained in
the forward-looking statements identified above. Factors which may cause such a
difference to occur include, but are not limited to (i) regulatory and
litigation matters, (ii) interest rates, (iii) trends in the economy, (iv)
prepayment of mortgages and (v) defaulted mortgages.

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.

<PAGE>6

PART I

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note 4 of the notes to the financial statements on
pages 38 through 41.

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 1997.

PART II

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

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

The high and low bid prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1997 and 1996 were as
follows:

Amount of
1997 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- ------------
March 31 $11 3/4 $11 $ 0.75(1)(2)
June 30 11 3/4 11 0.21
September 30 11 9/16 11 1/8 0.22(2)
December 31 11 3/8 9 3/8 2.41(3)
------
$ 3.59
======

Amount of
1996 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- ------------
March 31 $14 $12 7/8 $ 0.91(4)(5)
June 30 13 1/4 12 1/2 0.30(5)
September 30 13 3/8 12 3/4 0.29(6)
December 31 14 11 3/4 3.33(7)(2)
------
$ 4.83
======
(1) This amount includes approximately $0.53 per Unit return of capital from
the prepayment of the mortgage on Carmen Drive Estates.

(2) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place-Phase II
and The Villas.

<PAGE>7

PART II

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

(3) This amount includes approximately $2.21 per Unit return of capital from
the prepayment of the following mortgages: Ridgeview Chase Apartments of
$0.95 per Unit and Woodland Apartments of $1.26 per Unit.

(4) This amount includes approximately $0.61 per Unit return of capital from
the prepayment of the mortgage on Lakewood Villas.

(5) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(6) This amount includes approximately $0.02 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(7) This amount includes approximately $3.07 per Unit return of capital and
gain from the prepayment of the following mortgages; Woodbine at Lakewood
Apartments $0.55 per Unit, Pembrook Apartments $1.60 per Unit, and Skyridge
Club $0.92 per Unit.

Approximate Number of Unitholders
Title of Class as of December 31, 1997
- --------------------------- -------------------------------
Depositary Units of Limited
Partnership Interest 10,250

<PAGE>8

PART II

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

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

1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income $ 10,629 $ 13,473 $ 13,927 $ 13,644 $ 14,430

Net gain (loss) on mortgage dispositions 550 1,616 5 1,015 (63)

Loan loss (387) -- -- -- --

Net earnings 9,436 13,069 11,640 12,450 12,170

Net earnings per Limited
Partnership Unit - Basic (1) $ 0.94 $ 1.30 $ 1.16 $ 1.24 $ 1.21

Distributions per Limited
Partnership Unit(1)(2) $ 3.59 $ 4.83 $ 1.24 $ 1.34 $ 1.01

As of December 31,

1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>

Total assets $136,668 $169,283 $174,538 $165,694 $180,776

Partners' equity 111,571 135,137 170,582 161,591 176,007

(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, 1997, 1996, 1995, 1994 and
1993, 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, 1997, 1996 and 1995, and the balance sheet data as of
December 31, 1997 and 1996, 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, 1994 and 1993 and the balance sheet data as of December 31, 1995, 1994 and
1993 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>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 9,576,165
Depository Units of limited partnership interest (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.

CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general
partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became
a self-administered real estate investment trust (REIT) and, as a result, the
advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P., (the Advisor) serves as the advisor to the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
(AIM Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement 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.

Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-Advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.
These transactions had no effect on the Partnership's financial statements.

The Partnership is currently in the process of evaluating its information
technology infrastructure for Year 2000 compliance. The Partnership does not
expect that the cost to modify its information technology infrastructure to be
Year 2000 compliant will be material to its financial condition or results of
operations. The Partnership does not anticipate any material disruption in its
operations as a result of any failure by the Partnership to be in compliance.
The Partnership is currently evaluating the Year 2000 compliance status of its
service providers. The Partnership does not expect any non Year 2000 compliance
by the service providers to cause any disruptions in its operations.

Prior to the expiration of the Partnership's reinvestment period in
December 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). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the Partnership Agreement.

<PAGE>10

PART II

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

As of December 31, 1997, the Partnership had invested in 21 Insured
Mortgages, with an aggregate amortized cost of approximately $107.5 million, a
face value of approximately $106.4 million and a fair value of approximately
$106.0 million, as discussed below.

Results of Operations
- ---------------------
1997 versus 1996
- ----------------
Net earnings decreased for 1997 as compared to 1996 primarily due to a
reduction in mortgage investment income, a decrease in gain on mortgage
dispositions and as a result of the loan loss reserve on Spring Lake Village.

Mortgage investment income decreased for 1997 as compared to 1996 primarily
as a result of the reduction in the mortgage base.
Interest and other income increased for 1997 as compared to 1996 primarily
due to the temporary investment of proceeds received from six mortgage
dispositions prior to distribution to Unitholders. This compares to interest
earned in 1996 from the temporary investment of proceeds received from four
mortgage dispositions. Three of these mortgage dispositions earned interest in
both 1996 and 1997, due to the timing of receipt and distribution of disposition
proceeds.

Asset management fees decreased in 1997 as compared to 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 as a result of the
reduction in the mortgage base.

Gain on mortgage dispositions decreased for 1997 as compared to 1996. In
1997, the Partnership recognized a gain from the prepayment of the mortgage on
Woodland Apartments. In 1996, the Partnership recognized gains from the
prepayment of the mortgages on Woodbine at Lakewood Apartments, Pembrook
Apartments, Skyridge Club and Carmen Drive Estates.

Loss on mortgage dispositions increased for 1997 as compared to 1996, due
to the loss recognized on the prepayment of the mortgage on Ridgeview Chase
Apartments in 1997. There were no losses recognized in 1996.

During 1997, Spring Lake Village Apartments became delinquent on its
payments. Subsequently, in March 1998, the servicer foreclosed on the property.
Spring Lake Village is a coinsured mortgage, whereby AIM 86 is responsible for a
portion of any loss ultimately incurred. Accordingly, AIM 86 has recognized a
loan loss reserve of $387,325 for their portion of the estimated loss after
considering costs to dispose of the assets and reimbursements from HUD.

1996 versus 1995
- ----------------
Net earnings increased for 1996 as compared to 1995 primarily as a result
of the gains recognized on the prepayment of the mortgages on Woodbine at
Lakewood Apartments, Pembrook Apartments, Skyridge Club and Carmen Drive Estates
in late 1996.

Mortgage investment income decreased for 1996 as compared to 1995 primarily
as a result of the reduction in the mortgage base due to the prepayment of
mortgages.

<PAGE>11

PART II

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

Interest and other income increased for 1996 as compared to 1995 primarily
due to the temporary investment of proceeds from the Lakewood Villas mortgage
prepayment received in December 1995 and distributed in May 1996, and the
temporary investment of proceeds from Woodbine at Lakewood Apartments, Pembrook
Apartments and Skyridge Club received in late 1996.

Asset management fees decreased in 1996 as compared to 1995 as a result of
the reduction in the mortgage base.

General and administrative expenses decreased in 1996 as compared to 1995
primarily due to a reduction in legal fees as a result of the resolution of
disputed mortgage servicing rights for three co-insured mortgages during 1995, a
reduction in investor relations expenses as a result of a decrease in the number
of registered Unitholders and a decrease in payroll and payroll-related expenses
as a result of the stabilization of the mortgage portfolio.

<PAGE>12

PART II

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

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

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

A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in Fully
Insured Mortgages as of December 31, 1997 and 1996:

<TABLE><CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages(1) 5 6
Amortized Cost $ 43,068,712 $ 53,047,822
Face Value 41,562,851 51,162,234
Fair Value 41,812,118 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 $ 41,335,466 $ 41,743,903
Face Value 41,283,184 41,689,508
Fair Value 41,791,825 41,024,194
</TABLE>

(1) In November 1997, the Partnership received net proceeds of
approximately $9.7 million from the prepayment of the mortgage on Ridgeview
Chase Apartments and recognized a loss of approximately $40,000 for the
year ended December 31, 1997. The net proceeds of $0.95 per Unit were
distributed to Unitholders in February 1998.

As of March 9, 1998, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and
interest.

<PAGE>13

PART II

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

interest of $95,744, $171,848 and $73,357, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.

B. 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.

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.

As of December 31, 1997 and 1996, the Partnership had invested in
three and four, respectively, FHA-Insured Certificates secured by coinsured
mortgages. As of December 31, 1997, two of the three 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. The two coinsured
mortgages which are coinsured by Patrician 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 Partnership's
coinsured mortgage investments.

1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured by
Patrician:

<PAGE>14

PART II

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

December 31, 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) $ 15,412,759 $ 15,646,469 $ 14,871,111 $ 15,528,982 $ 15,762,692 $ 14,859,882
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,885,298 3,052,629 3,052,629 2,877,102

</TABLE>

(1) As of March 9, 1998, the mortgagor has made payments of principal
and interest due on the original mortgage on The Villas through
November 1995, and has made payments of principal and interest due
under a modification agreement with The Villas through August 1993.
Patrician is litigating the case in bankruptcy court while negotiating
a modification agreement with the borrower.

(2) This amount represents 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. As of March 9, 1998, 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 negotiating a modification agreement
with the borrower.

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 the most recent information available, and to the extent
these conditions change or additional information becomes available,
then the General Partners' 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 December 31, 1997 and 1996, the Partnership held investments in
one and two FHA-Insured Certificates secured by coinsured mortgages,
respectively, where the coinsurance lender is Integrated Funding, Inc.
(IFI), an affiliate of the Partnership. The Partnership bears the
risk of loss upon default for IFI's portion of the coinsurance loss.

<PAGE>15

PART II

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

<TABLE><CAPTION>
1997 1996
------------------------------------------- ------------------------------------------- Cumulative
Amortized Face Fair Amortized Face Fair Loan Losses
Cost Value Value Cost Value Value Recognized
------------ ------------ --------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Woodland Apts(1) -- -- -- $ 12,166,667 $ 11,748,365 -- $ --
Spring Lake
Village(2) 4,656,113 4,898,740 4,656,113 5,000,233 4,933,126 -- 502,626

</TABLE>

(1) In November 1997, the Partnership received net proceeds of
approximately $12.7 million from the prepayment of the mortgage on
Woodland Apartments and recognized a gain of approximately $590,000
for the year ended December 31, 1997. The net proceeds of $1.26 per
Unit were distributed to Unitholders in February 1998.

(2) As of March 9, 1998, the mortgage on Spring Lake Village has been
delinquent since September 1997. This mortgage had been modified for
a second time as of February 1996. The interest rate on this mortgage
was reduced to 6.75% for 1997, and was to return to the previous
modification rate of 7% for all subsequent years. However, since the
mortgage did go into default, as of July 1, 1997, the rate reverted
back to the original rate of 8.75%. In addition, delinquent principal
and interest payments from September 1, 1995 through December 1, 1995,
have been deferred, with quarterly payments to be paid out of the
mortgagor's available cash flows. No payments have been made on the
deferred amount due to insufficient cash flows. On March 9, 1998, IFI
foreclosed on the property as successor trustee for the benefit of the
Partnership. As a result, the Partnership has recognized a loan loss
reserve of $387,325 for their portion of the estimated loss after
considering costs to dispose of the assets and reimbursements from
HUD. At this time, the Partnership has not made a decision on whether
to sell or hold the property.

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 years
ended December 31, 1997, 1996 and 1995, the Partnership received
additional interest of $0, $110,253 and $76,431, respectively, from
the coinsured Participations. These amounts are included in mortgage
investment income on the accompanying statements of operations.

<PAGE>16

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 for the years ended December 31, 1997,
1996 and 1995.

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
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base, resulting from monthly
mortgage payments 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.

Cash flow - 1997 versus 1996
- ----------------------------
Net cash provided by operating activities decreased for 1997 as compared to
1996 primarily due to a decrease in mortgage investment income, as discussed
above. In addition, receivables and other assets increased resulting from
additional delinquent mortgage payments from The Villas, St. Charles Place -
Phase II and Spring Lake Village mortgages.

Net cash provided by investing activities decreased for 1997 as compared to
1996, primarily due to a decrease in proceeds received from the disposition of
mortgages. There were two prepayments on mortgages in 1997 and four prepayments
on mortgages in 1996.

Net cash used in financing activities increased for 1997 as compared to
1996, due to the timing of distribution of proceeds from the disposition of
mortgages received in November and December 1996 and distributed in February and
May 1997.

Cash flow - 1996 versus 1995
- ----------------------------
Net cash provided by operating activities decreased for 1996 as compared to
1995. This decrease was primarily due to an increase in receivables and other
assets resulting from increases in delinquent mortgage payments from The Villas
and St. Charles Place - Phase II mortgages. In addition, mortgage investment
income decreased, as discussed above. This was offset by an increase in
interest and other income and a decrease in general and administrative expenses,
as discussed above.

Net cash provided by investing activities increased for 1996 as compared to
1995, primarily due to proceeds from the disposition of the mortgages on
Skyridge Club, Woodbine at Lakewood Apartments, Pembrook Apartments and Carmen
Drive Estates.

Net cash used in financing activities increased for 1996 as compared to
1995. This increase was due to an increase in distributions to Unitholders as a
result of the prepayment of the mortgage on Lakewood Villas during the fourth
quarter of 1995. The net disposition proceeds of approximately $.61 per Unit
were distributed to Unitholders in May 1996.

<PAGE>17

PART II

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

New Accounting Standards
- ------------------------
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS
128"). FAS 128 changes the requirements for the calculation and disclosure of
earnings per share. The Partnership is required to present basic net earnings
per limited partnership unit as opposed to net earnings per limited partnership
unit. However, the computational differences between FAS 128 and the prior
accounting standard do not impact the Partnership. FAS 128 has been applied to
the year ended December 31, 1997, and all prior periods.

During 1997 FASB issued SFAS No. 129 "Disclosure of Information about
Capital Structure" ("FAS 129"). FAS 129 continues the existing requirements 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's disclosures comply with the requirements of
this statement.

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
a separate statement of 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 for years beginning on or after December 15, 1997.

During 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards
for the way that public business enterprises report information about operating
segments and related disclosures about products and services, geographical areas
and major customers. FAS 131 is effective for years beginning on or after
December 15, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is contained on pages 24 through 48.

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

None.

<PAGE>18

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

The Partnership has no officers or directors. CRIIMI, Inc. (the General
Partner) holds a partnership interest of 4.9%. The affairs of the Partnership
are managed by the General Partner, which is wholly owned by CRIIMI MAE, a
company whose shares are listed on the New York Stock Exchange. Prior to June
30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI,
Inc. However, effective June 30, 1995, CRIIMI MAE became a self-administered
REIT and, as a result, the advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P. (the Advisor) is the advisor to 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 CRIIMI MAE. Pursuant to the terms of certain
amendments to the Partnership Agreement, 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.

Effective September 6, 1991, and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.

The General Partner is also the general partner of American Insured
Mortgage Investors (AIM 84), American Insured Mortgage Investors - Series 85,
L.P. (AIM 85) and American Insured Investors L.P. - Series 88 (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, 4, and 5 and amendments
thereto furnished to the Partnership, and written representations
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, 1997.

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

The following table sets forth certain information regarding the beneficial
ownership of Units as of February 11, 1998 by holders of more than five percent
of the Partnership's Units. Information regarding the beneficial ownership of

<PAGE>19

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - Continued

more than five percent of the Partnership's Units is based upon filings received
by the Partnership under the Securities and Exchange Act of 1934 and, in
particular, a schedule 13-G/A filed by Private Management Group, Inc. with the
Securities and Exchange Commission on February 12, 1998. As of December 31,
1997, 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.

Number of Percent of
Name Address Units Class
- -------- ------- --------- ----------
Private 20 Corporate Park 824,086 8.61
Management Suite 400
Group, Inc. Irvine, CA 92606

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 General Partner of the
Partnership are officers, directors or equity owners.

None.

(d) Transactions with promoters.

Not applicable.

<PAGE>20

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, 1997
and 1996 26

Statements of Operations for the years
ended December 31, 1997, 1996 and 1995 27

Statements of Changes in Partners' Equity
for the years ended December 31, 1997,
1996 and 1995 28

Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 29

Notes to Financial Statements 30

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate 43

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

(a)(3) Exhibits:

4.0 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").

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

4.2 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.

4.3 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.

4.4 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.

<PAGE>21

PART IV

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

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

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

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

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

10.4 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.

10.5 Reinvestment Plan is incorporated by reference to the
Prospectus contained in the Amended Registration Statement.

10.6 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.

10.7 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.

10.8 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.

10.9 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.

10.10 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.

10.11 Non-negotiable promissory note to American Insured Mortgage
Investors L.P. - Series 88 in the amount of $478,612 dated
April 1, 1994, incorporated by reference to Exhibit 10(p) to
the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994.

<PAGE>22

PART IV

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

10.12 Amendment No. 1 to Reimbursement Agreement by Integrated
Funding, Inc. and the AIM Funds, effective April 1, 1994,
incorporated by reference to Exhibit 10(q) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994.

10.13 Non-negotiable promissory note to American Insured Mortgage
Investors L.P. - Series 88 in the amount of $658,486 dated
April 1, 1997, (filed herewith).

10.14 Amendment No. 2 to Reimbursement Agreement by Integrated
Funding, Inc. and the AIM Funds, effective April 1, 1997,
(filed herewith).

27. Financial Data Schedule (filed herewith).

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

All other items are not applicable.

<PAGE>23

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 23, 1998 /s/ William B. Dockser
- --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer

March 23, 1998 /s/ H. William Willoughby
- --------------------------- -------------------------
DATE H. William Willoughby
President and Director

March 23, 1998 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer

March 23, 1998 /s/ Garrett G. Carlson, Sr.
- --------------------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director

March 23, 1998 /s/ Larry H. Dale
- --------------------------- -------------------------
DATE Larry H. Dale
Director

March 23, 1998 /s/ G. Richard Dunnells
- --------------------------- -------------------------
DATE G. Richard Dunnells
Director

March 23, 1998 /s/ Robert Merrick
- --------------------------- -------------------------
DATE Robert Merrick
Director

<PAGE>24

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

Financial Statements as of December 31, 1997 and 1996

and for the Years Ended December 31, 1997, 1996 and 1995

<PAGE>25

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, 1997
and 1996, and the related statements of operations, changes in partners' equity
and cash flows for the years ended December 31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996 and 1995, in conformity with
generally accepted accounting principles.

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, 1997 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.

Arthur Andersen LLP
Washington, D.C.
March 23, 1998

<PAGE>26

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE><CAPTION>
As of December 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Originated insured mortgages $ 22,412,522 $ 33,076,697
Acquired insured mortgages 40,780,876 40,014,207
------------ ------------
63,193,398 73,090,904
------------ ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Originated insured mortgages 43,068,712 53,047,822
Acquired insured mortgage 982,422 989,128
------------ ------------
44,051,134 54,036,950

Cash and cash equivalents 24,011,634 38,580,668

Investment in affiliate 658,486 471,109

Receivables and other assets 4,752,910 3,103,526
------------ ------------
Total assets $136,667,562 $169,283,157
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 24,267,990 $ 33,532,120

Note payable and due to affiliate 658,486 478,612

Accounts payable and accrued expenses 170,439 135,694
------------ ------------
Total liabilities 25,096,915 34,146,426
------------ ------------
Partners' equity:
Limited partners' equity 115,755,882 141,161,141
General partner's deficit (3,921,028) (2,612,029)
Unrealized gains on
investment in FHA-Insured
Certificates and GNMA
mortgage-backed securities 479,651 103,741
Unrealized losses on
investment in FHA-Insured
Certificates and GNMA
mortgage-backed securities (743,858) (3,516,122)
------------ ------------
Total partners' equity 111,570,647 135,136,731
------------ ------------
Total liabilities and
partners' equity $136,667,562 $169,283,157
============ ============

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

<PAGE>27

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF OPERATIONS

For the years ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Mortgage investment income $ 10,130,219 $ 13,096,453 $ 13,797,980
Interest and other income 498,501 376,054 129,166
------------ ------------ ------------
10,628,720 13,472,507 13,927,146
------------ ------------ ------------
Expenses:
Asset management fee to related
parties 976,807 1,578,579 1,640,904
General and administrative 334,053 406,794 616,254
Interest expense to affiliate 44,480 34,700 34,699
------------ ------------ ------------
1,355,340 2,020,073 2,291,857
------------ ------------ ------------
Earnings before gain on mortgage
dispositions and loan losses 9,273,380 11,452,434 11,635,289

Gain on mortgage dispositions 589,659 1,616,449 5,208

Loss on mortgage disposition (39,725) -- --

Loan loss (387,325) -- --
------------ ------------ ------------
Net earnings $ 9,435,989 $ 13,068,883 $ 11,640,497
============ ============ ============

Net earnings allocated to:
Limited partners - 95.1% $ 8,973,626 $ 12,428,508 $ 11,070,113
General partner - 4.9% 462,363 640,375 570,384
------------ ------------ ------------
$ 9,435,989 $ 13,068,883 $ 11,640,497
============ ============ ============
Net earnings per Limited
Partnership Unit - Basic $ 0.94 $ 1.30 $ 1.16
============ ============ ============

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

<PAGE>28

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

For the years ended December 31, 1997, 1996 and 1995

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, January 1, 1995 $ (827,755) $ 175,790,599 $ -- $(13,372,257) $161,590,587

Net earnings 570,384 11,070,113 -- -- 11,640,497

Distributions paid or accrued of
$1.24, including return of capital
of $0.08 per Unit (611,835) (11,874,599) -- -- (12,486,434)

Adjustment to unrealized
gains (losses) on investment
in insured mortgages -- -- 406,534 9,431,165 9,837,699
------------- ------------- ------------ ------------ ------------

Balance December 31, 1995 (869,206) 174,986,113 406,534 (3,941,092) 170,582,349

Net earnings 640,375 12,428,508 -- -- 13,068,883

Distributions paid or accrued of
$4.83, including return of capital
of $ 3.53 per Unit (2,383,198) (46,253,480) -- -- (48,636,678)

Adjustment to unrealized
gains (losses) on investment
in insured mortgages -- -- (302,793) 424,970 122,177
------------- ------------- ------------ ------------ ------------

Balance December 31, 1996 (2,612,029) 141,161,141 103,741 (3,516,122) 135,136,731

Net earnings 462,363 8,973,626 -- -- 9,435,989

Distributions paid or accrued of
$3.59, including return of capital
of $2.65 per Unit (1,771,362) (34,378,885) -- -- (36,150,247)

Adjustment to unrealized
gains (losses) on investment
in insured mortgages -- -- 375,910 2,772,264 3,148,174
------------- ------------- ------------ ------------ ------------
Balance December 31, 1997 $ (3,921,028) $ 115,755,882 $ 479,651 $ (743,858) $111,570,647
============= ============= ============ ============ ============

Limited Partnership Units outstanding - Basic,
as of December 31, 1997,
1996 and 1995 9,576,290
=============

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

<PAGE>29

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CASH FLOWS

For the years ended December 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,435,989 $ 13,068,883 $ 11,640,497

Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on mortgage dispositions (589,659) (1,616,449) (5,208)
Loss on mortgage dispositions 39,725 -- --
Loan loss 387,325 -- --
Changes in assets and liabilities:
Decrease in due to affiliate (7,503) -- --
Increase (decrease) in accounts payable and
accrued expenses 34,745 (18,304) (46,989)
Increase in receivables and other assets (1,794,082) (632,922) (354,217)
Return on investment in affiliate -- 4,617 2,886
------------ ------------ ------------
Net cash provided by operating activities 7,506,540 10,805,825 11,236,969
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 22,268,941 36,343,358 6,169,529
Receipt of principal from scheduled payments 1,069,862 1,084,392 1,121,467
------------ ------------ ------------
Net cash provided by investing activities 23,338,803 37,427,750 7,290,996
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (45,414,377) (18,427,561) (12,587,131)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (14,569,034) 29,806,014 5,940,834

Cash and cash equivalents, beginning of year 38,580,668 8,774,654 2,833,820
------------ ------------ ------------
Cash and cash equivalents, end of year $ 24,011,634 $ 38,580,668 $ 8,774,654
============ ============ ============

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

<PAGE>30

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.

CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general
partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became
self-administered real estate investment trust (REIT) and, as a result, the
advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P., (the Advisor) serves as the advisor to the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
(AIM Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement, 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 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." Prior to listing the Partnership's
Units for trading on AMEX, the Units were only tradable through an informal
market called the "secondary market".

2. SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------
The Partnership's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported

<PAGE>31

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

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 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
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.

As of December 31, 1997, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-
Insured Certificates is approximately 30 years. However, the Partnership
Agreement states that the Partnership will terminate in approximately 23
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, 1997, 1996
and 1995, 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 December 31, 1997, 1996 and 1995, Investment in FHA-Insured
Loans, are recorded at amortized cost.

<PAGE>32

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

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.

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.

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.

New Accounting Standards
------------------------
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS
128"). FAS 128 changes the requirements for the calculation and disclosure
of earnings per share. The Partnership is required to present basic net
earnings per limited partnership unit as opposed to net earnings per
limited partnership unit. However, the computational differences between
FAS 128 and the prior accounting standard do not impact the Partnership.
FAS 128 has been applied to the year ended December 31, 1997, and all prior
periods.

During 1997 FASB issued SFAS No. 129 "Disclosure of Information about
Capital Structure" ("FAS 129"). FAS 129 continues the existing
requirements 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's
disclosures comply with the requirements of this statement.

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 a separate statement of 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 for years beginning on or after
December 15, 1997.

<PAGE>33

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

services, geographical areas and major customers. FAS 131 is effective for
years beginning on or after December 15, 1997.

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.

<PAGE>34

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

<TABLE><CAPTION>
As of December 31, 1997 As of December 31, 1996
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 $ 23,104,560 $ 22,412,522 $ 35,748,510 $ 33,076,697
Acquired Insured Mortgages 40,353,044 40,780,876 40,754,775 40,014,207
------------ ------------ ------------ ------------
$ 63,457,604 $ 63,193,398 $ 76,503,285 $ 73,090,904
============ ============ ============ ============
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 43,068,712 $ 41,812,118 $ 53,047,822 $ 52,063,040
Acquired Insured Mortgage 982,422 1,010,949 989,128 1,009,987
------------ ------------ ------------ -------------
$ 44,051,134 $ 42,823,067 $ 54,036,950 $ 53,073,027
============ ============ ============ ============

Cash and cash equivalents $ 24,011,634 $ 24,011,634 $ 38,580,668 $ 38,580,668

Accrued interest receivable $ 4,234,815 $ 4,234,815 $ 2,650,465 $ 2,650,465

</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
--------------------------------------------------------
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.

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:

<PAGE>35

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

<TABLE><CAPTION> December 31,
1997 1996
------------ ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages(1) 5 6
Amortized Cost $ 43,068,712 $ 53,047,822
Face Value 41,562,851 51,162,234
Fair Value 41,812,118 52,063,040

As of March 9, 1998, 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 years
ended December 31, 1997, 1996 and 1995, the Partnership received additional
interest of $95,744, $171,848 and $73,357, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.

<PAGE>36

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

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.

<PAGE>37

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured
by Patrician:

December 31, 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) $ 15,412,759 $ 15,646,469 $ 14,871,111 $ 15,528,982 $ 15,762,692 $ 14,859,882
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,885,298 3,052,629 3,052,629 2,877,102

</TABLE>

<PAGE>38

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

<TABLE><CAPTION>
1997 1996
------------------------------------------- --------------------------------------- Cumulative
Amortized Face Fair Amortized Face Fair Loan Losses
Cost Value Value Cost Value Value Recognized
------------ ------------ --------- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Woodland Apts(1) -- -- -- $ 12,166,667 $ 11,748,365 -- $ --
Spring Lake
Village(2) 4,656,113 4,898,740 4,656,113 5,000,233 4,933,126 -- 502,626

</TABLE>

<PAGE>39

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

5. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1997, 1996 and 1995 are as follows:

1997 1996 1995
------ ------ ------

Quarter ended March 31 $ 0.75(1)(2) $ 0.91(4)(5) $ 0.26(5)
Quarter ended June 30, 0.21 0.30(5) 0.34(5)(8)
Quarter ended September 30, 0.22(2) 0.29(6) 0.31(5)
Quarter ended December 31, 2.41(3) 3.33(7)(2) 0.33(5)
------ ------ ------
$ 3.59 $ 4.83 $ 1.24
====== ====== ======

(1) This amount includes approximately $0.53 per Unit return of capital from
the prepayment of the mortgage on Carmen Drive Estates.

(2) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place-Phase II
and The Villas.

(4) This amount includes approximately $0.61 per Unit return of capital from
the prepayment of the mortgage on Lakewood Villas.

(5) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(6) This amount includes approximately $0.02 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(7) This amount includes approximately $3.07 per Unit return of capital and
gain from the prepayment of the following mortgages: Woodbine at Lakewood
Apartments $0.55, Pembrook Apartments $1.60, and Skyridge Club $0.92.

(8) This amount includes approximately $0.08 per Unit representing previously
undistributed accrued interest receivable from Carmen Drive Estates (The
Forest), Woodland Hills Apartments, and Woodbine at Lakewood Apartments.

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
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.

<PAGE>40

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE 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 1, 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, since AIM 85 no
longer holds coinsured mortgages. As a result, a new demand note payable to AIM
88 was issued and the investment in IFI was increased.

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.

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, 1997, 1996 and 1995, earned or received compensation or payments
for services from the Partnership as follows:

<PAGE>41

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 1997 1996 1995
- ----------------- ---------------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $1,771,362 $2,383,198 $ 611,835

AIM Acquisition Advisor/Asset Management Fee 976,807 1,578,579 1,640,904
Partners, L.P.(1)

CRIIMI MAE
Management, Inc.(2) Affiliate of General Partner/ 52,530 64,405 27,512
Expense Reimbursement

CRI(2) Affiliate of General Partner/ -- -- 58,659
Expense Reimbursement

(1) The Advisor, pursuant to the Partnership Agreement, effective October 1, 1991, was entitled to an Asset Management Fee
equal to 0.95% of Total Invested Assets. As of January 1, 1997, this changed to 0.75% of Total Invested Assets (pursuant to the
terms of the Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of 0.28% of Total
Invested Assets from the Advisor's Asset Management Fee. As discussed in Note 1, effective June 30, 1995, CRIIMI MAE Services
Limited Partnership now serves as the Sub-advisor. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited Partnership
earned a fee equal to $364,368, $465,231 and $241,800 for the years ended December 31, 1997, 1996 and for the six months ended
December 31, 1995, respectively. CRI/AIM Management, Inc., which acted as the Sub-advisor through June 30, 1995, earned a fee equal
to $241,800 for the six months ended June 30, 1995.

(2) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred
prior to June 30, 1995 on behalf of the General Partner and Partnership. As discussed in Note 1, the transaction in which CRIIMI
MAE became a self-administered REIT has no impact on the payments required to be made by the Partnership, other than that the
expense reimbursement previously paid by the Partnership to CRI in connection with the provision of services by the Sub-advisor are,
effective June 30, 1995, paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc. The amounts paid to CRI
during the year ended December 31, 1995 represent reimbursement of expenses incurred prior to June 30, 1995. This reimbursement is
included in general and administrative expenses.
</TABLE>

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.

<PAGE>42

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, 1997, 1996 and 1995:

<TABLE><CAPTION>
(In Thousands, Except Per Unit Data)
1997
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income $ 2,838 $ 2,658 $ 2,570 $ 2,563
Gain on mortgage
dispositions -- -- -- 590
Loss on mortgage
dispositions -- -- -- (40)
Loan loss -- -- -- (387)
Net earnings 2,491 2,291 2,219 2,435
Net earnings per Limited
Partnership Unit - Basic 0.25 0.22 0.22 0.25

</TABLE>
<TABLE><CAPTION>
1996
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income 3,468 3,525 3,255 3,225
Gain on mortgage
dispositions 37 -- -- 1,579
Net earnings 2,985 2,980 2,796 4,308
Net earnings per Limited
Partnership Unit - Basic .30 .29 .28 .43

</TABLE>
<TABLE><CAPTION>
1995
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Income $ 3,475 $ 3,622 $ 3,434 $ 3,396
Gain on mortgage
disposition -- -- -- 5
Net earnings
Net earnings per Limited 2,922 3,003 2,874 2,841
Partnership Unit - Basic 0.29 0.30 0.28 0.29

</TABLE>

<PAGE>43

<TABLE>
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997

<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)(15) 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)
Spring Lake Village
St. Petersburg, FL(7) 7/29 5/03 8.75%(14) $ 4,898,740(12)$ 4,656,113 $ 502,626(7) $ 423,460(14)
The Villas
Lauderhill, FL (6) 7/29 8/02 8.75% 15,646,469(12) 14,871,111 842,709 1,491,805(13)
St. Charles Place-Phase II
Miramar, FL (6) 2/30 12/03 8.625% 3,035,688(8)(12) 2,885,298 106,000 279,571(8)
------------ ------------
Total investment in FHA-Insured
Certificates-Originated Insured
Mortgages 23,580,897 22,412,522
------------ ------------
</TABLE>

<PAGE>44

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1997
<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>
ACQUIRED INSURED
MORTGAGES:
- -----------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Southampton Apts.
Grove City, OH 4/27 -- 8.50% 1,972,599 2,023,217 -- 183,038
Pleasantview Nursing Home
Union, NJ 6/29 -- 7.75% 3,417,768 3,479,741 -- 290,532
------------ -------------
Total investment in FHA-Insured
Certificates - Acquired Insured
Mortgages 5,390,367 5,502,958
------------ -------------
Investment in GNMA Mortgage-Backed
Securities (carried at fair value)
Brighton Manor
Petersburg, VA 3/29 -- 7.50% 1,013,973 1,022,262 -- 80,424
Cyress Cove
Jacksonville, FL 2/28 -- 7.30% 6,867,945 6,924,731 -- 547,329
Hickory Tree Apts.
Indianapolis, IN 4/27 -- 7.375% 3,447,738 3,476,391 -- 279,108
Main Street Square
Roundrock, TX 9/29 -- 8.75% 1,350,703 1,439,202 -- 122,779
Maple Manor
Syracuse, NY 4/29 -- 7.375% 1,226,967 1,237,013 -- 97,518
Mountain Village Apts.
Tucson, AZ 5/29 -- 7.50% 1,331,080 1,341,948 -- 105,428
Oak Grove Apts.
Baltimore, MD 6/23 -- 7.50% 6,839,064 6,897,881 -- 575,561
Oakwood Garden Apts.
San Jose, CA 10/23 -- 7.75% 9,588,873 9,670,614 -- 812,660
Regency Park Apts.
North St. Paul, MN 4/24 -- 7.00% 1,436,938 1,449,315 -- 116,137
Sunflower Apts.
Tucson, AZ 5/29 -- 7.50% 1,803,832 1,818,561 -- 142,873
------------ ------------
Total investment in GNMA Mortgage-
Backed Securities-Acquired Insured
Mortgages 34,907,113 35,277,918
------------ ------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities $ 63,878,377 $ 63,193,398
============ ============
</TABLE>

<PAGE>45

Winburn Square
Lexington, KY 1/27 -- 9.00% 985,704 982,422 -- 95,829
------------ ------------

Total investment in FHA-Insured Loans 42,548,555 44,051,134
------------ ------------

TOTAL INVESTMENT IN INSURED MORTGAGES $106,426,932 $107,244,532
============ ============

</TABLE>

<PAGE>46

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1997

(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, 1997, 1996 and 1995, the
Partnership received additional interest of $95,744, $282,101 and $149,788,
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.

(6) These Insured Mortgages are insured under the HUD coinsurance program, as
previously discussed. The HUD-approved coinsurance lender for these
mortgages is The Patrician Mortgage Company.

<PAGE>47

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1997

(7) This mortgage is insured under the HUD coinsurance program, as previously
discussed. Integrated Funding, Inc. is the HUD-approved coinsurance
lender, and the Partnership bears the risk of any principal loss, as
previously discussed. As a result of payment defaults during 1997 and the
subsequent foreclosure in March 1998, the Partnership has recognized a loan
loss reserve of $387,325 for the portion of the estimated loss after
considering costs to dispose of assets and reimbursements from HUD.

(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 for the
years ended December 31, 1997 and 1996, is as follows:

1997 1996
------------ ------------
Beginning balance $127,127,854 $162,816,978

Principal receipts on
Insured Mortgages (1,069,862) (1,084,392)

Gain on mortgage
dispositions 589,659 1,616,449

Loss on mortgage dispositions (39,725) --

Disposition of mortgages (22,268,941) (36,343,358)

Adjustment to unrealized
losses on investment in
Insured Mortgages 2,772,264 424,970

Adjustment to unrealized
gains on investment in
Insured Mortgages 375,910 (302,793)

Loan loss (242,627)(a) --
------------ ------------
Ending balance $107,244,532 $127,127,854
============ ============

(a) Net of receivables and other assets of $144,698 related to Spring Lake
Village.

(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>48

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1997

(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 1997
as per the modification agreement.

(14) Pursuant to a modification agreement dated February 1996, the interest rate
on this mortgage was reduced to 6.75% for 1997. However, the mortgage went
into default as of July 1, 1997, as a result, the mortgage was reverted
back to its original note rate of 8.75% effective July 1, 1997, see Note 4
of the financial statements.

(15) As of December 31, 1997 and 1996, the tax basis of the Insured Mortgages
was approximately $108.6 million and $131.3 million, respectively.<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,012
<SECURITIES> 63,193
<RECEIVABLES> 49,463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 136,668
<CURRENT-LIABILITIES> 25,097
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 111,571
<TOTAL-LIABILITY-AND-EQUITY> 136,668
<SALES> 0
<TOTAL-REVENUES> 11,218
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,355
<LOSS-PROVISION> 427
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,436
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,436
<EPS-PRIMARY> .94
<EPS-DILUTED> 0

</TABLE>

EXHIBIT 10.13

AMENDED AND RESTATED
NON-NEGOTIABLE PROMISSORY NOTE
------------------------------

US $658,486.00 April 1, 1997
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 Six Hundred Fifty
Eight Thousand Four Hundred Eighty Six Dollars and no cents ($658,486.00) 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 an amendment and restatement of a promissory note dated
April 1, 1994 payable to the order of the Partnership by the undersigned in the
amount of $478,612.00.

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, 1997 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 $1,936,724.42 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/ Cynthia O. Azzara
-----------------------------
Cynthia O. Azzara
Sr. Vice President/Chief
Financial Officer<PAGE>

EXHIBIT 10.14

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

THIS SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT is made effective as of
April 1, 1997 by and among Integrated Funding, Inc., a New York corporation
("IFI"), and American Insured Mortgage Investors L.P. - Series 85 ("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 hereto entered into the amendment to Reimbursement
Agreement effective as of April 1, 1994 (the "First Amendment") in order 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.

C. 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, 1997.

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 .2893% annually of the outstanding principal
balance of the coinsured loans for which IFI acts the mortgagee of
record (approximately $49 million as of April 1, 1997). The total
expense reimbursement shall be allocated to each AIM Fund as follows:

AIM FUND % of Coinsured Loan Balance
-------- ---------------------------
AIM 85 0
AIM 86 34%
AIM 88 66%

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.

[Signatures on following page]

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/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Chief Financial Officer

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 86

By: CRIIMI, Inc., its
General Partner

By: /s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Chief Financial Officer

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 88

By: CRIIMI, Inc., its
General Partner

By: /s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Chief Financial Officer<PAGE>