<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
------------------
Commission file number 1-12704
-----------------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
- -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
- ------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of September 30, 1998, 9,576,290 Depositary Units of Limited
Partnership Interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997................................... 3
Statements of Operations - for the three and
nine months ended September 30, 1998 and 1997
(unaudited)............................................. 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30, 1998
(unaudited)............................................. 5
Statements of Cash Flows - for the nine
months ended September 30, 1998
and 1997 (unaudited).................................... 6
Notes to Financial Statements
(unaudited)............................................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................. 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 17
Signature.......................................................... 18
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
<TABLE><CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Originated insured mortgages $ 22,643,995 $ 22,412,522
Acquired insured mortgages 33,849,769 40,780,876
------------- ------------
56,493,764 63,193,398
------------- ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
premium and discount:
Originated insured mortgages 33,921,711 43,068,712
Acquired insured mortgage 976,982 982,422
------------- ------------
34,898,693 44,051,134
Cash and cash equivalents 1,429,173 24,011,634
Investment in affiliate 650,803 658,486
Receivables and other assets 4,527,381 4,752,910
------------- ------------
Total assets $ 97,999,814 $136,667,562
============= ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,309,062 $ 24,267,990
Note payable and due to affiliate 694,291 658,486
Accounts payable and accrued expenses 172,106 170,439
------------- ------------
Total liabilities 2,175,459 25,096,915
------------- ------------
Partners' equity:
Limited partners' equity 100,430,305 115,755,882
General partner's deficit (4,710,673) (3,921,028)
Unrealized gains on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities 565,288 479,651
Unrealized losses on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities (460,565) (743,858)
------------- ------------
Total partners' equity 95,824,355 111,570,647
------------- ------------
Total liabilities and
partners' equity $ 97,999,814 $136,667,562
============= ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 1,304,662 $ 2,550,925 $ 4,324,455 $ 7,734,762
Interest and other income 190,719 18,639 414,393 331,253
------------ ----------- ----------- ------------
1,495,381 2,569,564 4,738,848 8,066,015
------------ ----------- ----------- ------------
Expenses:
Asset management fee to
related parties 176,556 247,605 569,948 742,815
General and administrative 62,606 90,008 243,935 288,632
Interest expense to affiliate 11,935 12,750 35,805 33,360
------------ ----------- ----------- ------------
251,097 350,363 849,688 1,064,807
------------ ----------- ----------- ------------
Earnings before gain on
mortgage dispositions 1,244,284 2,219,201 3,889,160 7,001,208
Gain on mortgage dispositions -- -- 437,120 --
------------ ----------- ----------- ------------
Net earnings $ 1,244,284 $ 2,219,201 $ 4,326,280 $ 7,001,208
============ =========== =========== ============
Net earnings allocated to:
Limited partners - 95.1% $ 1,183,314 $ 2,110,460 $ 4,114,292 $ 6,658,149
General partner - 4.9% 60,970 108,741 211,988 343,059
------------ ----------- ----------- ------------
$ 1,244,284 $ 2,219,201 $ 4,326,280 $ 7,001,208
============ =========== =========== ============
Net earnings per Limited
Partnership Unit-basic $ 0.12 $ 0.22 $ 0.43 $ 0.70
============ =========== =========== ============
The accompanying notes are an integral
part of these financial statements.
</TABLE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partners Mortgages Mortgages Total
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $(3,921,028) $ 115,755,882 $ 479,651 $ (743,858) $111,570,647
Net earnings 211,988 4,114,292 -- -- 4,326,280
Distributions paid or
accrued of $2.03 per
Unit, including $1.60
return of capital (1,001,633) (19,439,869) -- -- (20,441,502)
Adjustment to unrealized
gains on investment in
Insured Mortgages -- -- 85,637 -- 85,637
Adjustment to unrealized
losses on investment in
Insured Mortgages -- -- -- 283,293 283,293
------------ ------------- ----------- ----------- ------------
Balance, September 30, 1998 $ (4,710,673) $ 100,430,305 $ 565,288 $ (460,565) $ 95,824,355
============ ============= =========== =========== ============
Limited Partnership Units outstanding -
basic, as of September 30, 1998 9,576,290
=============
The accompanying notes are an integral
part of these financial statements.
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,326,280 $ 7,001,208
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on mortgage dispositions (437,120) --
Changes in assets and liabilities:
Increase in note payable and due to affiliate 35,805 192,624
Increase in accounts payable and accrued expenses 1,667 29,202
Decrease (increase) in receivables and other assets 225,529 (1,200,932)
Decrease (increase) in investment in affiliate 7,683 (187,377)
----------- -----------
Net cash provided by operating activities 4,159,844 5,834,725
----------- -----------
Cash flows from investing activities:
Proceeds from mortgage dispositions 16,163,377 --
Receipt of principal from scheduled payments 494,748 774,244
----------- -----------
Net cash provided by investing activities 16,658,125 774,244
----------- -----------
Cash flows from financing activities:
Distributions paid to partners (43,400,430) (43,199,035)
----------- -----------
Net cash used in financing activities (43,400,430) (43,199,035)
----------- -----------
Net decrease in cash and cash equivalents (22,582,461) (36,590,066)
Cash and cash equivalents, beginning of period 24,011,634 38,580,668
----------- -----------
Cash and cash equivalents, end of period $ 1,429,173 $ 1,990,602
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. The Partnership Agreement states that the Partnership will
terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner)
succeeded the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc., is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE).
The Partnership's investment in mortgages includes participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and
provider of personnel and administrative services to the Partnership, filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Such bankruptcy filings could result in certain adverse effects to the
Partnership including without limitation, the potential loss of CRIIMI MAE Inc.
as a potential source of capital, and the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position of the Partnership as of
September 30, 1998 and December 31, 1997 and the results of its operations for
the three and nine months ended September 30, 1998 and 1997 and its cash flows
for the nine months ended September 30, 1998 and 1997.
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the General Partner believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the financial statements and the
notes to the financial statements included in the Partnership's Annual Report
filed on Form 10-K for the year ended December 31, 1997.
New Accounting Standards
------------------------
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 was adopted by the Partnership January 1, 1998. For the three and nine
months ended September 30, 1998, comprehensive income was $1,697,503 and
$4,695,210, respectively. For the three and nine months ended September 30, 1997
comprehensive income was $2,715,867 and $7,783,960, respectively.
3. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's investment in
FHA-Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities
as of September 30, 1998 and December 31, 1997:
Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in
fully Insured Mortgages as of September 30, 1998 and December 31, 1997:
<TABLE><CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages(1) 4 5
Amortized Cost $ 33,921,711 $ 43,068,712
Face Value 32,759,016 41,562,851
Fair Value 33,137,880 41,812,118
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed
Securities (2) 9 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 34,261,465 $ 41,335,466
Face Value 34,187,860 41,283,184
Fair Value 34,869,838 41,791,825
(1) In April 1998, the Partnership received net proceeds of approximately $9.3
million from the prepayment of the mortgage on Arbor Station and recognized a
gain of approximately $414,000 for the nine months ended September 30, 1998. A
distribution of $0.93 per Unit related to this prepayment was declared in April
1998 and was paid to Unitholders in August 1998.
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
(2) In late April 1998, the Partnership received net proceeds of approximately
$6.8 million from the prepayment of the mortgage on Oak Grove Apartments and
recognized a gain of approximately $23,000 for the nine months ended September
30, 1998. A distribution of $0.67 per Unit related to this prepayment was
declared in May 1998 and was paid to Unitholders in August 1998.
</TABLE>
As of November 1, 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 three and nine months ended September 30,
1998, the Partnership received additional interest of $0 and $74,112,
respectively, from the fully insured Participations. During the three
and nine months ended September 30, 1997 the Partnership received
additional interest of $1,996 and $72,927, respectively, from the fully
insured Participations. These amounts, if any, are included in mortgage
investment income on the accompanying statements of operations.
Originated Coinsured FHA-Insured Certificates
---------------------------------------------
As of September 30, 1998 and December 31, 1997, the
Partnership had invested in three FHA-Insured Certificates secured by
coinsured mortgages. 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.
1. Coinsured by third party
------------------------
As of September 30, 1998, the two originated coinsured
mortgages which are coinsured by Patrician, The Villas and St.
Charles Place - Phase II, were delinquent with respect to the
payment of principal and interest. The following is a
discussion of actual and potential performance problems with
respect to the mortgage investments.
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
Listed below are the originated Insured Mortgages co-insured
by Patrician:
<TABLE><CAPTION>
September 30, 1998 December 31, 1997
-------------------------------------------- ---------------------------------------------
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 $ 15,646,468 $ 15,018,374 $ 15,412,759 $ 15,646,469 $ 14,871,111
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,917,734 3,035,688 3,035,688 2,885,298
------------ ------------ ------------ ------------- ------------ ------------
$ 18,448,447 $ 18,682,156 $ 17,936,108 $ 18,448,447 $ 18,682,157 $ 17,756,409
============ ============ ============ ============= ============ ============
(1) As of November 1, 1998, the mortgagor has made payments of principal and
interest due on the original mortgage through November 1995, and has made
payments of principal and interest due under a modification agreement through
August 1993. The Partnership has made the decision to discontinue the accrual of
interest income for this mortgage as of January 1, 1998, in the best interest of
its Unitholders. For the three and nine months ended September 30, 1998 the
unaccrued mortgage investment income was approximately $341,000 and $1,025,000,
respectively. On November 3, 1998, Patrician took title of this property, via a
bankruptcy court sale. Patrician intends to dispose of the property and file a
claim with HUD within one year, for any unrecovered amounts.
(2) These amounts represent the Partnership's approximate 45% ownership interest
in the mortgage. The remaining 55% ownership interest is held by American
Insured Mortgage Investors L.P. - Series 88, an affiliate of the Partnership. As
of November 1, 1998, the mortgagor has made payments of principal and interest
due on the mortgage through November 1995 to the Partnership. The Partnership
has made the decision to discontinue the accrual of interest income for this
mortgage as of January 1, 1998, in the best interest of its Unitholders. For the
three and nine months ended September 30, 1998 the unaccrued mortgage investment
income was approximately $65,000 and $196,000, respectively. On November 3,
1998, Patrician took title of this property via a bankruptcy court sale.
Patrician intends to dispose of the property and file a claim with HUD within
one year for any unrecovered amounts
</TABLE>
2. Coinsured by affiliate
----------------------
As of September 30, 1998 and December 31, 1997, the
Partnership held an investment in one FHA-Insured Certificate
secured by a coinsured mortgage, where the
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
coinsurance lender is Integrated Funding, Inc. (IFI), an
affiliate of the Partnership.
<TABLE><CAPTION>
September 30, 1998 December 31, 1997
------------------------------------ ---------------------------------------- Cumulative
Amortized Face Fair Amortized Face Fair Loan Losses
Cost Value Value Cost Value Value Recognized
---------- ---------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Spring Lake Village $4,656,113 $4,898,740 $ 4,707,887 $4,656,113 $4,656,113 $4,656,113 $ 502,626
</TABLE>
(1) As of November 1, 1998, the mortgage on Spring Lake Village has been
delinquent since October 1997. This mortgage was 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 for September 1, 1995 through
December 1, 1995, have been deferred, with quarterly payments to be paid out of
the mortgagor's available cash flow. 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 had recognized a loan loss reserve of $387,325 as of December
31, 1997, for their portion of the estimated loss after considering costs to
dispose of the assets and reimbursements from HUD. The Partnership plans to
sell the property by sealed bid in November 1998, then file a claim with HUD
for any unrecovered amounts.
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 have contained such
Participations. During the three and nine months ended September 30, 1998 and
1997, the Partnership has not received additional interest from the
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of operations.
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD
regulations, in April 1994, American Insured Mortgage Investors L.P. - Series 88
(AIM 88), an affiliate of the Partnership, transferred a GNMA mortgage-backed
security in the amount of $2.0 million to IFI. The Partnership and American
Insured Mortgages Investors L.P. - Series 85 (AIM 85), an affiliate of the
Partnership, each issued a demand note payable to AIM 88 and recorded an
investment in IFI through an affiliate (AIM Mortgage, Inc.) in proportion to
each entity's coinsured mortgages for which IFI was mortgagee of record as of
April 15, 1994. Interest expense on the note payable is based on an interest
rate of 7.25% per annum. In April 1997, the GNMA mortgage-backed security, with
a balance of $1.9 million, was reallocated between the Partnership and AIM 88.
As a result, a new demand note payable to AIM 88 was issued and the investment
in IFI was updated.
IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 85 and AIM 88 (collectively the AIM Funds) whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net income or loss, substantially equals the mortgage principal and
interest on the GNMA mortgage-backed security transferred to IFI. In April 1997,
this agreement was amended to exclude AIM 85 which no longer holds coinsured
mortgages.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis
for the nine months ended September 30, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Quarter ended March 31, $ 0.15 $ 0.75(2)
Quarter ended June 30, 1.75(1) 0.21
Quarter ended September 30, 0.13 0.22(3)
--------- ---------
$ 2.03 $ 1.18
========= =========
(1) This amount includes approximately $1.60 per Unit return of capital and
gain from the prepayment of the following mortgages: Arbor Station of
$0.93 per Unit and Oak Grove Apartments of $0.67 per Unit.
(2) This amount includes approximately $0.53 per Unit return of capital and
gain from the prepayment of the mortgage on Carmen Drive Estates. In
addition, this amount includes $0.01 per Unit representing previously
undistributed accrued interest from St. Charles Place-Phase II and The
Villas.
(3) This amount includes approximately $0.01 per unit representing
previously undistributed accrued interest received from two delinquent
mortgages.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although Insured
Mortgages yield a fixed monthly mortgage payment once purchased, the cash
distributions
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
paid to the Unitholders will vary during each quarter due to (1) the fluctuating
yields in the short-term money market where the monthly mortgage payment
receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three
and nine months ended September 30, 1998 and 1997, earned or received
compensation or payments for services from the Partnership as follows:
<TABLE><CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the nine months
Capacity in Which ended September 30, ended September 30,
Name of Recipient Served/Item 1998 1997 1998 1997
- ----------------- ----------------------------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 64,144 $108,551 $1,001,633 $582,230
AIM Acquisition Advisor/Asset Management Fee 176,556 247,605 569,948 742,815
Partners, L.P. (1)
CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 10,640 15,722 40,678 47,166
(1) The Advisor, pursuant to the Partnership Agreement, effective October 1,
1991, is entitled to an Asset Management Fee equal to 0.75% of Total Invested
Assets (as defined in the Partnership Agreement) for the nine months ended
September 30, 1998 and 1997. CRIIMI MAE Services Limited Partnership, the
sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of 0.28%
of Total Invested Assets. Of the amounts paid to the Advisor, the Sub-advisor
earned a fee equal to $65,907 and $212,757, for the three and nine months ended
September 30, 1998, respectively and earned a fee equal to $92,430 and $277,290,
for the three and nine months ended September 30, 1997, respectively. The
Sub-advisor is an affiliate of CRIIMI MAE. </TABLE>
<PAGE>14
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties as
discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report for 1997 on Form 10-K for a more detailed discussion of such risks and
uncertainties.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and
provider of personnel and administrative services to the Partnership, filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code.
Such bankruptcy filings could result in certain adverse effects to the
Partnership including without limitation, the potential loss of CRIIMI MAE Inc.
as a potential source of capital, and the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
General
- -------
As of September 30, 1998, the Partnership had invested in 19 insured
mortgages, with an aggregate amortized cost of approximately $91.3 million, an
aggregate face value of approximately $90.5 million and an aggregate fair value
of approximately $90.7 million, as discussed below.
As of November 1, 1998, all of the fully insured FHA-Insured
Certificates, GNMA Mortgage Backed Securities and FHA-Insured Loans were current
with respect to payment of principal and interest. As of November 1, 1998, the
three coinsured FHA-Insured Certificates were delinquent with respect to payment
of principal and interest.
Results of Operations
- ---------------------
Net earnings decreased for the three and nine months ended September
30, 1998, as compared to the corresponding periods in 1997, primarily due to a
decrease in mortgage investment income, as discussed below. The decrease for the
nine months ended September 30, 1998, was partially offset by an increase in
gain on mortgage dispositions, as discussed below.
Mortgage investment income decreased for the three and nine months
ended September 30, 1998, as compared to the corresponding periods in 1997,
primarily due to the prepayment of four mortgages since October 1997. In
addition, the Partnership has made a decision to no longer accrue interest on
the delinquent coinsured mortgages as of January 1, 1998. See Note 3 to the
financial statements.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Interest and other income increased for the three and nine months ended
September 30, 1998, as compared to the corresponding periods in 1997, primarily
due to the temporary investment of mortgage disposition proceeds prior to
distribution to Unitholders.
Asset management fees to related parties decreased for the three and
nine months ended September 30, 1998, as compared to the corresponding periods
in 1997, primarily due to the decrease in the mortgage base.
Interest expense to affiliate increased for the nine months ended
September 30, 1998, as compared to the corresponding period in 1997. This
increase is primarily due to the revision of the note payable to affiliate, as
discussed in Note 4 to the financial statements.
Gain on mortgage dispositions increased for the nine months ended
September 30, 1998, as compared to the corresponding period in 1997. During the
first nine months of 1998, the Partnership recognized gains from the prepayment
of the mortgages on Arbor Station and Oak Grove Apartments. During the first
nine months of 1997, no gains or losses were recognized.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first nine months of 1998 to
meet operating requirements.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although Insured
Mortgages yield a fixed monthly mortgage payment once purchased, the cash
distributions paid to the Unitholders will vary during each quarter due to (1)
the fluctuating yields in the short-term money market where the monthly mortgage
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.
Net cash provided by operating activities decreased for the nine months
ended September 30, 1998, as compared to the corresponding period in 1997,
primarily due to the decrease in earnings before gain on mortgage dispositions
as it relates to the reduction in mortgage base.
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash provided by investing activities increased for the nine months
ended September 30, 1998, as compared to the corresponding period in 1997,
primarily due to proceeds received from the disposition of mortgages, as
previously discussed. This increase was partially offset by a decrease in the
receipt of principal from scheduled payments, due to the reduction in mortgage
base.
Other
- -----
On October 5, 1998, CRIIMI MAE Inc., the parent of the General
Partner, filed a voluntary petition for reorganization under Chapter 11 of the
Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE Inc. will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership; however, CRIIMI MAE Inc. has not historically
represented a significant source of capital for the General Partnership or the
Partnership.
<PAGE>17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 30, 1998.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
<PAGE>18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ November 16, 1998 /s/ Cynthia O. Azzara
- --------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT ON FORM 10-Q.
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
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<SECURITIES> 56,494
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