<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 March 31, 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 March 31, 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 MARCH 31, 1998
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1998 (unaudited)
and December 31, 1997 . . . . . . . . . . . 3
Statements of Operations - for the three
months ended March 31, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the three months ended March 31,
1998 (unaudited). . . . . . . . . . . . . . 5
Statements of Cash Flows - for the three
months ended March 31, 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>
March 31, 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 $ 22,430,952 $ 22,412,522
Acquired insured mortgages 40,863,492 40,780,876
-------------- --------------
63,294,444 63,193,398
-------------- --------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
premium and discount:
Originated insured mortgages 42,987,533 43,068,712
Acquired insured mortgage 980,650 982,422
-------------- --------------
43,968,183 44,051,134
Cash and cash equivalents 1,523,576 24,011,634
Investment in affiliate 658,486 658,486
Receivables and other assets 4,655,510 4,752,910
-------------- --------------
Total assets $ 114,100,199 $ 136,667,562
-------------- --------------
-------------- --------------
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,510,456 $ 24,267,990
Note payable and due to affiliate 670,421 658,486
Accounts payable and accrued expenses 145,487 170,439
-------------- --------------
Total liabilities 2,326,364 25,096,915
-------------- --------------
Partners' equity:
Limited partners' equity 115,752,924 115,755,882
General partner's deficit (3,921,180) (3,921,028)
Unrealized gains on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities 620,953 479,651
Unrealized losses on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities (678,862) (743,858)
-------------- --------------
Total partners' equity 111,773,835 111,570,647
-------------- --------------
Total liabilities and
partners' equity $ 114,100,199 $ 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
March 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Income:
Mortgage investment income $ 1,681,968 $ 2,581,047
Interest and other income 137,466 257,044
------------ ------------
1,819,434 2,838,091
------------ ------------
Expenses:
Asset management fee to
related parties 206,766 247,605
General and administrative 93,387 91,112
Interest expense to affiliate 11,935 8,675
------------ ------------
312,088 347,392
------------ ------------
Net earnings $ 1,507,346 $ 2,490,699
------------ ------------
------------ ------------
Net earnings allocated to:
Limited partners - 95.1% $ 1,433,486 $ 2,368,655
General partner - 4.9% 73,860 122,044
------------ ------------
$ 1,507,346 $ 2,490,699
------------ ------------
------------ ------------
Net earnings per Limited
Partnership Unit-basic $ 0.15 $ 0.25
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<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 three months ended March 31, 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 73,860 1,433,486 -- -- 1,507,346
Distributions paid or
accrued of $0.15 per
Unit (74,012) (1,436,444) -- -- (1,510,456)
Adjustment to unrealized
gains on investment in
Insured Mortgages -- -- 141,302 -- 141,302
Adjustment to unrealized
losses on investment in
Insured Mortgages -- -- -- 64,996 64,996
--------------- ------------- ------------- ------------- -------------
Balance, March 31, 1998 $ (3,921,180) $ 115,752,924 $ 620,953 $ (678,862) $111,773,835
--------------- ------------- ------------- ------------- -------------
--------------- ------------- ------------- ------------- -------------
Limited Partnership Units outstanding -
basic, as of March 31, 1998 9,576,290
------------
------------
</TABLE>
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)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,507,346 $ 2,490,699
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Changes in assets and liabilities:
Increase in note payable and due
to affiliate 11,935 8,675
Decrease (increase) in accounts payable and accrued expenses (24,952) 11,127
Decrease (increase) in receivables and other assets 97,400 (318,467)
-------------- ------------
Net cash provided by operating activities 1,591,729 2,192,034
-------------- ------------
Cash flows from investing activities:
Receipt of principal from scheduled payments 188,203 253,050
-------------- ------------
Net cash provided by investing activities 188,203 253,050
-------------- ------------
Cash flows from financing activities:
Distributions paid to partners (24,267,990) (33,532,120)
-------------- ------------
Net cash used in financing activities (24,267,990) (33,532,120)
-------------- ------------
Net decrease in cash and cash equivalents (22,488,058) (31,087,036)
Cash and cash equivalents, beginning of period 24,011,634 38,580,668
-------------- ------------
Cash and cash equivalents, end of period $ 1,523,576 $ 7,493,632
-------------- ------------
-------------- ------------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>7
AMERICAN ISSUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware
on October 31, 1985. The Partnership Agreement states that the Partnership
will terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner)
succeeded the former general partners to become the sole general partner of
the Partnership. CRIIMI, Inc., is a wholly owned subsidiary of CRIIMI MAE
Inc. (CRIIMI MAE).
The Partnership's investment in mortgages includes participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all adjustments of a normal recurring nature
necessary to present fairly the financial position of the Partnership as of
March 31, 1998 and December 31, 1997 and the results of its operations for the
three months ended March 31, 1998 and 1997 and its cash flows for the three
months ended March 31, 1998 and 1997.
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.
<PAGE>8
AMERICAN ISSUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(unaudited)
2. BASIS OF PRESENTATION - Continued
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 months
ended March 31, 1998 and 1997, comprehensive income was $1,713,644 and
$1,008,516, 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 March 31, 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 March 31, 1998 and December 31, 1997:
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages(1).............. 5 5
Amortized Cost...................... $ 42,987,533 $ 43,068,712
Face Value.......................... 41,490,402 41,562,851
Fair Value.......................... 41,762,271 41,812,118
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed
Securities (2).................. 10 10
FHA-Insured Certificates.......... 2 2
FHA-Insured Loan.................. 1 1
Amortized Cost...................... $ 41,228,444 $ 41,335,466
Face Value.......................... 41,176,698 41,283,184
Fair Value.......................... 41,875,079 41,791,825
</TABLE>
(1) In April 1998, the Partnership received net proceeds of approximately
$9.3 million from the prepayment of the mortgage on Arbor Station and expects
to recognize a gain of approximately $414,000. The Partnership expects to
distribute $0.93 per Unit in August 1998, related to the prepayment of
this mortgage.
(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 expects to recognize a gain of approximately $23,000. The
Partnership expects to distribute $0.67 per Unit in August 1998, related to
the prepayment of this mortgage.
As of May 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 months ended March 31, 1998 and 1997,
the Partnership received additional interest of $74,112 and $22,119 from
the fully insured Participations. These amounts are included in
mortgage investment income on the accompanying statements of operations.
Originated Coinsured FHA-Insured Certificates
---------------------------------------------
As of March 31, 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),
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
under the HUD coinsurance program.
1. Coinsured by third party
------------------------
As of March 31, 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.
Listed below are the originated Insured Mortgages co-insured by
Patrician:
<TABLE>
<CAPTION>
March 31, 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 $14,880,919 $15,412,759 $15,646,469 $14,871,111
St. Charles Place -
Phase II(2)........... 3,035,688 3,035,688 2,888,666 3,035,688 3,035,688 2,885,298
</TABLE>
(1) As of May 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. Patrician is litigating the case in
bankruptcy court while pursuing negotiations on a modification agreement
with the borrower.
(2) These amounts represent the Partnership's approximate 45% ownership
interest in the mortgage. The remaining 55% ownership interest is held
by American Insured Mortgage Investors L.P. - Series 88, an affiliate of
the Partnership. As of May 1, 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
pursuing negotiations on a modification agreement with the borrower.
The General Partner intends to continue to oversee the
Partnership's interest in these mortgages in an effort to ensure
that Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of The Villas and St.
Charles Place-Phase II mortgages is based on the most recent
information available, and to the extent these conditions change
or additional information becomes available, then the General
Partner's assessment may change. However, the General Partner
does not believe that there would be a material adverse impact on
the Partnership's financial condition or its results of operations
should Patrician be unable to comply with its full coinsurance
obligation.
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
2. Coinsured by affiliate
----------------------
As of March 31, 1998 and December 31, 1997, the Partnership held
an investment in one FHA-Insured Certificate secured by a
coinsured mortgage, where the coinsurance lender is Integrated
Funding, Inc. (IFI), an affiliate of the Partnership.
<TABLE>
<CAPTION>
March 31, 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 $4,661,367 $4,656,113 $4,656,113 $4,656,113 $502,626
</TABLE>
(1) As of May 1, 1998, the mortgage on Spring Lake Village has been
delinquent since September 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.
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 have contained
such Participations. During the three months ended March 31, 1998 and 1997,
the Partnership has not received additional interest from the Participations.
These amounts are included in mortgage investment income on the accompanying
statements of operations.
4. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD
regulations, in April 1994, American Insured Mortgage Investors L.P. - Series
88 (AIM 88), an affiliate of the Partnership, transferred a GNMA
mortgage-backed security in the amount of $2.0 million to IFI. The
Partnership and American Insured Mortgages Investors L.P. - Series 85 (AIM
85), an affiliate of the Partnership, each issued a demand note payable to AIM
88 and recorded an investment in IFI through an affiliate (AIM Mortgage, Inc.)
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 three months ended March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Quarter ended March 31, $ 0.15 $ 0.75(1)
--------- ---------
--------- ---------
</TABLE>
(1) This amount includes approximately $0.53 per Unit return of capital and
gain from the prepayment of the mortgage on Carmen Drive Estates. In
addition, this amount includes $0.01 per Unit representing previously
undistributed accrued interest from St. Charles Place-Phase II and The
Villas.
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,
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
(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
months ended March 31, 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
Capacity in Which ended March 31,
Name of Recipient Served/Item 1998 1997
- ----------------- ---------------------------- -------- --------
<S> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 74,012 $370,062
AIM Acquisition Advisor/Asset Management Fee 206,766 247,605
Partners, L.P. (1)
CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 14,060 15,600
</TABLE>
(1) The Advisor, pursuant to the Partnership Agreement, effective October
1, 1991, is entitled to an Asset Management Fee equal to 0.75% and
0.95% of Total Invested Assets (as defined in the Partnership
Agreement) for the three months ended March 31, 1998 and 1997,
respectively. CRIIMI MAE Services Limited Partnership, the sub-advisor
to the Partnership (the Sub-advisor) is entitled to a fee of 0.28% of
Total Invested Assets. Of the amounts paid to the Advisor, the
Sub-advisor earned a fee equal to $77,184 and $92,430, for the three
months ended March 31, 1998 and 1997, respectively. The Sub-advisor is
an affiliate of CRIIMI MAE.
<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.
General
- -------
As of March 31, 1998, the Partnership had invested in 21 insured
mortgages, with an aggregate amortized cost of approximately $107 million, an
aggregate face value of approximately $106 million and an aggregate fair value
of approximately $106 million, as discussed below.
In April 1998, the Partnership received net proceeds of approximately
$9.3 million from the prepayment of the mortgage on Arbor Station and expects
to recognize a gain of approximately $414,000. The Partnership expects to
distribute $0.93 per Unit in August 1998, related to the prepayment of this
mortgage.
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 expects to recognize a gain of approximately $23,000. The
Partnership expects to distribute $0.67 per Unit in August 1998, related to
the prepayment of this mortgage.
As of May 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 May 1, 1998, the three
coinsured FHA-Insured Certificates were delinquent with respect to payment of
principal and interest. As discussed in Note 3 to the financial statements,
management does not anticipate that these delinquencies will have an adverse
material impact on the Partnership's financial statements.
Results of Operations
- ---------------------
Net earnings decreased for the three months ended March 31, 1998, as
compared to the corresponding period in 1997. This decrease was primarily due
to the reduction in the mortgage base, as discussed below.
Mortgage investment income decreased for the three months ended March
31, 1998, as compared to the corresponding period in 1997, primarily due to
the prepayment of the mortgages on Ridgeview Chase Apartments and Woodland
Apartments during the fourth quarter of 1997. In addition,
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the Partnership has made a decision to no longer accrue interest on the
delinquent coinsured mortgages as of January 1, 1998. See Note 3 of the
financial statements.
Interest and other income decreased for the three months ended March 31,
1998, as compared to the corresponding period 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 months
ended March 31, 1998, as compared to the corresponding period in 1997,
primarily due to the decrease in the mortgage base.
Interest expense to affiliate increased for the three months ended March
31, 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.
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 three 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 three months
ended March 31, 1998, as compared to the corresponding period in 1997,
primarily due to the decrease in net earnings, as discussed above.
Net cash provided by investing activities decreased for the three months
ended March 31, 1998, as compared to the corresponding period in 1997,
primarily due to the reduction in the mortgage base, as previously discussed.
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash used in financing activities decreased for the three months
ended March 31, 1998, as compared to the corresponding period in 1997, as a
result of a decrease in distributions paid to partners. Distributions paid to
partners during the first quarter of 1998 included special distributions
resulting from the disposition of the mortgages on Ridgeview Chase Apartments
and Woodland Apartments. Distributions paid to partners during the first
quarter of 1997 included special distributions resulting from the disposition
of the mortgages on Pembrook Apartments, Skyridge Club and Woodbine at
Lakewood Apartments.
<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 March 31, 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
May 14, 1998 /s/ Cynthia O. Azzara
- --------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,524
<SECURITIES> 63,294
<RECEIVABLES> 49,282
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,100
<CURRENT-LIABILITIES> 2,326
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 111,774
<TOTAL-LIABILITY-AND-EQUITY> 114,100
<SALES> 0
<TOTAL-REVENUES> 1,819
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 312
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1,507
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<INCOME-CONTINUING> 1,507
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<NET-INCOME> 1,507
<EPS-PRIMARY> .15
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