<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 June 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 June 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 JUNE 30, 1998
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1998 (unaudited)
and December 31, 1997 . . . . . . . . . . . 3
Statements of Operations - for the three and
six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the six months ended June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the six
months ended June 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>
June 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 $ 22,273,190 $ 22,412,522
Acquired insured mortgages 33,853,326 40,780,876
-------------- --------------
56,126,516 63,193,398
-------------- --------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
premium and discount:
Originated insured mortgages 33,988,633 43,068,712
Acquired insured mortgage 978,837 982,422
-------------- --------------
34,967,470 44,051,134
Cash and cash equivalents 17,537,844 24,011,634
Investment in affiliate 658,486 658,486
Receivables and other assets 4,617,182 4,752,910
-------------- --------------
Total assets $ 113,907,498 $ 136,667,562
============== ==============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 17,621,985 $ 24,267,990
Note payable and due to affiliate 682,356 658,486
Accounts payable and accrued expenses 167,253 170,439
-------------- --------------
Total liabilities 18,471,594 25,096,915
-------------- --------------
Partners' equity:
Limited partners' equity 100,491,900 115,755,882
General partner's deficit (4,707,500) (3,921,028)
Unrealized gains on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities 482,874 479,651
Unrealized losses on investment in
FHA-Insured Certificates and
GNMA Mortgage-backed Securities (831,370) (743,858)
-------------- --------------
Total partners' equity 95,435,904 111,570,647
-------------- --------------
Total liabilities and partners' equity $ 113,907,498 $ 136,667,562
============== ==============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 1,337,817 $ 2,602,790 $ 3,019,784 $ 5,183,837
Interest and other income 86,207 55,570 223,673 312,614
------------ ------------ ------------ ------------
1,424,024 2,658,360 3,243,457 5,496,451
------------ ------------ ------------ ------------
Expenses:
Asset management fee to
related parties 186,626 247,605 393,392 495,210
General and administrative 87,942 107,512 181,328 198,624
Interest expense to affiliate 11,935 11,935 23,870 20,610
------------ ------------ ------------ ------------
286,503 367,052 598,590 714,444
------------ ------------ ------------ ------------
Earnings before gain on
mortgage disposition 1,137,521 2,291,308 2,644,867 4,782,007
Gain on mortgage dispositions 437,120 -- 437,120 --
------------ ------------ ------------ ------------
Net earnings $ 1,574,641 $ 2,291,308 $ 3,081,987 $ 4,782,007
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 1,497,484 $ 2,179,034 $ 2,930,970 $ 4,547,689
General partner - 4.9% 77,157 112,274 151,017 234,318
------------ ------------ ------------ ------------
$ 1,574,641 $ 2,291,308 $ 3,081,987 $ 4,782,007
============ ============ ============ ============
Net earnings per Limited
Partnership Unit-basic $ 0.16 $ 0.22 $ 0.31 $ 0.47
============ ============ ============ ============
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 six months ended June 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 151,017 2,930,970 -- -- 3,081,987
Distributions paid or
accrued of $1.90 per
Unit, including $1.59
return of capital (937,489) (18,194,952) -- -- (19,132,441)
Adjustment to unrealized
gains on investment in
Insured Mortgages -- -- 3,223 -- 3,223
Adjustment to unrealized
losses on investment in
Insured Mortgages -- -- -- (87,512) (87,512)
------------- ------------- ------------- ------------ ------------
Balance, June 30, 1998 $ (4,707,500) $ 100,491,900 $ 482,874 $ (831,370) $ 95,435,904
============= ============= ============= ============ ============
Limited Partnership Units outstanding -
basic, as of June 30, 1998 9,576,290
=============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 30,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,081,987 $ 4,782,007
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 23,870 200,484
(Decrease) increase in accounts payable and accrued expenses (3,186) 39,539
Decrease (increase) in receivables and other assets 135,728 (768,715)
Increase in investment in affiliate -- (187,377)
------------ ------------
Net cash provided by operating activities 2,801,279 4,065,938
------------ ------------
Cash flows from investing activities:
Proceeds from mortgage dispositions 16,163,377 --
Receipt of principal from scheduled payments 340,000 511,098
------------ ------------
Net cash provided by investing activities 16,503,377 511,098
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (25,778,446) (41,084,399)
------------ ------------
Net cash used in financing activities (25,778,446) (41,084,399)
------------ ------------
Net decrease in cash and cash equivalents (6,473,790) (36,507,363)
Cash and cash equivalents, beginning of period 24,011,634 38,580,668
------------ ------------
Cash and cash equivalents, end of period $ 17,537,844 $ 2,073,305
============ ============
The accompanying notes are an integral part
of these financial statements.
</TABLE>
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. The Partnership Agreement states that the Partnership will
terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc., is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE).
The Partnership's investment in mortgages includes participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 1998 and
December 31, 1997 and the results of its operations for the three and six months
ended June 30, 1998 and 1997 and its cash flows for the six months ended June
30, 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.
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 six months ended
June 30, 1998, comprehensive income was $1,284,054 and $2,997,698, respectively.
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
For the three and six months ended June 30, 1997 comprehensive income was
$4,059,577 and $5,068,093, 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 June 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 June 30, 1998 and December 31, 1997:
<TABLE><CAPTION> June 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Fully Insured Originated Insured:
Number of Mortgages(1) 4 5
Amortized Cost $ 33,988,633 $ 43,068,712
Face Value 32,818,906 41,562,851
Fair Value 33,040,776 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 $ 34,349,289 $ 41,335,466
Face Value 34,274,911 41,283,184
Fair Value 34,858,131 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 six months ended June 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.
(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 six months ended June 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 August 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
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as Participations). During the three
and six months ended June 30, 1998, the Partnership received additional
interest of $0 and $74,112, respectively, from the fully insured
Participations. During the three and six months ended June 30, 1997 the
Partnership received additional interest of $48,812 and $70,931,
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 June 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 June 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.
Listed below are the originated Insured Mortgages co-insured by
Patrician:
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE><CAPTION>
June 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 $ 14,774,198 $ 15,412,759 $ 15,646,469 $ 14,871,111
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,869,209 3,035,688 3,035,688 2,885,298
(1) As of August 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. 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 six months ended June 30, 1998 the unaccrued mortgage investment income
was approximately $342,000 and $684,000, respectively.
(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 August 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 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 six months ended June 30, 1998 the unaccrued mortgage investment
income was approximately $65,000 and $131,000, respectively.
</TABLE>
The General Partner intends to continue to oversee the Partnership's
interest in these mortgages in an effort to ensure that Patrician
meets its coinsurance obligations. The General Partner's assessment
of the realizability of The Villas and St. Charles Place-Phase II
mortgages is based on the most recent information available, and to
the extent these conditions change or additional information becomes
available, then the General Partner's assessment may change. However,
the General Partner does not believe that there would be a material
adverse impact on the Partnership's financial condition or its results
of operations should Patrician be unable to comply with its full
coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of June 30, 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.
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN INSURED MORTGAGES - Continued
<TABLE><CAPTION>
June 30, 1997 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 $4,629,783 $4,656,113 $4,656,113 $4,656,113 $502,626
(1) As of August 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. At this time, the Partnership has not made a decision on whether to sell or hold the property.
</TABLE>
In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest payments,
additional interest (commonly termed Participations) based on a percentage of
the net cash flow from the development and the net proceeds from the
refinancing, sale or other disposition of the underlying development. All of
the FHA-Insured Certificates secured by coinsured mortgages have contained such
Participations. During the three and six months ended June 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.
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
<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 - Continued
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 six months ended June 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
--------- ---------
1.90 0.96
========= =========
(1) This amount includes approximately $1.60 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.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although Insured
Mortgages yield a fixed monthly mortgage payment once purchased, the cash
distributions paid to the Unitholders will vary during each quarter due to (1)
the fluctuating yields in the short-term money market where the monthly mortgage
payment receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the six months
ended June 30, 1998 and 1997, earned or received compensation or payments for
services from the Partnership as follows:
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES - Continued
<TABLE><CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
----------------------------------------------
For the three months For the six months
Capacity in Which ended June 30, ended June 30,
Name of Recipient Served/Item 1998 1997 1998 1997
- ----------------- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $863,477 $103,617 $937,489 $473,679
AIM Acquisition Advisor/Asset Management Fee 186,626 247,605 393,392 495,210
Partners, L.P. (1)
CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 15,978 27,090 30,038 42,690
(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 six months ended June 30, 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 $69,666
and $146,850, for the three and six months ended June 30, 1998, respectively and earned a fee equal to $92,430 and $184,860,
for the three and six months ended June 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.
General
- -------
As of June 30, 1998, the Partnership had invested in 19 insured mortgages,
with an aggregate amortized cost of approximately $91.4 million, an aggregate
face value of approximately $90.7 million and an aggregate fair value of
approximately $90.2 million, as discussed below.
As of August 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 August 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 and six months ended June 30, 1998, as
compared to the corresponding periods in 1997, primarily due to a decrease in
mortgage investment income, as discussed below. This decrease was partially
offset by an increase in gain on mortgage dispositions, as discussed below.
Mortgage investment income decreased for the three and six months ended
June 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 of the financial
statements.
Interest and other income increased for the three months ended June 30,
1998, as compared to the corresponding period in 1997, and decreased for the six
months ended June 30, 1998, as compared to the corresponding period in 1997.
These variances are primarily due to the temporary investment of mortgage
disposition proceeds prior to distribution to Unitholders.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Asset management fees to related parties decreased for the three and six
months ended June 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 six months ended June 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 three and six months ended
June 30, 1998, as compared to the corresponding periods in 1997. During the
first six months of 1998, the Partnership recognized gains from the prepayment
of the mortgages on Arbor Station and Oak Grove Apartments. During the first
six 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 six 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 six months
ended June 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.
Net cash provided by investing activities increased for the six months
ended June 30, 1998, as compared to the corresponding period in 1997, primarily
due to proceeds received from the disposition of mortgages, as previously
discussed.
Net cash used in financing activities decreased for the six months ended
June 30, 1998, as compared to the corresponding period in 1997, as a result of a
decrease in distributions paid to partners.
<PAGE>16
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 June 30, 1998.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
<PAGE>17
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/ August 13, 1998 /s/ Cynthia O. Azzara
- ------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer<PAGE>
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<SECURITIES> 56,127
<RECEIVABLES> 40,242
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