AMERICAN INSURED MORTGAGE INVESTORS L P SERIES 86 - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------

For the fiscal year ended December 31, 2001 Commission file number 1-12704

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
----------------------------------------------------
(Exact name of registrant as specified in it's charter)

Delaware 13-2943272
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
- --------------------------- ------------------------
Depositary Units of Limited American Stock Exchange
Partnership Interest

Securities registered pursuant to Section 12(g) of the Act:

None
------------------------------------

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of February 19, 2002, 9,576,290 depositary units of limited partnership
interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $33,227,991.

Documents incorporated by Reference

None

2

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

2001 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page

PART I

Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 4
Item 3. Legal Proceedings.............................................................. 4
Item 4. Submission of Matters to a Vote of Security Holders............................ 4

PART II

Item 5. Market for Registrant's Securities and Related Security Holder Matters......... 5
Item 6. Selected Financial Data........................................................ 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 7
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................... 13
Item 8. Financial Statements and Supplementary Data.................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 14

PART III

Item 10. Directors and Executive Officers of the Registrant............................. 15
Item 11. Executive Compensation......................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 17
Item 13. Certain Relationships and Related Transactions................................. 18

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 19

Signatures ............................................................................... 22

3
PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, the
words "believes," "anticipates," "expects," "contemplates," and similar
expressions are intended to identify forward-looking statements. Statements
looking forward in time are included in this Annual Report on Form 10-K pursuant
to the "safe harbor" provision of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially. Accordingly, the following
information contains or may contain forward-looking statements: (1) information
included or incorporated by reference in this Annual Report on Form 10-K,
including, without limitation, statements made under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, (2)
information included or incorporated by reference in future filings by the
Partnership with the Securities and Exchange Commission including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans and (3) information contained in
written material, releases and oral statements issued by or on behalf of, the
Partnership, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans.
Factors which may cause actual results to differ materially from those contained
in the forward-looking statements identified above include, but are not limited
to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in
the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only of the date hereof. The Partnership undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.

Development and Description of Business
- ---------------------------------------

Information concerning the business of American Insured Mortgage Investors
L.P.-Series 86 (the "Partnership") is contained in Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Notes 1, 5 and 7 of the Notes to Financial Statements of the Partnership (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein. See also Schedule IV-Mortgage Loans on Real Estate, for the table of the
Partnership's investments in Insured Mortgages (as defined below), as of
December 31, 2001, which is hereby incorporated by reference herein.

Employees
- ---------

The Partnership has no employees. The business of the Partnership is
managed by CRIIMI, Inc. (the "General Partner"), while its portfolio of
mortgages is managed by AIM Acquisition Partners, L.P. (the "Advisor") pursuant
to an advisory agreement (the "Advisory Agreement"). The General Partner is a
wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE").

The general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

4

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

Competition
- -----------

In disposing of mortgage investments, the Partnership competes with private
investors, mortgage banking companies, mortgage brokers, state and local
government agencies, lending institutions, trust funds, pension funds, and other
entities, some with similar objectives to those of the Partnership and some of
which are or may be affiliates of the Partnership, its General Partner, the
Advisor, CMSLP or their respective affiliates. Some of these entities may have
substantially greater capital resources and experience in disposing of Federal
Housing Administration ("FHA") insured mortgages than the Partnership.

CRIIMI MAE and its affiliates also may serve as general partners, sponsors
or managers of real estate limited partnerships, Real Estate Investments Trusts
("REITs") or other entities in the future. The Partnership may attempt to
dispose of mortgages at or about the same time that CRIIMI MAE, one or more of
the "AIM Funds" (defined as the Partnership, American Insured Mortgage Investors
("AIM 84"), American Insured Mortgage Investors - Series 85, L.P. ("AIM 85"),
and American Insured Mortgage Investors L.P. - Series 88 ("AIM 88")), and/or
other entities sponsored or managed by CRIIMI MAE or its affiliates, are
attempting to dispose of mortgages. As a result of market conditions that could
limit dispositions, CMSLP and its affiliates could be faced with conflicts of
interest in determining which mortgages would be disposed of. Both CMSLP and the
General Partner, however, are subject to their fiduciary duties in evaluating
the appropriate action to be taken when faced with such conflicts.

ITEM 2. PROPERTIES

Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are non-recourse
first liens on the respective multifamily residential developments or retirement
homes.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Notes 5 and 8 of the Notes to Financial Statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the security holders to be voted on during the
fourth quarter of 2001.

5

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

Principal Market and Market Price for Units
- -------------------------------------------

The General Partner listed the Partnership's Units for trading on the
American Stock Exchange ("AMEX") on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ."

The high and low trade prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 2001 and 2000 were as
follows:

Amount of
2001 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------

March 31 $ 3.8750 $ 3.2500 $ 0.800(1)
June 30 3.5600 3.2000 0.105(2)
September 30 3.6100 3.3100 0.075
December 31 4.0000 3.3600 0.065
-------
$ 1.045
=======

Amount of
2000 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------

March 31 $ 5.2500 $ 3.6250 $ 0.070
June 30 4.0000 3.5625 0.095(3)
September 30 4.2500 3.2500 0.075
December 31 4.3750 3.2500 1.105(4)
-------
$ 1.345
=======

(1) This amount includes approximately $0.725 per Unit representing return of
capital and gain from the following: (a) approximately $0.44 per Unit
related to the sale of Spring Lake Village; (b) approximately $0.09 per
Unit received from United States Department of Housing and Urban
Development ("HUD") for the Spring Lake Village coinsurance claim; (c)
approximately $0.18 per Unit received from the coinsurer of the mortgage on
St. Charles Place-Phase II, as result of its coinsurance claim filed with
HUD; and (d) approximately $0.015 per Unit of cash held in reserve for
anticipated legal costs related to the mortgages on St. Charles Place-Phase
II and The Villas.

(2) This amount includes approximately $0.03 per Unit related to the receipt of
an escrow balance from the servicer of Spring Lake Village.

(3) This amount includes approximately $0.02 per Unit of interest from receipt
of HUD debenture in exchange for the Spring Lake Village HUD coinsurance
claim.

(4) This amount includes approximately $1.02 per Unit return of capital
received from the coinsurer of the mortgage on The Villas, as a result of
its coinsurance claim filed with HUD.

Approximate Number of
Unitholders
Title of Class as of December 31, 2001
-------------- -----------------------
Depositary Units of Limited
Partnership Interest 7,900

6

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

For the Years Ended December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Income $ 3,034 $ 3,134 $ 3,911 $ 6,058 $ 10,629

Net gain on mortgage dispositions 518 4,753 597 437 550

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

Net earnings 2,993 7,245 3,631 5,373 9,436

Net earnings per Limited
Partnership Unit - Basic (1) $ 0.300 $ 0.720 $ 0.360 $ 0.530 $ 0.940

Distributions per Limited
Partnership Unit (1)(2) $ 1.045 $ 1.345 $ 4.730 $ 2.170 $ 3.590

As of December 31,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----

Total assets $ 37,520 $ 55,785 $ 70,796 $ 97,126 $ 136,668

Partners' equity 36,733 44,529 49,981 94,878 111,571

(1) Calculated based upon the weighted average number of Units outstanding.

(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 2001, 2000, 1999, 1998 and 1997, which were paid
subsequent to year end. See Notes 7 and 9 of the Notes to Financial
Statements of the Partnership.

The selected income statement data presented above for the years ended
December 31, 2001, 2000 and 1999, and the selected balance sheet data as of
December 31, 2001 and 2000, are derived from, and are qualified by, reference to
the Partnership's financial statements, which are included elsewhere in this
Form 10-K. The selected income statement data for the years ended December 31,
1998 and 1997, and the selected balance sheet data as of December 31, 1999, 1998
and 1997 are derived from audited financial statements not included as part of
this Annual Report on Form 10-K. This data should be read in conjunction with
the financial statements and the notes thereto.

7
PART II

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

General
- -------

The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein and in Item 1 of this Form 10-K that could
cause actual results to differ materially.

American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the State of Delaware on
October 31, 1985. During the period from May 2, 1986 (the initial closing date
of the Partnership's public offering) through June 6, 1987 (the termination date
of the offering), the Partnership, pursuant to its public offering of 9,576,165
Depository Units of limited partnership interest ("Units"), raised a total of
$191,523,300 in gross proceeds. In addition, the initial limited partner
contributed $2,500 to the capital of the Partnership and received 125 units of
limited partnership interest in exchange therefor.

CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners, L.P. (the "Advisor") serves as the advisor to the
Partnership pursuant to an advisory agreement (the "Advisory Agreement").

The general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

Mortgage Investments
- --------------------

Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
partnership agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured (as discussed
below) under Section 221(d)(4) or Section 231 of the National Housing Act of
1937, as amended (the "National Housing Act"). The Partnership is a liquidating
partnership and as it continues to liquidate its mortgage investments and
investors receive distributions of return of capital and taxable gains,
investors should expect a reduction in earnings and distributions due to the
decreasing mortgage base. The partnership agreement states that the Partnership
will terminate on December 31, 2020, unless previously terminated under the
provisions of the partnership agreement.

8

As of December 31, 2001, the Partnership had invested in 13 Insured
Mortgages, with an aggregate amortized cost of approximately $37 million, a face
value of approximately $37 million and a fair value of approximately $36
million, as discussed below.

Investment in Insured Mortgages
- -------------------------------

The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to programs of
the Federal Housing Administration ("FHA") ("FHA-Insured Certificates"),
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities") and FHA-insured
mortgage loans ("FHA-Insured Loans"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or retirement
homes. The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:

A. Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages

Listed below is the Partnership's aggregate investment in fully
Insured Mortgages as of December 31, 2001 and 2000:

December 31,
2001 2000
---- ----

Fully Insured Originated Mortgage:
Number of Mortgages 1 1
Amortized Cost $ 4,158,218 $ 4,202,201
Face Value 4,012,925 4,052,423
Fair Value 4,031,098 4,049,248

Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates (1) 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 32,954,653 $ 33,391,521
Face Value 32,891,701 33,325,178
Fair Value 32,165,487 32,863,745

(1) In January 2002, the mortgage on Southampton Apartments was prepaid. The
Partnership received net proceeds of approximately $1.9 million and expects
to recognize a gain of approximately $30,000 in 2002. A distribution of
approximately $0.19 per Unit related to the prepayment of this mortgage was
declared in January 2002 and is expected to be paid in May 2002.

9

As of March 1, 2002, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and
interest.

In addition to base interest payments from fully insured Originated
Insured Mortgages, the Partnership is entitled to additional interest based
on a percentage of the net cash flow from the underlying development and of
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as "Participations"). During the years
ended December 31, 2001, 2000 and 1999, the Partnership received additional
interest of $29,162, $16,844, and $12,503, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of income and comprehensive income.

B. Coinsured Mortgages
-------------------

Under the United States Department of Housing and Urban Development
("HUD") coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits if a mortgagor
defaults and the sale of the development collateralizing the mortgage
produces insufficient net proceeds to repay the mortgage obligation. In
such case, the coinsurance lender will be liable to the Partnership for the
first part of such loss in an amount up to 5% of the outstanding principal
balance of the mortgage as of the date foreclosure proceedings are
instituted or the deed is acquired in lieu of foreclosure. For any loss
greater than 5% of the outstanding principal balance, the responsibility
for paying the insurance benefits will be borne on a pro-rata basis, 85% by
HUD and 15% by the coinsurance lender.

While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is
prohibited from entering into any workout arrangement with the borrower
without the Partnership's consent and must file a claim for coinsurance
benefits with HUD, upon default, if the Partnership so directs. As an
ongoing HUD-approved coinsurance lender, and under the terms of the
participation documents, the coinsurance lender is required to satisfy
certain minimum net worth requirements as set forth by HUD. However, it is
possible that the coinsurance lender's potential liability for loss on
these developments and others, could exceed its HUD-required minimum net
worth. In such case, the Partnership would bear the risk of loss if the
coinsurance lenders were unable to meet their coinsurance obligations. In
addition, HUD's obligation for the payment of its share of the loss could
be diminished under certain conditions, such as the lender not adequately
pursuing regulatory violations of the borrower or the failure to comply
with other terms of the mortgage. However, the General Partner is not aware
of any conditions or actions that would result in HUD diminishing its
insurance coverage.

1. Asset Held for Sale under Coinsurance Program
---------------------------------------------

The Partnership had previously invested in one Asset Held for
Sale under Coinsurance Program ("AHFS"), Spring Lake Village. Spring
Lake Village is a 141-unit garden apartment complex located in St.
Petersburg, Florida. In July 1997, the General Partner instructed the
servicer to file a Notice of Default with HUD. In January 1998, the
Partnership discontinued the accrual of interest income. In March
1998, Integrated Funding, Inc. ("IFI"), an affiliate of the
Partnership and coinsurance lender, completed foreclosure proceedings
and obtained title to this property. A claim was filed with HUD on
April 1, 1999. The Partnership recognized a gain of approximately $1.3
million for the year ended December 31, 2000. All proceeds related to
the disposition of this property have been received, as listed below:

10

Date Amount of Distribution Date Date of
received Type of proceeds proceeds per Unit declared distribution
- -------- ---------------- -------- -------- -------- ------------

Apr 2000 Claim proceeds, interest earned on $784,000,
9.125% debenture from date of default of mortgage
until Jan 2000 $ 178,000 $0.02 Apr 2000 Aug 2000
Dec 2000 Net proceeds from sale of property 4,479,000 0.44 Jan 2001 May 2001
Jan 2001 Claim proceeds, redemption of $784,000, 9.125%
debenture 784,000 0.08 Jan 2001 May 2001
Jan 2001 Claim proceeds, interest earned on $231,000,
9.125% debenture from date of default of mortgage
until Jan 2001 74,000 0.01 Feb 2001 May 2001
Apr 2001 Escrow balance received from servicer 303,000 0.03 May 2001 Aug 2001
Jan 2002 Claim proceeds, redemption of $231,000, 9.125%
debenture 231,000 0.02 Jan 2002 May 2002
---------- -----
Total $6,049,000 $0.60
========== =====

2. Coinsured by third party
------------------------

The following is a discussion of the two Originated Insured
Mortgages coinsured by an unaffiliated third party coinsurance lender,
the Patrician Mortgage Company ("Patrician"), under the HUD
coinsurance program.

On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on The Villas. On November
2, 1993, the mortgagor filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The property was acquired and vested with
Patrician in November 1998 and subsequently sold on September 30,
1999. In October 1999, the Partnership received sales proceeds of
approximately $11.7 million. A distribution of approximately $1.16 per
Unit related to the sale was declared in October 1999 and was paid to
Unitholders in February 2000. Patrician filed a coinsurance claim for
insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. In October 2000, the Partnership
received proceeds from Patrician of approximately $10.3 million and
recognized a gain of approximately $3.4 million for the year ended
December 31, 2000. A distribution of approximately $1.02 per Unit
related to the disposition of this mortgage was declared in October
2000 and was paid to Unitholders in February 2001. The remaining
balance due, including accrued interest, is approximately $144,000 as
of December 31, 2001. This amount is not included on the Partnership's
balance sheet, however, the servicer of this mortgage is actively
pursuing payment for the remaining balance.

On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on St. Charles Place-Phase
II. On November 2, 1993, the mortgagor filed for protection under
Chapter 11 of the U. S. Bankruptcy Code. The property was acquired and
vested with Patrician in November 1998 and subsequently sold on
October 12, 1999. Patrician filed a coinsurance claim for insurance
benefits with HUD in October 1999, for remaining amounts due,
including past due interest. In November 1999, the Partnership
received sales proceeds of approximately $2.5 million. A distribution
of approximately $0.24 per Unit related to the sale was declared in
November 1999 and was paid to Unitholders in February 2000. In
February 2001, the Partnership received claim proceeds from Patrician
of approximately $1.8 million and recognized a gain of approximately
$679,000 for the year ended December 31, 2001. The claim proceeds
represent the remaining balance due on the mortgage, including
interest from November 1, 1995 through the date of receipt. A
distribution of approximately $0.18 per Unit related to the
disposition of this mortgage was declared in March 2001 and was paid
in May 2001. The amount of the Partnership's investment in this
mortgage represented the Partnership's approximate 45% ownership
interest in the mortgage. The remaining 55% ownership interest was
held by American Insured Mortgages Investors L.P. - Series 88 ("AIM
88"), an affiliate of the Partnership.
11

Results of Operations
- ---------------------
2001 versus 2000
- ----------------

Net earnings decreased for 2001 as compared to 2000, primarily due to a
decrease in gain on mortgage dispositions, as discussed below.

Interest and other income decreased for 2001 as compared to 2000, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.

Asset management fees to related parties decreased for 2001 as compared to
2000, due to the disposition of the coinsured mortgages in the fourth quarter of
2000 and the first quarter of 2001.

General and administrative expense increased for 2001 as compared to 2000,
primarily due to a decrease in the expense reimbursement from IFI, partially
offset by a decrease in other general and administrative expenses. The decrease
in the expense reimbursement from IFI is a result of the amendment to the IFI
reimbursement agreement, which was revised to exclude the Partnership, as of
December 31, 2000.

Interest expense to affiliate decreased for 2001 as compared to 2000. This
decrease was due to the cancellation of the note payable to affiliate as of
December 31, 2000.

Gain on mortgage dispositions decreased for 2001 as compared to 2000.
During 2001, the Partnership recognized a gain of approximately $679,000 from
the disposition of St. Charles Place-Phase II, a delinquent mortgage coinsured
by a third party, as previously discussed. During 2000, the Partnership
recognized a gain of approximately $3.4 million on the disposition of The
Villas, a delinquent mortgage co-insured by a third party, as previously
discussed. In addition, the Partnership recognized a gain of approximately $1.3
million on the sale of the AHFS, Spring Lake Village, as discussed previously.

Loss on mortgage dispositions increased for 2001 as compared to 2000.
During 2001, the Partnership recognized a loss due to the settlement of the
litigation on the mortgage on Argyle Place, as discussed below. There were no
losses recognized in 2000.

In March 2001, Argyle Place Limited Partnership (the "Plaintiff") filed a
complaint against the Partnership in the General Court of Justice, Civil
Superior Court Division, Iredell County, North Carolina (the "Action"). In April
2001, the Partnership filed a notice of removal effectively removing the Action
to the United States District Court for the Western District of North Carolina.
Between 1992 and 1999, the Partnership held a mortgage on Argyle Place, which is
owned and operated by the Plaintiff. In September 1999, the Plaintiff prepaid
the Argyle Place mortgage (the "September Closing"). Count I of the complaint
alleged that the actions of the Partnership in calculating proceeds due upon the
September Closing were in breach of a Mortgagor-Mortgagee Agreement between the
Plaintiff and the Partnership. Count II of the complaint alleged that the
actions of the Partnership were unfair and deceptive in violation of Chapter 75
of the North Carolina General Statutes entitling the Plaintiff to treble damages
and attorneys' fees. Through its complaint, the Plaintiff sought damages of
approximately $202,000, plus accrued interest, costs and attorneys' fees. The
Partnership filed a counterclaim asserting its right to be reimbursed for all
expenses, including attorneys' fees and disbursements, incurred as a result of
enforcing its rights under the Mortgagor-Mortgagee Agreement. In December 2001,
the Partnership and the Plaintiff agreed on a settlement of approximately
$100,000 to the Plaintiff. The Partnership recognized a loss of approximately
$161,000 as of December 31, 2001. The loss includes the payment to the Plaintiff
plus legal fees. The Partnership recognized a gain of approximately $369,000 on
the mortgage on Argyle Place for the year ended December 31, 1999. The aggregate
net gain for the mortgage on Argyle Place is approximately $208,000.

12

2000 versus 1999
- ----------------

Net earnings increased for 2000 as compared to 1999, primarily due to an
increase in gains on mortgage dispositions, as discussed below. This increase
was offset by a decrease in mortgage investment income.

Mortgage investment income decreased for 2000 as compared to 1999,
primarily due to a reduction in the mortgage base. The mortgage base decreased
as a result of three mortgage dispositions since February 1999 with an aggregate
principal balance of approximately $29 million, representing an approximate 43%
decrease in the aggregate principal balance of the fully insured mortgages.

Interest and other income decreased for 2000 as compared to 1999, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.

Asset management fees to related parties decreased for 2000 as compared to
1999, due to the reduction in the mortgage base.

General and administrative expense decreased for 2000 as compared to 1999.
The decrease is primarily due to the decrease in the mortgage base, a decrease
in temporary employment costs and a decrease in coinsurance expense related to
the disposition of Spring Lake Village.

Net gains on mortgage dispositions increased for 2000 as compared to 1999.
During 2000, the Partnership recognized a gain of approximately $3.4 million on
the disposition of The Villas, a delinquent mortgage co-insured by a third
party, as previously discussed. In addition, the Partnership recognized a gain
of approximately $1.3 million on the sale of the AHFS, Spring Lake Village, as
discussed previously. During 1999, the Partnership recognized gains of
approximately $698,000 from the prepayment of the mortgages on Iroquois Club
Apartments and Argyle Place and a loss of approximately $101,000 on the
prepayment of the mortgage on Greenbriar Place.

Liquidity and Capital Resources
- -------------------------------

On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for
the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. emerged from
bankruptcy.

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, are the Partnership's principal source of cash flow, and
were sufficient for the years ended December 31, 2001, 2000 and 1999. The
Partnership anticipates its cash flows to be sufficient to meet operating
expense requirements for 2002.

13

The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages after paying all expenses
of the Partnership. Although Insured Mortgages yield a fixed monthly mortgage
payment once purchased, the cash distributions paid to the Unitholders will vary
during each quarter due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payment receipts are temporarily invested
prior to the payment of quarterly distributions, (2) the reduction in the asset
base, resulting from monthly mortgage payments or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and professional fees and foreclosure costs incurred in
connection with those Insured Mortgages, and (4) variations in the Partnership's
operating expenses.

Cash flow - 2001 versus 2000
- ----------------------------

Net cash provided by operating activities did not change significantly for
2001 as compared to 2000.

Net cash provided by investing activities decreased for 2001 as compared to
2000, primarily due to a decrease in proceeds received from the disposition of
previously delinquent coinsured mortgages, as previously discussed.

Net cash used in financing activities decreased for 2001 as compared to
2000, due to a reduction in the amount of distributions paid to partners in
2001.

Cash flow - 2000 versus 1999
- ----------------------------

Net cash provided by operating activities decreased for 2000 as compared to
1999, primarily due to the decrease in mortgage investment income, as discussed
previously.

Net cash provided by investing activities decreased for 2000 as compared to
1999, primarily due to a decrease in proceeds received from the disposition of
mortgages. This decrease was partially offset by (1) an increase in proceeds
received from Patrician for the disposition of the delinquent mortgage on The
Villas, as previously discussed and (2) an increase in proceeds received from
the disposition of the AHFS, Spring Lake Village, as previously discussed.

Net cash used in financing activities decreased for 2000 as compared to
1999 due to a reduction in the amount of distributions paid to partners in 2000.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership's principal market risk is exposure to changes in interest
rates in the U.S. Treasury market, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of the Partnership's assets.

The table below provides information about the Partnership's Insured
Mortgages, all of which were entered into for purposes other than trading. The
table presents anticipated principal and interest cash flows based upon the
assumptions used in determining the fair value of these securities and the
related weighted average interest rates by expected maturity.

2002 2003 2004 2005 2006 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------

Insured Mortgages
(in millions) $5.5 $5.1 $6.7 $6.1 $5.1 $24.9 $53.4 $36.2

Average Interest Rate 7.52% 7.50% 7.41% 7.38% 7.38% 7.44% 7.44% --

14

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is set forth in this Annual Report on
Form 10-K commencing on page 23.

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

None.

15
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a), (b), (c), (e)
The Partnership has no officers or directors. CRIIMI, Inc. holds a general
partnership interest of 4.9%. The affairs of the Partnership are managed by the
General Partner, which is wholly owned by CRIIMI MAE, a corporation whose shares
are listed on the New York Stock Exchange.

The general partner of the Advisor is AIM Acquisition and the limited
partners include, but are not limited to, AIM Acquisition, The Goldman Sachs
Group, L.P., Sun America Investments, Inc. (successor to Broad, Inc.) and
CRI/AIM Investment, L.P., an affiliate of CRIIMI MAE. AIM Acquisition is a
Delaware corporation that is primarily owned by Sun America Investments, Inc.
and The Goldman Sachs Group, L.P. Pursuant to the terms of certain amendments to
the partnership agreement, the General Partner is required to receive the
consent of the Advisor prior to taking certain significant actions, including
but not limited to the disposition of mortgages, any transaction or agreement
with the General Partner or its affiliates, or any material change as to
policies regarding distributions or reserves of the Partnership. CMSLP, an
affiliate of CRIIMI MAE, manages the Partnership's portfolio, pursuant to the
Sub-Advisory Agreement. The general partner of CMSLP is CMSLP Management
Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

The General Partner is also the general partner of AIM 84, AIM 85 and AIM
88, limited partnerships with investment objectives similar to those of the
Partnership.

The following table sets forth information concerning the executive
officers and directors of CRIIMI MAE, the sole shareholder of the General
Partner, as of February 19, 2002:

Name Age Position
- ---- --- --------

William B. Dockser 64 Chairman of the Board

H. William Willoughby 55 President, Secretary and Director

David B. Iannarone 41 Executive Vice President

Cynthia O. Azzara 42 Senior Vice President,
Chief Financial Officer and
Treasurer

Brian L. Hanson 40 Senior Vice President

John R. Cooper 54 Director

Alan M. Jacobs 53 Director

Robert J. Merrick 56 Director

Robert E. Woods 54 Director

16

William B. Dockser has served as Chairman of the Board of the General
Partner since 1991. Mr. Dockser has been Chairman of the Board of CRIIMI MAE
since 1989. Mr. Dockser is also the founder of C.R.I., Inc. ("CRI"), serving as
its Chairman of the Board since 1974.

H. William Willoughby has served as President and Secretary of the General
Partner since 1991. Mr. Willoughby has been President of CRIIMI MAE since 1990
and a Director and Secretary of CRIIMI MAE since 1989. Mr. Willoughby has been a
director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President of
CRI since 1990.

David B. Iannarone has served as Executive Vice President of the General
Partner since December 2000. Mr. Iannarone has served as Executive Vice
President CRIIMI MAE since December 2000; as Senior Vice President and General
Counsel of CRIIMI MAE from March 1998 to December 2000; and as Vice President
and General Counsel of CRIIMI MAE from July 1996 to March 1998.

Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994. Ms. Azzara has served as Chief Financial Officer of CRIIMI
MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since
1995 and Treasurer of CRIIMI MAE since 1997.

Brian L. Hanson has served as Senior Vice President of the General Partner
since March 1998. Mr. Hanson has served as Senior Vice President of CRIIMI MAE
since March 1998; and as Group Vice President of CRIIMI MAE from March 1996 to
March 1998.

John R. Cooper has served as Director of the General Partner since April
2001. Mr. Cooper has served as Director of CRIIMI MAE since April 2001. Mr.
Cooper is Senior Vice President, Finance, of PG&E National Energy Group, Inc. He
has been with PG&E National Energy Group, Inc. and its predecessor, U.S.
Generating Company, since its inception in 1989.

Alan M. Jacobs has served as Director of the General Partner since April
2001. Mr. Jacobs has served as Director of CRIIMI MAE since April 2001;
President of AMJ Advisors LLC, since September 1999; and founding member and
Senior Partner of Ernst and Young LLP's restructuring and reorganization
practice through September 1999. Mr. Jacobs is the Plan Administrator and
Litigation Trust Trustee for T&W Financial Corporation, the Chapter 11 Trustee
for Apponline.com, Inc., the Chapter 11 Trustee for Sharp International Corp.,
the Chapter 7 Trustee for Edison Brothers Stores, Inc. and was formerly the
co-chairman and co-chief executive officer of West Coast Entertainment
Corporation. Mr. Jacobs serves as a director of The Singer Sewing Company. Mr.
Jacobs was an executive officer of West Coast Entertainment Corporation at the
time such corporation filed a petition under the federal bankruptcy laws in
March 2000.

Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as Director of CRIIMI MAE since 1997; Chief Credit
Officer and Director of MCG Capital Corporation since February 1998; Executive
Vice President from 1985 and Chief Credit Officer of Signet Banking Corporation
through 1997, also served as Chairman of the Credit Policy Committee and member
of the Asset and Liability Committee and Management Committee.

Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing Director and
Head of Loan Syndications for the Americas at Societe Generale, New York since
1997; Managing Director, Head of Real Estate Capital Markets and Mortgage-Backed
Securities division, Citicorp from 1991 to 1997.

17

(d) There is no family relationship between any of the officers and directors
of the General Partner.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

(h) Section 16(a) Beneficial Interest Ownership Compliance Reporting - Based
solely on its review of Forms 3, 4, and 5 and amendments thereto furnished
to the Partnership, and written representations from certain reporting
persons that no Form 5s were required for those persons, the Partnership
believes that all reporting persons have filed on a timely basis Forms 3, 4
and 5 as required in the fiscal year ended December 31, 2001.

ITEM 11. EXECUTIVE COMPENSATION

The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner receive compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated by reference herein to Note 7 of the Notes to
Financial Statements of the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a) The following table sets forth certain information regarding the beneficial
ownership of Units as of February 19, 2002, by holders of more than five
percent (5%) of the Partnership's Units.

Number of Percent of
Name Address Units Class
- ---- ------- --------- ----------

Private Management 20 Corporate Park 613,680 6.41%
Group, Inc. * Suite 400
Irvine, CA 92606

Financial and Investment 417 St. Joseph Street
Management Group, Ltd. * P.O. Box 40 630,956 6.59%
Suttins Bay, MI 49682

* An Investment Adviser.

18

(b) The following table sets forth certain information regarding the
beneficial ownership of the Partnership's Units as of February 19, 2002 by
each director of the General Partner, each named executive officer of the
General Partner, and by affiliates of the Partnership. Unless otherwise
indicated, each Unitholder has sole voting and investment power with
respect to the Units beneficially owned.

Amount and Nature
of Units Percentage of Units
Name Beneficially Owned Outstanding
- ---- ------------------ -------------------
William B. Dockser 11,000 (1) *
CRIIMI MAE 500 *

(1) Includes 4,000 Units held by Mr. Dockser's wife
* Less than 1%

(c) There are no arrangements known to the Partnership, the operation of which
may at any subsequent date result in a change in control of the
Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

Note 7 of the Notes to Financial Statements of the Partnership's report
which contains a discussion of the amounts, fees and other compensation
paid or accrued by the Partnership to the directors and executive officers
of the General Partner and their affiliates, is hereby incorporated by
reference herein.

(b) Certain business relationships.

Other than as set forth in Item 11 of this Annual Report on Form 10-K which
is hereby incorporated by reference herein, the Partnership has no business
relationship with entities of which the current General Partner of the
Partnership are officers, directors or equity owners.

(c) Indebtedness of management.

None.

(d) Transactions with promoters.

Not applicable.

19
PART IV

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

(a)(1) Financial Statements:

Page
Description Number
- ----------- ------

Balance Sheets as of December 31, 2001 and 2000........................................................ 25

Statements of Income and Comprehensive Income for the years ended December 31, 2001, 2000
and 1999............................................................................................ 26

Statements of Changes in Partners' Equity for the years ended December 31, 2001, 2000 and 1999......... 27

Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.......................... 28

Notes to Financial Statements.......................................................................... 29

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate..................................................................... 40

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

(a)(3) Exhibits:

4.0 Amended and Restated Certificate of Limited Partnership is
incorporated by reference to Exhibit 4(a) to Amendment No. 1 to the
Partnership's Registration Statement on Form S-11 (No. 33-1735) dated
March 6, 1986 (such Registration Statement, as amended, is referred to
herein as the "Amended Registration Statement").

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

4.2 Material Amendments to the Second Amended and Restated Agreement of
Limited Partnership are incorporated by reference to Exhibit 4(a) to
the Annual Report on Form 10-K for the year ended December 31, 1987.

4.3 Amendment to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership dated February 12, 1990, incorporated
by reference to Exhibit 4(b) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1989.

4.4 Amendment to Partnership Agreement dated September 4, 1991,
incorporated by reference to Exhibit 28(c), to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1991.

20

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

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

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

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

10.4 Agreement among the former managing general partner, the former
associate general partner and Integrated Resources, Inc. is
incorporated by reference to Exhibit 10(e) to the Amended Registration
Statement.

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

10.6 Pages A-1 - A-5 of the Partnership Agreement of Registrant,
incorporated by reference to Exhibit 28 to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.

10.7 Purchase Agreement among AIM Acquisition, the former managing general
partner, the former corporate general partner, IFI and Integrated
dated as of December 13, 1990, as amended January 9, 1991,
incorporated by reference to Exhibit 28(a) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.

10.8 Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the former
managing general partner, the former corporate general partner, IFI
and Integrated dated as of December 13, 1990 and executed as of March
1, 1991, incorporated by reference to Exhibit 28(b) to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1990.

10.9 Sub-Management Agreement by and between AIM Acquisition and CRI/AIM
Management, Inc., dated as of March 1, 1991, incorporated by reference
to Exhibit 28(e) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1992.

10.10 Expense Reimbursement Agreement by Integrated Funding Inc. and the
AIM Funds, effective December 31, 1992, incorporated by reference to
Exhibit 28(f) to the Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.

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

21

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

10.13 Non-negotiable promissory note to American Insured Mortgage Investors
L.P. -Series 88 in the amount of $658,486 dated April 1, 1997,
incorporated by reference to Exhibit 10.13 to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998.

10.14 Amendment No. 2 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective April 1, 1997, incorporated by
reference to Exhibit 10.14 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1998.

10.15 Amendment No. 3 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective January 1, 2000, incorporated by
reference to exhibit 10.15 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 2000.

10.16 Amendment No. 4 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective January 1, 2001 (filed herewith).

99.0 Letter to Securities and Exchange Commission from the Partnership
dated March 21, 2002 regarding the representations received from
Arthur Andersen LLP in performing the audit of the December 31, 2001
financial statements (filed herewith).

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

All other items are not applicable.

22
PART IV

SIGNATURES

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William B. Dockser and H. William
Willoughby, jointly and severally, his attorney-in-fact, each with the power of
substitution for him in any and all capacities, to sign any amendments to this
Annual Report on Form 10-K and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each said attorney-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)

By: CRIIMI, Inc.
General Partner

March 12, 2002 /s/ William B. Dockser
- -------------- ---------------------------------
DATE William B. Dockser
Chairman of the Board

March 12, 2002 /s/ H. William Willoughby
- -------------- ---------------------------------
DATE H. William Willoughby
President, Secretary and Director

March 19, 2002 /s/ Cynthia O. Azzara
- -------------- ---------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer

March 12, 2002 /s/ John R. Cooper
- -------------- ---------------------------------
DATE John R. Cooper
Director

March 12, 2002 /s/ Alan M. Jacobs
- -------------- ---------------------------------
DATE Alan M. Jacobs
Director

March 14, 2002 /s/ Robert J. Merrick
- -------------- ---------------------------------
DATE Robert J. Merrick
Director

March 11, 2002 /s/ Robert E. Woods
- -------------- ---------------------------------
DATE Robert E. Woods
Director

23

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

Financial Statements

as of December 31, 2001 and 2000

and for the Years Ended

December 31, 2001, 2000 and 1999

24

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of American Insured Mortgage Investors L.P. - Series 86:

We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 86 (the "Partnership") as of December 31, 2001
and 2000, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 2001, 2000
and 1999. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years ended December 31, 2001, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate
as of December 31, 2001 is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic financial statements. The information in this schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

/s/Arthur Andersen LLP
Vienna, Virginia
March 4, 2002

25

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

BALANCE SHEETS

December 31, December 31,
2001 2000
------------ ------------
ASSETS

Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 31,209,550 $ 31,903,173
------------ ------------
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,158,218 4,202,201
Acquired insured mortgages 948,661 958,273
------------ ------------

5,106,879 5,160,474

Cash and cash equivalents 691,264 15,872,119

Investment in FHA debenture 230,670 783,981

Receivables and other assets 281,468 2,065,477
------------ ------------

Total assets $ 37,519,831 $ 55,785,224
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 654,531 $ 11,127,025

Due to affiliate - 24,948

Accounts payable and accrued expenses 132,157 103,905
------------ ------------

Total liabilities 786,688 11,255,878
------------ ------------

Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 45,091,570 52,252,446
General partners' deficit (7,561,985) (7,193,025)
Accumulated other comprehensive loss (796,442) (530,075)
------------ ------------

Total partners' equity 36,733,143 44,529,346
------------ ------------

Total liabilities and partners' equity $ 37,519,831 $ 55,785,224
============ ============

The accompanying notes are an integral part
of these financial statements.

26

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the years ended December 31,
2001 2000 1999
----------- ----------- -----------

Income:
Mortgage investment income $ 2,799,005 $ 2,820,566 $ 3,448,550
Interest and other income 234,950 313,713 462,058
----------- ----------- -----------

3,033,955 3,134,279 3,910,608
----------- ----------- -----------

Expenses:
Asset management fee to related parties 300,282 374,943 540,758
General and administrative 258,301 221,394 287,840
Interest expense to affiliate - 45,994 47,740
----------- ----------- -----------

558,583 642,331 876,338
----------- ----------- -----------

Earnings before gain (loss) on mortgage
dispositions 2,475,372 2,491,948 3,034,270

Gain on mortgage dispositions 678,802 4,752,954 698,402

Loss on mortgage dispositions (161,132) - (101,219)
----------- ----------- -----------

Net earnings $ 2,993,042 $ 7,244,902 $ 3,631,453
=========== =========== ===========

Other comprehensive (loss) income (266,367) 847,335 (898,749)
----------- ----------- -----------

Comprehensive income $ 2,726,675 $ 8,092,237 $ 2,732,704
=========== =========== ===========

Net earnings allocated to:
Limited partners - 95.1% $ 2,846,383 $ 6,889,902 $ 3,453,512
General partner - 4.9% 146,659 355,000 177,941
----------- ----------- -----------

$ 2,993,042 $ 7,244,902 $ 3,631,453
=========== =========== ===========

Net earnings per Limited Partnership Unit - Basic $ 0.30 $ 0.72 $ 0.36
=========== =========== ===========

The accompanying notes are an integral part
of these financial statements.

27

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 2001, 2000, and 1999

Accumulated
Other Total
General Limited Comprehensive Partners'
Partner Partner Loss Equity
------------- ------------- ------------- --------------

Balance, January 1, 1999 $ (4,728,466) $ 100,084,995 $ (478,661) $ 94,877,868

Net Earnings 177,941 3,453,512 - 3,631,453

Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (898,749) (898,749)
Distributions paid or accrued of $4.73 per Unit,
including return of capital of $4.37 per Unit (2,333,856) (45,295,853) - (47,629,709)
------------- ------------- ------------- -------------

Balance, December 31, 1999 (6,884,381) 58,242,654 (1,377,410) 49,980,863

Net Earnings 355,000 6,889,902 - 7,244,902

Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 847,335 847,335
Distributions paid or accrued of $1.345 per Unit,
including return of capital of $0.625 per Unit (663,644) (12,880,110) - (13,543,754)
------------- ------------- ------------- -------------

Balance, December 31, 2000 (7,193,025) 52,252,446 (530,075) 44,529,346

Net Earnings 146,659 2,846,383 - 2,993,042

Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (266,367) (266,367)
Distributions paid or accrued of $1.045 per Unit,
including return of capital of $0.745 per Unit (515,619) (10,007,259) - (10,522,878)
------------- ------------- ------------- -------------

Balance, December 31, 2001 $ (7,561,985) $ 45,091,570 $ (796,442) $ 36,733,143
============= ============= ============= =============

Limited Partnership Units outstanding - Basic, as of
December 31, 2001, 2000 and 1999 9,576,290
=========

The accompanying notes are an integral part
of these financial statements.

28

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CASH FLOWS

For the years ended December 31,
2001 2000 1999
------------ ------------ ------------

Cash flows from operating activities:
Net earnings $ 2,993,042 $ 7,244,902 $ 3,631,453
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on mortgage dispositions (678,802) (4,752,954) (698,402)
Loss on mortgage dispositions 161,132 - 101,219
Changes in assets and liabilities:
Decrease in investment in affiliate - 8,966 8,291
Increase (decrease) in accounts payable and accrued
expenses and note payable and due to affiliate 3,304 (13,615) (62,121)
Decrease in receivables and other assets 237,670 316,271 413,228
------------ ------------ ------------

Net cash provided by operating activities 2,716,346 2,803,570 3,393,668
------------ ------------ ------------

Cash flows from investing activities:
Proceeds from disposition of mortgages - - 44,301,514
Proceeds received from Patrician 1,833,339 10,307,216 -
Proceeds received from redemption of debenture 783,981 - -
Proceeds from disposition of Asset held for sale under coinsurance program - 4,571,322 -
Receipt of principal from scheduled payments 480,851 445,663 441,069
------------ ------------ ------------

Net cash provided by investing activities 3,098,171 15,324,201 44,742,583
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (20,995,372) (22,455,443) (29,000,754)
------------ ------------ ------------

Net (decrease) increase in cash and cash equivalents (15,180,855) (4,327,672) 19,135,497

Cash and cash equivalents, beginning of year 15,872,119 20,199,791 1,064,294
------------ ------------ ------------

Cash and cash equivalents, end of year $ 691,264 $ 15,872,119 $ 20,199,791
============ ============ ============

Non cash investing activity:
Receivables due from Patrician as a result of the foreclosure and sale
of the properties underlying the mortgages on St. Charles Place-Phase-II
and The Villas $ - $ - $ 4,251,324
9.125% debentures received from HUD as a result of the disposition of
Asset held for sale under coinsurance program 230,670 783,981 -
Receivables resulting from the the disposition of Asset held for sale under
coinsurance program - 640,109 -

The accompanying notes are an integral part
of these financial statements.

29

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985.

CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners L.P. (the "Advisor") serves as the advisor to the
Partnership, pursuant to an advisory agreement (the "Advisory Agreement"). The
general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.

Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CMSLP Management Company, Inc., a wholly-owned subsidiary of CRIIMI MAE.

Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
partnership agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The partnership agreement
states that the Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the partnership agreement.

On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for
the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court")
confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s reorganization plan. On
April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. emerged from
bankruptcy.

30

2. SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
- --------------------

The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Investment in Insured Mortgages
- -------------------------------

The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to Federal
Housing Administration ("FHA") programs ("FHA-Insured Certificates"),
mortgage-backed securities guaranteed by Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities") and FHA-insured
mortgage loans ("FHA-Insured Loans"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or retirement
homes.

Payments of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans are insured by the United States Department of Housing and
Urban Development ("HUD") pursuant to Title 2 of the National Housing Act.
Payments of principal and interest on GNMA Mortgage-Backed Securities are
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.

As of December 31, 2001, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 25 years. However, the partnership agreement
states that the Partnership will terminate in approximately 19 years, on
December 31, 2020, unless previously terminated under the provisions of the
partnership agreement. As the Partnership is anticipated to terminate prior to
the weighted average remaining term of its investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, the Partnership does not have the
ability or intent, at this time, to hold these investments to maturity.
Consequently, the General Partner believes that the Partnership's investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates should be included
in the available for sale category. Although the Partnership's investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates are classified as
available for sale for financial statement purposes, the General Partner does
not intend to voluntarily sell these assets other than those which may be sold
as a result of a default.

In connection with this classification, as of December 31, 2001 and 2000,
the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates are recorded at fair value, with the unrealized losses on these
assets reported as other comprehensive income and as a separate component of
partners' equity. Subsequent increases or decreases in the fair value of GNMA
Mortgage-Backed Securities and FHA-Insured Certificates, classified as available
for sale, will be included as a separate component of partners' equity. Realized
gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, classified as available for sale, will continue to be reported in
earnings.

As of December 31, 2001 and 2000, Investment in FHA-Insured Loans is
recorded at amortized cost.

31

The amortized cost of the GNMA Mortgage-Backed Securities, FHA-Insured
Certificates and FHA-Insured Loans is adjusted for amortization of discounts and
premiums to maturity. Such amortization is included in mortgage investment
income.

Gains from dispositions of mortgage investments are recognized upon the
receipt of cash or HUD debentures.

Losses on dispositions of mortgage investments are recognized when it
becomes probable that a mortgage will be disposed of and that the disposition
will result in a loss. In the case of Insured Mortgages fully insured by HUD,
the Partnership's maximum exposure for purposes of determining the loan losses
would generally be an assignment fee charged by HUD representing approximately
1% of the unpaid principal balance of the Insured Mortgage at the date of
default, plus the unamortized balance of acquisition fees and closing costs paid
in connection with the acquisition of the Insured Mortgage and the loss of
approximately 30 days accrued interest.

Cash and Cash Equivalents
- -------------------------

Cash and cash equivalents consist of money market funds, time and demand
deposits, commercial paper and repurchase agreements with original maturities of
three months or less.

Income Taxes
- ------------

No provision has been made for Federal, state or local income taxes in the
accompanying statements of income and comprehensive income since they are the
responsibility of the Unitholders.

Statements of Cash Flows
- ------------------------

No cash payments were made for interest expense during the years ended
December 31, 2001, 2000 and 1999. Since the statements of cash flows are
intended to reflect only cash receipt and cash payment activity, the statements
of cash flows do not reflect operating activities that affect recognized assets
and liabilities while not resulting in cash receipts or cash payments.

32

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.

As of December 31, 2001 As of December 31, 2000
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------

Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Acquired Insured Mortgages $32,005,992 $31,209,550 $32,433,248 $31,903,173
=========== =========== =========== ===========

Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 4,158,218 $ 4,031,098 $ 4,202,201 $ 4,049,248
Acquired Insured Mortgage 948,661 955,937 958,273 960,572
----------- ----------- ----------- -----------

$ 5,106,879 $ 4,987,035 $ 5,160,474 $ 5,009,820
=========== =========== =========== ===========

Cash and cash equivalents $ 691,264 $ 691,264 $15,872,119 $15,872,119

Investment in FHA debenture $ 230,670 $ 230,670 $ 783,981 $ 783,981

The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:

Investment in FHA-Insured Certificates,
GNMA Mortgage-Backed Securities, FHA-Insured Loans and FHA debenture
- --------------------------------------------------------------------

The fair value of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans is priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair value; the cash flows were
discounted using a discount rate that, in the Partnership's view, was
commensurate with the market's perception of risk and value. The Partnership
used a variety of sources to determine its discount rate including: (i)
institutionally-available research reports, and (ii) communications with dealers
and active insured mortgage security investors regarding the valuation of
comparable securities. The fair value of the FHA Debenture is based upon the
prices of other comparable securities that trade in the market. The fair value
is equal to its face value upon redemption of the debenture.

Cash and cash equivalents
- -------------------------

The carrying amount approximates fair value because of the short maturity
of these instruments.

33

4. COMPREHENSIVE INCOME

Comprehensive Income includes net earnings as currently reported by the
Partnership adjusted for other comprehensive income. Other comprehensive income
for the Partnership consists of changes in unrealized gains and losses related
to the Partnership's mortgages accounted for as available for sale. The table
below breaks out other comprehensive income for the periods presented into the
following two categories: (1) the change to unrealized gains and losses that
relate to mortgages which were disposed of during the period with the resulting
realized gain or loss reflected in net earnings (reclassification adjustments)
and (2) the change in the unrealized gain or loss related to those investments
that were not disposed of during the period.

2001 2000 1999
---- ---- ----

Reclassification adjustment for losses (gains)
included in net income $ -- $ -- $ 618,688
Unrealized holding gains (losses) arising during
the period (266,367) 847,335 (1,517,437)
---------- ---------- ----------
Net adjustment to unrealized gains (losses)
on mortgages $ (266,367) $ 847,335 $ (898,749)
========== ========== ==========

5. INVESTMENT IN INSURED MORTGAGES

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

A. Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages
-------------------------------------------------------------------------

Listed below is the Partnership's aggregate investment in fully
Insured Mortgages as of December 31, 2001 and 2000:

December 31,
2001 2000
---- ----

Fully Insured Originated Mortgage:
Number of Mortgages 1 1
Amortized Cost $ 4,158,218 $ 4,202,201
Face Value 4,012,925 4,052,423
Fair Value 4,031,098 4,049,248

Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates (1) 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 32,954,653 $ 33,391,521
Face Value 32,891,701 33,325,178
Fair Value 32,165,487 32,863,745

(1) In January 2002, the mortgage on Southampton Apartments was prepaid.
The Partnership received net proceeds of approximately $1.9 million
and expects to recognize a gain of approximately $30,000 in 2002. A
distribution of approximately $0.19 per Unit related to the prepayment
of this mortgage was declared in January 2002 and is expected to be
paid in May 2002.

34

As of March 1, 2002, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and
interest.

In addition to base interest payments from fully insured Originated
Insured Mortgages, the Partnership is entitled to additional interest based
on a percentage of the net cash flow from the underlying development and of
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as "Participations"). During the years
ended December 31, 2001, 2000 and 1999, the Partnership received additional
interest of $29,162, $16,844, and $12,503, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of income and comprehensive income.

B. Coinsured Mortgages
-------------------
Under the HUD coinsurance program, both HUD and the coinsurance lender
are responsible for paying a portion of the insurance benefits if a
mortgagor defaults and the sale of the development collateralizing the
mortgage produces insufficient net proceeds to repay the mortgage
obligation. In such case, the coinsurance lender will be liable to the
Partnership for the first part of such loss in an amount up to 5% of the
outstanding principal balance of the mortgage as of the date foreclosure
proceedings are instituted or the deed is acquired in lieu of foreclosure.
For any loss greater than 5% of the outstanding principal balance, the
responsibility for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance lender.

While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is
prohibited from entering into any workout arrangement with the borrower
without the Partnership's consent and must file a claim for coinsurance
benefits with HUD, upon default, if the Partnership so directs. As an
ongoing HUD-approved coinsurance lender, and under the terms of the
participation documents, the coinsurance lender is required to satisfy
certain minimum net worth requirements as set forth by HUD. However, it is
possible that the coinsurance lender's potential liability for loss on
these developments and others, could exceed its HUD-required minimum net
worth. In such case, the Partnership would bear the risk of loss if the
coinsurance lenders were unable to meet their coinsurance obligations. In
addition, HUD's obligation for the payment of its share of the loss could
be diminished under certain conditions, such as the lender not adequately
pursuing regulatory violations of the borrower or the failure to comply
with other terms of the mortgage. However, the General Partner is not aware
of any conditions or actions that would result in HUD diminishing its
insurance coverage.

The Partnership had previously invested in one Asset Held for Sale
under Coinsurance Program ("AHFS"), Spring Lake Village. Spring Lake
Village is a 141-unit garden apartment complex located in St. Petersburg,
Florida. In July 1997, the General Partner instructed the servicer to file
a Notice of Default with HUD. In January 1998, the Partnership discontinued
the accrual of interest income. In March 1998, Integrated Funding, Inc.
("IFI"), an affiliate of the Partnership and coinsurance lender, completed
foreclosure proceedings and obtained title to this property. A claim was
filed with HUD on April 1, 1999. The Partnership recognized a gain of
approximately $1.3 million for the year ended December 31, 2000. All
proceeds related to the disposition of this property have been received, as
listed below:

35

1. Asset Held for Sale under Coinsurance Program
---------------------------------------------

Date Amount of Distribution Date Date of
received Type of proceeds proceeds per Unit declared distribution
- -------- ---------------- -------- -------- -------- ------------

Apr 2000 Claim proceeds, interest earned on $784,000,
9.125% debenture from date of default of
mortgage until Jan 2000 $ 178,000 $0.02 Apr 2000 Aug 2000
Dec 2000 Net proceeds from sale of property 4,479,000 0.44 Jan 2001 May 2001
Jan 2001 Claim proceeds, redemption of $784,000, 9.125%
debenture 784,000 0.08 Jan 2001 May 2001
Jan 2001 Claim proceeds, interest earned on $231,000,
9.125% debenture from date of default of
mortgage until Jan 2001 74,000 0.01 Feb 2001 May 2001
Apr 2001 Escrow balance received from servicer 303,000 0.03 May 2001 Aug 2001
Jan 2002 Claim proceeds, redemption of $231,000, 9.125%
debenture 231,000 0.02 Jan 2002 May 2002
---------- -----
Total $6,049,000 $0.60
========== =====

2. Coinsured by third party
------------------------

The following is a discussion of the two Originated Insured
Mortgages coinsured by an unaffiliated third party coinsurance lender,
The Patrician Mortgage Company ("Patrician"), under the HUD
coinsurance program.

On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on The Villas. On November
2, 1993, the mortgagor filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The property was acquired and vested with
Patrician in November 1998 and subsequently sold on September 30,
1999. In October 1999, the Partnership received sales proceeds of
approximately $11.7 million. A distribution of approximately $1.16 per
Unit related to the sale was declared in October 1999 and was paid to
Unitholders in February 2000. Patrician filed a coinsurance claim for
insurance benefits with HUD in October 1999, for remaining amounts
due, including past due interest. In October 2000, the Partnership
received proceeds from Patrician of approximately $10.3 million and
recognized a gain of approximately $3.4 million for the year ended
December 31, 2000. A distribution of approximately $1.02 per Unit
related to the disposition of this mortgage was declared in October
2000 and was paid to Unitholders in February 2001. The remaining
balance due, including accrued interest, is approximately $144,000 as
of December 31, 2001. This amount is not included on the Partnership's
balance sheet, however, the servicer of this mortgage is actively
pursuing payment for the remaining balance.

On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on St. Charles Place-Phase
II. On November 2, 1993, the mortgagor filed for protection under
Chapter 11 of the U. S. Bankruptcy Code. The property was acquired and
vested with Patrician in November 1998 and subsequently sold on
October 12, 1999. Patrician filed a coinsurance claim for insurance
benefits with HUD in October 1999, for remaining amounts due,
including past due interest. In November 1999, the Partnership
received sales proceeds of approximately $2.5 million. A distribution
of approximately $0.24 per Unit related to the sale was declared in
November 1999 and was paid to Unitholders in February 2000. In
February 2001, the Partnership received claim proceeds from Patrician
of approximately $1.8 million and recognized a gain of approximately
$679,000 for the year ended December 31, 2001. The claim proceeds
represent the remaining balance due on the mortgage, including
interest from November 1, 1995 through the date of receipt. A
distribution of approximately $0.18 per Unit related to the
disposition of this mortgage was declared in March 2001 and was paid
in May 2001. The amount of the Partnership's investment in this
mortgage represented the Partnership's approximate 45% ownership
interest in the mortgage. The remaining 55% ownership interest was
held by American Insured Mortgages Investors L.P. - Series 88 ("AIM
88"), an affiliate of the Partnership.
36

6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE

As of December 31, 2001, the Partnership, along with AIM 88 and American
Insured Mortgages Investors L.P. - Series 85 ("AIM 85"), affiliates of the
General Partner, equally own AIM Mortgage, Inc. In turn, AIM Mortgage, Inc. owns
all of the outstanding preferred stock and common stock of IFI. In order to
capitalize IFI with sufficient net worth under HUD regulations, in April 1994,
AIM 88, an affiliate of the Partnership, transferred a GNMA mortgage-backed
security in the amount of approximately $2.0 million to IFI.

As part of AIM 88's transfer of the GNMA to IFI, the Partnership and AIM 85
each issued a demand note payable to AIM 88 and recorded an investment in IFI
through AIM Mortgage, Inc. in proportion to each entity's coinsured mortgages
for which IFI was mortgagee of record as of April 1, 1994. Interest expense on
the note payable was 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, since AIM 85 no longer held
coinsured mortgages. As of December 31, 2000, the Investment in affiliate and
related demand note payable from the Partnership were cancelled as it no longer
holds mortgages coinsured by IFI (see Note 5).

In connection with these transfers, IFI had entered into an expense
reimbursement agreement with the Partnership, AIM 85 and AIM 88 (collectively
the "AIM Funds") whereby IFI reimbursed the AIM Funds for general and
administrative expenses incurred on behalf of IFI. The expense reimbursement was
allocated to the AIM Funds based on an amount proportionate to each entity's IFI
coinsured mortgages. The expense reimbursement and the Partnership's equity
interest in IFI's net income or loss, substantially equalled the interest the
Partnership paid on the note. In April 1997, this agreement was amended to
exclude AIM 85 which no longer held coinsured mortgages. In December 2000, this
agreement was amended to exclude the Partnership, which no longer holds
coinsured mortgages.

37

7. TRANSACTIONS WITH RELATED PARTIES

The principal officers of the General Partner for the years ended December
31, 2001, 2000 and 1999 did not receive fees for serving as officers of the
General Partner, nor are any fees expected to be paid to the officers in the
future.

The General Partner, CMSLP and certain affiliated entities have, during the
years ended December 31, 2001, 2000 and 1999, earned or received compensation or
payments for services from the Partnership as follows:

COMPENSATION PAID OR ACCRUED TO RELATED PARTIES

For the years ended December 31,
Capacity in Which --------------------------------
Name of Recipient Served/Item 2001 2000 1999
- ----------------- ----------- ---- ---- ----

CRIIMI, Inc. (1) General Partner/Distribution $515,619 $663,644 $2,333,856

AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 300,282 374,943 540,758

CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 42,584 41,959 45,744

(1) The General Partner, pursuant to amendments to the partnership agreement,
effective September 6, 1991, is entitled to receive 4.9% of the
Partnership's income, loss, capital and distributions, including, without
limitation, the Partnership's adjusted cash from operations and proceeds of
mortgage prepayments, sales or insurance (both as defined in the
partnership agreement).

(2) 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. CMSLP, the sub-advisor to the Partnership, is entitled to
a fee of 0.28% of Total Invested Assets from the Advisor's Asset Management
Fee. Of the amounts paid to the Advisor, CMSLP earned a fee equal to
$112,092, $140,800 and $201,856 for the years ended December 31, 2001, 2000
and 1999, respectively. The limited partner and general partner of CMSLP
are wholly-owned subsidiaries of CRIIMI MAE.

8. LITIGATION

In March 2001, Argyle Place Limited Partnership (the "Plaintiff") filed a
complaint against the Partnership in the General Court of Justice, Civil
Superior Court Division, Iredell County, North Carolina (the "Action"). In April
2001, the Partnership filed a notice of removal effectively removing the Action
to the United States District Court for the Western District of North Carolina.
Between 1992 and 1999, the Partnership held a mortgage on Argyle Place, which is
owned and operated by the Plaintiff. In September 1999, the Plaintiff prepaid
the Argyle Place mortgage (the "September Closing"). Count I of the complaint
alleged that the actions of the Partnership in calculating proceeds due upon the
September Closing were in breach of a Mortgagor-Mortgagee Agreement between the
Plaintiff and the Partnership. Count II of the complaint alleged that the
actions of the Partnership were unfair and deceptive in violation of Chapter 75
of the North Carolina General Statutes entitling the Plaintiff to treble damages
and attorneys' fees. Through its complaint, the Plaintiff sought damages of
approximately $202,000, plus accrued interest, costs and attorneys' fees. The
Partnership filed a counterclaim asserting its right to be reimbursed for all
expenses, including attorneys' fees and disbursements, incurred as a result of
enforcing its rights under the Mortgagor-Mortgagee Agreement. In December 2001,
the Partnership and the Plaintiff agreed on a settlement of approximately
$100,000 to the Plaintiff. The Partnership recognized a loss of approximately
$161,000 as of December 31, 2001. The loss includes the payment to the Plaintiff
plus legal fees. The Partnership recognized a gain of approximately $369,000 on
the mortgage on Argyle Place for the year ended December 31, 1999. The aggregate
net gain for the mortgage on Argyle Place is approximately $208,000.

38

9. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 2001, 2000 and 1999 are as follows:

2001 2000 1999
---- ---- ----

Quarter ended March 31, $ 0.800(1) $ 0.070 $ 2.56(5)
Quarter ended June 30, 0.105(2) 0.095(3) 0.10(6)
Quarter ended September 30, 0.075 0.075 0.08
Quarter ended December 31, 0.065 1.105(4) 1.99(7)
--------- --------- --------

$ 1.045 $ 1.345 $ 4.73
========= ========= ========

(1) This amount includes approximately $0.725 per Unit representing return of
capital and gain from the following: (a) approximately $0.44 per Unit
related to the sale of Spring Lake Village; (b) approximately $0.09 per
Unit received from HUD for the Spring Lake Village coinsurance claim; (c)
approximately $0.18 per Unit received from the coinsurer of the mortgage on
St. Charles Place-Phase II, as result of its coinsurance claim filed with
HUD; and (d) approximately $0.015 per Unit of cash held in reserve for
anticipated legal costs related to the mortgages on St. Charles Place-Phase
II and The Villas.
(2) This amount includes approximately $0.03 per Unit related to the receipt of
an escrow balance from the servicer of Spring Lake Village.
(3) This amount includes approximately $0.02 per Unit of interest from receipt
of HUD debenture in exchange for the Spring Lake Village HUD coinsurance
claim.
(4) This amount includes approximately $1.02 per Unit return of capital
received from the coinsurer of the mortgage on The Villas, as a result of
its coinsurance claim filed with HUD.
(5) This amount includes approximately $2.46 per Unit representing return of
capital and gain from the prepayment of the following mortgages: Iroquois
Club Apartments of $1.89 per Unit and Greenbriar Place of $0.57 per Unit.
(6) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
(7) This amount includes approximately $0.53 per Unit representing return of
capital and gain from the prepayment of the mortgage on Argyle Place. In
addition, this amount includes approximately $1.40 per Unit representing
partial return of capital received as a result of the sale of St. Charles
Place-Phase II and The Villas.

The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages. Although Insured Mortgages
yield a fixed monthly mortgage payment once purchased, the cash distributions
paid to the Unitholders will vary during each quarter due to (1) the fluctuating
yields in the short-term money market where the monthly mortgage payment
receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.

10. PARTNERS' EQUITY

Depositary Units representing economic rights in limited partnership
interests ("Units") were issued at a stated value of $20. A total of 9,576,165
Units were issued for an aggregate capital contribution of $191,523,300. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.

39

11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 2001, 2000 and 1999:

(In Thousands, Except Per Unit Data)

2001
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 848 $ 785 $ 703 $ 698
Net gain (loss) on mortgage dispositions 679 -- -- (161)
Net earnings 1,386 644 565 398
Net earnings per Limited Partnership Unit - Basic $ 0.14 $ 0.06 $ 0.06 $ 0.04

2000
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 835 $ 721 $ 717 $ 861
Net gain on mortgage dispositions -- -- -- 4,753
Net earnings 676 543 553 5,473
Net earnings per Limited Partnership Unit - Basic $ 0.07 $ 0.05 $ 0.05 $ 0.55

1999
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 1,198 $ 880 $ 917 $ 916
Net gain on mortgage dispositions 228 -- 369 --
Net earnings 1,166 680 1,071 714
Net earnings per Limited Partnership Unit - Basic $ 0.12 $ 0.07 $ 0.11 $ 0.06

40

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 2001

Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Maturity Mortgage Amount of Value Interest)
Development Name/Location Date (4)(5) Mortgage (3) (3)(6)(7)(9) (4)(8)
- ------------------------- ---- ------ ------------ ------------ ------

ACQUIRED INSURED MORTGAGES:
Investment in FHA-Insured Certificates (carried at fair value)

Southampton Apts., Grove City, OH 4/27 8.50% $ 1,899,694 $ 1,901,479 $ 183,038
Pleasantview Nursing Home, Union, NJ 6/29 7.75% 3,297,911 3,205,388 290,532
----------- -----------

Total investment in FHA-Insured Certificates -
Acquired Insured Mortgages 5,197,605 5,106,867
----------- -----------

ACQUIRED INSURED MORTGAGES:
Investment in GNMA Mortgage-Backed Securities (carried at fair value)

Brighton Manor, Petersburg, VA 3/29 7.50% 975,885 951,896 80,561
Cyress Cove, Jacksonville, FL 2/28 7.30% 6,575,287 6,414,472 548,032
Hickory Tree Apts., Indianapolis, IN 4/27 7.375% 3,292,422 3,212,106 279,481
Main Street Square, Roundrock, TX 9/29 8.75% 1,312,653 1,291,043 122,869
Maple Manor, Syracuse, NY 4/29 7.375% 1,180,097 1,151,105 97,631
Mountain Village Apts., Tucson, AZ 5/29 7.50% 1,281,765 1,250,239 105,606
Oakwood Garden Apts., San Jose, CA 10/23 7.75% 9,038,642 8,821,136 815,299
Regency Park Apts., North St. Paul, MN 4/24 7.00% 1,348,747 1,316,406 116,349
Sunflower Apts., Tucson, AZ 5/29 7.50% 1,737,002 1,694,280 143,113
----------- -----------
Total investment in GNMA Mortgage-Backed
Securities-Acquired Insured Mortgages 26,742,500 26,102,683
----------- -----------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 31,940,105 31,209,550
----------- -----------

ORIGINATED INSURED MORTGAGE:
Investment in FHA-Insured Loans (carried at amortized cost)(2)

Colony Square Apts, Rocky Mount, NC (1) 10/28 8.25% 4,012,925 4,158,218 372,352

ACQUIRED INSURED MORTGAGE:
Investment in FHA-Insured Loan (carried at amortized cost)(2)

Winburn Square, Lexington, KY 1/27 9.00% 951,596 948,661 95,829
----------- -----------

Total investment in FHA-Insured Loans 4,964,521 5,106,879
----------- -----------

TOTAL INVESTMENT IN INSURED MORTGAGES $36,904,626 $36,316,429
=========== ===========

41

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 2001

(1) The mortgage on Colony Square Apartments possesses a special assignment
option, in its mortgage document, which allows the Partnership, anytime
after April 2002, to require payment of the unpaid principal balance of the
mortgage. At such time, the borrower must make payment to the Partnership
or the Partnership may cancel the FHA insurance and institute foreclosure
proceedings.

(2) Inclusive of closing costs and acquisition fees.

(3) Prepayment of these insured mortgages would be based upon the unpaid
principal balance at the time of prepayment.

(4) This represents the base interest rate during the permanent phase of this
insured mortgage loan. Additional interest (referred to as Participations)
measured as a percentage of the net cash flow from the development and of
the net proceeds from sale, refinancing or other disposition of the
underlying development (as defined in the participation agreements), will
also be due. During the years ended December 31, 2001, 2000 and 1999, the
Partnership received additional interest of $29,162, $16,844 and $12,503,
respectively, from the Participations.

(5) In addition, the servicer or the sub-servicer of the Insured Mortgage,
primarily unaffiliated third parties, is entitled to receive compensation
for certain services rendered.

(6) A reconciliation of the carrying value of the Insured Mortgages for the
years ended December 31, 2001 and 2000, is as follows:

2001 2000
---- ----

Beginning balance $ 37,063,647 $ 41,318,088
Principal receipts on Insured Mortgages (480,851) (445,663)
Gain on mortgage dispositions -- 1,339,299 (a)
Disposition of AHFS -- (5,995,412)(b)
Adjustment to unrealized gains (losses) on
investments in Insured Mortgages (266,367) 847,335
------------ ------------
Ending balance $ 36,316,429 $ 37,063,647
============ ============

(a) This amount represents the gain recognized on the sale of the AHFS,
Spring Lake Village.

(b) This amount represents cash proceeds of $4,571,322 and non-cash
proceeds of $1,424,090 as reflected on the Statement of Cash Flows.

(7) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or
retirement homes.

(8) Principal and interest are payable at level amounts over the life of the
Insured Mortgages.

(9) As of December 31, 2001 and 2000, the tax basis of the Insured Mortgages,
was approximately $36.8 million and $37.1 million, respectively.