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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
- --------------------- -------------
Commission file number 1-12704
- ---------------------- -------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
----------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2002, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001 3
Statements of Income and Comprehensive Income - for the three and six months
ended June 30, 2002 and 2001 (unaudited) 4
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2002 (unaudited) 5
Statements of Cash Flows - for the six months ended June 30, 2002 and
2001 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 26,818,036 $ 31,209,550
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,134,901 4,158,218
Acquired insured mortgage 943,520 948,661
------------ ------------
5,078,421 5,106,879
Cash and cash equivalents 4,070,921 691,264
Investment in FHA debenture -- 230,670
Receivables and other assets 234,099 281,468
------------ ------------
Total assets $ 36,201,477 $ 37,519,831
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 3,927,185 $ 654,531
Accounts payable and accrued expenses 84,109 132,157
------------ ------------
Total liabilities 4,011,294 786,688
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 39,868,925 45,091,570
General partners' deficit (7,831,080) (7,561,985)
Accumulated other comprehensive income (loss) 152,338 (796,442)
------------ ------------
Total partners' equity 32,190,183 36,733,143
------------ ------------
Total liabilities and partners' equity $ 36,201,477 $ 37,519,831
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 622,962 $ 722,743 $ 1,270,263 $ 1,418,481
Interest and other income 6,449 62,453 13,880 215,204
------------ ------------ ------------ ------------
629,411 785,196 1,284,143 1,633,685
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 68,690 74,676 140,842 150,930
General and administrative 62,760 66,620 131,150 131,221
------------ ------------ ------------ ------------
131,450 141,296 271,992 282,151
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 497,961 643,900 1,012,151 1,351,534
Gains on mortgage dispositions 86,174 - 142,117 678,802
------------ ------------ ------------ ------------
Net earnings $ 584,135 $ 643,900 $ 1,154,268 $ 2,030,336
============ ============ ============ ============
Other comprehensive income (loss) - adjustment to
unrealized gains (losses) on investments in insured mortgages 1,059,999 (451,240) 948,780 (290,450)
------------ ------------ ------------ ------------
Comprehensive income $ 1,644,134 $ 192,660 $ 2,103,048 $ 1,739,886
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 555,512 $ 612,349 $ 1,097,709 $ 1,930,850
General Partner - 4.9% 28,623 31,551 56,559 99,486
------------ ------------ ------------ ------------
$ 584,135 $ 643,900 $ 1,154,268 $ 2,030,336
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.06 $ 0.06 $ 0.11 $ 0.20
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2002
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income (Loss) Total
------------- ------------- ------------- -------------
Balance, December 31, 2001 $ (7,561,985) $ 45,091,570 $ (796,442) $ 36,733,143
Net earnings 56,559 1,097,709 - 1,154,268
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 948,780 948,780
Distributions paid or accrued of $0.66 per Unit,
including return of capital of $0.55 per Unit (325,654) (6,320,354) - (6,646,008)
------------ ------------- ------------ -------------
Balance, June 30, 2002 $ (7,831,080) $ 39,868,925 $ 152,338 $ 32,190,183
============ ============= ============= =============
Limited Partnership Units outstanding - basic, as
of June 30, 2002 9,576,290
=========
The accompanying notes are an integral part
of these financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,154,268 $ 2,030,336
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gains on mortgage dispositions (142,117) (678,802)
Changes in assets and liabilities:
Decrease in note payable and due to affiliate -- (24,948)
Decrease in accounts payable and accrued expenses (48,048) (18,501)
Decrease in receivables and other assets 47,369 398,860
------------ ------------
Net cash provided by operating activities 1,011,472 1,706,945
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 231,024 235,859
Proceeds received from redemption of debentures 230,670 783,981
Proceeds received from mortgage dispositions 5,279,845 1,833,339
------------ ------------
Net cash provided by investing activities 5,741,539 2,853,179
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (3,373,354) (19,182,804)
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,379,657 (14,622,680)
Cash and cash equivalents, beginning of period 691,264 15,872,119
------------ ------------
Cash and cash equivalents, end of period $ 4,070,921 $ 1,249,439
============ ============
Non-cash investing activity:
9.125% debenture received from HUD as an additional claim related to the
disposition of Asset held for sale under coinsurance program $ -- $ 230,670
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. The Partnership Agreement, as amended, ("Partnership
Agreement") states that the Partnership will terminate on December 31, 2020,
unless terminated earlier under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner"), a wholly owned subsidiary of CRIIMI
MAE Inc. ("CRIIMI MAE"), holds a partnership interest of 4.9%. AIM Acquisition
Partners, L.P. (the "Advisor") serves as the advisor to the Partnership pursuant
to certain advisory agreements (collectively, the "Advisory Agreements") between
the Advisor and the Partnership. The general partner of the Advisor is AIM
Acquisition Corporation ("AIM Acquisition") and the limited partners include,
but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., 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 Agreements, the Advisor renders services to the
Partnership, including but not limited to, the management and disposition of the
Partnership's portfolio of mortgages. Such services are 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 submanagement agreement (the "Sub-Advisory Agreement"). The
delegation of such services does 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.
The Partnership's investment in mortgages includes participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration ("FHA") programs ("FHA-Insured Certificates"), mortgage-backed
securities guaranteed by the Government National Mortgage Association ("GNMA")
("GNMA Mortgage-Backed Securities") and FHA-insured mortgage loans ("FHA-Insured
Loans" and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as "Insured Mortgages"). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans are non-recourse first liens on multifamily residential developments or
retirement homes.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2002 and
December 31, 2001, the results of its operations for the three and six months
ended June 30, 2002 and 2001, and its cash flows for the six months ended June
30, 2002 and 2001.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the General Partner believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the financial statements
and the notes to the financial statements included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 2001.
8
3. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's investment in
FHA-Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities
as of June 30, 2002 and December 31, 2001:
Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages
- -------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully Insured
Mortgages as of June 30, 2002 and December 31, 2001:
June 30, 2002 December 31, 2001
------------- -----------------
Fully Insured Originated Insured Mortgages:
Number of Mortgages 1 1
Amortized Cost $ 4,134,901 $ 4,158,218
Face Value 3,991,924 4,012,925
Fair Value 3,995,853 4,031,098
Fully Insured Acquired Insured Mortgages:
Number of:
GNMA Mortgage-Backed Securities (2) 8 9
FHA-Insured Certificates (1) 1 2
FHA-Insured Loan 1 1
Amortized Cost $ 27,609,218 $ 32,954,653
Face Value 27,503,950 32,891,701
Fair Value 27,765,411 32,165,487
(1) In January 2002, the Southampton Apartments mortgage was prepaid. The
Partnership received net proceeds of approximately $1.9 million and
recognized a gain of approximately $30,000 for the six months ended June
30, 2002. A distribution of approximately $0.19 per Unit related to the
prepayment of this mortgage was declared in January 2002 and paid in May
2002.
(2) In May 2002, the Hickory Tree Apartments mortgage was prepaid. The
Partnership received net proceeds of approximately $3.3 million and
recognized a gain of approximately $86,000 for the three and six months
ended June 30, 2002. A distribution of approximately $0.33 per Unit related
to the prepayment of this mortgage was declared in June 2002 and paid in
August 2002.
As of August 1, 2002 all of the Partnership's fully Insured Mortgage
investments are current with respect to the payment of principal and interest.
9
4. INVESTMENT IN HUD DEBENTURE
In January 2001, the Partnership received additional assignment proceeds in
the form of a 9.125% debenture issued by the U.S. Department of Housing and
Urban Development ("HUD") for the Asset Held for Sale under Coinsurance Program,
Spring Lake Village. The HUD debenture, with a face value of approximately
$231,000, earned interest semi-annually on January 1 and July 1. In January
2002, the debenture was redeemed at par by HUD. A distribution of approximately
$0.02 per Unit related to the redemption of this HUD debenture was declared in
January 2002 and paid to Unitholders in May 2002.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2002 and 2001 are as follows:
2002 2001
---- ----
Quarter ended March 31 $ 0.27(1) $ 0.800(3)
Quarter ended June 30 0.39(2) 0.105(4)
------ -------
$ 0.66 $ 0.905
====== =======
(1) This amount includes approximately $0.21 per Unit representing net proceeds
from the following: (a) approximately $0.19 per Unit related to the
prepayment of the mortgage on Southampton Apartments and (b) approximately
$0.02 per Unit related to the redemption of the HUD debenture issued in
exchange for Spring Lake Village.
(2) This amount includes approximately $0.33 per Unit representing net proceeds
from the prepayment of the mortgage on Hickory Tree Apartments.
(3) This amount includes approximately $0.725 per Unit representing net
proceeds 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 (c)
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.
(4) This amount includes approximately $0.03 per Unit related to the receipt of
an escrow balance from the servicer of Spring Lake Village.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although Insured
Mortgages pay a fixed monthly mortgage payment, 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. As the Partnership continues
to liquidate its mortgage investments and Unitholders receive distributions of
return of capital and taxable gains, Unitholders should expect a reduction in
earnings and distributions due to the decreasing mortgage base.
10
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities have earned or received
compensation for services or received distributions from, the Partnership during
the three and six months ended June 30, 2002 and 2001 as follows:
For the For the
three months ended six months ended
June 30, June 30,
Name of Recipient Capacity in Which Served/item 2002 2001 2002 2001
----------------- ----------------------------- ---- ---- ---- ----
CRIIMI, Inc.(1) General Partner/Distribution $ 192,432 $ 51,809 $ 325,654 $ 446,541
AIM Acquisition Partners,L.P.(2) Advisor/Asset Management Fee 68,690 74,676 140,842 150,930
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 13,709 11,405 25,538 22,899
(1) The General Partner, pursuant to the Partnership Agreement, 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 (as
defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
Management Fee equal to 0.75% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP 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 $25,642 and $52,576 for
the three and six months ended June 30, 2002, respectively, and $27,876 and
$56,340 for the three and six months ended June 30, 2001, respectively. The
general partner and limited partner of CMSLP are wholly owned subsidiaries
of CRIIMI MAE Inc.
11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q
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
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
prior and 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.
General
- -------
As of June 30, 2002, the Partnership had invested in 11 Insured Mortgages,
with an aggregate amortized cost of approximately $31.7 million, an aggregate
face value of approximately $31.5 million and an aggregate fair value of
approximately $31.8 million.
As of August 1, 2002 all of the Partnership's fully Insured Mortgage
investments are current with respect to the payment of principal and interest.
Results of Operations
- ---------------------
Net earnings decreased by approximately $60,000 and $876,000 for the three
and six months ended June 30, 2002, respectively, as compared to the
corresponding periods in 2001. The decrease for the three month period is
primarily due to decreases in mortgage investment income and interest and other
income, partially offset by an increase in gains on mortgage dispositions, as
discussed below. The six month decrease is primarily due to decreases in gains
on mortgage dispositions, mortgage investment income and interest and other
income, as discussed below.
Mortgage investment income decreased by approximately $100,000 and $148,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due a reduction in the mortgage
base. The mortgage base decreased as a result of two mortgage dispositions with
an aggregate principal balance of approximately $5.2 million, representing an
approximate 14% decrease in the aggregate principal balance of the Partnership's
total mortgage portfolio since December 2001.
Interest and other income decreased by approximately $56,000 and $201,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due to the timing of temporary
investment of mortgage disposition proceeds prior to distribution to
Unitholders.
Asset management fee to related parties decreased by approximately $6,000
and $10,000 for the three and six months ended June 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to a reduction in
the mortgage base, as previously discussed.
12
General and administrative expense decreased by approximately $4,000 for
the three months ended June 30, 2002, as compared to the corresponding period in
2001. This decrease is primarily due to the cost structure of certain expenses,
which is partially offset by an increase in the costs associated with partner
level tax reporting as a result of the new Internal Revenue Service electronic
filing requirements for large partnerships. General and administrative expense
did not change significantly for the six month period.
Gains on mortgage dispositions increased by approximately $86,000 for the
three months ended June 30, 2002 and decreased by approximately $537,000 for the
six months ended June 30, 2002, as compared to the corresponding periods in
2001. During the three month period ended June 30, 2002, the Partnership
recognized a gain of approximately $86,000 from the prepayment of the mortgage
on Hickory Tree Apartments. In addition to this gain, during the six months
ended June 30, 2002, the Partnership recognized a gain of approximately $30,000
from the prepayment of the mortgage on Southampton Apartments and an additional
gain of approximately $26,000 from the disposition of The Villas, a delinquent
mortgage coinsured by a third party. During the six months ended June 30, 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.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first six months of 2002 to
meet operating requirements. The basis for paying distributions to Unitholders
is net proceeds from mortgage dispositions, if any, and cash flow from
operations, which includes regular interest income and principal received from
Insured Mortgages. Although Insured Mortgages pay a fixed monthly mortgage
payment, 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. As the Partnership continues to liquidate its mortgage
investments and Unitholders receive distributions of return of capital and
taxable gains, Unitholders should expect a reduction in earnings and
distributions due to the decreasing mortgage base.
Net cash provided by operating activities decreased by approximately
$695,000 for the six months ended June 30, 2002, as compared to the
corresponding period in 2001. This decrease is primarily the result of a
decrease in mortgage investment income and interest and other income, as
previously discussed, and a decrease in the change in receivables and other
assets. The change in receivables and other assets is due to the receipt of
principal and interest payments on a delinquent mortgage in 2001.
Net cash provided by investing activities increased by approximately $2.9
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, primarily due to an increase in proceeds received from mortgage
dispositions. This increase was partially offset by a decrease in proceeds
received from redemption of debentures.
Net cash used in financing activities decreased by approximately $15.8
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, due to a decrease in the amount of distributions paid to
partners in the first six months of 2002 compared to the same period in 2001.
13
PART I. FINANCIAL INFORMATION
ITEM 3. 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. The Partnership will experience fluctuations
in the market value of its assets related to (i) changes in the interest rates
of U.S. Treasury securities, (ii) changes in the spread between the interest
rates on U.S. Treasury securities and the interest rates on the Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages, determined by reviewing the attributes of the Insured Mortgages in
relation to the current market interest rates. The weighted average life of the
Insured Mortgages decreased as of June 30, 2002 compared to December 31, 2001,
due to the lower market interest rates and other attributes of the Partnership's
Insured Mortgages.
The General Partner has determined that there has not been a material
change as of June 30, 2002, in market risk from December 31, 2001 as reported in
the Partnership's Annual Report on Form 10-K as of December 31, 2001.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
99.1 Certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Date
----
May 10, 2002 To report the General Partner's
decision to dismiss the Partnership's
independent auditors, Arthur
Andersen LLP.
June 7, 2002
To report: (1) the General Partner's
the selection of Ernst & Young LLP
as independent auditors for the
Partnership's consolidated financial
statements for the year ending on
December 31, 2002, and (2) the
resignation of Alan M. Jacobs from
the Board of Directors of the General
Partner.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
August 14, 2002 /s/ Cynthia O. Azzara
- --------------- ---------------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer