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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 September 30, 2002
------------------
Commission file number 1-12704
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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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 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 SEPTEMBER 30, 2002
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001 3
Statements of Income and Comprehensive Income - for the three and nine months
ended September 30, 2002 and 2001 (unaudited) 4
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2002 (unaudited) 5
Statements of Cash Flows - for the nine months ended September 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
Item 4. Controls and Procedures 13
PART II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Certifications 16
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 27,302,549 $ 31,209,550
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,122,897 4,158,218
Acquired insured mortgage 940,862 948,661
------------ ------------
5,063,759 5,106,879
Cash and cash equivalents 726,115 691,264
Investment in FHA debenture - 230,670
Receivables and other assets 234,127 281,468
------------ ------------
Total assets $ 33,326,550 $ 37,519,831
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 604,182 $ 654,531
Accounts payable and accrued expenses 72,981 132,157
------------ ------------
Total liabilities 677,163 786,688
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 39,750,442 45,091,570
General partner's deficit (7,837,185) (7,561,985)
Accumulated other comprehensive income (loss) 736,130 (796,442)
------------ ------------
Total partners' equity 32,649,387 36,733,143
------------ ------------
Total liabilities and partners' equity $ 33,326,550 $ 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 nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 583,468 $ 691,382 $ 1,853,731 $ 2,109,863
Interest and other income 13,190 11,660 27,070 226,864
------------ ------------ ------------ ------------
596,658 703,042 1,880,801 2,336,727
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 64,290 74,676 205,132 225,606
General and administrative 52,774 62,912 183,924 194,133
------------ ------------ ------------ ------------
117,064 137,588 389,056 419,739
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 479,594 565,454 1,491,745 1,916,988
Gains on mortgage dispositions - - 142,117 678,802
------------ ------------ ------------ ------------
Net earnings $ 479,594 $ 565,454 $ 1,633,862 $ 2,595,790
============ ============ ============ ============
Other comprehensive income - adjustment to unrealized
gains and losses on investments in insured mortgages 583,792 994,745 1,532,572 704,295
------------ ------------ ------------ ------------
Comprehensive income $ 1,063,386 $ 1,560,199 $ 3,166,434 $ 3,300,085
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 456,094 $ 537,747 $ 1,553,803 $ 2,468,596
General Partner - 4.9% 23,500 27,707 80,059 127,194
------------ ------------ ------------ ------------
$ 479,594 $ 565,454 $ 1,633,862 $ 2,595,790
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.05 $ 0.06 $ 0.16 $ 0.26
============ ============ ============ ============
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 nine months ended September 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 80,059 1,553,803 - 1,633,862
Adjustment to unrealized gains and losses on
investments in insured mortgages - - 1,532,572 1,532,572
Distributions paid or accrued of $0.72 per Unit,
including return of capital of $0.56 per Unit (355,259) (6,894,931) - (7,250,190)
------------ ------------ ------------ ------------
Balance, September 30, 2002 $ (7,837,185) $ 39,750,442 $ 736,130 $ 32,649,387
============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of September 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 nine months ended
September 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,633,862 $ 2,595,790
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 accounts payable and accrued expenses (59,176) (37,819)
Decrease in receivables and other assets 47,341 377,264
------------ ------------
Net cash provided by operating activities 1,479,910 2,256,433
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 344,965 357,191
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 5,855,480 2,974,511
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (7,300,539) (20,240,132)
------------ ------------
Net increase (decrease) in cash and cash equivalents 34,851 (15,009,188)
Cash and cash equivalents, beginning of period 691,264 15,872,119
------------ ------------
Cash and cash equivalents, end of period $ 726,115 $ 862,931
============ ============
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 and the limited partners include, but are not limited
to, 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 September 30,
2002 and December 31, 2001, the results of its operations for the three and nine
months ended September 30, 2002 and 2001, and its cash flows for the nine months
ended September 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
8
financial statements and the notes to the financial statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2001.
3. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's investment in
FHA-Insured Loans, FHA-Insured Certificates and GNMA Mortgage-Backed Securities
as of September 30, 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 September 30, 2002 and December 31, 2001:
September 30, 2002 December 31, 2001
------------------ -----------------
Fully Insured Originated Insured Mortgages:
Number of Mortgages 1 1
Amortized Cost $ 4,122,897 $ 4,158,218
Face Value 3,981,096 4,012,925
Fair Value 3,985,089 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 $ 27,507,281 $ 32,954,653
Face Value 27,403,309 32,891,701
Fair Value 28,247,258 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 during the nine months
ended September 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 during the nine months
ended September 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 November 1, 2002 all of the Partnership's fully Insured Mortgage
investments are current with respect to the payment of principal and interest.
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.
9
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2002 and 2001 are as follows:
2002 2001
------- -------
Quarter ended March 31 $ 0.270(1) $ 0.800(3)
Quarter ended June 30 0.390(2) 0.105(4)
Quarter ended September 30 0.060 0.075
------- -------
$ 0.720 $ 0.980
======= =======
(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 a 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.
(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 in which 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 nine months ended September 30, 2002 and 2001 as follows:
For the For the
three months ended nine months ended
September 30, September 30,
Name of Recipient Capacity in Which Served/item 2002 2001 2002 2001
- ----------------- ----------------------------- ---- ---- ---- ----
CRIIMI, Inc.(1) General Partner/Distribution $ 29,605 $ 37,005 $ 355,259 $ 483,546
AIM Acquisition Partners, Advisor/Asset Management Fee 64,290 74,676 205,132 225,606
L.P.(2)
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 7,207 8,893 32,745 31,792
(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 $24,000 and $76,576 for
the three and nine months ended September 30, 2002, respectively, and
$27,876 and $84,216 for the three and nine months ended September 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 September 30, 2002, the Partnership had invested in 11 Insured
Mortgages, with an aggregate amortized cost of approximately $31.6 million, an
aggregate face value of approximately $31.4 million and an aggregate fair value
of approximately $32.2 million.
As of November 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 $86,000 and $962,000 for the three
and nine months ended September 30, 2002, respectively, as compared to the
corresponding periods in 2001. The decrease for the three month period is
primarily due to a decrease in mortgage investment income, partially offset by
decreases in asset management fee to related parties and general and
administrative expenses, as discussed below. The nine 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 $108,000 and $256,000
for the three and nine months ended September 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 increased by approximately $1,500 for the three
months ended September 30, 2002 and decreased by approximately $200,000 for the
nine months ended September 30, 2002, 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.
12
Asset management fee to related parties decreased by approximately $10,000
and $20,000 for the three and nine months ended September 30, 2002,
respectively, as compared to the corresponding periods in 2001, primarily due to
a reduction in the mortgage base, as previously discussed.
General and administrative expenses decreased by approximately $10,000 for
the three and nine months ended September 30, 2002, as compared to the
corresponding periods in 2001. These decreases are primarily due to a decrease
in overhead costs due to the reduction in mortgage base and little activity
related to the mortgage portfolio, which was partially offset by an increase in
the costs associated with limited partner level tax reporting as a result of the
new Internal Revenue Service electronic filing requirements for large
partnerships.
Gains on mortgage dispositions decreased by approximately $537,000 for the
nine months ended September 30, 2002, as compared to the corresponding period in
2001. During the nine months ended September 30, 2002, the Partnership
recognized gains of approximately $116,000 from the prepayment of the mortgages
on Hickory Tree Apartments and 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 nine months ended September 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 nine months ended September
30, 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
$777,000 for the nine months ended September 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 smaller decrease in receivables and other assets.
The larger 2001 decrease in receivables and other assets is due to the receipt
of principal and interest payments on a delinquent mortgage.
Net cash provided by investing activities increased by approximately $2.9
million for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, primarily due to an increase in proceeds received
from mortgage dispositions. This increase was slightly offset by a decrease in
proceeds received from redemption of debentures.
Net cash used in financing activities decreased by approximately $12.9
million for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, due to a decrease in the amount of distributions
paid to the Partnership's partners in the first nine 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 September 30, 2002 compared to December 31,
2001, due to the lower market interest rates, which may imply faster prepayment
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 September 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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Quarterly Report on form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
Chairman of the Board (CEO) and the Chief Financial Officer (CFO), of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation,
the General Partner's CEO and CFO concluded that its disclosure controls and
procedures are effective and timely in alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC filings. There were no significant changes in the General Partner's
internal controls or in other factors that could significantly affect these
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
14
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Section 10(A)(i)(2) of the Securities Exchange Act of 1934, as amended,
requires issuers to disclose the approval by an audit committee of the issuer of
a non-audit service to be performed by the auditor of the issuer. On August 14,
2002, the Audit Committee of the Board of Directors of the General Partner's
parent, CRIIMI MAE Inc., subject to any rules that may be adopted by the Public
Accounting Oversight Board, approved the engagement of Ernst & Young LLP, the
Partnership's auditor, to provide tax services to the Partnership during the
fiscal year ending December 31, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
99.1 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
16
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
November 13, 2002 /s/ Cynthia O. Azzara
- ----------------- -------------------------------------------
Date Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer
16
CERTIFICATION
I, William B. Dockser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors L.P. - Series 86;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 13, 2002 /s/ William B. Dockser
----------------- -----------------------------------------
William B. Dockser
Chairman of the Board and Chief Executive
Officer
17
CERTIFICATION
I, Cynthia O. Azzara, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors L.P. - Series 86;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 13, 2002 /s/ Cynthia O. Azzara
----------------- -------------------------------------------
Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer