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
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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, 2002 Commission file number 1-12704

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
----------------------------------------------------
(Exact name of registrant as specified in its 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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

As of December 31, 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, based on the last reported sale price on June
28, 2002, was $29,780,707.

Documents incorporated by Reference

None

2

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

Page
----
PART I

Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 5
Item 3. Legal Proceedings.............................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............................ 5

PART II

Item 5. Market for Registrant's Securities and Related Security Holder Matters......... 6
Item 6. Selected Financial Data........................................................ 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 8
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................... 12
Item 8. Financial Statements and Supplementary Data.................................... 13
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 13

PART III

Item 10. Directors and Executive Officers of the Registrant............................. 14
Item 11. Executive Compensation......................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners, Management and
Related Unitholder Matters................................................... 16
Item 13. Certain Relationships and Related Transactions................................. 17
Item 14. Controls and Procedures........................................................ 17

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 18

Signatures ............................................................................... 20

Certifications ............................................................................... 21

3
PART I

ITEM 1. BUSINESS

FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, the
words "believe," "anticipate," "expect," "contemplate," "may," "will," 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 prior and
future filings by the Partnership (defined below) with the Securities and
Exchange Commission ("SEC") 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, (v) defaulted mortgages, (vi) errors in servicing
defaulted mortgages and (vii) sales of mortgage investments below fair market
value. 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
- ---------------------------------------

American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed pursuant to a limited partnership agreement ("Partnership Agreement")
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., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 4.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (the "Advisor") to the Partnership. The
general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") 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., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. 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 origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
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 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

4

General Partner or its affiliates, or any material change as to policies
regarding distributions or reserves of the Partnership (collectively the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore, the Advisor has retained its Consent Rights.

The General Partner also serves as the General Partner for 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 owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 88 are collectively
referred to as the "AIM Limited Partnerships".

Prior to December 1994, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured 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 of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2020, unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.

Additional information concerning the business of 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 6 of the Notes to
Financial Statements (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, 2002, which is hereby incorporated by
reference herein.

Employees and Management of the Partnership
- -------------------------------------------

The Partnership has no employees. The business of the Partnership is
managed by its General Partner while its portfolio of mortgages is managed by
the Advisor and CMSLP pursuant to the Advisory Agreements and Sub-Advisory
Agreement, respectively, as discussed above. A wholly-owned subsidiary of CRIIMI
MAE, CRIIMI MAE Management, Inc., provides personnel and administrative services
to the Partnership on behalf of the General Partner. The Partnership reimburses
CRIIMI MAE Management, Inc. for these services on an actual cost basis pursuant
to the terms of the Partnership Agreement.

The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.75% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP, as sub-advisor, a fee of 0.28% (the "Sub-Advisory Fee")
of Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 7 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.

5

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

The Partnership's business consists of holding government insured mortgage
investments primarily on multifamily housing properties, and distributing the
payments of principal and interest on such mortgage investments, including
debentures issued by the United States Department of Housing and Urban
Development ("HUD") in exchange for such mortgages, to the holders of its
depository units of limited partnership interests ("Unitholders"). The
Partnership may elect to dispose of its mortgage investments through a sale to
third parties. 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
mortgages investments than the Partnership.

CRIIMI MAE and its affiliates also may serve as general partners or
managers of real estate limited partnerships, real estate investment trusts or
other similar 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 other
AIM Limited Partnerships and/or other entities managed by CRIIMI MAE or its
affiliates, or the Advisor or its affiliates, are attempting to dispose of
mortgages. As a result of market conditions that could have the effect of
limiting the number of mortgage dispositions or adversely affecting the proceeds
received from such dispositions, CMSLP, the General Partner and the Advisor and
their affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of and at which price. CMSLP, the General Partner
and the Advisor, however, are required to exercise their fiduciary duties of
good faith, care and loyalty when evaluating the appropriate action to be taken
when faced with such conflicts.

ITEM 2. PROPERTIES

The Partnership does not own any properties. Generally, the mortgages
underlying the Partnership's mortgage investments are primarily non-recourse
first liens on multifamily residential developments or retirement homes.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings to which the Partnership is a
party.

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

No matters were submitted to a vote of the Partnership's Unitholders during
the fourth quarter of 2002.

6
PART II

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

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

The depository units of Limited Partnership interests ("Limited Partnership
Units") are listed for trading on the American Stock Exchange ("AMEX") under the
trading symbol of "AIJ." The high and low trade prices for the Units as reported
on AMEX and the distributions, as applicable, for each quarterly period in 2002
and 2001 were as follows:

Amount of
2002 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------

March 31 $ 3.66 $ 3.40 $ 0.270
June 30 3.53 3.10 0.390
September 30 3.28 2.81 0.060
December 31 3.33 2.97 0.150
-------
$ 0.870
=======

Amount of
2001 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------
March 31 $ 3.88 $ 3.25 $ 0.800
June 30 3.56 3.20 0.105
September 30 3.61 3.31 0.075
December 31 4.00 3.36 0.065
-------
$ 1.045
=======

Detailed information regarding quarterly distributions is contained in Note
8 of the Notes to Financial Statements (filed in response to Item 8 hereof)
incorporated by reference herein.

There are no material legal restrictions upon the Partnership's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement.

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 the
Partnership's 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, by the General Partner,
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, the timing of receipt of debentures, the interest rate on
debentures and debenture redemptions, and (4) changes 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.

As of December 31, 2002, there were approximately 7,500 Unitholders.

The Partnership has no compensation plans or individual compensation
arrangements under which equity securities of the Partnership are authorized for
issuance.

7

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

For the Years Ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----

Income $ 2,453 $ 3,034 $ 3,134 $ 3,911 $ 6,058

Net gain on mortgage dispositions 190 518 4,753 597 437

Net earnings 2,145 2,993 7,245 3,631 5,373

Net earnings per Limited
Partnership Unit - Basic (1) $ 0.210 $ 0.300 $ 0.720 $ 0.360 $ 0.530

Distributions per Limited
Partnership Unit (1)(2) $ 0.870 $ 1.045 $ 1.345 $ 4.730 $ 2.170

As of December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----

Total assets $ 32,772 $ 37,520 $ 55,785 $ 70,796 $ 97,126

Partners' equity 31,190 36,733 44,529 49,981 94,878

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

(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 2002, 2001, 2000, 1999 and 1998, which were
partially paid subsequent to year end. See Notes 7 and 8 of the Notes to
Financial Statements of the Partnership.

The selected income statement data presented above for the years ended
December 31, 2002, 2001 and 2000, and the selected balance sheet data as of
December 31, 2002 and 2001, 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,
1999 and 1998, and the selected balance sheet data as of December 31, 2000, 1999
and 1998 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.

8
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 Annual Report on Form
10-K that could cause actual results to differ materially.

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

As of December 31, 2002, the Partnership had invested in 9 Insured
Mortgages, with an aggregate amortized cost of approximately $28.9 million, a
face value of approximately $28.6 million and a fair value of approximately
$29.0 million, as discussed below.

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 the 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"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
primarily non-recourse first liens on multifamily residential developments or
retirement homes.

Listed below is the Partnership's aggregate investment in Insured Mortgages
as of December 31, 2002 and 2001:

December 31,
2002 2001
---- ----

Originated Mortgage:
Number of Mortgages 1 1
Amortized Cost $ 4,110,655 $ 4,158,218
Face Value 3,970,042 4,012,925
Fair Value 3,973,235 4,031,098

Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (2)(4) 7 9
FHA-Insured Certificates (1) 1 2
FHA-Insured Loan (3) - 1
Amortized Cost $ 24,763,081 $ 32,954,653
Face Value 24,642,829 32,891,701
Fair Value 25,038,234 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 year ended December 31,
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 year ended December 31,
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.
(3) In November 2002, the Winburn Square mortgage was prepaid. The Partnership
received net proceeds of approximately $945,000 and recognized a gain of
approximately $4,000 for the year ended December 31, 2002. A distribution
of approximately $0.09 per Unit related to the prepayment of this mortgage
was declared in December 2002 and paid in February 2003.
(4) In December 2002, the Sunflower Apartments mortgage was prepaid. The
Partnership received net proceeds of approximately $1.7 million and
recognized a gain of approximately $44,000 for the year ended December 31,
2002. A distribution of approximately $0.17 per Unit related to the
prepayment of this mortgage was declared in January 2003 and is expected to
be paid in May 2003.

9

As of March 1, 2003, all of the Partnership's Insured Mortgages are current
with respect to the payment of principal and interest.

In addition to base interest payments from 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, 2002, 2001 and
2000, the Partnership received additional interest of $8,718, $29,162, and
$16,844, respectively, from the Participations. These amounts are included in
mortgage investment income on the accompanying statements of income and
comprehensive income.

Results of Operations
- ---------------------

2002 compared to 2001
- ---------------------

Net earnings decreased by approximately $848,000 for 2002 as compared to
2001, primarily due to a decrease in mortgage investment income and gain on
mortgage dispositions, partially offset by a decrease in loss on mortgage
disposition, as discussed below.

Mortgage investment income decreased by approximately $377,000 for 2002 as
compared to 2001, primarily due to a reduction in the mortgage base. The
mortgage base decreased as a result of four mortgage prepayments with an
aggregate principal balance of approximately $7.9 million, representing an
approximate 21% decrease in the aggregate principal balance of the total
mortgage portfolio since December 2001.

Interest and other income decreased by approximately $204,000 for 2002 as
compared to 2001, primarily due to the timing of temporary investment of
mortgage disposition proceeds prior to distribution to Unitholders and due to a
decrease in the short-term interest rates.

Asset management fees to related parties decreased by approximately $31,000
for 2002 as compared to 2001, primarily due to a reduction in the mortgage base,
as previously discussed.

General and administrative expenses decreased by approximately $30,000 for
2002 as compared to 2001, primarily due to a decrease in professional fees and
master service fees, as a result of the decrease in the mortgage base.

Gain on mortgage dispositions decreased by approximately $489,000 for 2002
as compared to 2001. During 2002, the Partnership recognized gains of
approximately $164,000 from the prepayment of four mortgages, as previously
discussed, and an additional gain of approximately $26,000 from the disposition
of a delinquent mortgage coinsured by an unaffiliated third party. 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 an
unaffiliated third party, the Patrician Mortgage Company ("Patrician"), under
the HUD coinsurance program.

Loss on mortgage disposition decreased by approximately $161,000 for 2002
as compared to 2001. 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 2002.

10

2001 compared to 2000
- ---------------------

Net earnings decreased by approximately $4.3 million for 2001 as compared
to 2000, primarily due to a decrease in gain on mortgage dispositions, as
discussed below.

Interest and other income decreased by approximately $79,000 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 by approximately $75,000
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 expenses increased by approximately $37,000 for
2001 as compared to 2000, primarily due to a decrease in the expense
reimbursement from Integrated Funding, Inc. ("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 by approximately $46,000 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 by approximately $4.1 million 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 that was coinsured by an unaffiliated third party,
Patrician, under the HUD coinsurance program. During 2000, the Partnership
recognized a gain of approximately $3.4 million on the disposition of The
Villas, a delinquent mortgage that was co-insured by an unaffiliated third
party, Patrician. In addition, the Partnership recognized a gain of
approximately $1.3 million on the sale of an Asset Held for Sale under
Coinsurance Program, Spring Lake Village.

Loss on mortgage dispositions increased by approximately $161,000 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.

11

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, are the Partnership's principal source of cash flow, and
were sufficient for the years ended December 31, 2002, 2001 and 2000. The
Partnership anticipates its cash flows to be sufficient to meet operating
expense requirements for 2003.

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 the
Partnership's 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,
the timing of receipt of debentures, the interest rate on debentures and
debenture redemptions, and (4) changes 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.

Since the Partnership is obligated to distribute the proceeds of mortgage
prepayments, sales and insurance on Insured Mortgages (as defined in the
Partnership Agreement) to its Unitholders, the size of the Partnership's
portfolio will continue to decrease. The magnitude of the decrease will depend
upon the size of the Insured Mortgages which are prepaid, sold or assigned for
insurance proceeds.

Cash flow - 2002 compared to 2001
- ---------------------------------

Net cash provided by operating activities decreased by approximately
$753,000 in 2002 as compared to 2001, primarily due to a decrease in mortgage
investment income and interest and other income, as previously discussed, and
due to the receipt of interest in 2001 from a previously delinquent mortgage.

Net cash provided by investing activities increased by approximately $5.6
million in 2002 as compared to 2001, primarily due to an increase in proceeds
received from mortgage dispositions.

Net cash used in financing activities decreased by approximately $13.1
million in 2002 as compared to 2001, due to a reduction in the amount of
distributions paid to partners in 2002.

Cash flow - 2001 compared to 2000
- ---------------------------------

Net cash provided by operating activities decreased slightly by
approximately $87,000 in 2001 as compared to 2000.

Net cash provided by investing activities decreased by approximately $12.2
million in 2001 as compared to 2000, primarily due to a decrease in proceeds
received from the disposition of previously delinquent coinsured mortgages.

Net cash used in financing activities decreased by approximately $1.5
million in 2001 as compared to 2000, due to a reduction in the amount of
distributions paid to partners in 2001.

Critical Accounting Policies
- ----------------------------

The Partnership's significant accounting polices are described in Note 2 to
the Financial Statements. The Partnership believes its most critical accounting
policy (a critical accounting policy being one that is both very important to
the portrayal of the Partnership's financial condition and results of operations

12

and requires management's most difficult, subjective, or complex judgments) is
the determination of fair value of Insured Mortgages.

- - Fair Value of Insured Mortgages - The Partnership estimates the fair value
of its Insured Mortgages internally. The Partnership uses a discounted cash
flow methodology to estimate the fair value. This requires the Partnership
to make certain estimates regarding discount rates and expected
prepayments. 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. Increases in
the discount rate used by the Partnership would generally result in a
corresponding decrease in the fair value of the Partnership's insured
mortgages. Decreases in the discount rate used by the Partnership would
generally result in a corresponding increase in the fair value of the
Partnership's insured mortgages. The Partnership also makes certain
assumptions regarding the prepayment speeds of its Insured Mortgages. In a
low interest rate environment, mortgages are more likely to prepay even if
the mortgage contains prepayment penalties. In general, if the Partnership
increases its assumed prepayment speed, the fair value of the Insured
Mortgages will decrease. If the Partnership decreases its assumed
prepayment speed, the fair value of the Insured Mortgages will increase.

Recent Accounting Pronouncements
- --------------------------------

In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.

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. 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 December 31, 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.

13

The Partnership has changed its method of presenting market risk
disclosures from those disclosures presented in the December 31, 2001 Annual
Report on Form 10-K. The Partnership believes that the market risk disclosures
presented below provide more meaningful information to its Unitholders in
assessing the affect of changes in interest rates on the values of its assets.

As of December 31, 2002, the weighted average life of the U.S. Treasury
securities that were used to value the insured mortgage securities were shorter
than those used at December 31, 2001 due to lower market interest rates and
other loan attributes of the underlying insured mortgage securities, which made
the likelihood of the mortgage assets prepaying greater than the previous year.
If the Partnership assumed that the discount rate used to determine the fair
values of its insured mortgage securities increased by 100 basis points and 200
basis points, the increase in the discount rate would have resulted in a
corresponding decrease in the fair values of its insured mortgage securities by
approximately $103,000 (or 0.4%) and approximately $205,000 (or 0.7%),
respectively, as of December 31, 2002. A 100 basis point and 200 basis point
increase in the discount rate would have resulted in a corresponding decrease in
the fair values of the Partnership's insured mortgage securities by
approximately $1.5 million (or 4.2%) and approximately $2.9 million (or 8.1%),
respectively, as of December 31, 2001.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by Item 8 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

On May 8, 2002, the Board of Directors of the General Partner of the
Partnership dismissed Arthur Andersen LLP ("Arthur Andersen") as the
Partnership's independent auditors. Arthur Andersen had served as the
Partnership's independent accountants since 1991.

Arthur Andersen's reports on the Partnership's financial statements for
each of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.

During each of the Partnership's two most recent fiscal years and through
the date of Arthur Andersen's dismissal, there were: (i) no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on the Partnership's financial
statements for such years; and (ii) there were no reportable events as defined
in Item 304(a)(1)(v) of Regulation S-K.

The Partnership has provided Arthur Andersen with a copy of the foregoing
disclosure. The Partnership requested Arthur Andersen to furnish it with a
letter addressed to the SEC stating whether it agrees with the above statements.
A copy of that letter dated May 9, 2002 was filed as Exhibit 16 to the Form 8-K
filed with the SEC by the Partnership on May 10, 2002.

On June 5, 2002, the General Partner of the Partnership appointed Ernst &
Young LLP to audit the Partnership's financial statements for the year ending
December 31, 2002. During the years ended December 31, 2001 and 2000 and the
subsequent interim period through June 5, 2002, neither the Partnership nor
anyone on its behalf consulted Ernst & Young LLP with respect to the application
of accounting principles to a specified transaction either completed or
proposed, or the type of audit opinion that might be rendered on the
Partnership's financial statements or any other matters or reportable events
listed in Items 304(a)(2)(1) and (11) of Regulation S-K.

14
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Partnership has no executive officers or directors. The Partnership
does not directly employ any persons responsible for managing or operating the
Partnership or for providing services relating to day to day business affairs.
The affairs of the Partnership are managed by its General Partner, CRIIMI, Inc.
a wholly-owned subsidiary of CRIIMI MAE, a corporation whose shares are listed
on the New York Stock Exchange. CRIIMI, Inc. holds a general partnership
interest of 4.9%.

The business of the Partnership is managed by its General Partner while its
portfolio of mortgages is managed by the Advisor and CMSLP pursuant to the
Advisory Agreements and Sub-Advisory Agreement, respectively, as discussed
above. A wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.,
provides personnel and administrative services to the Partnership on behalf of
the General Partner.

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 Board of Directors of the General Partner has established a committee
(the "Audit Committee") consisting of independent directors (as defined in
Section 121 of the AMEX listing standards.) The Audit Committee of the General
Partner has appointed Ernst & Young LLP as the Partnership's independent public
accountants for the fiscal year ending December 31, 2003, such appointment to
continue at the discretion of the Audit Committee.

All directors of the General Partner are elected annually by CRIIMI MAE.
All executive officers serve at the discretion of the General Partner. There are
no family relationships among any directors or executive officers of the General
Partner.

The following table sets forth information concerning the executive
officers and the directors of the General Partner as of March 5, 2003:

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

Barry S. Blattman 40 Chairman of the Board of Directors,
President and Chief Executive Officer

David B. Iannarone 42 Executive Vice President,
Chief Operating Officer and a Director

Cynthia O. Azzara 43 Senior Vice President, Chief Financial
Officer and Treasurer

Craig M. Lieberman 41 Senior Vice President and
Chief Portfolio Risk Officer

Brian L. Hanson 41 Senior Vice President

John R. Cooper 55 Director

Robert J. Merrick 57 Director

Robert E. Woods 55 Director

15

Barry S. Blattman has been Chairman of the Board of Directors, Chief
Executive Officer and President of the General Partner since January 23, 2003.
Mr. Blattman is the Managing Partner of Brascan Real Estate Financial Partners.
From 1996 until the end of 2001, Mr. Blattman was a Managing Director of Real
Estate Investment Banking at Merrill Lynch.

David B. Iannarone has served as Chief Operating Officer and Director of
the General Partner since January 2003 and Executive Vice President of the
General Partner since December 2000, as Senior Vice President and General
Counsel of the General Partner from March 1998 to December 2000; and as Vice
President and General Counsel of the General Partner from July 1996 to March
1998.

Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994, as Senior Vice President of the General Partner since 1995
and Treasurer of the General Partner since 1997.

Craig M. Lieberman has served as Senior Vice President and Chief Portfolio
Risk Officer of the General Partner since February 2003. From 2001 to January
2003, Mr. Lieberman was a managing partner for Quantico Partners. From 1998 to
2001, Mr. Lieberman served as the Director of Commercial Mortgage-Backed
Securitization for First Union Securities. From 1996 to 1998 Mr. Lieberman
practiced as both a partner and counsel in the law firm of Kilpatrick &
Stockton, LLP.

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

John R. Cooper has served as Director of the General Partner since April
2001. Mr. Cooper was Senior Vice President, Finance, of PG&E National Energy
Group, Inc. until February 2003. He had been with PG&E National Energy Group,
Inc. and its predecessor, U.S. Generating Company, since its inception in 1989.

Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as 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. While at Signet, Mr.
Merrick also served as Chairman of the Credit Policy Committee and member of the
Asset and Liability Committee and the Management Committee.

Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as 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 at Citicorp
from 1991 to 1997.

Section 16(a) Beneficial Ownership Reporting Compliance - Section 16 of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") requires each
director and executive officer of the General Partner and each person who owns
more than 10% of the Partnership's Units to report to the SEC by a specified
date, his, her or its beneficial ownership of, and certain transactions in the
Partnership's Units. 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 5's were required for those persons,
the Partnership believes that all directors, executive officers and beneficial
owners of more than 10% of the Partnership's Units have filed on a timely basis
Forms 3, 4 and 5 as required in the fiscal year ended December 31, 2002.

16

ITEM 11. EXECUTIVE COMPENSATION

The Partnership does not have any directors or executive officers. The
Partnership does not directly employ any persons responsible for managing or
operating the Partnership or for providing services relating to day to day
business affairs. The General Partner provides such services for the
Partnership. None of the directors or executive officers of the General Partner,
however, received compensation from the Partnership, and the General Partner
does not receive reimbursement from the Partnership for any portion of their
salaries or other compensation. The Partnership's portfolio of mortgages is
managed by the Advisor and CMSLP pursuant to the Advisory Agreements and
Sub-Advisory Agreement, respectively, as discussed above. A wholly-owned
subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc. provides personnel and
administrative services to the Partnership on behalf of the General Partner. The
Partnership reimburses CRIIMI MAE Management, Inc. for these services on an
actual cost basis.

The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.75% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP as sub-advisor a fee of 0.28% (the "Sub-Advisory Fee") of
Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 7 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT
AND RELATED UNITHOLDER MATTERS

The Partnership does not provide for equity compensation plans.

(a) The following table sets forth certain information regarding the beneficial
ownership of Units as of March 5, 2003, 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 606,980 6.3%
Group, Inc. * Suite 400
Irvine, CA 92606

Financial and Investment 417 St. Joseph Street
Management Group, Ltd. * P.O. Box 40
Suttins Bay, MI 49682 530,756 5.5%

* An Investment Adviser.

(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of March 5, 2003 by each person
known by the Partnership to be the beneficial owner of more than 5% of its
Units, 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.

17

Amount and Nature
of Units Percentage of Units
Name Beneficially Owned Outstanding
- ---- ------------------ ------------------------

CRIIMI MAE 500 *
* 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 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.

ITEM 14. CONTROLS AND PROCEDURES

Within 90 days prior to the date of filing this Annual Report on Form 10-K,
the General Partner carried out an evaluation, under the supervision and with
the participation of the General Partner's management, including the General
Partner's Chairman of the Board and Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO), of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. 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 its most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

18
PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a)(1) Financial Statements:
Page
Description Number
- ----------- ------

Balance Sheets as of December 31, 2002 and 2001 .............................................. 26

Statements of Income and Comprehensive Income for the years ended December 31, 2002, 2001
and 2000 ..................................................................................... 27

Statements of Changes in Partners' Equity for the years ended December 31, 2002, 2001 and 2000 28

Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 ................ 29

Notes to Financial Statements ................................................................ 30

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate ........................................................... 38

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.

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,
Integrated Funding, Inc. and Integrated Resourced, Inc. 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.

16.0 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 9, 2002, regarding the General Partner's decision
to change its certifying accountant, incorporated by reference to
Exhibit 16 to the Partnership's Form 8-K filed on May 10, 2002.

99.0 Letter to Securities and Exchange Commission from the Partnership
dated March 20, 2002, regarding the representation received from
Arthur Andersen LLP in performing the audit of the December 31, 2001
financial statements, incorporated by reference to Exhibit 99.0 to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 2001.

99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Barry S. Blattman, Chief Executive Officer of the General
Partner (Filed herewith).

99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Cynthia O. Azzara, Chief Financial Officer of the General
Partner (Filed herewith).

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

All other items are not applicable.

20
SIGNATURES

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Barry S. Blattman, 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 19,2003 /s/Barry S. Blattman
- ------------- -------------------------------------
DATE Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)

March 24,2003 /s/Cynthia O. Azzara
- ------------- -------------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Accounting Officer)

March 19,2003 /s/David B. Iannarone
- ------------- -------------------------------------
DATE David B. Iannarone
Executive Vice President,
Chief Operating Officer and a Director

March 19,2003 /s/John R. Cooper
- ------------- -------------------------------------
DATE John R. Cooper
Director

March 19,2003 /s/Robert J. Merrick
- ------------ -------------------------------------
DATE Robert J. Merrick
Director

March 19,2003 /s/Robert E. Woods
- ------------ -------------------------------------
DATE Robert E. Woods
Director

21

CERTIFICATION

I, Barry S. Blattman, Chairman of the Board, Chief Executive Officer and
President, certify that:

1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors L.P. - Series 86;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and

c) Presented in this annual 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 annual report whether 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: March 19, 2003 /s/ Barry S. Blattman
------------------------------------
Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President

22

CERTIFICATION

I, Cynthia O. Azzara, Senior Vice President, Chief Financial Officer and
Treasurer, certify that:

1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors L.P. - Series 86;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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
annual 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 annual report (the "Evaluation Date"); and

c) Presented in this annual 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 annual report whether 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: March 24, 2003 /s/ Cynthia O. Azzara
----------------------------------------------
Cynthia O. Azzara
Senior Vice President, Chief Financial Officer
and Treasurer

23

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

Financial Statements

as of December 31, 2002 and 2001

and for the Years Ended

December 31, 2002, 2001 and 2000

24

REPORT OF INDEPENDENT AUDITORS

Partners
American Insured Mortgage Investors L.P.-Series 86

We have audited the accompanying balance sheet of American Insured Mortgage
Investors L.P.-Series 86 (the Partnership) as of December 31, 2002, and the
related statements of income and comprehensive income, changes in partners'
equity, and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit. The financial statements of the
Partnership as of December 31, 2001, and for the years ended December 31, 2001
and 2000, were audited by other auditors who have ceased operations and whose
report dated March 4, 2002, expressed an unqualified opinion on those
statements.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership at
December 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.

/s/ Ernst & Young LLP
McLean, Virginia
March 14, 2003

25

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

- -------------------------------------------------------------------------------
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Partnership's filing of its Annual Report on Form 10-K for
the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this Annual Report on Form 10-K. See
exhibit 16.0 for further discussion.

26

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

BALANCE SHEETS

December 31, December 31,
2002 2001
------------ ------------

ASSETS

Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 25,038,234 $ 31,209,550
------------ ------------

Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,110,655 4,158,218
Acquired insured mortgages - 948,661
------------ ------------

4,110,655 5,106,879

Cash and cash equivalents 3,409,202 691,264

Investment in FHA debenture - 230,670

Receivables and other assets 214,235 281,468
------------ ------------

Total assets $ 32,772,326 $ 37,519,831
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 1,510,455 $ 654,531

Accounts payable and accrued expenses 72,313 132,157
------------ ------------

Total liabilities 1,582,768 786,688
------------ ------------

Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 38,800,534 45,091,570
General partner's deficit (7,886,129) (7,561,985)
Accumulated other comprehensive income (loss) 275,153 (796,442)
------------ ------------

Total partners' equity 31,189,558 36,733,143
------------ ------------

Total liabilities and partners' equity $ 32,772,326 $ 37,519,831
============ ============

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

27

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

For the years ended December 31,
2002 2001 2000
---------- ---------- ----------

Income:
Mortgage investment income $2,421,986 $2,799,005 $2,820,566
Interest and other income 30,852 234,950 313,713
---------- ---------- ----------

2,452,838 3,033,955 3,134,279
---------- ---------- ----------

Expenses:
Asset management fee to related parties 268,789 300,282 374,943
General and administrative 228,524 258,301 221,394
Interest expense to affiliate - - 45,994
---------- ---------- ----------

497,313 558,583 642,331
---------- ---------- ----------

Earnings before gain (loss) on mortgage
dispositions 1,955,525 2,475,372 2,491,948

Gain on mortgage dispositions 189,939 678,802 4,752,954

Loss on mortgage disposition - (161,132) -
---------- ---------- ----------

Net earnings $2,145,464 $2,993,042 $7,244,902
========== ========== ==========

Other comprehensive income (loss) - adjustment to unrealized
gains and losses on investments in insured mortgages 1,071,595 (266,367) 847,335
---------- ---------- ----------

Comprehensive income $3,217,059 $2,726,675 $8,092,237
========== ========== ==========

Net earnings allocated to:
Limited partners - 95.1% $2,040,336 $2,846,383 $6,889,902
General partner - 4.9% 105,128 146,659 355,000
---------- ---------- ----------

$2,145,464 $2,993,042 $7,244,902
========== ========== ==========

Net earnings per Limited Partnership Unit - Basic $ 0.21 $ 0.30 $ 0.72
========== ========== ==========

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

28

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 2002, 2001, and 2000

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

Balance, January 1, 2000 $ (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 and 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 and 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

Net Earnings 105,128 2,040,336 - 2,145,464

Adjustment to unrealized gains and losses on
investments in insured mortgages - - 1,071,595 1,071,595

Distributions paid or accrued of $0.87 per Unit,
including return of capital of $0.66 per Unit (429,272) (8,331,372) - (8,760,644)
------------- ------------- ------------- -------------

Balance, December 31, 2002 $ (7,886,129) $ 38,800,534 $ 275,153 $ 31,189,558
============= ============= ============= =============

Limited Partnership Units outstanding - Basic, as of
December 31, 2002, 2001 and 2000 9,576,290
=========

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

29

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CASH FLOWS

For the years ended December 31,
2002 2001 2000
---------- ---------- ----------

Cash flows from operating activities:
Net earnings $ 2,145,464 $ 2,993,042 $ 7,244,902
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on mortgage dispositions (189,939) (678,802) (4,752,954)
Loss on mortgage dispositions - 161,132 -
Changes in assets and liabilities:
Decrease in investment in affiliate - - 8,966
(Decrease) increase in accounts payable and accrued
expenses and note payable and due to affiliate (59,844) 3,304 (13,615)
Decrease in receivables and other assets 67,233 237,670 316,271
------------ ------------ ------------

Net cash provided by operating activities 1,962,914 2,716,346 2,803,570
------------ ------------ ------------

Cash flows from investing activities:
Proceeds from disposition of mortgages 7,974,074 1,833,339 14,878,538
Proceeds received from redemption of debentures 230,670 783,981 -
Receipt of mortgage principal from scheduled payments 455,000 480,851 445,663
------------ ------------ ------------

Net cash provided by investing activities 8,659,744 3,098,171 15,324,201
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (7,904,720) (20,995,372) (22,455,443)
------------ ------------ ------------

Net increase (decrease) in cash and cash equivalents 2,717,938 (15,180,855) (4,327,672)

Cash and cash equivalents, beginning of year 691,264 15,872,119 20,199,791
------------ ------------ ------------

Cash and cash equivalents, end of year $ 3,409,202 $ 691,264 $ 15,872,119
============ ============ ============

Non cash investing activity:
9.125% debentures received from HUD $ - $ 230,670 $ 783,981
Receivables resulting from a previously delinquent mortgage - - 640,109

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

30

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 pursuant to a limited partnership agreement ("Partnership Agreement")
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., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 4.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (the "Advisor") to the Partnership. The
general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") 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., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. 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 origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
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 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 (collectively the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore the Advisor has retained its Consent Rights

The General Partner also serves as the General Partner for 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 owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 88 are collectively
referred to as the "AIM Limited Partnerships".

Prior to December 1994, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured 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 of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2020, unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.

31

2. SIGNIFICANT ACCOUNTING POLICIES

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

The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP 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 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
primarily 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, 2002, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 24 years. However, the partnership agreement
states that the Partnership will terminate in approximately 18 years, on
December 31, 2020, unless terminated earlier 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.

In connection with this classification the Partnership's investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates are recorded at
fair value as of December 31, 2002 and 2001, with the unrealized gains and
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, 2002 and 2001, the Partnership's Investment in
FHA-Insured Loans is recorded at amortized cost.

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.

32

Mortgage investment income consists of amortization of the discount or
premiums plus the stated mortgage interest payments received or accrued. The
difference between the cost and the unpaid principal balance at the time of
purchase is carried as a discount or premium and amortized over the remaining
contractual life of the mortgage using the effective interest method. The
effective interest method provides a constant yield of income over the term of
the mortgage.

Gains from dispositions of mortgage investments are recognized upon the
receipt of cash or 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 and time and demand
deposits 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, as a
pass-through entity, all income taxes assessed on the Partnership's income are
the responsibility of its Unitholders.

Recent Accounting Pronouncements
- --------------------------------

In January 2003, the FASB issued FASB Interpretation (or FIN) No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.

33

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of the Partnership's financial
instruments are presented in accordance with GAAP 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, 2002 As of December 31, 2001
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----

Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Acquired Insured Mortgages $24,763,081 $25,038,234 $32,005,992 $31,209,550
=========== =========== =========== ===========

Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 4,110,655 $ 3,973,235 $ 4,158,218 $ 4,031,098
Acquired Insured Mortgage - - 948,661 955,937
----------- ----------- ----------- -----------

$ 4,110,655 $ 3,973,235 $ 5,106,879 $ 4,987,035
=========== =========== =========== ===========

Cash and cash equivalents $ 3,409,202 $ 3,409,202 $ 691,264 $ 691,264

Investment in FHA debenture $ - $ - $ 230,670 $ 230,670

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 values of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans are priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair values; 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 a debenture is based upon the prices of
other comparable securities that trade in the market. The fair value of a
debenture with a short term call from HUD is equal to its face value.

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

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

34

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 details 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 gains or losses related to those
investments that were not disposed of during the period.

2002 2001 2000
---- ---- ----

Reclassification adjustment for losses
included in net income $ 60,879 $ -- $ --
Unrealized holding gains (losses) arising during
the period 1,010,716 (266,367) 847,335
---------- ---------- ----------

Net adjustment to unrealized gains and losses
on mortgages $1,071,595 $ (266,367) $ 847,335
========== ========== ==========

5. INVESTMENT IN INSURED MORTGAGES

Listed below is the Partnership's aggregate investment in Insured Mortgages
as of December 31, 2002 and 2001:

December 31,
2002 2001
---- ----

Originated Mortgage:
Number of Mortgages 1 1
Amortized Cost $ 4,110,655 $ 4,158,218
Face Value 3,970,042 4,012,925
Fair Value 3,973,235 4,031,098

Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (2)(4) 7 9
FHA-Insured Certificates (1) 1 2
FHA-Insured Loan (3) - 1
Amortized Cost $ 24,763,081 $ 32,954,653
Face Value 24,642,829 32,891,701
Fair Value 25,038,234 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 year ended December 31,
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 year ended December 31,
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.
(3) In November 2002, the Winburn Square mortgage was prepaid. The Partnership
received net proceeds of approximately $945,000 and recognized a gain of
approximately $4,000 for the year ended December 31, 2002. A distribution
of approximately $0.09 per Unit related to the prepayment of this mortgage
was declared in December 2002 and paid in February 2003.
(4) In December 2002, the Sunflower Apartments mortgage was prepaid. The
Partnership received net proceeds of approximately $1.7 million and
recognized a gain of approximately $44,000 for the year ended December 31,
2002. A distribution of approximately $0.17 per Unit related to the
prepayment of this mortgage was declared in January 2003 and is expected to
be paid in May 2003.

35

As of March 1, 2003, all of the Partnership's Insured Mortgages are current
with respect to the payment of principal and interest.

In addition to base interest payments from 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, 2002, 2001 and
2000, the Partnership received additional interest of $8,718, $29,162, and
$16,844, respectively, from the Participations. These amounts are included in
mortgage investment income on the accompanying statements of income and
comprehensive income.

6. INVESTMENT IN FHA DEBENTURE

The Partnership held a 9.125% debenture, with a face value of approximately
$231,000 as of December 31, 2001. In January 2002, the debenture was liquidated
at par value by HUD. The debenture was issued by HUD to the Partnership in
January 2001 with interest payable semi-annually on January 1 and July 1. A
distribution of approximately $0.02 per Unit related to the redemption of this
debenture was declared in January 2002 and paid to Unitholders in May 2002.

7. TRANSACTIONS WITH RELATED PARTIES

The principal officers of the General Partner for the years ended December
31, 2002, 2001 and 2000 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, 2002, 2001 and 2000, 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 2002 2001 2000
- ----------------- ----------- ---- ---- ----

CRIIMI, Inc. (1) General Partner/Distribution $429,272 $515,619 $663,644

AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 268,789 300,282 374,943

CRIIMI MAE Affiliate of General Partner/
Management, Inc. (3) Expense Reimbursement 46,304 42,584 41,959

(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
$100,340, $112,092 and $140,800 for the years ended December 31, 2002, 2001
and 2000, respectively. The limited partner and general partner of CMSLP
are wholly-owned subsidiaries of CRIIMI MAE.

(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.

36

8. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 2002, 2001 and 2000 are as follows:

2002 2001 2000
---- ---- ----

Quarter ended March 31 $ 0.270(1) $ 0.800(4) $ 0.070
Quarter ended June 30 0.390(2) 0.105(5) 0.095 (6)
Quarter ended September 30 0.060 0.075 0.075
Quarter ended December 31 0.150 (3) 0.065 1.105 (7)
--------- --------- ---------
$ 0.870 $ 1.045 $ 1.345
========= ========= =========

(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 $0.09 per Unit representing net proceeds
from the prepayment of the mortgage on Winburn Square.
(4) 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.
(5) This amount includes approximately $0.03 per Unit related to the receipt of
an escrow balance from the servicer of Spring Lake Village.
(6) 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.
(7) 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.

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 the
Partnership's 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,
the timing of receipt of debentures, the interest rate on debentures and
debenture redemptions, and (4) changes 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.

9. 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 prior to July 1987 for an aggregate capital contribution of
$191,523.300. In addition, the initial limited partner contributed $2,500 to the
capital of the Partnership in exchange for 125 Units.
37

10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 2002, 2001 and 2000:

(In Thousands, Except Per Unit Data)
2002
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Income $ 655 $ 629 $ 597 $ 572
Net gain on mortgage dispositions 56 86 -- 48
Net earnings 570 584 480 511
Net earnings per Limited Partnership Unit - Basic $ 0.06 $ 0.06 $ 0.05 $ 0.05

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

38

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 2002

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

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

Pleasantview Nursing Home, Union, NJ 6/29 7.75% $ 3,261,698 $ 3,264,432 $ 290,532
----------- -----------

Total investment in FHA-Insured Certificates -
Acquired Insured Mortgages 3,261,698 3,264,432
----------- -----------

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

Brighton Manor, Petersburg, VA 3/29 7.50% 964,446 981,690 80,561
Cyress Cove, Jacksonville, FL 2/28 7.30% 6,487,812 6,604,730 548,032
Main Street Square, Roundrock, TX 9/29 8.75% 1,300,881 1,327,327 122,869
Maple Manor, Syracuse, NY 4/29 7.375% 1,166,062 1,186,928 97,631
Mountain Village Apts., Tucson, AZ 5/29 7.50% 1,266,954 1,289,588 105,606
Oakwood Garden Apts., San Jose, CA 10/23 7.75% 8,872,400 9,036,402 815,299
Regency Park Apts., North St. Paul, MN 4/24 7.00% 1,322,576 1,347,137 116,349
----------- -----------

Total investment in GNMA Mortgage-Backed
Securities-Acquired Insured Mortgages 21,381,131 21,773,802
----------- -----------

Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 24,642,829 25,038,234
----------- -----------

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

Colony Square Apts, Rocky Mount, NC (1)(4) 10/28 8.25% 3,970,042 4,110,655 372,352
----------- ----------- -----------

Total investment in FHA-Insured Loans 3,970,042 4,110,655
----------- -----------

TOTAL INVESTMENT IN INSURED MORTGAGES $28,612,871 $29,148,889
=========== ===========

TOTAL ANNUAL PRINCIPAL AND INTEREST $ 2,549,231
===========

39

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 2002

(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, 2002, 2001 and 2000, the
Partnership received additional interest of $8,718, $29,162, and $16,844,
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, 2002 and 2001, is as follows:

2002 2001
---- ----

Beginning balance $ 36,316,429 $ 37,063,647
Principal receipts on Insured Mortgages (455,000) (480,851)
Gain on mortgage dispositions 189,939 --
Disposition of mortgages (7,974,074) --
Adjustment to unrealized gains (losses) on
investments in Insured Mortgages 1,071,595 (266,367)
------------ ------------
Ending balance $ 29,148,889 $ 36,316,429
============ ============

(7) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
primarily 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, 2002 and 2001, the tax basis of the Insured Mortgages,
was approximately $28.7 million and $36.8 million, respectively.