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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2003
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Commission file number 1-12704
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
----------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of June 30, 2003, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2003
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 2003 (unaudited) and December 31, 2002 3
Statements of Income and Comprehensive Income - for the three and
six months ended June 30, 2003 and 2002 (unaudited) 4
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2003 (unaudited) 5
Statements of Cash Flows - for the six months ended June 30, 2003 and
2002 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 12
Item 4. Controls and Procedures 13
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 19,658,627 $ 25,038,234
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,085,440 4,110,655
Cash and cash equivalents 5,706,393 3,409,202
Receivables and other assets 177,115 214,235
------------ ------------
Total assets $ 29,627,575 $ 32,772,326
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 2,970,563 $ 1,510,455
Accounts payable and accrued expenses 84,112 72,313
------------ ------------
Total liabilities 3,054,675 1,582,768
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 34,592,271 38,800,534
General partner's deficit (8,102,958) (7,886,129)
Accumulated other comprehensive income 83,587 275,153
------------ ------------
Total partners' equity 26,572,900 31,189,558
------------ ------------
Total liabilities and partners' equity $ 29,627,575 $ 32,772,326
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 496,946 $ 622,962 $ 1,024,335 $ 1,270,263
Interest and other income 7,823 6,449 15,178 13,880
------------ ------------ ------------ ------------
504,769 629,411 1,039,513 1,284,143
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 56,476 68,690 115,432 140,842
General and administrative 64,618 62,760 127,934 131,150
------------ ------------ ------------ ------------
121,094 131,450 243,366 271,992
------------ ------------ ------------ ------------
Net earnings before gain on
mortgage dispositions 383,675 497,961 796,147 1,012,151
Gain on mortgage dispositions 65,356 86,174 65,356 142,117
------------ ------------ ------------ ------------
Net earnings $ 449,031 $ 584,135 $ 861,503 $ 1,154,268
============ ============ ============ ============
Other comprehensive income (loss) - adjustment to unrealized
gains and losses on investments in insured mortgages 10,974 1,059,999 (191,566) 948,780
------------ ------------ ------------ ------------
Comprehensive income $ 460,005 $ 1,644,134 $ 669,937 $ 2,103,048
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 427,028 $ 555,512 $ 819,289 $ 1,097,709
General Partner - 4.9% 22,003 28,623 42,214 56,559
------------ ------------ ------------ ------------
$ 449,031 $ 584,135 $ 861,503 $ 1,154,268
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.04 $ 0.06 $ 0.09 $ 0.11
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2003
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------- ------------- ------------- -------------
Balance, December 31, 2002 $ (7,886,129) $ 38,800,534 $ 275,153 $ 31,189,558
Net earnings 42,214 819,289 - 861,503
Adjustment to unrealized gains on
investments in insured mortgages - - (191,566) (191,566)
Distributions paid or accrued of $0.525 per Unit,
including return of capital of $0.435 per Unit (259,043) (5,027,552) - (5,286,595)
------------- ------------- ------------- -------------
Balance, June 30, 2003 $ (8,102,958) $ 34,592,271 $ 83,587 $ 26,572,900
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of June 30, 2003 9,576,290
=========
The accompanying notes are an integral part
of these financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2003 2002
------------ ------------
Cash flows from operating activities:
Net earnings $ 861,503 $ 1,154,268
Adjustments to reconcile net earnings to net cash provided by operating activities:
Gain on mortgage dispositions (65,356) (142,117)
Changes in assets and liabilities:
Increase (decrease) in accounts payable and accrued expenses 11,799 (48,048)
Decrease in receivables and other assets 37,120 47,369
------------ ------------
Net cash provided by operating activities 845,066 1,011,472
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 207,490 231,024
Proceeds received from redemption of debenture - 230,670
Proceeds received from mortgage dispositions 5,071,122 5,279,845
------------ ------------
Net cash provided by investing activities 5,278,612 5,741,539
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (3,826,487) (3,373,354)
------------ ------------
Net increase in cash and cash equivalents 2,297,191 3,379,657
Cash and cash equivalents, beginning of period 3,409,202 691,264
------------ ------------
Cash and cash equivalents, end of period $ 5,706,393 $ 4,070,921
============ ============
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed pursuant to a limited partnership agreement, as amended,
("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. Early prepayment of the Partnership's Insured Mortgages or other
8
disposition by the General Partner in accordance with the terms of the
Partnership Agreement may effect an early termination and dissolution of the
Partnership before the stated termination date.
2. BASIS OF PRESENTATION
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.
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2003,
the results of its operations for the three and six months ended June 30, 2003
and 2002, and its cash flows for the six months ended June 30, 2003 and 2002.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with GAAP have been condensed or omitted.
While the General Partner believes that the disclosures presented are adequate
to make the information not misleading, these financial statements should be
read in conjunction with the financial statements and the notes to the financial
statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2002.
3. INVESTMENT IN INSURED MORTGAGES
Listed below is the Partnership's aggregate investment in Insured Mortgages
as of June 30, 2003 and December 31, 2002:
June 30, 2003 December 31, 2002
------------- -----------------
Originated Mortgages:
Number of Mortgages 1 1
Amortized Cost $ 4,085,440 $ 4,110,655
Face Value 3,947,241 3,970,042
Fair Value 3,964,529 3,973,235
Acquired Mortgages:
Number of:
GNMA Mortgage-Backed Securities (1) Through (4) 3 7
FHA-Insured Certificates 1 1
Amortized Cost $ 19,575,040 $ 24,763,081
Face Value 19,426,880 24,642,829
Fair Value 19,658,627 25,038,234
(1) In April 2003, the mortgage on Mountain Village Apartments was
prepaid. The Partnership received net proceeds of approximately $1.3
million and recognized a gain of approximately $7,000 in the second
quarter of 2003. A distribution of approximately $0.125 per Unit
related to the prepayment of this mortgage was declared in April 2003
and paid to Unitholders in August 2003.
(2) In May 2003, the mortgage on Maple Manor Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $5,000 in the second quarter of
2003. A distribution of approximately $0.115 per Unit related to the
prepayment of this mortgage was declared in June 2003 and paid to
Unitholders in August 2003.
9
(3) In June 2003, the mortgage on Regency Park Apartments was prepaid. The
Partnership received net proceeds of approximately $1.3 million and
recognized a gain of approximately $30,000 in the second quarter of
2003. A distribution of approximately $0.13 per Unit related to the
prepayment of this mortgage was declared in July 2003 and is expected
to be paid to Unitholders in November 2003.
(4) In June 2003, the mortgage on Main Street Square was prepaid. The
Partnership received net proceeds of approximately $1.3 million and
recognized a gain of approximately $24,000 in the second quarter of
2003. A distribution of approximately $0.13 per Unit related to the
prepayment of this mortgage was declared in July 2003 and is expected
to be paid to Unitholders in November 2003.
As of August 1, 2003 all of the Partnership's Insured Mortgage investments
are current with respect to the payment of principal and interest.
4. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2003 and 2002 are as follows:
2003 2002
------ -----
Quarter ended March 31 $0.230(1) $0.27(3)
Quarter ended June 30 0.295(2) 0.39(4)
------ -----
$0.525 $0.66
====== =====
(1) This amount includes approximately $0.17 per Unit representing net proceeds
from the prepayment of the mortgage on Sunflower Apartments.
(2) This amount includes approximately $0.24 per Unit representing net proceeds
from the following: (a) approximately $0.125 per Unit related to the
prepayment of Mountain Village Apartments and (b) approximately $0.115 per
Unit related to the prepayment of the mortgage on Maple Manor Apartments.
(3) 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 debenture issued by HUD in
exchange for the Spring Lake Village claim.
(4) This amount includes approximately $0.33 per Unit representing net proceeds
from the prepayment of the mortgage on Hickory Tree Apartments.
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
and professional fees incurred in connection with those Insured Mortgages 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.
Early prepayment of the Partnership's Insured Mortgages or other disposition by
the General Partner in accordance with the terms of the Partnership Agreement
may effect an early termination and dissolution of the Partnership before the
stated termination date of December 31, 2020. Accordingly, Unitholders' yield to
maturity on their respective investments in the Partnership may be adversely
affected by such early termination of the Partnership. Upon the termination and
liquidation of the Partnership, distributions to Unitholders will be made in
accordance with the terms of the Partnership Agreement, as amended, which is not
based on GAAP. As a result, it is likely that the amounts that Unitholders
receive upon termination and liquidation of the Partnership will be
substantially lower than the amounts reflected in the Partnership's financial
statements.
10
5. TRANSACTIONS WITH RELATED PARTIES
The General Partner, CMSLP and certain affiliated entities earned or
received compensation or payments for services from the Partnership during the
three and six months ended June 30, 2003 and 2002, as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the For the
three months ended six months ended
June 30, June 30,
Name of Recipient Capacity in Which Served/item 2003 2002 2003 2002
----------------- ----------------------------- -------- -------- -------- --------
CRIIMI, Inc.(1) General Partner/Distribution $145,557 $192,432 $259,043 $325,654
AIM Acquisition Partners,L.P.(2) Advisor/Asset Management Fee 56,476 68,690 115,432 140,842
CRIIMI MAE Management, Inc.(3) Affiliate of General Partner/Expense
Reimbursement 10,966 13,709 25,592 25,538
(1) The General Partner, pursuant to amendments to the Partnership Agreement,
is entitled to receive 4.9% of the Partnership's income, loss, capital and
distributions, including, without limitation, the Partnership's adjusted
cash from operations and proceeds of mortgage prepayments, sales or
insurance (as defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
Management Fee equal to 0.75% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP, pursuant to the Sub-Advisory Agreement, 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 $21,086 and $43,097 for the three and six months ended June
30, 2003, respectively, and $25,642 and $52,576 for the three and six
months ended June 30, 2002, respectively. The general partner and limited
partner of CMSLP are wholly owned subsidiaries of CRIIMI MAE Inc.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "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 Quarterly Report on Form
10-Q pursuant to the "safe harbor" provision of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
prior and future filings by the Partnership with the Securities and Exchange
Commission ("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.
Mortgage Investments
- --------------------
As of June 30, 2003, the Partnership had invested in 5 insured mortgages,
with an aggregate amortized cost of approximately $23.7 million, an aggregate
face value of approximately $23.4 million and an aggregate fair value of
approximately $23.6 million, as discussed below.
As of August 1, 2003, all of the Partnership's Insured Mortgage investments
are current with respect to the payment of principal and interest.
Results of Operations
- ---------------------
Net earnings decreased by approximately $135,000 and $293,000 for the three
and six months ended June 30, 2003, respectively, as compared to the
corresponding periods in 2002, primarily due to decreases in mortgage investment
income and gain on mortgage dispositions, as discussed below.
Mortgage investment income decreased by approximately $126,000 and $246,000
for the three and six months ended June 30, 2003, respectively, as compared to
the corresponding periods in 2002, primarily due to a reduction in the mortgage
base. The mortgage base decreased due to six mortgage dispositions with an
aggregate principal balance of approximately $7.8 million, representing an
approximate 25% decrease in the aggregate principal balance of the total
mortgage portfolio since July 2002.
Interest and other income increased by approximately $1,400 and $1,300 for
the three and six months ended June 30, 2003, respectively, as compared to the
corresponding periods in 2002, primarily due to the timing of temporary
investment of mortgage disposition proceeds prior to distribution to
Unitholders.
Asset management fee to related parties decreased by approximately $12,000
and $25,000 for the three and six months ended June 30, 2003, respectively, as
compared to the corresponding periods in 2002, primarily due to a reduction in
the mortgage base, as previously discussed.
12
Gain on mortgage dispositions decreased by approximately $21,000 and
$77,000 for the three and six months ended June 30, 2003, respectively, as
compared to the corresponding periods in 2002. During the three and six months
ended June 30, 2003, the Partnership recognized gains of approximately $65,000
from the prepayment of the mortgages on Mountain Village Apartments, Maple Manor
Apartments, Regency Park Apartments and Main Street Square. During the three
months ended June 30, 2002, the Partnership recognized a gain of approximately
$86,000 from the prepayment of the mortgage on Hickory Tree Apartments. In
addition to this gain, during the six months ended June 30, 2002, the
Partnership recognized a gain of approximately $30,000 from the prepayment of
the mortgage on Southampton Apartments and an additional gain of approximately
$26,000 from the disposition of The Villas, a delinquent mortgage coinsured by a
third party.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first six months of 2003 to
meet operating requirements. The basis for paying distributions to Unitholders
is net proceeds from mortgage dispositions, if any, and cash flow from
operations, which includes regular interest income and principal from Insured
Mortgages. Although 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 and professional fees incurred in connection with those
Insured Mortgages 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. Early prepayment of the Partnership's Insured Mortgages or other
disposition by the General Partner in accordance with the terms of the
Partnership Agreement may effect an early termination and dissolution of the
Partnership before the stated termination date of December 31, 2020.
Accordingly, Unitholders' yield to maturity on their respective investments in
the Partnership may be adversely affected by such early termination of the
Partnership. Upon the termination and liquidation of the Partnership,
distributions to Unitholders will be made in accordance with the terms of the
Partnership Agreement, as amended, which is not based on GAAP. As a result, it
is likely that the amounts that Unitholders receive upon termination and
liquidation of the Partnership will be substantially lower than the amounts
reflected in the Partnership's financial statements.
Net cash provided by operating activities decreased by approximately
$166,000 for the six months ended June 30, 2003, as compared to the
corresponding period in 2002, primarily resulting from a decrease in mortgage
investment income, as previously discussed, partially offset by a decrease in
accounts payable and accrued expenses. Accounts payable and accrued expenses
decreased in 2002 due to the timing of the payment of legal fees related to the
mortgage on Argyle Place Apartments.
Net cash provided by investing activities decreased by approximately
$463,000 for the six months ended June 30, 2003, as compared to the
corresponding period in 2002, primarily due to decreases in proceeds received
from redemption of debenture and mortgage dispositions.
Net cash used in financing activities increased by approximately $453,000
for the six months ended June 30, 2003, as compared to the corresponding period
in 2002, due to an increase in the amount of distributions paid to partners in
the first six months of 2003 compared to the same period in 2002.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The General Partner has determined that there has not been a material
change as of June 30, 2003, in market risk from December 31, 2002 as reported in
the Partnership's Annual Report on Form 10-K as of December 31, 2002.
13
PART I. FINANCIAL INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this quarterly report on Form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
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.
14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
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31.1 Certification pursuant to the Exchange Act Rule
13a-14(a) from Barry S. Blattman, Chairman of the
Board, Chief Executive Officer and President of the
General Partner (Filed herewith).
31.2 Certification pursuant to the Exchange Act Rule
13a-14(a) from Cynthia O. Azzara, Senior Vice
President, Chief Financial Officer and Treasurer of the
General Partner (Filed herewith).
99.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Barry S. Blattman,
Chairman of the Board, Chief Executive Officer and
President of the General Partner (Filed herewith).
99.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 from Cynthia O. Azzara,
Senior Vice President, Chief Financial Officer and
Treasurer of the General Partner (Filed herewith).
(b) Reports on Form 8-K
Date
----
April 23, 2003 To report a press release issued on April 21, 2003
announcing the April 2003 distribution to the
Partnership's Unitholders.
May 8, 2003 To report a press release issued on May 6, 2003
announcing the Partnership's first quarter financial
results.
May 21, 2003 To report a press release issued on May 20, 2003
announcing the May 2003 distribution to the
Partnership's Unitholders.
June 20, 2003 To report a press release issued on June 20, 2003
announcing the June 2003 distribution to the
Partnership's Unitholders.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
August 13, 2003 /s/ Cynthia O. Azzara
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DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer (Principal Accounting Officer)