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

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1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

For the fiscal year ended December 31, 1996
------------------

Commission file number 1-12704
-----------------

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

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

11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)

(301) 816-2300
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)

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
- -----------------------------------------------------------------
(Title of class)

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
---- ----

2

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

As of February 27, 1997, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $110,121,585.
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

1996 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . 4
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 . . . . . . 5
Item 6. Selected Financial Data . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 8
Item 8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . . . 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 16

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

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

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

4

PART I

ITEM 1. BUSINESS

Development and Description of Business
- ---------------------------------------
Information concerning the business of American Insured Mortgage Investors
L.P.-Series 86 (the Partnership) is contained in Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Notes 1 and 4 of the notes to the financial statements of the Partnership (filed
in response to Item 8 hereof), which is incorporated herein by reference. Also
see Schedule IV-Mortgage Loans on Real Estate, for the table of the Insured
Mortgages (as defined below), invested in by the Partnership as of December 31,
1996.

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

The general partner of the Advisor is AIM Acquisition Corporation (AIM
Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement
(the Sub-Advisory Agreement) existed whereby CRI/AIM Management, Inc., an
affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered real estate
investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory
Agreement. As a consequence to this transaction, effective June 30, 1995,
CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the
Partnership's portfolio. These transactions had no effect on the Partnership's
financial statements.

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

CRIIMI MAE and its affiliates also may serve as general partners, sponsors
or managers of real estate limited partnerships, REITs or other entities in the
future. The Partnership may attempt to dispose of mortgages at or about the
same time that CRIIMI MAE, one or more of the other AIM Partnerships and/or
other entities sponsored or managed by CRIIMI MAE are attempting to dispose of
mortgages. As a result of market conditions that could limit dispositions,
CRIIMI MAE Services Limited Partnership and its affiliates could be faced with
conflicts of interest in determining which mortgages would be disposed of. Both
CRIIMI MAE Services Limited Partnership and CRIIMI, Inc., however, are subject
to their fiduciary duties in evaluating the appropriate action to be taken when
faced with such conflicts.

ITEM 2. PROPERTIES

Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are non-recourse

5

PART I

first liens on the respective multifamily residential developments or retirement
homes.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to Note 4 of the notes to the financial statements on
pages 37 through 41.

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

No matters were submitted to the security holders to be voted on during the
fourth quarter of 1996.

PART II

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

Principal Market and Market Price for Units
- -------------------------------------------
The General Partner listed the Partnership's Units for trading on the
American Stock Exchange (AMEX) on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ." Prior to listing the Partnership's
Units for trading on AMEX, the Units were only tradable through an informal
market called the "secondary market".

The high and low bid prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1996 and 1995 were as
follows:

6

PART II

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

Amount of
1996 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- ------------
March 31, $14 $12 7/8 $ 0.91(1)(2)
June 30, 13 1/4 12 1/2 0.30(2)
September 30, 13 3/8 12 3/4 0.29(3)
December 31, 14 11 3/4 3.33(4)

Amount of
1995 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- ------------
March 31, $12 1/4 $11 3/8 $ 0.26(2)
June 30, 12 7/8 11 3/4 0.34(2)(5)
September 30, 13 1/4 12 5/8 0.31(2)
December 31, 13 3/8 12 3/4 0.33(2)

(1) This amount includes approximately $0.61 per Unit return of capital from
the prepayment of the mortgage on Lakewood Villas.

(2) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(3) This amount includes approximately $0.02 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(4) This amount includes approximately $3.07 per Unit return of capital and
gain from the prepayment of the following mortgages; Woodbine at Lakewood
Apartments $0.55, Pembrook Apartments $1.60, and Skyridge Club $0.92.
Also, this amount includes approximately $0.01 per Unit representing
previously undistributed accrued interest from St. Charles Place - Phase II
and The Villas.

(5) This amount includes approximately $0.08 per Unit representing previously
undistributed accrued interest receivable from Carmen Drive Estates (The
Forest), Woodland Hills Apartments, and Woodbine at Lakewood Apartments.

Approximate Number of Unitholders
Title of Class as of December 31, 1996
- --------------------------- -------------------------------
Depositary Units of Limited
Partnership Interest 11,100

7

PART II

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

For the Years Ended December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------

Income $ 13,473 $ 13,927 $ 13,644 $ 14,430 $ 12,096

Gain on mortgage dispositions 1,616 5 1,130 -- --

Loan losses -- -- (115) (63) (107)

Net earnings 13,069 11,640 12,450 12,170 9,536

Net earnings per Limited
Partnership Unit (1) 1.30 1.16 1.24 1.21 0.95

Distributions per Limited
Partnership Unit(1)(2) 4.83 1.24 1.34 1.01 1.14

As of December 31,

1996 1995 1994 1993 1992
-------- -------- -------- -------- --------

Total assets $169,283 $174,538 $165,694 $180,776 $179,146

Partners' equity 135,137 170,582 161,591 176,007 174,007

(1) Calculated based upon the weighted average number of Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal quarters ended December 31, 1996, 1995, 1994, 1993 and
1992, which were paid subsequent to year end. See Notes 5 and 7 of the notes to the financial statements of the Partnership.

The selected statements of operations data presented above for the years
ended December 31, 1996, 1995 and 1994, and the balance sheet data as of
December 31, 1996 and 1995, are derived from and are qualified by reference to
the Partnership's financial statements which have been included elsewhere in
this Form 10-K. The statements of operations data for the years ended December
31, 1993 and 1992 and the balance sheet data as of December 31, 1994, 1993 and
1992 are derived from audited financial statements not included in this 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
- -------
American Insured Mortgage Investors L.P. - Series 86 (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. During the period from May 2, 1986 (the initial closing date
of the Partnership's public offering) through June 6, 1987 (the termination date
of the offering), the Partnership, pursuant to its public offerings of 9,576,290
Depository Units of limited partnership interest (Units), raised a total of
$191,523,300 in gross proceeds. In addition, the initial limited partner
contributed $2,500 to the capital of the Partnership and received 125 units of
limited partnership interest in exchange therefor.

CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general
partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became
a self-administered real estate investment trust (REIT) and, as a result, the
advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P., (the Advisor) serves as 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, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement the
General Partner is required to receive the consent of the Advisor prior to
taking certain significant actions which affect the management and policies of
the Partnership.

Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-Advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.
These transactions had no effect on the Partnership's financial statements.

Prior to the expiration of the Partnership's reinvestment period on
December 31, 1994, the Partnership was engaged in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages and, together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). After the expiration of the
reinvestment period, the Partnership is required (subject to the conditions set
forth in the Partnership Agreement) to distribute such proceeds to its
Unitholders. The Partnership Agreement states that the Partnership will
terminate on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement.

As of December 31, 1996, the Partnership had invested in 23 Insured
Mortgages, with an aggregate amortized cost of approximately $131 million, a
face value of approximately $128 million and a fair value of approximately $126
million, as discussed below.

9

PART II

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

Results of Operations
- ---------------------
1996 versus 1995
- ----------------
Net earnings increased for 1996 as compared to 1995 primarily as a result
of the gains recognized on the prepayment of the mortgages on Woodbine at
Lakewood Apartments, Pembrook Apartments, Skyridge Club and Carmen Drive Estates
in late 1996.

Mortgage investment income decreased for 1996 as compared to 1995 primarily
as a result of the reduction in the mortgage base due to the prepayment of
mortgages, as discussed below.

Interest and other income increased for 1996 as compared to 1995 primarily
due to the temporary investment of proceeds from the Lakewood Villas mortgage
prepayment received in December 1995 and distributed in May 1996, and the
temporary investment of proceeds from Woodbine at Lakewood Apartments, Pembrook
Apartments and Skyridge Club received in late 1996.

Asset management fees decreased in 1996 as compared to 1995 as a result of
the reduction in the mortgage base.

General and administrative expenses decreased in 1996 as compared to 1995
primarily due to a reduction in legal fees as a result of the resolution of
disputed mortgage servicing rights for three co-insured mortgages during 1995, a
reduction in investor relations expenses as a result of a decrease in the number
of registered Unitholders and a decrease in payroll and payroll-related expenses
as a result of the stabilization of the mortgage portfolio.

1995 versus 1994
- ----------------
Net earnings decreased for 1995 as compared to 1994 primarily as a result
of the gain recognized on the disposition of the Insured Mortgage on One East
Delaware in January 1994. Also contributing to the decrease in net earnings was
a decrease in interest and other income, as discussed below. Partially
offsetting these decreases was an increase in mortgage investment income, as
discussed below.

Mortgage investment income increased for 1995 as compared to 1994 due to
increases in total invested assets throughout 1994, the full benefit of which
was realized in 1995. The increase in total invested assets is attributable to
the reinvestment of net proceeds from the disposition of the Insured Mortgages
on One East Delaware and Victoria Pointe Apartments-Phase II, which were
received in December 1993 and January 1994 and reinvested during the first three
quarters of 1994.

Interest and other income decreased for 1995 as compared to 1994 primarily
due to the short-term investment of net disposition proceeds in early 1994 prior
to reinvestment in Acquired Insured Mortgages, as previously discussed.

Asset management fees increased for 1995 as compared to 1994 as a result of
the increase in the mortgage base.

General and administrative expenses increased for 1995 as compared to 1994
primarily due to an increase in legal and professional fees related to
litigation involving the transfer of mortgage servicing rights, as discussed in
Note 4 to the financial statements. Partially offsetting this increase was a
decrease in payroll and payroll-related expenses, as a result of the

10

PART II

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

stabilization of the mortgage portfolio during 1994. Also offsetting this
increase was a decrease in fees related to the initial listing of the
Partnership's units on the American Stock Exchange.

Interest expense to affiliate decreased for 1995 as compared to 1994 as a
result of the paydown of the note payable to the Partnership's affiliate,
American Insured Mortgage Investors-L.P. Series 85 (AIM 85) during 1994,
partially offset by the execution of a note payable to AIM 88. The note payable
to AIM 88 is approximately $479,000, at an annual interest rate of 7.25%, as
compared to the note payable to AIM 85 of approximately $1.7 million at an
annual interest rate of 8%.

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

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

A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in Fully
Insured Mortgages as of December 31, 1996 and 1995:

December 31,
1996 1995
------------ ------------

Fully Insured Originated Insured:
Number of Mortgages 6 7
Amortized Cost $ 53,047,822 $ 62,595,492
Face Value 51,162,234 60,306,932
Fair Value 52,063,040 62,183,025

Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed
Securities 10 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 41,743,903 $ 42,122,606
Face Value 41,689,508 42,066,176
Fair Value 41,024,194 42,479,072

As of March 1, 1997, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and

11

PART II

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

interest, except for the mortgage on Pleasant View Nursing Home, which is
delinquent with respect to the January 1997 payment of principal and
interest.

In December 1996, the Partnership received net proceeds of
approximately $9.3 million from the prepayment of the mortgage on Skyridge
Club, a Fully Insured Originated Insured mortgage, and recognized a gain of
$106,042 for the year ended December 31, 1996. The net proceeds of $0.92
per Unit were distributed to Unitholders in February 1997.

In December 1995, the Partnership received net proceeds of
approximately $6.2 million from the prepayment of the mortgage on Lakewood
Villas, a Fully Insured Originated Insured mortgage, and recognized a gain
of $5,208. Additionally, in January 1996, the Partnership received
additional proceeds of $37,325 in connection with the final settlement of
this prepayment, which was recognized as additional gain during 1996. The
aggregate net disposition proceeds of $0.61 per unit were distributed to
Unitholders in May 1996.

In addition to base interest payments from Fully Insured Originated
Insured Mortgages, the Partnership is entitled to additional interest based
on a percentage of the net cash flow from the underlying development and of
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as Participations). During the years
ended December 31, 1996, 1995 and 1994, the Partnership received additional
interest of $171,848, $73,357 and $33,431, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.

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

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

12

PART II

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

pursuing regulatory violations of the borrower or the failure to comply
with other terms of the mortgage. However, the General Partner is not aware
of any conditions or actions that would result in HUD diminishing its
insurance coverage.

As of December 31, 1996 and 1995, the Partnership, had invested in
four and seven, respectively, FHA-Insured Certificates secured by coinsured
mortgages. As of December 31, 1996, two of the four FHA-Insured
Certificates secured by coinsured mortgages are coinsured by an
unaffiliated third party coinsurance lender, The Patrician Mortgage Company
(Patrician), under the HUD coinsurance program. The two coinsured
mortgages which are coinsured by Patrician were delinquent with respect to
the payment of principal and interest. The following is a discussion of
actual and potential performance problems with respect to the Partnership's
coinsured mortgage investments.

1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured by
Patrician:

13

PART II

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

December 31, 1996 December 31, 1995
--------------------------------------------- ------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------ ------------ ------------ ------------ ------------ ------------

The Villas $ 15,528,982 $ 15,762,692 $ 14,859,882 $ 15,635,379 $ 15,869,089 $ 15,173,465
St. Charles Place -
Phase II 3,052,629 3,052,629 2,877,102 3,068,173 3,068,173 2,933,205

As of March 1, 1997, the mortgagor has made payments of principal
and interest due on the original mortgage on The Villas through
November 1995, and has made payments of principal and interest
due under a modification agreement with The Villas through August
1993. Patrician is litigating the case in bankruptcy court while
negotiating a modification agreement with the borrower.

The amount of the Partnership's investment in the mortgage on St.
Charles Place - Phase II represents the Partnership's approximate
45% ownership interest in the mortgage. The remaining 55%
ownership interest is held by American Insured Mortgage Investors
L.P. - Series 88 (AIM 88), an affiliate of the Partnership. As
of March 1, 1997, the mortgagor has made payments of principal
and interest due on the mortgage through October 1995 to the
Partnership. Patrician is litigating the case in bankruptcy
court while negotiating a modification agreement with the
borrower.

The General Partner intends to continue to oversee the
Partnership's interest in these mortgages to ensure that
Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of The Villas and St.
Charles Place-Phase II mortgages is based on the most recent
information available, and to the extent these conditions change
or additional information becomes available, then the General
Partners' assessment may change. However, the General Partner
does not believe that there would be a material adverse impact on
the Partnership's financial condition or its results of
operations should Patrician be unable to comply with its full
coinsurance obligation.

2. Coinsured by affiliate
----------------------
As of December 31, 1996 and 1995, the Partnership held
investments in two and five FHA-Insured Certificates secured by
coinsured mortgages, respectively, where the coinsurance lender
is Integrated Funding, Inc. (IFI), an affiliate of the
Partnership. The Partnership bears the risk of loss upon default
for IFI's portion of the coinsurance loss.

The Originated Insured Mortgages on Carmen Drive Estates (The
Forest), Woodbine at Lakewood Apartments and Woodland Hills
Apartments were previously coinsured by M-West Mortgage
Corporation (M-West), a third party coinsurance lender. During

14

PART II

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

the fourth quarter of 1994, the Partnership was informed that M-
West was liquidating its assets and intended to assign the
mortgage servicing rights related to these mortgages to another
coinsurance lender, Whitehall Funding, Inc. (Whitehall). The
Partnership successfully contested this transfer and obtained a
court order mandating the transfer of the mortgage servicing
rights related to these three coinsured loans to IFI. This
transfer was completed during the second quarter of 1995. This
case is deemed settled and there will be no further litigation.

In November 1996, the Partnership received net proceeds of
approximately $5.6 million from the prepayment of the mortgage on
Woodbine at Lakewood Apartments, and recognized a gain of
$412,901 for the year ended December 31, 1996. The net proceeds
of $0.55 per Unit were distributed to Unitholders in February
1997.

In December 1996, the Partnership received net proceeds of
approximately $16.1 million and $5.4 million from the prepayment
of mortgages on Pembrook Apartments and Carmen Drive Estates,
respectively, and recognized gains of $624,764 and $435,417,
respectively, for the year ended December 31, 1996. The net
proceeds of $1.60 per Unit from Pembrook Apartments were
distributed to Unitholders in February 1997. The net proceeds of
$0.53 per Unit from Carmen Drive Estates are expected to be
distributed to Unitholders in May 1997, since these proceeds were
received in late December.

As of March 1, 1997, the two remaining IFI coinsured mortgages,
as shown in the table below, were current with respect to the
payment of principal and interest. The mortgage on Spring Lake
Village which had been previously delinquent, was modified a
second time as of February 1996. The interest rate on this
mortgage was reduced to 6% through December 1996, increasing to
6.75% for 1997 and 7.0% for all subsequent years. In addition,
delinquent principal and interest payments from September 1, 1995
through December 1, 1995, have been deferred, with quarterly
payments to be paid out of the mortgagors' available cash flows.
No payments have been made on the deferred amount due to
insufficient cash flows. As of December 31, 1996, $48,000 of
this deferred amount is included in Receivables and other assets.

The General Partner believes there is adequate collateral value
underlying these coinsured mortgages. Accordingly, no loan
losses were recognized on these mortgages during the years ended
December 31, 1996 and 1995. As of December 31, 1996 and December
31, 1995, these two and five investments had aggregate fair
values of $15,339,713 and $39,670,264, respectively.

15

PART II

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

1996 1995
---------------------------- ---------------------------- Cumulative
Amortized Face Amortized Face Loan Losses
Cost Value Cost Value Recognized
------------ ------------ ------------ ------------ ------------

Woodland Apartments $ 12,166,667 $ 11,748,365 $ 12,246,715 $ 11,819,789 $ --
Spring Lake Village(a) 5,000,233 4,933,126 4,984,151 4,984,151 115,301
Pembrook Apartments -- -- 15,521,458 14,918,958 --
Carmen Drive Estates -- -- 4,966,036 4,875,403 --
Woodbine at Lakewood
Apartments -- -- 5,211,526 5,021,478 --

(a) As discussed above, the General Partner negotiated a second modification of this mortgage during February 1996.

In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest
payments, additional interest (commonly termed Participations) based
on a percentage of the net cash flow from the development and the net
proceeds from the refinancing, sale or other disposition of the
underlying development. All of the FHA-Insured Certificates secured
by coinsured mortgages contain such Participations. During the years
ended December 31, 1996, 1995 and 1994, the Partnership received
additional interest of $110,253, $76,431 and $7,628, respectively,
from the coinsured Participations. These amounts are included in
mortgage investment income on the accompanying statements of
operations.

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 1996 to meet operating
requirements.

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

If necessary, the Partnership has the right to establish reserves either
from the Net Proceeds of the Offering or from Cash Flow (as defined in the
Partnership Agreement). However, the Partnership generally intends to
distribute substantially all of its Cash Flow from operations. If any reserves
are deemed to be necessary by the Partnership, they will be invested in
short-term, interest-bearing investments.

16

PART II

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

Cash flow - 1996 versus 1995
- ----------------------------
Net cash provided by operating activities decreased for 1996 as compared to
1995. This decrease was primarily due to an increase in receivables and other
assets resulting from increases in delinquent mortgage payments from The Villas
and St. Charles Place - Phase II mortgages. In addition, mortgage investment
income decreased, as discussed above. This was offset by an increase in
interest and other income and a decrease in general and administrative expenses,
as discussed above.

Net cash provided by investing activities increased for 1996 as compared to
1995, primarily due to proceeds from the disposition of the mortgages on
Skyridge Club, Woodbine at Lakewood Apartments, Pembrook Apartments and Carmen
Drive Estates.

Net cash used in financing activities increased for 1996 as compared to
1995. This increase was due to an increase in distributions to Unitholders as a
result of the prepayment of the mortgage on Lakewood Villas during the fourth
quarter of 1995. The net disposition proceeds of approximately $.61 per Unit
were distributed to Unitholders in May 1996.

Cash flow - 1995 versus 1994
- ----------------------------
Net cash provided by operating activities decreased for 1995 as compared to
1994. This decrease was primarily due to a reduction in receivables and other
assets during 1994 as a result of the receipt in January 1994 of the remaining
net disposition proceeds related to the disposition of the mortgage on Victoria
Pointe Apartments - Phase II and receipt of accrued interest related to the
mortgage on One East Delaware.

Net cash provided by investing activities increased for 1995 as compared to
1994, primarily due to the investment in 1994 of approximately $39.7 million in
Insured Mortgages, which was partially offset by the receipt in 1994 of net
disposition proceeds of approximately $33.2 million from the disposition of the
Insured Mortgage on One East Delaware. No Insured Mortgages were acquired
during 1995. Also contributing to the increase in net cash provided by
investing activities, was the receipt in 1995 of net proceeds of approximately
$6.2 million related to the prepayment of the mortgage on Lakewood Villas during
1995.

Net cash used in financing activities decreased for 1995 as compared to
1994. This decrease was primarily due to the 1994 distribution of accrued, but
previously undistributed, interest from the disposition of the mortgage on One
East Delaware.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is contained on pages 23 through 48.

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

None.

17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a),(b),(c),(e)

The Partnership has no officers or directors. CRIIMI, Inc. (the General
Partner) holds a partnership interest of 4.9%. The affairs of the Partnership
are managed by the General Partner, which is wholly owned by CRIIMI MAE, a
company whose shares are listed on the New York Stock Exchange. Prior to June
30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI,
Inc. However, effective June 30, 1995, CRIIMI MAE became a self-administered
REIT and, as a result, the advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P. (the Advisor) is the advisor to the
Partnership. AIM Acquisition is the general partner of the Advisor and the
limited partners include, but are not limited to, AIM Acquisition, The Goldman
Sachs Group, L.P, Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain
amendments to the Partnership Agreement, the General Partner is required to
receive the consent of the Advisor prior to taking certain significant actions
which affect the management and policies of the Partnership.

Effective September 6, 1991, and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.

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.

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

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

(h) 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, the Partnership believes that all
reporting persons have filed on a timely basis Forms 3, 4 and 5
as required in the fiscal year ended December 31, 1996.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference to
Note 7 of the notes to the financial statements of the Partnership.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

As of December 31, 1996, no person was known by the Partnership to be the
beneficial owner of more than five percent (5%) of the outstanding Units of the
Partnership.

18

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - Continued

As of December 31, 1996, neither the officers and directors, as a group, of
the General Partner nor any individual director of the General Partner, are
known to own more than 1% of the outstanding Units of the Partnership.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

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

(b) Certain business relationships.

Other than as set forth in Item 11 of this report which is
incorporated herein by reference, the Partnership has no business
relationship with entities of which the General Partner of the
Partnership are officers, directors or equity owners.

(c) Indebtedness of management.

None.

(d) Transactions with promoters.

Not applicable.

19

PART IV

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

(a)(1) Financial Statements:

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

Balance Sheets as of December 31, 1996
and 1995 25

Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 26

Statements of Changes in Partners' Equity
for the years ended December 31, 1996,
1995 and 1994 27

Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 28

Notes to Financial Statements 29

(a)(2) Financial Statement Schedules:

IV - Mortgage Loans on Real Estate

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

(a)(3) Exhibits:

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

4.(a) 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.(b) 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.

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

20

PART IV

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

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

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

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

10.(e) 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.(f) Reinvestment Plan is incorporated by reference to the
Prospectus contained in the Amended Registration Statement.

10.(g) Mortgagor-Participant Agreement regarding the One East
Delaware Originated Insured Mortgage is incorporated by
reference to Exhibit 10(g) to the Annual Report on Form 10-K
for the year ended December 31, 1987.

10.(h) Mortgage, Assignment of Rents and Security Agreements
regarding One East Delaware Originated Insured Mortgage is
incorporated by reference to Exhibit 10(h) to the Annual
Report on Form 10-K for the year ended December 31, 1987.

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

10.(l) 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.(m) Non-negotiable promissory note to American Insured Investors
- Series 85, L.P. in the amount of $1,737,722 dated December
31, 1991, incorporated by reference to Exhibit 28(d) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1991.

21

PART IV

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

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

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

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

10.(q) Amendment to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective April 1, 1994,
incorporated by reference to Exhibit 10(q) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994.

27. Financial Data Schedule (filed herewith).

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

All other items are not applicable.

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
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

March 26, 1997 /s/ William B. Dockser
- --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer

March 26, 1997 /s/ H. William Willoughby
- --------------------------- -------------------------
DATE H. William Willoughby
President and Director

March 26, 1997 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer

March 26, 1997 /s/ Garrett G. Carlson, Sr.
- --------------------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director

March 26, 1997 /s/ Larry H. Dale
- --------------------------- -------------------------
DATE Larry H. Dale
Director

March 26, 1997 /s/ G. Richard Dunnells
- --------------------------- -------------------------
DATE G. Richard Dunnells
Director

March 26, 1997 /s/ Robert F. Tardio
- --------------------------- -------------------------
DATE Robert F. Tardio
Director

23

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

Financial Statements as of December 31, 1996 and 1995

and for the Years Ended December 31, 1996, 1995 and 1994

24

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 86 (the Partnership) as of December 31, 1996
and 1995, and the related statements of operations, changes in partners' equity
and cash flows for the years ended December 31, 1996, 1995 and 1994. 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 generally accepted auditing
standards. 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, 1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.

As explained in Note 2 of the notes to financial statements, effective
January 1, 1994, the Partnership changed its method of accounting for its
investment in insured mortgages.

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, 1996 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.

Arthur Andersen LLP
Washington, D.C.
March 26, 1997

25

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

BALANCE SHEETS

As of December 31,
1996 1995
------------ ------------
ASSETS

Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Originated insured mortgages $ 33,076,697 $ 57,776,934
Acquired insured mortgages 40,014,207 41,449,297
------------ ------------
73,090,904 99,226,231
------------ ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Originated insured mortgages 53,047,822 62,595,492
Acquired insured mortgage 989,128 995,255
------------ ------------
54,036,950 63,590,747

Cash and cash equivalents 38,580,668 8,774,654

Investment in affiliate 471,109 475,726

Receivables and other assets 3,103,526 2,470,604
------------ ------------
Total assets $169,283,157 $174,537,962
============ ============

LIABILITIES AND PARTNERS' EQUITY

Distributions payable $ 33,532,120 $ 3,323,003

Note payable to affiliate 478,612 478,612

Accounts payable and accrued expenses 135,694 153,998
------------ ------------
Total liabilities 34,146,426 3,955,613
------------ ------------
Partners' equity:
Limited partners' equity 141,161,141 174,986,113
General partner's deficit (2,612,029) (869,206)
Unrealized gains on
investment in FHA-Insured
Certificates and GNMA
mortgage-backed securities 103,741 406,534
Unrealized losses on
investment in FHA-Insured
Certificates and GNMA
mortgage-backed securities (3,516,122) (3,941,092)
------------ ------------
Total partners' equity 135,136,731 170,582,349
------------ ------------
Total liabilities and
partners' equity $169,283,157 $174,537,962
============ ============

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

26

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF OPERATIONS

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------

Income:
Mortgage investment income $ 13,096,453 $ 13,797,980 $ 13,311,387
Interest and other income 376,054 129,166 332,966
------------ ------------ ------------
13,472,507 13,927,146 13,644,353
------------ ------------ ------------
Expenses:
Asset management fee to related
parties 1,578,579 1,640,904 1,573,895
General and administrative 406,794 616,254 574,694
Interest expense to affiliate 34,700 34,699 60,779
------------ ------------ ------------
2,020,073 2,291,857 2,209,368
------------ ------------ ------------
Earnings before gain on mortgage
dispositions and loan losses 11,452,434 11,635,289 11,434,985

Gain on mortgage dispositions 1,616,449 5,208 1,129,973

Loan losses -- -- (115,301)
------------ ------------ ------------
Net earnings $ 13,068,883 $ 11,640,497 $ 12,449,657
============ ============ ============

Net earnings allocated to:
Limited partners - 95.1% $ 12,428,508 $ 11,070,113 $ 11,839,624
General partner - 4.9% 640,375 570,384 610,033
------------ ------------ ------------
$ 13,068,883 $ 11,640,497 $ 12,449,657
============ ============ ============
Net earnings per Limited
Partnership Unit $ 1.30 $ 1.16 $ 1.24
============ ============ ============

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

27

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CHANGES IN PARTNERS' EQUITY

For the years ended December 31, 1996, 1995 and 1994

Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partners Mortgages Mortgages Total
------------- ------------- ------------ ------------ -------------

Balance, January 1, 1994 $ (776,611) $ 176,783,204 $ -- $ -- $176,006,593

Net earnings 610,033 11,839,624 -- -- 12,449,657

Distributions paid or accrued of
$1.34, including return of
capital of $0.10 per Unit (661,177) (12,832,229) -- -- (13,493,406)

Unrealized gains (losses) on
investment in insured mortgages -- -- -- (13,372,257) (13,372,257)
------------- ------------- ------------ ------------ ------------

Balance, December 31, 1994 (827,755) 175,790,599 -- (13,372,257) 161,590,587

Net earnings 570,384 11,070,113 -- -- 11,640,497

Distributions paid or accrued of
$1.24, including return of capital
of $0.08 per Unit (611,835) (11,874,599) -- -- (12,486,434)

Adjustment to unrealized
gains (losses) on investment
in insured mortgages -- -- 406,534 9,431,165 9,837,699
------------- ------------- ------------ ------------ ------------

Balance December 31, 1995 (869,206) 174,986,113 406,534 (3,941,092) 170,582,349

Net earnings 640,375 12,428,508 -- -- 13,068,883

Distributions paid or accrued of
$4.83, including return of capital
of $ 3.53 per Unit (2,383,198) (46,253,480) -- -- (48,636,678)

Adjustment to unrealized
gains (losses) on investment
in insured mortgages -- -- (302,793) 424,970 122,177
------------- ------------- ------------ ------------ ------------

Balance December 31, 1996 $ (2,612,029) $ 141,161,141 $ 103,741 $ (3,516,122) $135,136,731
============= ============= ============ ============ ============

Limited Partnership Units outstanding -
December 31, 1996, 1995 and 1994 9,576,290
=============

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

28

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

STATEMENTS OF CASH FLOWS

For the years ended December 31,
1996 1995 1994
------------ ------------ ------------

Cash flows from operating activities:
Net earnings $ 13,068,883 $ 11,640,497 $ 12,449,657

Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on mortgage dispositions (1,616,449) (5,208) (1,129,973)
Loan losses -- -- 115,301
Changes in assets and liabilities:
Decrease in note payable to affiliate -- -- (1,259,111)
Decrease in accounts payable and
accrued expenses (18,304) (46,989) (11,441)
(Increase) decrease in receivables and other assets (632,922) (354,217) 689,217
Decrease in investment in affiliate 4,617 2,886 1,251,475
------------ ------------ ------------
Net cash provided by operating activities 10,805,825 11,236,969 12,105,125
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from Disposition of Mortgages 36,343,358 6,169,529 33,233,501
Investment in Acquired Insured Mortgages -- -- (39,730,658)
Receipt of principal from scheduled payments 1,084,392 1,121,467 1,019,821
------------ ------------ ------------
Net cash provided by (used in)investing activities 37,427,750 7,290,996 (5,477,336)
------------ ------------ ------------

Cash flows from financing activities:
Distributions paid to partners (18,427,561) (12,587,131) (12,889,224)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 29,806,014 5,940,834 (6,261,435)

Cash and cash equivalents, beginning of year 8,774,654 2,833,820 9,095,255
------------ ------------ ------------
Cash and cash equivalents, end of year $ 38,580,668 $ 8,774,654 $ 2,833,820
============ ============ ============

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

29

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

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

CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%.
CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general
partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became
self-administered real estate investment trust (REIT) and, as a result, the
advisor no longer advises CRIIMI MAE.

AIM Acquisition Partners, L.P., (the Advisor) serves as 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, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement, the
General Partner is required to receive the consent of the Advisor prior to
taking certain significant actions which affect the management and policies of
the Partnership.

Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-Advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with
the transaction in which CRIIMI MAE became a self-administered REIT, an
affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence
of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.
These transactions had no effect on the Partnership's financial statements.

Until the change in the Partnership's investment policy, as discussed
below, and through December 31, 1994, (the expiration of the Partnership's
reinvestment period) the Partnership was in the business of originating mortgage
loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired
Insured Mortgages, and together with Originated Insured Mortgages, referred to
herein as Insured Mortgages). After the expiration of the reinvestment period,
the Partnership is required (subject to the conditions set forth in the
Partnership Agreement) to distribute such proceeds to its Unitholders. The
Partnership Agreement states that the Partnership will terminate on December 31,
2020, unless previously terminated under the provisions of the Partnership
Agreement. As of December 31, 1996, the Partnership had invested in either
Originated Insured Mortgages which are insured or guaranteed, in whole or in
part, by the Federal Housing Administration (FHA) or Acquired Insured Mortgages
which are fully insured (as more fully described below).

The General Partner listed the Partnership's Units for trading on the
American Stock Exchange (AMEX) on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ." Prior to listing the Partnership's
Units for trading on AMEX, the Units were only tradable through an informal
market called the "secondary market".

2. SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------
The Partnership's financial statements are prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles. The preparation of financial statements in conformity with

30

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

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

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

Prior to January 1, 1994, the Partnership accounted for its investment
in Insured Mortgages at amortized cost in accordance with Statement of
Financial Accounting Standards No. 65 "Accounting for Certain Mortgage
Banking Activities" (SFAS 65) since it had the ability and intent to hold
these assets for the foreseeable future. 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.
Mortgage investment income is comprised of amortization of the discount
plus the stated mortgage interest payments received or accrued, less
amortization of the premium.

In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115), effective for fiscal
years beginning after December 15, 1993. The Partnership adopted this
statement as of January 1, 1994. This statement requires that investments
in debt and equity securities be classified into one of the following
investment categories based upon the circumstances under which such
securities might be sold: Held to Maturity, Available for Sale, and
Trading. Generally, certain debt securities for which an enterprise has
both the ability and intent to hold to maturity, should be accounted for
using the amortized cost method and all other securities must be recorded
at their fair values.

As of December 31, 1996, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-
Insured Certificates is approximately 31 years. However, the Partnership
Agreement states that the Partnership will terminate in approximately 24
years, on December 31, 2020, unless previously terminated under the
provisions of the Partnership Agreement. As the Partnership is anticipated
to terminate prior to the weighted average remaining term of its

31

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES - Continued

investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, the Partnership does not have the ability, at this time, to
hold these investments to maturity. Consequently, the General Partner
believes that the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates should be included in the Available
for Sale category. Although the Partnership's investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates are classified as
Available for Sale for financial statement purposes, the General Partner
does not intend to voluntarily sell these assets other than those which may
be sold as a result of a default or those which are eligible to be put to
FHA at the expiration of 20 years from the date of the final endorsement.

In connection with this classification, as of December 31, 1996, the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-
Insured Certificates are recorded at fair value, with the unrealized losses
on these assets reported as 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. The amortized cost of the GNMA Mortgage-Backed
Securities and FHA-Insured Certificates in this category is adjusted for
amortization of discounts and premiums to maturity. Such amortization is
included in mortgage investment income.

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

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

Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of time and demand deposits and
commercial paper with original maturities of three months or less.

Reclassification
----------------
Certain amounts in the financial statements for the year ended
December 31, 1994 have been reclassified to conform with the 1996 and 1995
presentation.

Income Taxes
------------
No provision has been made for Federal, state or local income taxes in
the accompanying statements of operations since they are the personal
responsibility of the Unitholders.
32

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

3. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

33

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued

As of December 31, 1996 As of December 31, 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------

Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Originated Insured Mortgages $ 35,748,510 $ 33,076,697 $ 61,633,438 $ 57,776,934
Acquired Insured Mortgages 40,754,775 40,014,207 41,127,351 41,449,297
------------ ------------ ------------ ------------
$ 76,503,285 $ 73,090,904 $102,760,789 $ 99,226,231
============ ============ ============ ============
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 53,047,822 $ 52,063,040 $ 62,595,492 $ 62,183,025
Acquired Insured Mortgage 989,128 1,009,987 995,255 1,029,775
------------ ------------ ------------ ------------
$ 54,036,950 $ 53,073,027 $ 63,590,747 $ 63,212,800
============ ============ ============ ============

Cash and cash equivalents $ 38,580,668 $ 38,580,668 $ 8,774,654 $ 8,774,654

Accrued interest receivable $ 2,650,465 $ 2,650,465 $ 2,168,158 $ 2,168,158

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 and FHA-Insured Loans
--------------------------------------------------------
The fair value of the fully insured FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market
prices. In order to determine the fair value of the coinsured FHA-Insured
Certificates, the Partnership valued the coinsured FHA-Insured Certificates
as though they were fully insured (in the same manner fully insured FHA-
Insured Certificates were valued). From this amount, the Partnership
deducted a discount factor from the face value of the loan. This discount
factor is based on the Partnership's historical analysis of the difference
in fair value between coinsured FHA-Insured Certificates and fully insured
FHA-Insured Certificates.

Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of the short
maturity of these instruments.

4. INVESTMENT IN INSURED MORTGAGES

34

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

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

A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in Fully
Insured Mortgages as of December 31, 1996 and 1995:

December 31,
1996 1995
------------ ------------

Fully Insured Originated Insured:
Number of Mortgages 6 7
Amortized Cost $ 53,047,822 $ 62,595,492
Face Value 51,162,234 60,306,932
Fair Value 52,063,040 62,183,025

Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed
Securities 10 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 41,743,903 $ 42,122,606
Face Value 41,689,508 42,066,176
Fair Value 41,024,194 42,479,072

As of March 1, 1997, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and
interest, except for the mortgage on Pleasant View Nursing Home, which is
delinquent with respect to the January 1997 payment of principal and
interest.

In December 1996, the Partnership received net proceeds of
approximately $9.3 million from the prepayment of the mortgage on Skyridge
Club, a Fully Insured Originated Insured mortgage, and recognized a gain of
$106,042 for the year ended December 31, 1996. The net proceeds of $0.92
per Unit were distributed to Unitholders in February 1997.

In December 1995, the Partnership received net proceeds of
approximately $6.2 million from the prepayment of the mortgage on Lakewood
Villas, a Fully Insured Originated Insured mortgage, and recognized a gain
of $5,208. Additionally, in January 1996, the Partnership received
additional proceeds of $37,325 in connection with the final settlement of
this prepayment, which was recognized as additional gain during 1996. The
aggregate net disposition proceeds of $0.61 per unit were distributed to
Unitholders in May 1996.

In addition to base interest payments from Fully Insured Originated
Insured Mortgages, the Partnership is entitled to additional interest based
on a percentage of the net cash flow from the underlying development and of
the net proceeds from the refinancing, sale or other disposition of the
underlying development (referred to as Participations). During the years
ended December 31, 1996, 1995 and 1994, the Partnership received additional

35

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

interest of $171,848, $73,357 and $33,431, respectively, from the fully
insured Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.

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

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

As of December 31, 1996 and 1995, the Partnership had invested in four
and seven, respectively, FHA-Insured Certificates secured by coinsured
mortgages. As of December 31, 1996, two of the four FHA-Insured
Certificates secured by coinsured mortgages are coinsured by an
unaffiliated third party coinsurance lender, The Patrician Mortgage Company
(Patrician), under the HUD coinsurance program. The two coinsured
mortgages which are coinsured by Patrician were delinquent with respect to
the payment of principal and interest. The following is a discussion of
actual and potential performance problems with respect to the Partnership's
coinsured mortgage investments.

1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured by
Patrician:

36

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

December 31, 1996 December 31, 1995
--------------------------------------------- ------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------ ------------ ------------ ------------ ------------ ------------

The Villas $ 15,528,982 $ 15,762,692 $ 14,859,882 $ 15,635,379 $ 15,869,089 $ 15,173,465
St. Charles Place -
Phase II 3,052,629 3,052,629 2,877,102 3,068,173 3,068,173 2,933,205

As of March 1, 1997, the mortgagor has made payments of principal and
interest due on the original mortgage on The Villas through November
1995, and has made payments of principal and interest due under a
modification agreement with The Villas through August 1993. Patrician
is litigating the case in bankruptcy court while negotiating a
modification agreement with the borrower.

The amount of the Partnership's investment in the mortgage on St.
Charles Place - Phase II represents the Partnership's approximate 45%
ownership interest in the mortgage. The remaining 55% ownership
interest is held by American Insured Mortgage Investors L.P. - Series
88 (AIM 88), an affiliate of the Partnership. As of March 1, 1997,
the mortgagor has made payments of principal and interest due on the
mortgage through October 1995 to the Partnership. Patrician is
litigating the case in bankruptcy court while negotiating a
modification agreement with the borrower.

The General Partner intends to continue to oversee the Partnership's
interest in these mortgages to ensure that Patrician meets its
coinsurance obligations. The General Partner's assessment of the
realizability of The Villas and St. Charles Place-Phase II mortgages
is based on the most recent information available, and to the extent
these conditions change or additional information becomes available,
then the General Partners' assessment may change. However, the
General Partner does not believe that there would be a material
adverse impact on the Partnership's financial condition or its results
of operations should Patrician be unable to comply with its full
coinsurance obligation.

2. Coinsured by affiliate
----------------------
As of December 31, 1996 and 1995, the Partnership held investments in
two and five FHA-Insured Certificates secured by coinsured mortgages,
respectively, where the coinsurance lender is Integrated Funding, Inc.
(IFI), an affiliate of the Partnership. The Partnership bears the
risk of loss upon default for IFI's portion of the coinsurance loss.

The Originated Insured Mortgages on Carmen Drive Estates (The Forest),
Woodbine at Lakewood Apartments and Woodland Hills Apartments were
previously coinsured by M-West Mortgage Corporation (M-West), a third
party coinsurance lender. During the fourth quarter of 1994, the
Partnership was informed that M-West was liquidating its assets and
intended to assign the mortgage servicing rights related to these

37

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

mortgages to another coinsurance lender, Whitehall Funding, Inc.
(Whitehall). The Partnership successfully contested this transfer and
obtained a court order mandating the transfer of the mortgage
servicing rights related to these three coinsured loans to IFI. This
transfer was completed during the second quarter of 1995. This case
is deemed settled and there will be no further litigation.

In November 1996, the Partnership received net proceeds of
approximately $5.6 million from the prepayment of the mortgage on
Woodbine at Lakewood Apartments, and recognized a gain of $412,901 for
the year ended December 31, 1996. The net proceeds of $0.55 per Unit
were distributed to Unitholders in February 1997.

In December 1996, the Partnership received net proceeds of
approximately $16.1 million and $5.4 million from the prepayment of
mortgages on Pembrook Apartments and Carmen Drive Estates,
respectively, and recognized gains of $624,764 and $435,417,
respectively, for the year ended December 31, 1996. The net proceeds
of $1.60 per Unit from Pembrook Apartments were distributed to
Unitholders in February 1997. The net proceeds of $0.53 per Unit from
Carmen Drive Estates is expected to be distributed to Unitholders in
May 1997, since these proceeds were received in late December.

As of March 1, 1997, the two remaining IFI coinsured mortgages, as
shown in the table below, were current with respect to the payment of
principal and interest. The mortgage on Spring Lake Village which had
been previously delinquent, was modified a second time as of February
1996. The interest rate on this mortgage was reduced to 6% through
December 1996, increasing to 6.75% for 1997 and 7.0% for all
subsequent years. In addition, delinquent principal and interest
payments from September 1, 1995 through December 1, 1995, have been
deferred, with quarterly payments to be paid out of the mortgagors'
available cash flows. No payments have been made on the deferred
amount due to insufficient cash flows. As of December 31, 1996,
$48,000 of this deferred amount is included in Receivables and other
assets.

The General Partner believes there is adequate collateral value
underlying these coinsured mortgages. Accordingly, no loan losses
were recognized on these mortgages during the years ended December 31,
1996 and 1995. As of December 31, 1996 and December 31, 1995, these
two and five investments had aggregate fair values of $15,339,713 and
$39,670,264, respectively.

38

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

4. INVESTMENT IN INSURED MORTGAGES - Continued

1996 1995
---------------------------- ----------------------------- Cumulative
Amortized Face Amortized Face Loan Losses
Cost Value Cost Value Recognized
------------ ------------ ------------ ------------ ------------

Woodland Apartments $ 12,166,667 $ 11,748,365 $ 12,246,715 $ 11,819,789 $ --
Spring Lake Village(a) 5,000,233 4,933,126 4,984,151 4,984,151 115,301
Pembrook Apartments -- -- 15,521,458 14,918,958 --
Carmen Drive Estates -- -- 4,966,036 4,875,403 --
Woodbine at Lakewood
Apartments -- -- 5,211,526 5,021,478 --

(a) As discussed above, the General Partner negotiated a second modification of this mortgage during February 1996.

In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest
payments, additional interest (commonly termed Participations) based
on a percentage of the net cash flow from the development and the net
proceeds from the refinancing, sale or other disposition of the
underlying development. All of the FHA-Insured Certificates secured
by coinsured mortgages contain such Participations. During the years
ended December 31, 1996, 1995 and 1994, the Partnership received
additional interest of $110,253, $76,431 and $7,628, respectively,
from the coinsured Participations. These amounts are included in
mortgage investment income on the accompanying statements of
operations.

5. DISTRIBUTIONS TO UNITHOLDERS

The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1996, 1995 and 1994 are as follows:

1996 1995 1994
------ ------ ------

Quarter ended March 31, $ .91(1)(2) $ 0.26(2) $ 0.41(6)(7)
Quarter ended June 30, .30(2) 0.34(2)(5) 0.29(7)
Quarter ended September 30, .29(3) 0.31(2) 0.30(7)
Quarter ended December 31, 3.33(4) 0.33(2) 0.34(7)
------ ------ ------
$ 4.83 $ 1.24 $ 1.34
====== ====== ======

(1) This amount includes approximately $0.61 per Unit return of capital from
the prepayment of the mortgage on Lakewood Villas.

(2) This amount includes approximately $0.03 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

(3) This amount includes approximately $0.02 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place - Phase II
and The Villas.

39

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

5. DISTRIBUTIONS TO UNITHOLDERS - Continued

(4) This amount includes approximately $3.07 per Unit return of capital and
gain from the prepayment of the following mortgages; Woodbine at Lakewood
Apartments $0.55, Pembrook Apartments $1.60, and Skyridge Club $0.92.
Also, this amount includes approximately $0.01 per Unit representing
previously undistributed accrued interest from St. Charles Place - Phase II
and The Villas.

(5) This amount includes approximately $0.08 per Unit representing previously
undistributed accrued interest receivable from Carmen Drive Estates (The
Forest), Woodland Hills Apartments, and Woodbine at Lakewood Apartments.

(6) This amount includes approximately $0.18 per Unit representing previously
undistributed accrued interest received from the disposition of the
mortgage on One East Delaware.

(7) This amount includes approximately $0.01, $0.04, $0.03 and $0.03 per Unit
representing previously undistributed accrued interest received from St.
Charles Place-Phase II and The Villas for the quarters ending March 31,
1994, June 30, 1994, September 30, 1994 and December 31, 1994,
respectively.

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

6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE

Effective December 31, 1991, American Insured Mortgage Investors-Series 85,
L.P. (AIM 85), an affiliated entity, transferred a GNMA Mortgage-Backed Security
(the GNMA security) in the amount of approximately $4.7 million to IFI in order
to capitalize IFI with sufficient net worth under HUD regulations. The
Partnership and its affiliate, AIM 88, each issued a demand note payable to AIM
85 and recorded an investment in IFI through an affiliate (AIM Mortgage, Inc.)
at an amount proportionate to each entity's coinsured mortgages for which IFI
was the mortgagee of record as of December 31, 1991. AIM Mortgage, Inc. is
jointly owned by AIM 85, AIM 88 and the Partnership. The Partnership accounts
for its investment in IFI under the equity method of accounting. Interest
expense on the note payable was based on an interest rate of 8% per annum.

In 1992, IFI entered into an expense reimbursement agreement with the
Partnership, AIM 85 and AIM 88 (collectively, the AIM Funds) whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's coinsured mortgage investments. The
expense reimbursement, along with the Partnership's equity interest in IFI's net
income or loss, substantially equals the Partnership's interest expense on the
note payable.

40

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE -
Continued

In April 1994, IFI received net proceeds of approximately $4.7 million from
the prepayment of the GNMA security, which IFI distributed to the AIM Funds. On
June 30, 1994, the Partnership repaid its note payable to AIM 85.

As a result of this distribution, in April 1994, AIM 88 transferred a GNMA
Mortgage-Backed Security in the amount of approximately $2.0 million to IFI in
order to recapitalize IFI with sufficient net worth under HUD regulations. The
Partnership and AIM 85 each issued a demand note payable to AIM 88 and recorded
an investment in IFI through AIM Mortgage, Inc., in proportion to each entity's
coinsured mortgages for which IFI was the mortgagee of record as of April 1,
1994. Interest expense on the note payable to AIM 88 is based on an annual
interest rate of 7.25%.

In connection with these transactions, the expense reimbursement agreement
was amended as of April 1, 1994 to adjust the allocation of the expense
reimbursement to the AIM Funds to an amount proportionate to each entity's
coinsured mortgage investments as of April 1, 1994. The expense reimbursement,
as amended, along with the Partnership's equity interest in IFI's net income or
loss, substantially equals the Partnership's interest expense on the note
payable.

7. TRANSACTIONS WITH RELATED PARTIES

In addition to the related party transactions described above in Note 6,
the General Partner, and certain affiliated entities, during the years ended
December 31, 1996, 1995 and 1994, earned or received compensation or payments
for services from the Partnership as follows:

41

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

7. TRANSACTIONS WITH RELATED PARTIES - Continued

COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
----------------------------------------------

Capacity in Which For the years ended December 31,
Name of Recipient Served/Item 1996 1995 1994
- ----------------- ---------------------------- ---------- ---------- ----------

CRIIMI, Inc. General Partner/Distribution $2,383,198 $ 611,835 $ 661,177

AIM Acquisition Advisor/Asset Management Fee 1,578,579 1,640,904 1,573,895
Partners, L.P.(1)

CRI(2) Affiliate of General Partner/ -- 58,659 161,509
Expense Reimbursement

CRIIMI MAE
Management, Inc.(2) Affiliate of General Partner/ 64,405 27,512 --
Expense Reimbursement

(1) The Advisor, pursuant to the Partnership Agreement, effective October 1, 1991, was entitled to an Asset Management Fee
equal to .95% of Total Invested Assets. As of January 1, 1997 this changed to .75% of Total Invested Assets (as defined in the
Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of 0.28% of the Advisor's Asset
Management Fee. CRI/AIM Management, Inc., which acted as the Sub-advisor through June 30, 1995, earned a fee equal to $241,800 and
$463,853, for the six months ended June 30, 1995 and for the year ended December 31, 1994, respectively. As discussed in Note 1,
effective June 30, 1995, CRIIMI MAE Services Limited Partnership now serves as the Sub-advisor. Of the amounts paid to the Advisor,
CRIIMI MAE Services Limited Partnership earned a fee equal to $465,231, and $241,800 for the year ended December 31, 1996 and for
the six months ended December 31, 1995, respectively.

(2) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred
prior to June 30, 1995 on behalf of the General Partner and Partnership. As discussed in Note 1, the transaction in which CRIIMI
MAE became a self-administered REIT has no impact on the payments required to be made by the Partnership, other than that the
expense reimbursement previously paid by the Partnership to CRI in connection with the provision of services by the Sub-advisor are,
effective June 30, 1995, paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc. The amounts paid to CRI
during the year ended December 31, 1995 represent reimbursement of expenses incurred prior to June 30, 1995.

8. PARTNERS' EQUITY

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

42

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO FINANCIAL STATEMENTS

9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1996, 1995 and 1994:

(In Thousands, Except Per Unit Data)
1996
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------

Income 3,468 3,525 3,255 3,225
Gain on mortgage
dispositions 37 -- -- 1,579
Net earnings 2,985 2,980 2,796 4,308
Net earnings per Limited
Partnership Unit .30 .29 .28 .43

1995
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------

Income $ 3,475 $ 3,622 $ 3,434 $ 3,396
Gain on mortgage
disposition -- -- -- 5
Net earnings
Net earnings per Limited 2,922 3,003 2,874 2,841
Partnership Unit 0.29 0.30 0.28 0.29

1994
Quarter ended
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------

Income $ 3,294 $ 3,471 $ 3,454 $ 3,425
Loan losses (115) -- -- --
Gain on mortgage
dispositions 1,130 -- -- --
Net earnings 3,715 2,889 2,912 2,934
Net earnings per Limited
Partnership Unit 0.37 0.29 0.29 0.29

43

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996

Annual
Payment
Interest Net Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(15) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------

ORIGINATED INSURED MORTGAGES
Coinsured Mortgages
- -------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Woodland Apts.
Minnetonka, MN(7) 5/29 10/02 8.25% $ 11,748,365 $ 11,073,768 $ -- $1,043,897
Spring Lake Village
St. Petersburg, FL(7) 7/29 5/03 7.00%(13)4,933,126(12) 4,265,945 115,301 347,799(14)
The Villas
Lauderhill, FL (6) 7/29 8/02 8.75% 15,762,692(12) 14,859,882 842,709 1,491,805(14)
St. Charles Place-Phase II
Miramar, FL (6) 2/30 12/03 8.625% 3,052,629(8)(12) 2,877,102 106,000 279,571(8)
------------ ------------
Total investment in FHA-Insured
Certificates-Originated Insured
Mortgages 35,496,812 33,076,697
------------ ------------

44

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996

Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(15) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------

ACQUIRED INSURED
MORTGAGES:
- -----------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Southampton Apts.
Grove City, OH 4/27 -- 8.50% 1,987,281 2,022,420 -- 183,038
Pleasantview Nursing Home
Union, NJ 6/29 -- 7.75% 3,442,378 3,234,736 -- 290,532
------------ -------------
Total investment in FHA-Insured
Certificates - Acquired Insured
Mortgages 5,429,659 5,257,156
------------ -------------
Investment in GNMA Mortgage-Backed
Securities (carried at fair value)
Brighton Manor
Petersburg, VA 3/29 -- 7.50% 1,021,844 1,004,922 -- 84,243
Cyress Cove
Jacksonville, FL 2/28 -- 7.30% 6,928,737 6,814,584 -- 564,582
Hickory Tree Apts.
Indianapolis, IN 4/27 -- 7.375% 3,479,938 3,422,735 -- 287,772
Main Street Square
Roundrock, TX 9/29 -- 8.75% 1,358,316 1,402,356 -- 126,165
Maple Manor
Syracuse, NY 4/29 -- 7.375% 1,236,684 1,216,220 -- 100,599
Mountain Village Apts.
Tucson, AZ 5/29 -- 7.50% 1,341,271 1,319,048 -- 110,441
Oak Grove Apts.
Baltimore, MD 6/23 -- 7.50% 6,925,682 6,813,607 -- 603,107
Oakwood Garden Apts.
San Jose, CA 10/23 -- 7.75% 9,701,850 9,544,180 -- 860,914
Regency Park Apts.
North St. Paul, MN 4/24 -- 7.00% 1,455,400 1,431,872 -- 119,754
Sunflower Apts.
Tucson, AZ 5/29 -- 7.50% 1,817,643 1,787,527 -- 149,666
------------ ------------
Total investment in GNMA Mortgage-
Backed Securities-Acquired Insured
Mortgages 35,267,365 34,757,051
------------ ------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities $ 76,193,836 $ 73,090,904
============ ============

45

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996

Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(15) Loan Losses (4)(11)
- ----------------------- -------- -------- -------- ------------ -------------- ----------- -----------

ORIGINATED INSURED
MORTGAGES:
- ------------------
Fully Insured Mortgages
- -----------------------
Investment in FHA-Insured
Loans (carried at amortized cost)(2)
Iroquois Club Apts.
Naperville, IL 3/29 12/03 8.25% 18,352,791 19,005,231 -- 1,629,873
Colony Square Apts.
Rocky Mount, NC 10/28 4/02 8.25% 4,181,607 4,347,424 -- 372,352
Argyle Place
Hickory, NC 4/29 7/03 8.25% 4,891,942 5,065,547 -- 434,902
Arbor Station
Montgomery, AL 10/29 7/02 8.25% 8,684,698 9,014,253 -- 771,270
Greenbriar Place
Glen Ellyn, IL 4/29 7/02 8.25% 5,727,169 5,945,493 -- 508,353
Ridgeview Chase Apts.
Westminster, MD 2/30 10/04 8.375% 9,324,027 9,669,874 -- 833,588
------------ ------------
Total investment in FHA-Insured Loans -
Fully Insured Mortgages 51,162,234 53,047,822
------------ ------------
ACQUIRED INSURED MORTGAGE
- -------------------------
Investment in FHA-Insured
Loan - (carried at amortized cost)(2)

Winburn Square
Lexington, KY 1/27 -- 9.00% 992,484 989,128 -- 95,829
------------ ------------

Total investment in FHA-Insured Loans 52,154,718 54,036,950
============ ============

TOTAL INVESTMENT IN INSURED MORTGAGES $128,348,554 $127,127,854
============ ============

46

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1996

(1) Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage (put) to FHA at the
expiration of 20 years from the date of final endorsement if the Insured
Mortgage is not in default at such time. Any insured mortgagee electing to
assign an FHA-insured mortgage to FHA will receive in exchange HUD
debentures having a total face value equal to the then outstanding
principal balance of the FHA-insured mortgage plus accrued interest to the
date of assignment. These HUD debentures will mature 10 years from the
date of assignment and will bear interest at the "going Federal rate" at
such date. This assignment procedure is applicable to a mortgage which had
a firm or conditional FHA commitment for insurance on or before November
30, 1983 and, in the case of insured mortgages sold in a GNMA auction, was
sold in an auction prior to February 1984. Certain of the Partnership's
mortgages may have the right of assignment under this program. Certain
mortgages that do not qualify under this program possess a special
assignment option, in certain mortgage documents, which allows the
Partnership, anytime after this date, to require payment of the unpaid
principal balance of the mortgages. At such time, the borrowers 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, 1996, 1995 and 1994, the
Partnership received additional interest of $282,101, $149,788 and $41,059,
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) These Insured Mortgages are insured under the HUD coinsurance program, as
previously discussed. The

47

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1996

HUD-approved coinsurance lender for these mortgages is The Patrician
Mortgage Company.

(7) These mortgages are insured under the HUD coinsurance program, as
previously discussed. Integrated Funding, Inc. is the HUD-approved
coinsurance lender, and the Partnership bears the risk of any principal
loss, as previously discussed.

(8) This amount represents the Partnership's 45% interest in this Insured
Mortgage. The remaining 55% interest was acquired by AIM 88.

(9) A reconciliation of the carrying value of the Insured Mortgages for the
years ended December 31, 1996 and 1995, is as follows:

1996 1995
------------ ------------
Beginning balance $162,816,978 $160,265,067

Principal receipts on
Insured Mortgages (1,084,392) (1,121,467)

Gain on mortgage
dispositions 1,616,449 5,208

Disposition of mortgages (36,343,358) (6,169,529)

Adjustment to unrealized
losses on investment in
Insured Mortgages 424,970 9,431,165

Adjustment to unrealized
gains on investment in
Insured Mortgages (302,793) 406,534
------------ ------------
Ending balance $127,127,854 $162,816,978
============ ============

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

48

AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86

NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1996

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

(12) Represents principal amount subject to delinquent principal or interest.
See Note 4 to the financial statements.

(13) Pursuant to a modification agreement dated February 1996, the interest rate
on this mortgage was reduced to 6% through December 1996, increasing to
6.75% for 1997 and 7% for all subsequent years. See Note 4 to the
financial statements.

(14) Annual payment reflects required principal and interest payments for 1996
as per the modification agreement.

(15) As of December 31, 1996 and 1995, the tax basis of the Insured Mortgages
was approximately $131.3 million and $167.2 million, respectively.