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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, 1995
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Commission file number 1-11059
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AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
- -------------------------------------------------------------------
(Exact name of registrant as specified in charter)
California 13-3257662
- ------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 816-2300
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(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 March 22, 1996, 12,079,389 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 $173,583,717.
3
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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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
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Item 5. Market for Registrant's Securities and
Related Security Holder Matters . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data . 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 18
PART III
--------
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 19
Item 13. Certain Relationships and Related Transactions 20
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . 24
4
PART I
ITEM 1. BUSINESS
Development and Description of Business
- ---------------------------------------
Information concerning the business of American Insured Mortgage Investors
- - Series 85, L.P. (the Partnership) is contained in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Notes 1, 5, 6 and 7 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, 1995.
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). CRIIMI MAE was formerly managed by
an affiliate of C.R.I., Inc. (CRI).
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 result 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.
Competition
- -----------
In disposing of Insured Mortgages, 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 Insured
Mortgages than the Partnership.
5
PART I
ITEM 1. BUSINESS - Continued
Pursuant to the Sub-advisory Agreement, the Advisor retained a sub-advisor
to perform the services required of the Advisor under the Advisory Agreement.
Effective September 6, 1991 and through June 30, 1995, CRI/AIM Management, Inc.
acted as the sub-advisor. Effective June 30, 1995, CRIIMI MAE Services Limited
Partnership was engaged to act as the sub-advisor. From September 6, 1991
through June 30, 1995, CRI/AIM Management, Inc. also performed advisory services
for American Insured Mortgage Investors (AIM 84), American Insured Mortgage
Investors L.P. - Series 86 (AIM 86) and American Insured Mortgage Investors L.P.
- - Series 88 (AIM 88), as well as the Partnership (collectively, the AIM
Partnerships). Subsequent to June 30, 1995, CRIIMI MAE Services Limited
Partnership also performs advisory services for the AIM Partnerships. CRI also
served as a general partner of the adviser to CRIIMI MAE and CRI Liquidating
REIT, Inc., which have investment objectives similar to those of the AIM
Partnerships.
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 or one or more of the other AIM Partnerships and/or
other entities sponsored or managed by CRIIMI MAE, including CRI Liquidating
REIT, Inc., is 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
first liens on the respective multifamily residential developments or retirement
homes.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be voted on during the
fourth quarter of 1995.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS
Principal Market and Market Price for Units and Distributions
- -------------------------------------------------------------
From July 15, 1986 through July 6, 1989, the Partnership's Depositary Units
of Limited Partnership Interest (Units) were included in the NASDAQ National
Market System. From July 7, 1989 through April 7, 1992, the Units were traded
in the over-the-counter market and quoted on the NASDAQ quotation system under
the symbol "AIMBZ."
Since April 8, 1992, the Units have traded on the American Stock Exchange
(AMEX) with a trading symbol of AII.
The high and low bid prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1995 and 1994 were as
follows:
Amount of
1995 Distribution
Quarter Ended High Low Per Unit
--------------------- ------- ------- ------------
March 31, $14 7/8 $13 $ 0.36
June 30, 14 7/8 13 3/4 0.33
September 30, 14 3/4 14 0.49 (1)
December 31, 14 3/4 14 1/4 0.36 (2)
------
$ 1.54
======
Amount of
1994 Distribution
Quarter Ended High Low Per Unit
--------------------- ------- ------- ------------
March 31, $15 7/8 $13 5/8 $ 0.39 (3)
June 30, 15 3/8 13 3/4 0.73 (4)
September 30, 15 1/8 14 0.48 (5)
December 31, 14 1/2 12 7/8 0.36
------
$ 1.96
======
(1) This amount includes approximately $0.16 per Unit representing net
proceeds from the assignment of the mortgage on El Lago Apartments.
(2) This amount includes approximately $0.02 per Unit representing additional
proceeds from the assignment of the mortgage on El Lago Apartments.
(3) This amount includes approximately $0.05 per Unit representing previously
undistributed accrued interest and gain from the disposition of the
mortgage on Victoria Pointe Apartments-Phase I.
(4) This amount includes approximately $0.37 per Unit representing net
principal proceeds from the prepayment of the mortgage on Richardson Road
Apartments.
(5) This amount includes approximately $0.11 per Unit representing a one-time
distribution of funds that had previously been set aside, pending
resolution of the Partnership's troubled loans. Also included is
approximately $0.01 per Unit representing a return of capital from a
partial prepayment of the mortgage on Garden Court Apartments.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS - Continued
There are no material legal restrictions upon the Partnership's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement.
The Partnership's Dividend Reinvestment Plan (the Plan) was amended
effective January 1, 1994 to exclude the amount of any special distributions
from reinvestment under the Plan. A check will be issued to Plan Participants
for the amount of any special distributions. The regular cash flow
distributions will continue to be automatically reinvested under the Plan in
additional Units as in the past.
Approximate Number of Unitholders
Title of Class as of December 31, 1995
- -------------------- ---------------------------------
Depositary Units of Limited
Partnership Interest 13,400
8
PART II
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Income $ 18,589 $ 19,167 $ 19,202 $ 18,694 $ 19,490
Net gains (losses) on mortgage
dispositions and loan losses 36 (151) 2,636 (652) (2,975)
Net earnings 15,903 16,155 19,058 15,313 12,808
Net earnings per Limited
Partnership Unit (1) 1.27 1.29 1.52 1.22 1.02
Distributions per Limited
Partnership Unit (1)(2) 1.54 1.96 1.775 1.13 1.2645
As of December 31,
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Total assets $225,691 $214,823 $227,937 $229,616 $227,207
Partners' equity 220,681 209,557 221,504 224,758 223,649
(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, 1995, 1994, 1993, 1992
and 1991, which were paid subsequent to year end. See Notes 3 and 7 of the notes to the financial statements of the
Partnership contained in Item 8, "Financial Statements and Supplementary Data."
The selected statements of operations data presented above for the years
ended December 31, 1995, 1994 and 1993, and the balance sheet data as of
December 31, 1995 and 1994, 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, 1992 and 1991 and the balance sheet data as of December 31, 1993, 1992 and
1991 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.
9
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- -------
American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of California on
June 26, 1984. During the period from March 8, 1985 (the initial closing date
of the Partnership's public offering) through January 27, 1986 (the termination
date of the offering), the Partnership, pursuant to its public offering of
Units, raised a total of $241,587,780 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.
From inception through September 6, 1991, AIM Capital Management Corp.
served as managing general partner (with a partnership interest of 3.8%), IRI
Properties Capital Corp. served as corporate general partner (with a partnership
interest of 0.1%) and First Group Partners, an affiliate of the former general
partners, served as the associate general partner (with a partnership interest
of 0.1%). All of the foregoing general partners are sometimes collectively
referred to as former general partners.
At a special meeting of the limited partners and Unitholders, as defined in
the Partnership Agreement, of the Partnership held on September 4, 1991, a
majority of these interests approved, among other items, the assignment of the
general partner interests and the shares of the company which acted as the
assignor limited partner in the Partnership. Additionally, on September 6,
1991, the interest of the former associate general partner (0.1%) was purchased
by the Partnership pursuant to the terms of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE). From inception through June 30, 1995, CRIIMI MAE was managed by
an adviser whose general partner was C.R.I., Inc. (CRI). However, effective
June 30, 1995, CRIIMI MAE became a self-managed and self-administered real
estate investment trust (REIT) and, as a result, the adviser no longer advises
CRIIMI MAE.
AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of 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.
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, CRIIMI MAE Services Limited Partnership, acquired the Sub-advisory
Agreement. As a result of this transaction, effective June 30, 1995, CRIIMI MAE
Services Limited Partnership, 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, 1993, and subject to the change in the Partnership's investment
policy, as discussed below, 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). Effective September 19, 1991, the
General Partner changed, at the Advisor's recommendation, the investment
policies of the Partnership to invest only in Acquired Insured Mortgages which
are fully insured or guaranteed by the Federal National Mortgage Association,
10
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
the Government National Mortgage Association (GNMA), Federal Housing
Administration (FHA) or the Federal Home Loan Mortgage Corporation. As of
December 31, 1995, the Partnership had invested in either Originated Insured
Mortgages which are insured or guaranteed, in whole or in part, by FHA or fully
insured Acquired Insured Mortgages.
After the expiration of the Partnership's reinvestment period on December
31, 1993, 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,
2009, unless previously terminated under the provisions of the Partnership
Agreement.
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.
The following is a discussion of the types of the Partnership's mortgage
investments, along with the risks related to each type of investment:
Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed
Securities
- ---------------------------------------------------------------
As of December 31, 1995, the Partnership's investment in fully insured
Acquired Insured Mortgages, recorded at fair value, consisted of 66 FHA-Insured
Certificates and nine GNMA Mortgage-Backed Securities with an aggregate
amortized cost of $157,656,694, an aggregate face value of $164,397,459, and an
aggregate fair value of $169,460,375. As of December 31, 1994, the
Partnership's investment in fully insured Acquired Insured Mortgages, recorded
at fair value, consisted of 67 FHA-Insured Certificates and nine GNMA Mortgage-
Backed Securities with an aggregate amortized cost of $161,032,201, an aggregate
face value of $168,027,076 and an aggregate fair value of $159,581,791.
The Partnership's investment in fully insured Originated Insured Mortgages,
recorded at fair value, consisted of one GNMA Mortgage-Backed Security as of
December 31, 1995 and 1994. As of December 31, 1995, this investment had an
amortized cost of $10,666,346, a face value of $10,760,496, and a fair value of
$10,925,754. As of December 31, 1994, this investment had an amortized cost of
$10,708,771, a face value of $10,804,299 and a fair value of $10,345,301.
As of March 27, 1996, all of the fully insured FHA-Insured Certificates and
GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest, except for the mortgage on Country Club Apartments,
which is delinquent with respect to the March 1996 payment of principal and
interest, and the mortgage on Woodland Village Apartments, for which payments of
principal and interest have been received through September 1995. On October
31, 1995, the General Partner instructed the servicer of the mortgage on
Woodland Village Apartments to file a Notice of Default and Election to Assign
the mortgage with HUD. The Partnership expects to receive 90% of the proceeds
by the end of the second quarter of 1996 with the remaining balance to be
received prior to the end of 1996. The General Partner does not anticipate a
11
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
material adverse impact on the Partnership's financial statements as a result of
this delinquency or assignment.
During March 1996, one of the investors in the Harbor View Estates loan,
exercised its right to purchase the participation interests with respect to the
Insured Mortgage after a notice of default was filed with HUD. The Partnership
received net proceeds of approximately $693,000 from this prepayment in March
1996. The net settlement proceeds are expected to be distributed to investors
in August 1996.
In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured Mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) 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.
Mortgage Dispositions
- ---------------------
During the years ended December 31, 1995, 1994 and 1993, the Partnership
disposed of the following fully insured Insured Mortgages. The Partnership
reinvested the net disposition proceeds from the 1993 mortgage dispositions in
fully insured Acquired Insured Mortgages. The Partnership distributed the net
disposition proceeds from the 1994 and 1995 dispositions to the partners. As
discussed in Note 8 to the financial statements, the mortgage on Richardson Road
Apartments was prepaid during 1994. No gain or loss was recognized, however,
because this mortgage investment was transferred to an affiliate effective
December 31, 1991.
12
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Financial
Statement
Year of Type of Net Carrying Net Gain/(Loss)
Complex Name Disposition Disposition Value Proceeds Recognized
------------ ----------- --------------- ------------ ---------- ------------
El Lago Apartments(b) 1995 Assignment $ 2,298,253 $2,281,588 $ (16,665)
Dearborn Place Apts.(a) 1995(g) Sale of
defaulted loan -- 52,730 52,730
Sugar Creek Trace (a) 1994(f) Sale of
defaulted loan -- -- (71,181)(f)
Urban Village Apts.(29%)(a) 1993(c) Assignment 4,609,381 4,601,656 (7,725)
Columbus Square Apts.(b) 1993 Assignment 1,754,265 1,952,218 197,953
Westmount Apts.(b) 1993 Assignment 1,187,204 1,533,622 346,418
Chapelgate Apts.(b) 1993 Sale of
defaulted loan 682,731 901,171 218,440
Cumberland Village (b) 1993 Sale of
defaulted loan 1,520,268 1,955,663 435,395
Sugar Creek Trace (a) 1993 Sale of
defaulted loan 3,433,622 3,684,017 250,395
Diamond Ridge (a) 1993 Sale of
defaulted loan 5,372,192 5,532,686 160,494
Dearborne Place Apts.(a) 1993 Sale of
defaulted loan -- 248,696(e) 248,696
Clark and Elm Apts.(a)(d) 1993 Sale of
defaulted loan -- 132,507(e) 132,507
(a) Disposition of an Originated Insured Mortgage.
(b) Disposition of an Acquired Insured Mortgage.
(c) Approximately 70% of the proceeds were received in 1992. The remaining assignment proceeds were received from HUD in March
1993.
(d) Represents the Partnership's 55% ownership interest in the mortgage. The remaining 45% interest in the mortgage was owned by
American Insured Mortgage Investors, an affiliate of the Partnership.
(e) Represents additional proceeds received resulting from an adjustment to the 1992 sales price.
(f) Represents a payment made on final settlement of the mortgage disposition.
(g) Represents additional proceeds received resulting from an adjustment to the 1993 sales price.
Coinsured FHA-Insured Certificates
- ----------------------------------
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 cases, 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
13
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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.
Coinsured by affiliate
- ----------------------
As of December 31, 1995 and 1994, the Partnership had invested in two FHA-
Insured Certificates secured by coinsured mortgages where the coinsurance lender
is IFI. These investments were made by the former managing general partner on
behalf of the Partnership. As structured by the former managing general
partner, with respect to these mortgages, the Partnership bears the risk of loss
upon default for IFI's portion of the coinsurance loss.
As of December 31, 1995 and 1994, these investments, as shown in the table
below, are current with respect to the payment of principal and interest. The
General Partner believes there is adequate collateral value underlying these
mortgages. Therefore, no loan losses were recognized on these investments
during the years ended December 31, 1995, 1994 and 1993. As of December 31,
1995 and 1994, these mortgages had an aggregate fair value of $12,034,714 and
$11,327,515.
14
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Amortized Face Amortized Face
Cost Value Cost Value
December 31, December 31, December 31, December 31,
1995 1995 1994 1994
------------ ------------ ------------ ------------
Westlake Village $ 6,473,072 $ 6,471,133 $ 6,504,367 $ 6,502,394
Waterford Green Apts. 6,511,202 6,526,094 6,474,012 6,489,123
In December 1992, the Partnership entered into a modification
agreement with the mortgagor of Waterford Green Apartments. This agreement
effectively lowered the interest rate on the mortgage from 8.5% to 6.5% for
a period continuing through November 1995. The mortgagor assumed an
additional note for the difference between the interest due under the
principal mortgage and the modified interest paid under the agreement. As
of March 1996, the mortgage on Waterford Green is being restated under the
HUD 223(a)(7) program converting this mortgage from a coinsured to fully
insured status at a fixed rate of 7.25%. Closing is scheduled to occur in
mid 1996. The mortgagor is current in its payments of principal and
interest under this agreement, as of March 1, 1996.
Certificates Held for Disposition Under Coinsurance Program
------------------------------------------------------------
As of December 31, 1992, the Partnership, held an investment in one
coinsured mortgage, which was held for disposition. In December 1993, the
Partnership disposed of this coinsured mortgage, as discussed below.
The following table summarizes the gains/(losses) recognized for
coinsured mortgages held for disposition during the years ended December
31, 1995, 1994 and 1993:
Gains/(Losses) Recognized
1995 1994 1993
--------- --------- ---------
Victoria Pointe Apts.
- Phase I $ -- $ -- $ 653,073(a)
1212 North LaSalle -- (80,173)(b) --
--------- --------- ---------
$ -- $ (80,173) $ 653,073
========= ========= =========
(a) Represents gain recognized in connection with the receipt of
approximately $8.7 million as a result of the settlement of the mortgage on
Victoria Pointe Apartments - Phase I.
(b) Represents amount paid by the Partnership for final adjustments to
real estate taxes with respect to the property underlying the mortgage on
1212 North LaSalle, which the Partnership had sold in 1992.
15
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Fully Insured FHA-Insured Loans
- -------------------------------
As of December 31, 1995 and 1994 the Partnership's investment in fully
insured Acquired Insured Mortgages, recorded at amortized cost, consisted of 12
FHA-Insured Loans with an aggregate amortized cost of $14,684,828 and
$14,800,502, respectively, an aggregate face value of $17,627,453 and
$17,833,049, respectively, and an aggregate fair value of $18,388,369 and
$16,920,898, respectively.
As of December 31, 1995 and 1994, the Partnership's investment in fully
insured Originated Insured Mortgages, recorded at amortized cost, consisted of
three FHA-Insured Loans with an aggregate amortized cost of $13,123,855 and
$13,210,344, respectively, an aggregate face value of $12,766,486 and
$12,844,664, respectively, and an aggregate fair value of $13,160,443 and
$12,412,621, respectively.
As of March 27, 1996, all of the fully insured FHA-Insured Loans were
current with respect to the payment of principal and interest.
In addition to base interest payments under Originated Insured Mortgages,
the Partnership is entitled to additional interest based on a percentage of the
net cash flow from the underlying development (referred to as Participations).
During the years ended December 31, 1995, 1994 and 1993, the Partnership
received $64,676, $35,314 and $24,153 respectively, from the Participations.
These amounts are included in mortgage investment income on the accompanying
statements of operations.
Results of Operations
- ---------------------
1995 versus 1994
- ----------------
Net earnings decreased for 1995 as compared to 1994 primarily due to a
decrease in mortgage investment income and interest and other income, as
discussed below.
Mortgage investment income decreased for 1995 as compared to 1994 primarily
due to the assignment to HUD of the mortgage on El Lago Apartments in June 1995.
Also contributing to the decrease was the conversion of construction loans to
permanent loans at lower effective interest rates during 1994.
Interest and other income decreased for 1995 as compared to 1994 primarily
due to a reduction in funds available for short- term investment during 1995.
During the first quarter of 1994, the Partnership had a greater amount of short-
term investments, resulting from the temporary investment of disposition
proceeds received in late 1993, prior to the distribution of these funds to
partners during the first quarter of 1994. Additionally, during the second
quarter of 1994, the notes receivable from affiliates were paid off as a result
of the prepayment of the mortgage on Richardson Road Apartments and the proceeds
were invested in the short-term money market prior to the distribution of these
proceeds to partners during the third quarter of 1994.
Asset management fee to related parties decreased for 1995 as compared to
1994 as a result of the reduction in the mortgage base during 1995 and 1994.
General and administrative expenses decreased for 1995 as compared to 1994
primarily due to a decrease in investor services expenses and annual and
quarterly reporting expenses resulting from a reduction in the number of
16
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
registered holders. Also contributing to the decrease in general and
administrative expenses was a reduction in payroll and payroll-related expenses
as a result of the stabilization of the Partnership's mortgage portfolio as well
as a reduction in the mortgage base.
Mortgage servicing fees decreased for 1995 as compared to 1994 primarily
due to a reduction in annual servicing fee rates upon the completion of the
construction periods for several mortgage investments during 1994 as well as a
reduction in the mortgage base.
Net gains on mortgage dispositions increased for 1995 as compared to 1994.
Gains or losses on mortgage dispositions are based on the number, carrying
amounts and the proceeds of mortgage investments disposed of during the period.
During 1995, the Partnership recognized a gain of $52,730 as a result of the
final settlement of the disposition of the mortgage on Dearborne Place
Apartments, and recognized a loss of $16,665 as a result of the assignment to
HUD of the mortgage on El Lago Apartments.
1994 versus 1993
- ----------------
Net earnings for 1994 decreased as compared to 1993 primarily due to a
decrease in net gains on the disposition of mortgage investments, and a decrease
in interest and other income, as discussed below. These decreases were
partially offset by an increase in mortgage investment iocome.
Mortgage investment income increased for 1994 as compared to 1993 primarily
due to an increase in the mortgage base as a result of mortgage acquisitions and
construction loan advances during late 1993 and 1994.
Interest and other income decreased for 1994 as compared to 1993 primarily
due to interest accrued and received on the coinsurance claim related to the
Insured Mortgage on 1212 North LaSalle during 1993. The decrease in interest
and other income was also attributable to a reduction in funds available for
short-term investment during 1994. The Partnership had a greater amount of
short-term investments during early 1993, resulting from the temporary
investment of disposition proceeds received in 1992 and 1993, pending the
acquisition of Insured Mortgages.
Asset management fee to related parties increased for 1994 as compared to
1993 due to the increase in the Partnership's mortgage base as a result of
mortgage acquisitions which occurred during late 1993 and 1994, as discussed
above.
General and administrative expenses decreased for 1994 as compared to 1993
primarily due to a reduction in legal expenses.
17
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage servicing fees increased for 1994 as compared to 1993 primarily
due to an increase in the Partnership's mortgage base, as discussed above.
Net gains on mortgage dispositions decreased in 1994 as compared to 1993
primarily due to fewer mortgage dispositions during 1994.
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 1995 to meet operating
requirements.
Prior to January 1, 1994, the basis for paying distributions to Unitholders
was cash flow from operations, which includes regular interest income and
principal from Insured Mortgages and gains, if any, from mortgage dispositions.
Effective January 1, 1994, the Partnership began distributing net principal
proceeds from mortgage dispositions to Unitholders. Consequently, the size of
the Partnership's portfolio will decrease. Although the 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 payments received are
temporarily invested prior to the payment of quarterly distributions, (2) the
reduction in the asset base and monthly mortgage payments due to 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.
Since the Partnership is obligated to distribute the Proceeds of Mortgage
Prepayments, Sales and Insurance of Insured Mortgages (as defined in the
Partnership Agreement) to its Unitholders, the size of the Partnership's
portfolio will continue to decrease. The magnitude of the decrease will depend
upon the size of the Insured Mortgages which are prepaid, sold or assigned for
insurance proceeds as reflected in the preceding table.
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 decrease in receivables and other
assets during 1994 resulting from the receipt in January 1994 of accrued, but
previously undistributed, interest related to Victoria Pointe Apartments - Phase
I. Also contributing to this decrease were decreases in mortgage investment
income and other investment income, as previously discussed.
Net cash provided by investing activities increased for 1995 as compared to
1994, principally due to a decrease in mortgage acquisitions and advances on
construction loans as a result of the expiration of the Partnership's
reinvestment period. Also contributing to the increase was the receipt in 1995
of proceeds from the assignment to HUD of the mortgage on El Lago Apartments.
Partially offsetting the increase in net cash provided by investing activities
was the non-recurring payment of notes receivable from affiliates and dividends
from IFI, as a result of the prepayment of the mortgage on Richardson Road
Apartments during 1994.
Net cash used in financing activities decreased for 1995 as compared to
1994, as a result of a decrease in distributions paid to partners.
18
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Distributions paid to partners during 1994 included special distributions
resulting from the prepayment of the mortgage on Richardson Road Apartments, the
receipt of previously undistributed accrued interest and gain received in late
1993 from the disposition of the defaulted mortgages on Chapelgate Apartments,
Sugar Creek Trace, Cumberland Village, Diamond Ridge, and Victoria Pointe
Apartments-Phase I. This compares to the distribution paid to partners during
1995 which included special distributions of net proceeds from the assignment of
the mortgage on El Lago Apartments.
Cash flow - 1994 versus 1993
- ----------------------------
Net cash provided by operating activities increased for 1994 as compared to
1993, primarily due to the receipt in January 1994 of accrued, but previously
undistributed, interest related to Victoria Pointe Apartments-Phase I. The
increase was also attributable to an increase in mortgage investment income,
offset by a decrease in interest and other income, as previously described.
Also contributing to the increase in net cash provided by operating activities
was a decrease in accounts payable during 1993 as a result of the repayment of
funds erroneously paid by an unaffiliated third party to the Partnership during
late December 1992.
Net cash used in investing activities increased for 1994 as compared to
1993 principally due to an increase in mortgage acquisitions, net of mortgage
dispositions. During 1994, net mortgage acquisitions were approximately $9.7
million, as compared to approximately $4.5 million during 1993. Partially
offsetting the increase in net mortgage acquisitions was the receipt of
approximately $3.5 million in connection with the paydown of notes receivable
from affiliates and dividends of approximately $1.1 million from IFI.
Net cash used in financing activities increased for 1994 as compared to
1993, as a result of an increase in distributions paid to partners.
Distributions paid to partners increased in 1994 primarily due to the special
distributions resulting from the prepayment of the mortgage on Richardson Road
Apartments and receipt of previously undistributed accrued interest and gain
received in late 1993 from the disposition of the defaulted mortgages on
Chapelgate Apartments, Sugar Creek Trace, Cumberland Village, Diamond Ridge, and
Victoria Pointe Apartments-Phase I. Additionally, during 1994, the Partnership
made a one-time distribution of funds previously set aside for troubled loans.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is on pages 29 through 62.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a),(b),(c),(e)
The Partnership has no officers or directors. 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
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
June 30, 1995, CRIIMI MAE was managed by an adviser whose general partner was
CRI. However, effective June 30, 1995, CRIIMI MAE became a self-administered
REIT and, as a result, the adviser no longer advises CRIIMI MAE.
Effective September 6, 1991, the General Partner succeeded the former
general partners to become the sole general partner of the Partnership. The
General Partner also purchased the interests of the former managing general
partner and the former corporate general partner pursuant to the terms of the
Partnership Agreement. In addition, the General Partner acquired the shares of
the company which acted as the assignor limited partner in the Partnership. The
interest of the former associate general partner (0.1%) was purchased by the
Partnership on September 6, 1991, pursuant to the terms of the Partnership
Agreement.
Also, on September 6, 1991, the Advisor succeeded Integrated Funding, Inc.
(IFI) as the advisor of 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, as discussed
below, 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 86 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 and 4 and amendments
thereto furnished to the Partnership, and written representations
from certain reporting persons that no Form 5s were required for
those 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, 1995.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
Note 3 of the notes to the financial statements of the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
20
PART III
As of December 31, 1995, 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.
As of December 31, 1995, 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 3 of the notes to the financial statements of the Partnership
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, and 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 former general partners or the
current General Partner of the Partnership are officers, directors or
equity owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
21
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, 1995
and 1994 27
Statements of Operations for the years ended
December 31, 1995, 1994, and 1993 28
Statements of Changes in Partners' Equity for
the years ended December 31, 1995, 1994 and
1993 29
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 30
Notes to Financial Statements 31
(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 Certificates of Limited Partnership are
incorporated by reference to Exhibit 4(a) to the Registration
Statement on Form S-11 (No. 2-93294) dated January 28, 1985 (such
Registration Statement, as amended, is referred to herein as the
"Registration Statement").
4. Second Amended and Restated Partnership Agreement is incorporated
by reference to Exhibit 3 to the Registration Statement.
4.(a) Amendment No. 1 to the Second Amended and Restated Partnership
Agreement is incorporated by reference to Exhibit 4(a) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1986.
4.(b) Amendment No. 2 to the Second Amended and Restated Partnership
Agreement is incorporated by reference to exhibit 4(b) to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1986.
4.(c) Amendment to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership dated February 12, 1990,
incorporated by reference to Exhibit 4(c) to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1989.
10.(a) Escrow Agreement, dated January 14, 1985, among the
Partnership, the Managing General Partner and Integrated
Resources Marketing, Inc., incorporated by reference to Exhibit
10(a) to the Registration Statement.
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.(b) Amended and Restated Origination and Acquisition Services
Agreement, dated as of January 8, 1985, between the Partnership
and IFI, incorporated by reference to Exhibit 10(b) to the
Registration Statement.
10.(c) Amended and Restated Management Services Agreement, dated as of
January 8, 1985, between the Partnership and IFI, incorporated by
reference to Exhibit 10(c) to the Registration Statement.
10.(d) Amended and Restated Disposition Services Agreement, dated as of
January 8, 1985, between the Partnership and IFI, incorporated by
reference to Exhibit 10(d) to the Registration Statement.
10.(e) Agreement, dated as of January 8, 1985, among the former managing
general partner, the former associate general partner and
Integrated Resources, Inc., incorporated by reference to Exhibit
10(e) to the Registration Statement.
10.(f) Reinvestment Plan, incorporated by reference to the Prospectus
contained in the Registration Statement.
10.(h) Declaration of Trust and Pooling Servicing Agreement dated as of
July 1, 1982 as to Pass-Through Certificates, is incorporated by
reference to Exhibit 10(h) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986.
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 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 from American Insured Mortgage
Investors L.P. - Series 86 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.
10.(n) Non-negotiable promissory note from American Insured Mortgage
Investors L.P. - Series 88 in the amount of $1,784,688 dated
December 31, 1991, incorporated by reference to Exhibit 28(e),
to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1991.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.(o) 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(f) to the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1992.
10.(p) Expense Reimbursement Agreement by and among Integrated Funding
Inc. and the Partnership, American Insured Mortgage Investors
L.P. - Series 86, and American Insured Mortgage Investors L.P. -
Series 88, effective December 31, 1992, incorporated by reference
to Exhibit 28(g) to the Partnership's Quarterly Report on Form
10-Q for the quarter ended June 30, 1991.
10.(q) Non-negotiable promissory note to American Insured Mortgage
Investors L.P. - Series 88 in the amount of $319,074.67 dated
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.
10.(r) Amendment to Reimbursement Agreement by and among Integrated
Funding Inc. and the Partnership, American Insured Mortgage
Investors L.P. - Series 86, and American Insured Mortgage
Investors L.P. - Series 88, effective April 1, 1994, incorporated
by reference to Exhibit 10(r) 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.
24
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 - SERIES 85, L.P. (Registrant)
By:CRIIMI, Inc.
General Partner
March 28, 1996 /s/ William B. Dockser
- --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
March 28, 1996 /s/ H. William Willoughby
- --------------------------- -------------------------
DATE H. William Willoughby
President and Director
March 28, 1996 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
March 28, 1996 /s/ Garrett G. Carlson, Sr.
- --------------------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director
March 28, 1996 /s/ Larry H. Dale
- --------------------------- -------------------------
DATE Larry H. Dale
Director
March 28, 1996 /s/ G. Richard Dunnells
- --------------------------- -------------------------
DATE G. Richard Dunnells
Director
March 28, 1996 /s/ Robert F. Tardio
- --------------------------- -------------------------
DATE Robert F. Tardio
Director
25
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
Financial Statements as of December 31, 1995 and 1994
and for the Years Ended December 31, 1995, 1994 and 1993
26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
American Insured Mortgage Investors - Series 85, L.P.:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors - Series 85, L.P. (the Partnership) as of December 31, 1995
and 1994, and the related statements of operations, changes in partners' equity
and cash flows for the years ended December 31, 1995, 1994 and 1993. 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, 1995 and 1994, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
As explained in Note 2 of the Notes to the Financial Statements, effective
January 1, 1994, the Partnership changed its method of accounting for its
investments 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, 1995 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 22, 1996
27
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
ASSETS
December 31, December 31,
1995 1994
------------ ------------
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Acquired insured mortgages $169,460,375 $159,581,791
Originated insured mortgages 22,960,468 21,672,516
------------ ------------
192,420,843 181,254,307
Investment in FHA-Insured Loans,
at amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,684,828 14,800,502
Originated insured mortgages 13,123,855 13,210,344
------------ ------------
27,808,683 28,010,846
Cash and cash equivalents 3,368,700 3,462,825
Receivables and other assets 1,775,746 1,775,797
Investment in affiliate 317,151 319,075
------------ ------------
Total assets $225,691,123 $214,822,850
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 4,525,104 $ 4,525,104
Accounts payable and accrued expenses 163,737 300,932
Note payable and due to affiliate 320,920 439,433
------------ ------------
Total liabilities 5,009,761 5,265,469
------------ ------------
Partners' equity:
Limited partners' equity 210,842,615 214,162,478
General partner's deficit (1,274,782) (1,140,053)
Net unrealized gains (losses)
on investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities 11,113,529 (3,465,044)
------------ ------------
Total partners' equity 220,681,362 209,557,381
------------ ------------
Total liabilities and partners' equity $225,691,123 $214,822,850
============ ============
The accompanying notes are an integral part
of these financial statements.
28
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
Income:
Mortgage investment income $ 18,404,737 $ 18,640,699 $ 17,309,389
Interest and other income 183,846 526,002 1,893,069
------------ ------------ ------------
18,588,583 19,166,701 19,202,458
------------ ------------ ------------
Expenses:
Asset management fee to related
parties 2,042,886 2,064,713 2,025,123
General and administrative 367,821 444,848 480,206
Mortgage servicing fees 288,010 333,818 274,673
Interest expense to affiliate 23,133 17,350 --
------------ ------------ ------------
2,721,850 2,860,729 2,780,002
------------ ------------ ------------
Earnings before gains (losses)
on mortgage dispositions 15,866,733 16,305,972 16,422,456
Mortgage dispositions:
Gains 52,730 -- 2,643,371
Losses (16,665) (151,354) (7,725)
------------ ------------ ------------
Net earnings $ 15,902,798 $ 16,154,618 $ 19,058,102
============ ============ ============
Net earnings allocated to:
Limited partners -96.1% $ 15,282,589 $ 15,524,588 $ 18,314,836
General partner - 3.9% 620,209 630,030 743,266
------------ ------------ ------------
$ 15,902,798 $ 16,154,618 $ 19,058,102
============ ============ ============
Net earnings per Limited
Partnership Unit $ 1.27 $ 1.29 $ 1.52
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
29
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
Unrealized Unrealized
Gains Losses
on Investment on Investment
in FHA-Insured in FHA-Insured
Certificates Certificates
and GNMA and GNMA Total
General Limited Mortgage-Backed Mortgage-Backed Partners'
Partner Partners Securities Securities Equity
------------- ------------ ---------------- --------------- ------------
Balance, January 1, 1993 $ (682,379) $225,440,050 $ -- $ -- $224,757,671
Net earnings 743,266 18,314,836 -- -- 19,058,102
Distributions paid or accrued of
$1.775 per Unit, including return
of capital of $0.26 per Unit (870,140) (21,441,149) -- -- (22,311,289)
------------- ------------ ---------------- --------------- ------------
Balance, December 31, 1993 (809,253) 222,313,737 -- -- 221,504,484
Net earnings 630,030 15,524,588 -- -- 16,154,618
Distributions paid or accrued of
of $1.96 per Unit, including return
of capital of $0.67 per Unit (960,830) (23,675,847) -- -- (24,636,677)
Unrealized gains/(losses)on investments
in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities -- -- 5,177,224 (8,642,268) (3,465,044)
------------- ------------ ---------------- --------------- ------------
Balance, December 31, 1994 (1,140,053) 214,162,478 5,177,224 (8,642,268) 209,557,381
Net earnings 620,209 15,282,589 -- -- 15,902,798
Distributions paid or accrued of
of $1.54 per Unit, including return
of capital of $0.27 per Unit (754,938) (18,602,452) -- -- (19,357,390)
Adjustment to unrealized gains/
losses on investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities -- -- 6,982,335 7,596,238 14,578,573
------------- ------------ ---------------- --------------- ------------
Balance, December 31, 1995 $ (1,274,782) $210,842,615 $ 12,159,559 $ (1,046,030) $220,681,362
============= ============ ================ =============== ============
Limited Partnership Units outstanding -
December 31, 1995, 1994 and 1993 12,079,514
============
The accompanying notes are an integral part
of these financial statements.
30
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 15,902,798 $ 16,154,618 $ 19,058,102
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Losses on mortgage dispositions 16,665 151,354 7,725
Gains on mortgage dispositions (52,730) -- (2,643,371)
Payments made and treated as an
addition to Assets Held for Sale
Under Coinsurance Program/mortgage
investment income accrued/accreted
on AHFS -- -- (221,763)
Changes in assets and liabilities:
(Decrease) increase in accounts
payable and accrued expenses (137,195) 27,957 (1,002,602)
Decrease in receivables
and other assets 51 1,375,525 76,300
Increase in notes receivable from
affiliates -- -- (13,811)
(Decrease) increase in due to affiliate (118,513) 120,358 --
Decrease in investment in affiliate 1,924 -- 1,658
------------ ------------ ------------
Net cash provided by operating
activities 15,613,000 17,829,812 15,262,238
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of Insured
Mortgages 2,334,318 -- 20,542,236
Receipt of mortgage principal from
scheduled payments 1,315,947 1,302,622 835,386
Investment in Insured Mortgages
and advances on construction loans -- (9,739,490) (50,265,892)
Payments made in connection with mortgage
dispositions -- (151,354) --
Principal payments on notes receivable
from affiliates -- 3,522,411 --
Dividends from affiliate investee -- 1,097,118 --
Proceeds from the disposition of
Assets Held for Sale Under Coinsurance
Program -- -- 8,692,863
Proceeds received from HUD -- -- 16,476,527
Proceeds from short-term investments -- -- 1,001,230
------------ ------------ ------------
Net cash provided by (used in)
investing activities 3,650,265 (3,968,693) (2,717,650)
------------ ------------ ------------
Cash flows from financing activities:
Distributions paid to partners (19,357,390) (26,270,742) (19,734,494)
------------ ------------ ------------
Net decrease in cash and cash equivalents (94,125) (12,409,623) (7,189,906)
Cash and cash equivalents, beginning of year 3,462,825 15,872,448 23,062,354
------------ ------------ ------------
Cash and cash equivalents, end of year $ 3,368,700 $ 3,462,825 $ 15,872,448
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
31
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of California on
June 26, 1984. From inception through September 6, 1991, AIM Capital Management
Corp. served as managing general partner (with a partnership interest of 3.8%),
IRI Properties Capital Corp. served as corporate general partner (with a
partnership interest of 0.1%) and First Group Partners, an affiliate of the
former general partners, served as the associate general partner (with a
partnership interest of 0.1%). All of the foregoing general partners are
sometimes collectively referred to as the former general partners.
At a special meeting of the limited partners and Unitholders of the
Partnership held on September 4, 1991, a majority of these interests approved,
among other items, assignment of the general partner interests in the
Partnership. In addition, the General Partner acquired the shares of the
company which acted as the assignor limited partner in the Partnership. The
interest of the former associate general partner (0.1%) was purchased by the
Partnership on September 6, 1991, pursuant to the terms of the Partnership
Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE). From inception through June 30, 1995, CRIIMI MAE was managed by
an adviser whose general partner was C.R.I., Inc. (CRI). However, effective
June 30, 1995, CRIIMI MAE became a self-administered real estate investment
trust (REIT) and, as a result, the adviser no longer advises CRIIMI MAE.
Also on September 6, 1991, AIM Acquisition Partners, L.P., (the Advisor)
succeeded Integrated Funding, Inc. (IFI) as the advisor to the Partnership. AIM
Acquisition Corporation (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 as discussed below, 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.
Prior to the expiration of the Partnership's reinvestment period on
December 31, 1993, and subject to the change in the Partnership's investment
policy, as discussed below, 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). As of December 31, 1995, 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).
Since the expiration of the Partnership's reinvestment period on December
31, 1993, the Partnership is required to distribute such proceeds to its
32
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION - Continued
Unitholders. The Partnership Agreement states that the Partnership will
terminate on December 31, 2009, unless previously terminated under the
provisions of the Partnership Agreement.
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
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 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.
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 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
33
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
using the amortized cost method and all other securities must be recorded
at their fair values.
As of December 31, 1995, 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 14
years, on December 31, 2009, 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
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, 1995 and
1994, all of the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are recorded at fair value, with
the net unrealized gains or 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
investments in 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.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time and
demand deposits, commercial paper and repurchase agreements with original
maturities of three months or less.
34
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Reclassification
----------------
Certain amounts in the financial statements as of December 31, 1994
and for the years ended December 31, 1994 and 1993 have been reclassified
to conform with the 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.
Statements of Cash Flows
------------------------
No cash payments were made for interest expense during the years ended
December 31, 1995, 1994 and 1993.
3. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described in Note 8, the
General Partner and certain affiliated entities, during the years ended December
31, 1995, 1994 and 1993, earned or received compensation or payments for
services from the Partnership as follows:
35
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
3. 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 1995 1994 1993
---------------------------- ---------- ---------- ----------
CRIIMI, Inc.(1) General Partner/Distribution $ 754,938 $ 960,830 $ 870,140
AIM Acquisition Advisor/Asset Management Fee 2,042,886 2,064,713 2,025,123
Partners, L.P.(2)
CRI(3) Affiliate of General Partner/ 71,129 140,960 172,129
Expense Reimbursement
CRIIMI MAE Affiliate of General Partner/ 28,087 -- --
Management, Inc.(3) Expense Reimbursement
(1) The General Partner, pursuant to amendments to the Partnership Agreement, effective September 6, 1991, is entitled to receive
3.9% of the Partnership's income, loss, capital and distributions including, without limitation, the Partnership's Adjusted
Cash from Operations and Proceeds of Mortgage Prepayments, Sales or Insurance (both as defined in the Partnership Agreement).
The principal officers of the General Partner for the period January 1, 1993 through December 31, 1995 did not receive fees for
serving as officers of the General Partner, nor are any fees expected to be paid to the officers in the future.
(2) The Advisor, pursuant to the Partnership Agreement, effective October 1, 1991, is entitled to an Asset Management Fee equal to
0.95% of Total Invested Assets (as defined in the Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor)
is entitled to a fee equal to 0.28% of Total Invested Assets. CRI/AIM Management, Inc., which through June 30, 1995 acted as
the Sub-advisor, earned a fee equal to $302,682, $608,580 and $596,903, for the six months ended June 30, 1995 and for the
years ended December 31, 1994 and 1993, respectively. As discussed in Note 1 above, 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 $299,460 for the six months ended December 31, 1995. No fees were earned by CRIIMI MAE
Services Limited Partnership for the years ended December 31, 1994 and 1993.
(3) 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 the 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.
4. 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.
36
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
As of December 31, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities:
Acquired insured mortgages $157,656,694 $169,460,375 $161,032,201 $159,581,791
Originated insured mortgages 23,650,620 22,960,468 23,687,150 21,672,516
------------ ------------ ------------ ------------
$181,307,314 $192,420,843 $184,719,351 $181,254,307
============ ============ ============ ============
Investment in FHA-Insured Loans:
Acquired insured mortgages $14,684,828 $18,388,369 $ 14,800,502 $ 16,920,898
Originated insured mortgages 13,123,855 13,160,443 13,210,344 12,412,621
------------ ------------ ------------ ------------
$27,808,683 $31,548,812 $ 28,010,846 $ 29,333,519
============ ============ ============ ============
Cash and cash equivalents $ 3,368,700 $ 3,368,700 $ 3,462,825 $ 3,462,825
============ ============ ============ ============
Accrued interest receivable $ 1,567,816 $ 1,567,816 $ 1,556,361 $ 1,556,361
============ ============ ============ ============
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 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 mortgage. 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.
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES
Fully Insured FHA-Insured Certificates and GNMA Mortgage-
Backed Securities
---------------------------------------------------------
As of December 31, 1995, the Partnership's investment in fully insured
Acquired Insured Mortgages, recorded at fair value, consisted of 66 FHA-Insured
37
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES - Continued
Certificates and nine GNMA Mortgage-Backed Securities with an aggregate
amortized cost of $157,656,694, an aggregate face value of $164,397,459, and an
aggregate fair value of $169,460,375. As of December 31, 1994, the
Partnership's investment in fully insured Acquired Insured Mortgages, recorded
at fair value, consisted of 67 FHA-Insured Certificates and nine GNMA Mortgage-
Backed Securities with an aggregate amortized cost of $161,032,201, an aggregate
face value of $168,027,076 and an aggregate fair value of $159,581,791.
The Partnership's investment in fully insured Originated Insured Mortgages,
recorded at fair value, consisted of one GNMA Mortgage-Backed Security as of
December 31, 1995 and 1994. As of December 31, 1995, this investment had an
amortized cost of $10,666,346, a face value of $10,760,496, and a fair value of
$10,925,754. As of December 31, 1994, this investment had an amortized cost of
$10,708,771, a face value of $10,804,299 and a fair value of $10,345,301.
As of March 27, 1996, all of the fully insured FHA-Insured Certificates and
GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest except for the mortgages on Country Club Apartments,
which is delinquent with respect to the March 1996 payment of principal and
interest, and the mortgage on Woodland Village Apartments, for which payments of
principal and interest have been received through September 1995. On October
31, 1995, the General Partner instructed the servicer of the mortgage on
Woodland Village Apartments to file a Notice of Default and Election to Assign
the mortgage with HUD. The Partnership expects to receive 90% of the proceeds
by the end of the second quarter of 1996 with the remaining balance to be
received prior to December 31, 1996. The General Partner does not anticipate a
material adverse impact on the Partnership's financial statements as a result of
this delinquency or assignment.
During March 1996, one of the investors in the Harbor View Estates Loan,
exercised its right to purchase the Participation interests with respect to
Insured Mortgage after a notice of default was filed with HUD. The Partnership
received net proceeds of approximately $693,000 from this prepayment in March
1996, which are expected to be distributed to investors in August, 1996.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
disposed of the following fully insured Insured Mortgages. The Partnership
reinvested the net disposition proceeds from the 1993 mortgage dispositions in
fully insured Acquired Insured Mortgages. The Partnership distributed the net
disposition proceeds from the 1994 and 1995 dispositions to the partners. As
discussed in Note 8, the mortgage on Richardson Road Apartments was prepaid
during 1994. No gain or loss was recognized, however, because this mortgage
investment was transferred to an affiliate effective December 31, 1991.
38
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES - Continued
Financial
Statement
Year of Type of Net Carrying Net Gain/(Loss)
Complex Name Disposition Disposition Value Proceeds Recognized
------------ ----------- --------------- ------------ ---------- ------------
El Lago Apartments(b) 1995 Assignment $ 2,298,253 $2,281,588 $ (16,665)
Dearborn Place Apts.(a) 1995(g) Sale of
defaulted loan -- 52,730 52,730
Sugar Creek Trace (a) 1994(f) Sale of
defaulted loan -- -- (71,181)(f)
Urban Village Apts.(29%)(a) 1993(c) Assignment 4,609,381 4,601,656 (7,725)
Columbus Square Apts.(b) 1993 Assignment 1,754,265 1,952,218 197,953
Westmount Apts.(b) 1993 Assignment 1,187,204 1,533,622 346,418
Chapelgate Apts.(b) 1993 Sale of
defaulted loan 682,731 901,171 218,440
Cumberland Village (b) 1993 Sale of
defaulted loan 1,520,268 1,955,663 435,395
Sugar Creek Trace (a) 1993 Sale of
defaulted loan 3,433,622 3,684,017 250,395
Diamond Ridge (a) 1993 Sale of
defaulted loan 5,372,192 5,532,686 160,494
Dearborne Place Apts.(a) 1993 Sale of
defaulted loan -- 248,696(e) 248,696
Clark and Elm Apts.(a)(d) 1993 Sale of
defaulted loan -- 132,507(e) 132,507
(a) Disposition of an Originated Insured Mortgage.
(b) Disposition of an Acquired Insured Mortgage.
(c) Approximately 70% of the proceeds were received in 1992. The remaining assignment proceeds were received from HUD in March
1993.
(d) Represents the Partnership's 55% ownership interest in the mortgage. The remaining 45% interest in the mortgage was owned by
American Insured Mortgage Investors, an affiliate of the Partnership.
(e) Represents additional proceeds received resulting from an adjustment to the 1992 sales price.
(f) Represents a payment made on final settlement of the mortgage disposition.
(g) Represents additional proceeds received resulting from an adjustment to the 1993 sales price.
39
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES - Continued
Coinsured FHA-Insured Certificates
- ----------------------------------
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 cases, 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.
Coinsured by affiliate
- ----------------------
As of December 31, 1995 and 1994, the Partnership had invested in two FHA-
Insured Certificates secured by coinsured mortgages where the coinsurance lender
is IFI. These investments were made by the former managing general partner on
behalf of the Partnership. As structured by the former managing general
partner, with respect to these mortgages, the Partnership bears the risk of loss
upon default for IFI's portion of the coinsurance loss.
As of December 31, 1995 and 1994, these investments, as shown in the table
below, are current with respect to the payment of principal and interest. The
General Partner believes there is adequate collateral value underlying these
mortgages. Therefore, no loan losses were recognized on these investments
during the years ended December 31, 1995, 1994 and 1993. As of December 31,
1995 and 1994, these mortgages had an aggregate fair value of $12,034,714 and
$11,327,515, respectively.
40
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES - Continued
Amortized Face Amortized Face
Cost Value Cost Value
December 31, December 31, December 31, December 31,
1995 1995 1994 1994
------------ ------------ ------------ ------------
Westlake Village $ 6,473,072 $ 6,471,133 $ 6,504,367 $ 6,502,394
Waterford Green Apts. 6,511,202 6,526,094 6,474,012 6,489,123
In December 1992, the Partnership entered into a modification agreement
with the mortgagor of Waterford Green Apartments. This agreement effectively
lowered the interest rate on the mortgage from 8.5% to 6.5% for a period
continuing through November 1995. The mortgagor assumed an additional note for
the difference between the interest due under the principal mortgage and the
modified interest paid under the agreement. As of March 1996, the mortgage on
Waterford Green is being restated under the HUD 223(a)(7) program converting
this mortgage from a coinsured to fully insured status at a fixed rate of 7.25%.
Closing is scheduled to occur in mid 1996. The mortgagor is current in its
payments of principal and interest under this agreement as of March 1, 1996.
Certificates Held for Disposition Under Coinsurance Program
- -----------------------------------------------------------
As of December 31, 1992, the Partnership, held an investment in one
coinsured mortgage, which was held for disposition. In December 1993, the
Partnership disposed of this coinsured mortgage, as discussed below.
The following table summarizes the gains (losses) recognized for coinsured
mortgages held for disposition during the years ended December 31, 1995, 1994
and 1993:
41
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED
SECURITIES - Continued
Gains/(Losses) Recognized
1995 1994 1993
----------- ---------- ----------
Victoria Pointe Apts.
- Phase I $ -- $ -- $ 653,073(a)
1212 North LaSalle -- (80,173)(b) --
----------- ---------- ----------
$ -- $ (80,173) $ 653,073
=========== ========== ==========
(a) Represents gain recognized in connection with the receipt of
approximately $8.7 million as a result of the settlement of the mortgage on
Victoria Pointe Apartments - Phase I.
(b) Represents amount paid by the Partnership for final adjustments
to real estate taxes with respect to the property underlying the mortgage
on 1212 North LaSalle, which the Partnership had sold in 1992.
6. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
As of December 31, 1995 and 1994 the Partnership's investment in fully
insured Acquired Insured Mortgages, recorded at amortized cost, consisted
of 12 FHA-Insured Loans with an aggregate amortized cost of $14,684,828 and
$14,800,502, respectively, an aggregate face value of $17,627,453 and
$17,833,049, respectively, and an aggregate fair value of $18,388,369 and
$16,920,898, respectively.
As of December 31, 1995 and 1994, the Partnership's investment in
fully insured Originated Insured Mortgages, recorded at amortized cost,
consisted of three FHA-Insured Loans with an aggregate amortized cost of
$13,123,855 and $13,210,344, respectively, an aggregate face value of
$12,766,486 and $12,844,664, respectively, and an aggregate fair value of
$13,160,443 and $12,412,621, respectively.
As of March 27, 1996, all of the fully insured FHA-Insured Loans were
current with respect to the payment of principal and interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred
to as Participations). During the years ended December 31, 1995, 1994 and
1993, the Partnership received $64,676, $35,314 and $24,153, respectively,
from the Participations. These amounts are included in mortgage investment
income on the accompanying statements of operations.
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1995, 1994 and 1993 are as follows:
42
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
7. DISTRIBUTIONS TO UNITHOLDERS - Continued
1995 1994 1993
------ ------ ------
Quarter ended March 31, $0.36 $0.39(3) $0.420(6)
Quarter ended June 30, 0.33 0.73(4) 0.300
Quarter ended September 30, 0.49(1) 0.48(5) 0.565(7)
Quarter ended December 31, 0.36(2) 0.36 0.490(8)
----- ----- ------
$1.54 $1.96 $1.775
===== ===== ======
(1) This amount includes approximately $0.16 per Unit representing net proceeds
from the assignment of the mortgage on El Lago Apartments.
(2) This amount includes approximately $0.02 per Unit representing additional
net proceeds from the assignment of the mortgage on El Lago Apartments.
(3) This amount includes approximately $0.05 per Unit representing previously
undistributed accrued interest and gain from the disposition of the
mortgage on Victoria Pointe Apartments-Phase I.
(4) This amount includes approximately $0.37 per Unit representing net
principal proceeds from the prepayment of the mortgage on Richardson Road
Apartments.
(5) This amount includes approximately $0.11 per Unit representing a one-time
distribution of funds that had previously been set aside, pending
resolution of the Partnership's troubled loans. Also included is
approximately $0.01 per Unit representing a return of capital from a
partial prepayment of the mortgage on Garden Court Apartments.
(6) This amount includes approximately $0.05 per Unit representing
approximately 29% of the previously undistributed accrued interest from the
mortgage on Urban Village Apartments. Also included is approximately $0.05
per Unit representing additional insurance benefits received from the
disposition of the coinsured mortgage on Hammond North Apartments.
(7) This amount includes approximately $0.08 per Unit representing previously
undistributed accrued interest and gain from the disposition of the
mortgages on Columbus Square Apartments and Westmount Apartments.
Additionally, this amount includes approximately $0.02 per Unit
representing additional proceeds received due to an adjustment to the sale
price for the 1992 sale of the mortgage on Dearborne Place Apartments and
$0.165 per Unit representing previously undistributed accrued interest from
the 1212 North LaSalle claim.
(8) This includes a special distribution of $0.19 per Unit comprised of: (i)
$0.11 per Unit representing previously undistributed accrued interest and
gain from the disposition of the mortgages on Chapelgate Apartments,
Cumberland Village and Sugar Creek Trace; (ii) $0.04 per Unit representing
previously undistributed accrued interest from the mortgage on Victoria
Pointe Apartments - Phase I; (iii) $0.03 per Unit representing previously
undistributed accrued interest and gain from the disposition of the
mortgage on Diamond Ridge; and (iv) $0.01 per Unit representing additional
proceeds received due to an adjustment to the sale price for the 1992 sale
of the mortgage on Clark and Elm Apartments.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
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 payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
43
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
7. DISTRIBUTIONS TO UNITHOLDERS - Continued
mortgage payments due to 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.
44
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
8. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES,
NOTE PAYABLE TO AFFILIATE AND DUE TO AFFILIATES
Effective December 31, 1991, the Partnership transferred a GNMA Mortgage-
Backed Security underlying its investment in Richardson Road Apartments with a
carrying value of approximately $4.7 million to IFI in order to capitalize IFI
with sufficient net worth under HUD regulations. American Insured Mortgage
Investors L.P. - Series 86 (AIM 86) and American Insured Mortgage Investors L.P.
- - Series 88 (AIM 88), affiliates of the Partnership, each issued a demand note
payable to the Partnership 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 86, AIM 88 and the
Partnership. The Partnership accounts for its investment in IFI under the
equity method of accounting.
In 1992, IFI entered into an expense reimbursement agreement with the
Partnership, AIM 86 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 IFI coinsured mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net income or loss, substantially equalled the mortgage principal and
interest on the GNMA Mortgage-Backed Security transferred to IFI.
In April 1994, IFI received net proceeds of approximately $4.7 million from
the prepayment of the GNMA Mortgage-Backed Security, which IFI distributed to
the AIM Funds, in proportion to each entity's coinsured mortgage investments for
which IFI was the mortgagee of record as of December 31, 1991. On June 30, 1994,
AIM 86 and AIM 88 repaid the Partnership for the outstanding balance on the
notes receivable. Interest income on the notes receivable, based on an interest
rate of 8% per annum, which represented the interest rate on the GNMA Mortgage-
Backed Security, was $70,449 and $281,793 for the years ended December 31, 1994
and 1993, respectively.
As a result of the prepayment, 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 86 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 is based on an annual interest rate
of 7.25%.
The note payable was executed in the amount of $319,075, which represents
the outstanding balance as of December 31, 1995 and 1994. Additionally, as of
December 31, 1995 and 1994, the Partnership owed a total of $1,845 and $120,358,
respectively, to AIM 86 and AIM 88.
In connection with these transactions, the expense reimbursement agreement
was amended, as of April 1, 1994, to adjust the allocation of the expense
reimbursement agreement to the AIM Funds to an amount proportionate to each
entity's coinsured mortgage investments for which IFI was the mortgagee of
record 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.
9. PARTNERS' EQUITY
45
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 12,079,389
Units were issued for an aggregate capital contribution of $241,587,780. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefore, and the former general
partners contributed a total of $1,000 to the Partnership.
46
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Unit Data)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1995, 1994 and 1993.
1995
Quarter ended
March 31 June 30 September 30 December 31
----------- --------- -------------- -------------
Income $ 4,640 $ 4,717 $ 4,626 $ 4,606
Net gains (losses) from
mortgage dispositions 53 (36) -- 19
Net earnings 3,980 4,017 3,944 3,962
Net earnings per Limited
Partnership Unit 0.32 0.32 0.31 0.32
1994
Quarter ended
March 31 June 30 September 30 December 31
---------- --------- -------------- -------------
Income $ 4,825 $ 4,806 $ 4,899 $ 4,637
Net losses from mortgage
dispositions -- -- -- (151)
Net earnings 4,061 4,086 4,202 3,806
Net earnings per Limited
Partnership Unit 0.32 0.33 0.33 0.31
1993
Quarter ended
March 31 June 30 September 30 December 31
---------- --------- -------------- -------------
Income $ 4,933 $ 4,937 $ 5,087 $ 4,245
Net (losses) gains from
mortgage dispositions (8) -- 926 1,718
Net earnings 4,192 4,190 5,342 5,334
Net earnings per Limited
Partnership Unit 0.33 0.33 0.42 0.44
47
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value)
The Executive House
Dayton, Ohio 8/21 12/01 7.5% $ 896,143 $ 936,076 $ 78,855(4)
Walnut Apartments
La Puente, California 3/20 11/01 7.5% 2,759,657 2,883,150 248,862(4)
Bear Creek Apartments II
Asheville, North Carolina 8/21 8/01 7.5% 1,558,107 1,627,537 137,105(4)
Woodland Hills Apartments
Auburn, Alabama 10/19 6/99 7.5% 748,713 782,263 68,044(4)
Fairlawn II
Waterbury, Connecticut 6/20 5/00 7.5% 820,563 857,228 73,364(4)
Willow Dayton
Chicago, Illinois 8/19 12/00 7.5% 1,099,032 1,148,245 99,489(4)
Cedar Ridge Apartments
Richton Park, Illinois 4/20 2/01 7.5% 2,931,183 3,062,210 262,699(4)
Park Hill Apartments
Lexington, Kentucky 3/19 3/00 7.5% 1,907,843 1,993,373 173,845(4)
Fairfax House
Buffalo, New York 11/19 5/00 7.5% 2,324,372 2,428,386 209,608(4)
Cambridge Arms Ltd.
Dayton, Ohio 8/19 2/00 7.5% 1,479,314 1,545,556 133,914(4)
Country Club Terrace Apt.
Holidaysburg, Pennsylvania 8/19 6/00 7.5% 1,574,575 1,645,083 142,537(4)
Silverwood Village Apts.
Gallatin, Tennessee 9/20 2/00 7.5% 1,396,581 1,458,945 124,420(4)
Fleetwood Village Apts.
Cookeville, Tennessee 6/20 2/00 7.5% 1,564,522 1,634,428 139,879(4)
Summit Square Manor
Rochester, Minnesota 8/19 5/99 7.5% 2,070,901 2,163,634 187,467(4)
Park Place
Rochester, Minnesota 3/20 10/99 7.5% 819,336 856,009 73,980(4)
48
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Nevada Hills Apartments
Reno, Nevada 2/21 8/00 7.5% 1,245,732 1,301,306 110,345(4)
Bentgrass Hills Apartments
Milwaukee, Wisconsin 7/21 5/01 7.5% 247,403 258,432 21,817(6)
Colony West Apartments
Chico, California 7/20 12/00 7.5% 698,387 729,586 62,365(6)
Kings Villa/Discovery Commons
Sacramento, California 7/19 11/99 7.5% 1,174,019 1,226,602 106,414(6)
Dunhaven Apartments Section I
Baltimore County, Maryland 1/20 12/99 7.5% 971,951 1,015,426 87,429(6)
Emerald Green Apartments
Indianapolis, Indiana 1/20 12/99 7.5% 1,115,855 1,165,766 100,374(6)
Isle of Pines Village
Apartments
Baltimore County, Maryland 12/20 4/00 7.5% 1,318,207 1,377,036 117,030(6)
Meadow Park Apartments I
Anniston, Alabama 9/20 8/00 7.5% 683,849 714,386 60,923(6)
Stoney Brook Apartments
North Providence
Rhode Island 9/20 10/00 7.5% 1,552,138 1,621,449 138,278(6)
Security Apartments
Mankato, Minnesota 7/19 6/99 7.5% 308,691 322,517 27,980(6)
Steeplechase Apartments
Aiken, South Carolina 9/18 8/98 7.5% 552,700 577,526 50,921(6)
Walnut Hills Apartments
Plainfield, Indiana 9/19 3/00 7.5% 527,527 551,144 47,692(6)
Woodland Villas
Jasper, Alabama 8/19 3/00 7.5% 336,576 351,648 30,468(6)
Ashley Oaks Apartments
Carrollton, Georgia 3/22 4/02 7.5% 598,660 625,303 52,292(7)
Highland Oaks Apartments,
Phase III
Wichita Falls, Texas 2/21 4/02 7.5% 1,013,121 1,058,317 89,741(7)
49
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Holden Court Apartments
Seattle, Washington 12/21 4/02 7.5% 233,470 243,864 20,435(7)
Magnolia Place Apartments
Franklin, Tennessee 5/20 4/02 7.5% 344,126 359,505 30,804(7)
Quail Creek Apartments
Howell, Michigan 5/20 4/02 7.5% 576,129 601,878 51,572(7)
Rainbow Terrace Apartments
Milwaukee, Wisconsin 7/22 4/02 7.5% 340,023 355,145 29,581(7)
Rock Glen Apartments
Baltimore, Maryland 1/22 4/02 7.5% 1,135,338 1,185,884 99,375(7)
Stonebridge Apartments, Phase I
Montgomery, Alabama 4/20 4/02 7.5% 1,106,033 1,155,473 99,125(7)
Village Knoll Apartments
Harrisburg, Pennsylvania 4/20 4/02 7.5% 1,148,321 1,199,652 102,914(7)
Bowling Brook, Section 1
Towson, Maryland 5/30 N/A 8.50% 12,121,040 12,493,560 1,090,128
Cedar Bluff
Eagan, Minnesota 3/27 N/A 8.50% 4,494,233 4,632,968 411,371
Executive Tower
Toledo, Ohio 3/27 N/A 8.75% 2,936,742 3,027,323 275,288
New Castle Apartments
Austin, Texas 3/18 N/A 8.75% 2,141,890 2,209,520 219,143
Lincoln Green
Burrillville, Rhode Island 6/33 N/A 10.25% 3,149,417 3,275,032 330,066
Turtle Creek Apartments
San Antonio, Texas 4/16 N/A 8.95% 1,758,275 1,814,235 188,596
Sangnok Villa
Los Angeles, California 1/30 N/A 10.25% 915,242 951,825 96,825
The Meadows of Livonia
Livonia, Michigan 9/34 N/A 10.00% 6,500,316 6,826,791 627,836
50
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Gamel & Gamel Apartments
Benton, Kentucky 4/27 N/A 8.75% $ 689,995 $ 711,272 $ 64,612
Wayland Health Center
Providence, Rhode Island 10/33 N/A 9.75% 6,948,113 7,297,183 696,610
Peachtree Place North
Doraville, Georgia 4/22 N/A 9.00% 6,554,559 6,758,479 651,339
Eaglewood Villa Apartments
Springfield, Ohio 2/27 N/A 8.875% 2,791,653 2,877,720 264,707
Gold Key Village Apartments
Englewood, Ohio 6/27 N/A 9.00% 2,946,317 3,037,064 282,030
Stafford Towers
Baltimore, Maryland 8/16 N/A 9.50% 382,542 402,214 42,613
Garden Court Apartments
Lexington, Kentucky 8/27 N/A 8.60% 1,200,507 1,237,523 110,583
Northdale Commons
Coon Rapids, Minnesota 9/27 N/A 9.00% 702,400 724,028 67,173
Northwood Place
Meridian, Mississippi 6/34 N/A 8.75% 4,550,252 4,689,416 412,635
Amador Residential
Jackson, California 1/34 N/A 9.00% 1,355,474 1,396,919 126,173
Cheswick Apartments
Indianapolis, Indiana 9/27 N/A 8.75% 3,166,094 3,263,661 295,736
Nassau Apartments
New Orleans, Louisiana 11/27 N/A 8.63% 890,587 891,028 82,139
Woodland Village Apartments
Dallas, Texas 12/27 N/A 9.00% 1,409,601 1,396,130 134,496
The Gate House Apartments
Lexington, Kentucky 2/28 N/A 8.55% 2,888,027 2,977,034 264,092
Bradley Road Nursing
Bay Village, Ohio 5/34 N/A 8.875% 2,544,528 2,622,331 233,708
51
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Franklin Plaza
Cleveland, Ohio 5/23 N/A 8.175% 5,495,748 5,587,870 503,183
Ashford Place Apartments
Mobile, Alabama 10/24 N/A 7.125% 3,456,475 3,514,643 282,875
Heritage Heights Apartments
Harrison, Arizona 4/32 N/A 9.50% 420,794 441,949 41,313
Pleasant View Nursing Home
Union, New Jersey 6/29 N/A 7.75% 7,672,719 7,799,098 643,312
Harbor View Estates
Duluth, Minnesota 10/33 N/A 9.50% $ 693,387 $ 724,589 $ 84,517(9)
Pine Tree Lodge
Pasadena, Texas 12/33 N/A 9.50% 2,145,244 2,241,780 222,323(9)
------------- --------------
Total FHA-Insured Certificates -
Acquired Insured Mortgages,
carried at fair value 134,101,269 138,843,153
------------- --------------
GNMA Mortgage-Backed Securities
(carried at fair value)
Maryland Meadows
Glendale, Arizona 10/27 N/A 8.35% 5,057,306 5,110,586 436,957
Spanish Trace Apartments
Md. Heights, Missouri 9/28 N/A 7.35% 9,832,259 9,936,655 771,094
Stone Hedge Village Apts.
Farmington, New York 11/27 N/A 7.00% 1,859,148 1,879,029 143,222
Afton Square Apartments
Portsmouth, Virginia 12/28 N/A 7.25% 1,086,595 1,098,134 81,383
Carlisle Apartments
Houston, Texas 12/28 N/A 7.125% 2,172,387 2,195,493 165,877
Independence Park
Largo, Florida 9/29 N/A 7.75% 4,073,006 4,115,852 330,715
Ridgecrest Timbers
Portland, Oregon 12/28 N/A 7.25% 1,581,829 1,598,626 120,849
PAGE>52
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value (Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest)(10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
GNMA Mortgage-Backed Securities
(carried at fair value) - Continued
Huntington Apartments
Concord, North Carolina 12/29 N/A 7.25% 3,013,571 3,045,560 233,099
Northwood Apartments
Mockville, North Carolina 12/29 N/A 7.25% 1,620,089 1,637,287 125,313
------------ --------------
Total GNMA Mortgage-Backed
Securities 30,296,190 30,617,222
------------ --------------
Total investment in Acquired
Insured Mortgages, carried
at fair value 164,397,459 169,460,375
------------ --------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
Fully Insured Mortgage
- ----------------------
GNMA Mortgage-Backed Security
(carried at fair value)
Oak Forest Apartments II
Ocoee, Florida 12/31 11/09 8.25% 10,760,496 10,925,754 933,577
------------ --------------
Coinsured Mortgages
- -------------------
FHA-Insured Certificates
(carried at fair value)
Westlake Village
Ocoee, Florida (11) 4/30 2/03 8.50% 6,471,133 6,184,540 582,766
Waterford Green Apartments
South St. Paul, Minnesota (11) 11/30 12/04 8.50% 6,526,094 5,850,174 610,218
------------ --------------
Total Investment in Coinsured
FHA-Insured Certificates 12,997,227 12,034,714
------------ --------------
53
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value Principal and
Development Name/Location Date Date (1) (5)(10) Mortgage (3)(13)(14) Interest (10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
Total investment in Originated Insured
Mortgages, carried at fair value 23,757,723 22,960,468
------------ --------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 188,155,182 192,420,843
------------ --------------
54
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value Principal and
Development Name/Location Date Date(1) (5)(10) Mortgage (3)(13)(14) Interest (10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Loans
(carried at amortized cost)(2)
Bay Pointe Apartments
Lafayette, Indiana 2/23 11/00 7.5% 2,125,397 1,734,550 185,268(8)
Baypoint Shoreline Apartments
Duluth, Minnesota 1/22 8/00 7.5% 1,005,004 818,141 87,967(8)
Berryhill Apartments
Grass Valley, California 1/21 8/99 7.5% 1,306,956 1,066,095 115,899(8)
Brougham Estates II
Kansas City, Kansas 11/22 8/00 7.5% 2,664,150 2,164,172 230,860(8)
College Green Apartments
Wilmington, North Carolina 3/23 6/01 7.5% 1,430,136 1,161,241 123,455(8)
Fox Run Apartments
Dothan, Alabama 10/19 12/97 7.5% 1,286,045 1,052,382 116,242(8)
Lakeside Apartments
Bennettsville, South Carolina 1/22 3/01 7.5% 403,328 328,669 35,303(8)
Portervillage I Apartments
Portervillage, California 8/21 5/00 7.5% 1,177,589 959,745 103,733(8)
Town Park Apartments
Rockingham, North Carolina 10/22 6/01 7.5% 654,020 531,911 56,755(8)
Westbrook Apartments
Kokomo, Indiana 11/22 12/00 7.5% 1,862,311 1,518,808 163,177(8)
Continental Village
New Hope, Minnesota 1/22 N/A 8.95% 1,772,445 1,774,277 175,954
Kaynorth Apartments
Lansing, Michigan 4/23 3/01 7.5% 1,940,072 1,574,837 167,318(8)
------------ --------------
Total investment in Acquired
Insured Mortgages, carried
at amortized cost 17,627,453 14,684,828
------------ --------------
55
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Interest
Rate on Face Net Annual Payment
Maturity Put Mortgage Value of Carrying Value Principal and
Development Name/Location Date Date(1) (5)(10) Mortgage (3)(13)(14) Interest (10)(12)
- -------------------------- --------- -------- ------------ ------------- -------------- ------------------
ACQUIRED INSURED MORTGAGES
- --------------------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
Fully Insured Mortgages
- -----------------------
FHA-Insured Loans
(carried at amortized cost)(2)
Cobblestone Apartments
Fayetteville, North Carolina 3/28 12/02 8.50% 5,086,586 5,248,077 462,703
The Plantation
Greenville, North Carolina 4/28 4/03 8.25% 4,529,503 4,683,934 402,046
Longleaf Lodge
Hoover, Alabama 7/26 -- 8.25% 3,150,397 3,191,844 282,958
------------ ------------
Total investment in Originated
Insured Mortgages, carried at amortized
cost 12,766,486 13,123,855
------------ ------------
Total investment in FHA-Insured Loans 30,393,939 27,808,683
------------ ------------
TOTAL INVESTMENT IN INSURED MORTGAGES $ 218,549,121 $ 220,229,526
============ ============
56
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(1) Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign an Insured 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 mortgagee
electing to assign a FHA-insured mortgage to FHA will receive, in exchange
therefor, 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 an
Insured Mortgage which had a firm or conditional FHA commitment for
insurance on or before to November 30, 1983 and, in the case of mortgages
sold in a GNMA auction, was sold in an auction prior to February 1984.
Certain of the Partnership's Insured 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 Insured
Mortgage documents, which allow the Partnership, anytime after this date,
the option to require payment by the borrower of the unpaid principal
balance of the Insured Mortgages. At such time, the borrowers must make
payment to the Partnership, or the Partnership, at its option, may cancel
the FHA insurance and institute foreclosure proceedings.
(2) Inclusive of closing costs and acquisition fees.
(3) The mortgages underlying the Partnership's investments in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments and
retirement homes. Prepayment of these Insured Mortgages would be based
upon the unpaid principal balance at the time of prepayment.
(4) In April and July 1985, and February 1986, the Partnership purchased pass-
through certificates representing undivided fractional interests of
157/537, 69/537 and 259/537, respectively, in a pool of 19 FHA-insured
mortgages. In July 1986 and October 1987, the Partnership sold undivided
fractional interests of 67/537 and 40/537, respectively, in this pool.
Accordingly, the Partnership now owns an undivided fractional interest
aggregating 378/537, or approximately 70.4%, in this pool. For purposes of
illustration only, the amounts shown in this table represent the
Partnership's current share of these items as if an undivided interest in
each mortgage was acquired.
(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) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 317/392 and
11/392, respectively, in a pool of 13 FHA-insured mortgages. In January
and February 1988, the Partnership sold undivided fractional interests of
100/392 and 104/392, respectively, in this pool. Accordingly, the
Partnership now owns an undivided fractional interest aggregating 124/392,
or approximately 31.6%, in this pool. For purposes of illustration only,
the amounts shown in this table represent the Partnership's share of these
items as if an undivided interest in each mortgage was acquired.
(7) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 200/341 and
57
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
101/341, respectively, in a pool of 12 FHA-insured mortgages. In October
1987, the Partnership sold undivided fractional interests of 200/341 in
this pool. Accordingly, the Partnership now owns an undivided fractional
interest aggregating 101/341, or approximately 29.6%, in this pool. For
purposes of illustration only, the amounts shown in this table represent
the Partnership's share of these items as if an undivided interest in each
mortgage was acquired.
(8) These amounts represent the Partnership's 50% interest in these mortgages.
The remaining 50% interest was acquired by American Insured Mortgage
Investors an affiliate of the Partnership.
(9) This information is based upon the estimated amount of the Insured Mortgage
upon completion of construction.
(10) This represents the base interest rate during the permanent phase of these
Insured Mortgages. Additional interest (referred to as Participations)
measured as a percentage of the net cash flow from the development and the
net proceeds from the 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, 1995, 1994 and 1993, the
Partnership received additional interest of $64,676, $35,314 and $24,153,
respectively, from the Participations.
(11) These mortgages are insured under the HUD coinsurance program. IFI is the
HUD-approved coinsurance lender, as previously discussed.
(12) Principal and interest are payable at level amounts over the life of the
mortgages.
(13) A reconciliation of the carrying value of Insured Mortgages for the years
ended December 31, 1995 and 1994, is as follows:
58
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
1995 1994
------------ ------------
Beginning balance $209,265,153 $204,293,329
Investment in Acquired Insured
Mortgages and advances on
construction loans -- 9,739,490
Principal receipts on mortgages (1,315,947) (1,302,622)
Proceeds from disposition of Insured
Mortgages (2,334,318) --
Net gains on mortgage
dispositions(a) 36,065 --
(Increase) Decrease in unrealized
losses on investment in
Insured Mortgages 7,596,238 (8,642,268)
Increase (Decrease) in unrealized
gains on investment in
Insured Mortgages 6,982,335 5,177,224
------------ -------------
Ending balance $ 220,229,526 $ 209,265,153
============ =============
(a) Excludes additional payments of $151,354, made in 1994, in connection with
final adjustments to the 1993 dispositions of the mortgages on 1212 North
LaSalle and Sugar Creek Trace.
(14) As of December 31, 1995 and 1994, the tax basis of the Insured Mortgages
was approximately $207.5 million and $211.3 million, respectively.