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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999 Commission file number 1-12704
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
(Exact name of registrant as specified in it's charter)
Delaware 13-2943272
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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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
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 17, 2000, 9,576,290 depositary units of limited partnership
interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $38,901,647.
Documents incorporated by Reference
None
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
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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......... 5
Item 6. Selected Financial Data........................................................ 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 7
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................... 12
Item 8. Financial Statements and Supplementary Data.................................... 12
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 13
PART III
--------
Item 10. Directors and Executive Officers of the Registrant............................. 13
Item 11. Executive Compensation......................................................... 14
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 14
Item 13. Certain Relationships and Related Transactions................................. 15
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 16
Signatures ............................................................................... 18
PART I
ITEM 1 BUSINESS
FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K,
the words "believes," "anticipates," "expects," "contemplates," and similar
expressions are intended to identify forward-looking statements. Statements
looking forward in time are included in this Annual Report on Form 10-K pursuant
to the "safe harbor" provision of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties, which
could cause actual results to differ materially. Accordingly, the following
information contains or may contain forward-looking statements: (1) information
included or incorporated by reference in this Annual Report on Form 10-K,
including, without limitation, statements made under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, (2)
information included or incorporated by reference in future filings by the
Partnership with the Securities and Exchange Commission including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans and (3) information contained in
written material, releases and oral statements issued by or on behalf of, the
Partnership, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans.
Factors which may cause actual results to differ materially from those contained
in the forward-looking statements identified above include, but are not limited
to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in
the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only of the date hereof. The Partnership undertakes no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
Development and Description of Business
- ---------------------------------------
Information concerning the business of American Insured Mortgage Investors
L.P.-Series 86 (the "Partnership") is contained in Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and in
Notes 1, 5 and 7 of the Notes to Financial Statements of the Partnership (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein. See also Schedule IV-Mortgage Loans on Real Estate, for the table of the
Insured Mortgages (as defined below), invested in by the Partnership as of
December 31, 1999, which is hereby incorporated by reference herein.
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"). The General Partner is a
wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE").
The general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.
Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.
Competition
- -----------
In disposing of mortgage investments, the Partnership competes with private
investors, mortgage banking companies, mortgage brokers, state and local
government agencies, lending institutions, trust funds, pension funds, and other
entities, some with similar objectives to those of the Partnership and some of
which are or may be affiliates of the Partnership, its General Partner, the
Advisor, CMSLP or their respective affiliates. Some of these entities may have
substantially greater capital resources and experience in disposing of Federal
Housing Administration ("FHA") insured mortgages than the Partnership.
CRIIMI MAE and its affiliates also may serve as general partners, sponsors
or managers of real estate limited partnerships, REITs or other entities in the
future. The Partnership may attempt to dispose of mortgages at or about the same
time that CRIIMI MAE, one or more of the "AIM Funds" (defined as the
Partnership, American Insured Mortgage Investors ("AIM 84"), American Insured
Mortgage Investors - Series 85, L.P., ("AIM 85") and American Insured Mortgage
Investors L.P. - Series 88 ("AIM 88")), and/or other entities sponsored or
managed by CRIIMI MAE or its affiliates, are attempting to dispose of mortgages.
As a result of market conditions that could limit dispositions, CMSLP and its
affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of. Both CMSLP and the General Partner, 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
Reference is made to Note 5 of the Notes to Financial Statements on pages
36 through 40.
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 1999.
PART II
ITEM 5 MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS
Principal Market and Market Price for Units
- -------------------------------------------
The General Partner listed the Partnership's Units for trading on the
American Stock Exchange ("AMEX") on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ."
The high and low trade prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1999 and 1998 were as
follows:
Amount of
1999 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- -----------
March 31 $ 8 3/4 $ 7 3/4 $ 2.56(1)
June 30 8 3/8 5 1/2 0.10(2)
September 30 5 7/8 5 5/16 0.08
December 31 5 5/8 4 7/8 1.99(3)
------
$ 4.73
======
Amount of
1998 Distribution
Quarter Ended High Low Per Unit
------------------- ------- ------- -----------
March 31 $ 10 $ 8 7/8 $ 0.15
June 30 9 5/8 7 7/8 1.75(4)
September 30 9 8 1/16 0.13
December 31 8 5/8 7 3/4 0.14
------
$ 2.17
======
(1) This amount includes approximately $2.46 per Unit return of capital and
gain from the prepayment of the following mortgages: Iroquis Club
Apartments of $1.89 per Unit and Greenbriar Place of $0.57 per Unit.
(2) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
(3) This amount includes approximately $0.53 per Unit representing return of
capital and gain from the prepayment of the mortgage on Argyle Place
Apartments. In addition, this amount includes approximately $1.40 per Unit
representing partial return of capital received as a result of the sale of
St. Charles Place-Phase II and The Villas.
(4) This amount includes approximately $1.60 per Unit return of capital from
the prepayment of the following mortgages: Oak Grove Apartments of $0.67
per Unit and Arbor Station Apartments of $0.93 per Unit.
Approximate Number of
Unitholders
Title of Class as of December 31, 1999
- --------------------------- -----------------------
Depositary Units of Limited
Partnership Interest 8,700
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Income $ 3,911 $ 6,058 $ 10,629 $ 13,473 $ 13,927
Net gain on mortgage dispositions 597 437 550 1,616 5
Loan loss -- -- (387) -- --
Net earnings 3,631 5,373 9,436 13,069 11,640
Net earnings per Limited
Partnership Unit - Basic (1) $ 0.36 $ 0.53 $ 0.94 $ 1.30 $ 1.16
Distributions per Limited
Partnership Unit (1)(2) $ 4.73 $ 2.17 $ 3.59 $ 4.83 $ 1.24
As of December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total assets $ 70,796 $ 97,126 $ 136,668 $ 169,283 $ 174,538
Partners' equity 49,981 94,878 111,571 135,137 170,582
(1) Calculated based upon the weighted average number of Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 1999, 1998, 1997, 1996 and 1995, which were paid
subsequent to year end. See Notes 7 and 8 of the Notes to Financial
Statements of the Partnership.
The selected income data presented above for the years ended December 31,
1999, 1998 and 1997, and the balance sheet data as of December 31, 1999 and
1998, 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
selected income data for the years ended December 31, 1996 and 1995 and the
balance sheet data as of December 31, 1997, 1996 and 1995 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
- -------
The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein and in Item 1 of this Form 10-K that could
cause actual results to differ materially.
American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the State of Delaware on
October 31, 1985. During the period from May 2, 1986 (the initial closing date
of the Partnership's public offering) through June 6, 1987 (the termination date
of the offering), the Partnership, pursuant to its public offering of 9,576,165
Depository Units of limited partnership interest ("Units"), raised a total of
$191,523,300 in gross proceeds. In addition, the initial limited partner
contributed $2,500 to the capital of the Partnership and received 125 units of
limited partnership interest in exchange therefor.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners, L.P. (the "Advisor") serves as the advisor to the
Partnership pursuant to an advisory agreement (the "Advisory Agreement").
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., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.
Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.
Year 2000
- ---------
During the transition from 1999 to 2000, the Partnership did not experience
any significant problems or errors in its information technology ("IT") systems
or date-sensitive embedded technology that controls certain systems. Based on
operations since January 1, 2000, the Partnership does not expect any
significant impact to its business, operations, or financial condition as a
result of the Year 2000 issue. However, it is possible that the full impact of
the date change has not been fully recognized. The Partnership is not aware of
any significant Year 2000 problems affecting third parties with which the
Partnership interfaces directly or indirectly.
Mortgage Investments
- --------------------
Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
partnership agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured (as discussed
below) under Section 221(d)(4) or Section 231 of the National Housing Act of
1937, as amended (the "National Housing Act"). The Partnership is a liquidating
partnership and as it continues to liquidate its mortgage investments and
investors receive distributions of return of capital and taxable gains,
investors should expect a reduction in earnings and distributions due to the
decreasing mortgage base. The partnership agreement states that the Partnership
will terminate on December 31, 2020, unless previously terminated under the
provisions of the partnership agreement.
As of December 31, 1999, the Partnership had invested in 13 Insured
Mortgages, with an aggregate amortized cost of approximately $38.0 million, a
face value of approximately $37.8 million and a fair value of approximately
$36.4 million, as discussed below.
Investment in Insured Mortgages
- -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to programs of
the Federal Housing Administration ("FHA") ("FHA-Insured Certificates"),
mortgage-backed securities guaranteed by the Government National Mortgage
Association ("GNMA") ("GNMA Mortgage-Backed Securities") and FHA-insured
mortgage loans ("FHA-Insured Loans"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or retirement
homes. The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:
A. Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages
---------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully Insured
Mortgages as of December 31, 1999 and 1998:
December 31,
1999 1998
------------ ------------
Fully Insured Originated Mortgages:
Number of Mortgages(1)(2) 1 4
Amortized Cost $ 4,242,873 $ 33,853,462
Face Value 4,088,804 32,697,883
Fair Value 3,968,952 33,031,725
Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 33,796,512 $ 34,171,962
Face Value 33,726,879 34,099,137
Fair Value 32,393,798 34,318,485
(1) In February 1999, the mortgages on Iroquois Club Apartments and Greenbriar
Place were prepaid. During 1999, the Partnership received net proceeds of
approximately $19.1 million and $5.7 million and recognized a gain of
approximately $330,000 and a loss of approximately $101,000 for the
mortgages on Iroquois Club Apartments and Greenbriar Place, respectively.
An aggregate distribution of $2.46 per Unit related to these prepayments
was declared in March 1999 and was paid to Unitholders in May 1999.
(2) In September 1999, the mortgage on Argyle Place was prepaid. The
Partnership received net proceeds of approximately $5.3 million and
recognized a gain of approximately $369,000 for the year ended December 31,
1999. A distribution of $0.53 per Unit related to the prepayment of this
mortgage was declared in October 1999 and was paid to Unitholders in
February 2000.
As of March 1, 2000, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and interest.
In addition to base interest payments from fully Insured Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development and of the net
proceeds from the refinancing, sale or other disposition of the underlying
development (referred to as "Participations"). During the years ended December
31, 1999, 1998 and 1997, the Partnership received additional interest of
$12,503, $74,112, and $95,744, respectively, from the fully insured
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of income and comprehensive income.
B. Coinsured Mortgages
-------------------
Under the HUD coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits if a mortgagor
defaults and the sale of the development collateralizing the mortgage produces
insufficient net proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the first part of such
loss in an amount up to 5% of the outstanding principal balance of the mortgage
as of the date foreclosure proceedings are instituted or the deed is acquired in
lieu of foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is prohibited
from entering into any workout arrangement with the borrower without the
Partnership's consent and must file a claim for coinsurance benefits with HUD,
upon default, if the Partnership so directs. As an ongoing HUD-approved
coinsurance lender, and under the terms of the participation documents, the
coinsurance lender is required to satisfy certain minimum net worth requirements
as set forth by HUD. However, it is possible that the coinsurance lender's
potential liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would bear the
risk of loss if the coinsurance lenders were unable to meet their coinsurance
obligations. In addition, HUD's obligation for the payment of its share of the
loss could be diminished under certain conditions, such as the lender not
adequately pursuing regulatory violations of the borrower or the failure to
comply with other terms of the mortgage. However, the General Partner is not
aware of any conditions or actions that would result in HUD diminishing its
insurance coverage.
1. Asset Held for Sale under Coinsurance Program
---------------------------------------------
As of December 31, 1999, the Partnership had invested in one Asset Held for
Sale under Coinsurance Program ("AHFS"), Spring Lake Village, with an amortized
cost of approximately $4.6 million and a face value of approximately $4.9
million. Spring Lake Village is a 141-unit garden apartment complex located in
St. Petersburg, Florida. In July 1997, the General Partner instructed the
servicer to file a notice of default with HUD. As of January 1, 1998, the
Partnership discontinued the accrual of interest income. In March 1998,
Integrated Funding, Inc. ("IFI"), completed foreclosure proceedings and obtained
title to this property. A claim was filed with HUD on April 1, 1999. The
Partnership expects to receive approximately $1.1 million from HUD, which
includes net claim proceeds plus accrued interest on the unpaid principal
balance of the mortgage, by the end of April 2000. Spring Lake Village is
currently generating cash flows of approximately $20,000 per month. The cash
reserve balance, as of March 1, 2000, is approximately $262,000. Outstanding
capital improvements are expected to be paid from these reserves and should be
completed within the next three to six months. The Partnership expects that the
proceeds from the sale of this property, plus the claim from HUD will result in
the recovery of a significant portion of amounts due and believes the cumulative
loss reserve recognized, of $502,626, is adequate.
As of December 31, 1998, the Partnership had recorded its investment in the
mortgage on Spring Lake Village as Investment in FHA-Insured Certificate, at
fair value, on the balance sheet. The loan amounts as of December 31, 1998 are
as follows:
Cumulative
Amortized Face Fair Loan Losses
Cost Value Value Recognized
----------- ----------- ----------- -----------
Spring Lake
Village $ 4,656,113 $ 4,898,740 $ 4,675,962 $ 502,626
2. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages coinsured by an
unaffiliated third party coinsurance lender, The Patrician Mortgage Company
("Patrician"), under the HUD coinsurance program.
December 31, 1999 December 31, 1998
----------------------------------------- -----------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
----------- ----------- ----------- ----------- ----------- -----------
The Villas (a) $ -- $ -- $ -- $15,412,759 $15,646,469 $14,905,685
St. Charles Place -
Phase II (b) -- -- -- 3,035,688 3,035,688 2,898,074
----------- ----------- ----------- ----------- ----------- -----------
Total $ -- $ -- $ -- $18,448,447 $18,682,157 $17,803,759
=========== =========== =========== =========== =========== ===========
(a) On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on The Villas. On November 2, 1993, the
mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy
Code. The property was acquired and vested with Patrician in November 1998
and subsequently sold on September 30, 1999. In October 1999, the
Partnership received sales proceeds of approximately $11.7 million. Prior
to the sale, the mortgagor had made payments of principal and interest due
on the original mortgage through December 1995, and had made payments of
principal and interest due under a modification agreement through August
1993. Patrician filed a coinsurance claim for insurance benefits with HUD
in October 1999, for remaining amounts due, including past due interest.
The remaining balance due, including accrued interest, as of December 31,
1999, is approximately $9.7 million and is expected to be received in the
second half of 2000. A distribution of $1.16 per Unit related to the sale
was declared in October 1999 and was paid to Unitholders in February 2000.
The Partnership does not expect to recognize a loss related to this
disposition, as the Partnership expects to recover all amounts due from
Patrician.
(b) On October 14, 1993, Patrician filed a foreclosure action on the property
underlying this coinsured mortgage. On November 2, 1993, the mortgagor
filed for protection under chapter 11 of the U. S. Bankruptcy Code. The
property was acquired and vested with Patrician in November 1998 and
subsequently sold on October 12, 1999. Patrician filed a coinsurance claim
for insurance benefits with HUD in October 1999, for remaining amounts due,
including past due interest. In November 1999, the Partnership received
sales proceeds of approximately $2.5 million. Prior to the sale, the
mortgagor had made payments of principal and interest due on the mortgage
through November 1995 to the Partnership. The remaining balance due,
including accrued interest, as of December 31, 1999, is approximately $1.7
million and is expected to be received in the second half of 2000. The
amount of the Partnership's investment in this mortgage represents the
Partnership's approximate 45% ownership interest in the mortgage. The
remaining 55% ownership interest is held by American Insured Mortgage
Investors L.P. - Series 88 ("AIM 88"), an affiliate of the Partnership. A
distribution of $0.24 per Unit related to the sale was declared in November
1999 and was paid to Unitholders in February 2000. The Partnership does not
expect to recognize a loss related to this disposition, as it expects to
recover all amounts due from Patrician.
The General Partner intends to continue to oversee the Partnership's
interest in these liabilities to ensure that Patrician meets its coinsurance
obligations. However, the General Partner does not believe that there would be a
material adverse impact on the Partnership's financial condition or its results
of operations should Patrician be unable to comply with its full coinsurance
obligation.
In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest payments,
additional interest (commonly termed Participations) based on a percentage of
the net cash flow from the development and the net proceeds from the
refinancing, sale or other disposition of the underlying development. All of the
FHA-Insured Certificates secured by coinsured mortgages contain such
Participations. During the years ended December 31, 1999, 1998 and 1997, the
Partnership did not receive any additional interest from the coinsured
Participations.
Results of Operations
- ---------------------
1999 versus 1998
- ----------------
Net earnings decreased for 1999 as compared to 1998, primarily due to a
reduction in mortgage investment income, as discussed below.
Mortgage investment income decreased for 1999 as compared to 1998,
primarily due to the prepayment of five mortgages since March 1998.
Interest and other income increased for 1999 as compared to 1998, primarily
due to the timing of temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.
Asset management fees to related parties decreased for 1999 as compared to
1998, due to the reduction in the mortgage base.
General and administrative expense decreased for 1999 as compared to 1998,
primarily due to the decrease in the mortgage base and a decrease in coinsurance
expense related to the disposition of Spring Lake Village.
Net gains on mortgage dispositions increased for 1999 as compared to 1998.
During 1999, the Partnership recognized gains of approximately $698,000 from the
prepayment of the mortgages on Iroquois Club Apartments and Argyle Apartments.
In addition, the Partnership recognized a loss of approximately $101,000 on the
prepayment of the mortgage on Greenbriar Place. During 1998, the Partnership
recognized gains of approximately $437,000 from the prepayment of the mortgages
on Oak Grove Apartments and Arbor Station.
1998 versus 1997
- ----------------
Net earnings decreased for 1998 as compared to 1997, primarily due to a
reduction in mortgage investment income.
Mortgage investment income decreased for 1998 as compared to 1997,
primarily as a result of the reduction in the mortgage base due to dispositions
and the Partnership's decision to no longer accrue interest on delinquent
coinsured mortgages as of January 1998.
Interest and other income decreased for 1998 as compared to 1997, primarily
due to the timing of investment of proceeds received from mortgage dispositions
prior to distribution to Unitholders.
Asset management fees decreased for 1998 as compared to 1997, due to the
decrease in the mortgage base.
Gain on mortgage dispositions decreased slightly for 1998 as compared to
1997. In 1998, the Partnership recognized gains from the prepayment of the
mortgages on Oak Grove Apartments and Arbor Station. In 1997, the Partnership
recognized a gain from the prepayment of the mortgage on Woodland Apartments.
Loss on mortgage disposition decreased for 1998 as compared to 1997 due to
the loss recognized on the prepayment of the mortgage on Ridgeview Chase
Apartments in 1997. There were no losses recognized in 1998.
During 1997, a loan loss reserve was established on Spring Lake Village
Apartments for $387,325. The Partnership has determined that this reserve is
adequate to cover potential losses after considering disposition of this
property and reimbursements from HUD, as discussed above.
Liquidity and Capital Resources
- -------------------------------
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership. Furthermore, the bankruptcy filings could negatively impact CMSLP
which could result in the need to obtain another party to perform the services
currently performed by CMSLP, as sub-advisor, pursuant to the Sub-Advisory
Agreement.
On December 23, 1999, CRIIMI MAE and CRIIMI MAE Management, Inc. filed
their Amended Joint Plan of Reorganization and proposed disclosure statement
with the United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court"). The filing of such Amended Joint
Plan of Reorganization and proposed disclosure statement on December 23, 1999
was filed with the full support of the official committee of Equity Security
Holders in the CRIIMI MAE Chapter 11 case, which is a co-proponent of such
Amended Joint Plan of Reorganization. On or about February 11, 2000, the
Official Committee of Unsecured Creditors of CRIIMI MAE filed its own second
amended plan of reorganization and second amended proposed disclosure statement,
which, in general, provides for the liquidation of the assets of CRIIMI MAE. A
hearing has been scheduled for April 25 and April 26, 2000 on the proposed
disclosure statements filed with the Bankruptcy Court. There can be no assurance
at this time that CRIIMI MAE's Amended Joint Plan of Reorganization will be
confirmed and consummated
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages plus cash receipts from interest on
short-term investments, are the Partnership's principal source of cash flow, and
were sufficient for the years ended December 31, 1999, 1998 and 1997. The
Partnership anticipates its cash flows to be sufficient to meet operating
expense requirements for 2000.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages after paying all expenses
of the Partnership. Although Insured Mortgages yield a fixed monthly mortgage
payment once purchased, the cash distributions paid to the Unitholders will vary
during each quarter due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payment receipts are temporarily invested
prior to the payment of quarterly distributions, (2) the reduction in the asset
base, resulting from monthly mortgage payments or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and professional fees and foreclosure costs incurred in
connection with those Insured Mortgages and (4) variations in the Partnership's
operating expenses.
Cash flow - 1999 versus 1998
- ----------------------------
Net cash provided by operating activities decreased for 1999 as compared to
1998, primarily due to the decrease in mortgage investment income, as discussed
previously. This decrease was partially offset by a decrease in receivables and
other assets due to the receipt of mortgage payments that had been delinquent as
of December 31, 1998.
Net cash provided by investing activities increased for 1999 as compared to
1998, primarily due to proceeds received from the disposition of mortgages, as
previously discussed. This increase was partially offset by a decrease in the
receipt of principal from scheduled payments, due to the reduction in mortgage
base.
Net cash used in financing activities decreased for 1999 as compared to
1998, due to a reduction in the amount of distributions paid to partners in
1999.
Cash flow - 1998 versus 1997
- ----------------------------
Net cash provided by operating activities decreased for 1998 as compared to
1997, primarily due to a decrease in mortgage investment income, as discussed
previously, along with an increase in receivables and other assets caused by the
Partnership's decision to no longer accrue interest on delinquent coinsured
mortgages as of January 1998.
Net cash provided by investing activities decreased for 1998 as compared to
1997, primarily due to a decrease in proceeds received from the disposition of
mortgages. Additionally, principal received from scheduled payments decreased in
1998 due to mortgage dispositions.
Net cash used in financing activities decreased slightly for 1998 as
compared to 1997, due to a reduction in the amount of distributions paid to
partners in 1998.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in interest
rates in the U.S. Treasury market, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of the Partnership's assets.
The table below provides information about the Partnership's Insured
Mortgages, all of which were entered into for purposes other than trading. The
table presents anticipated principal and interest cash flows based upon the
assumptions used in determining the fair value of these securities and the
related weighted average interest rates by expected maturity.
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Insured Mortgages
(in millions) $5.7 $5.4 $5.0 $4.7 $6.3 $32.8 $59.9 $36.4
Average Interest Rate 8.15% 8.15% 8.13% 8.12% 8.11% 8.17% -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in this Annual Report on
Form 10-K commencing on page 25.
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. CRIIMI, Inc. holds a general
partnership interest of 4.9%. The affairs of the Partnership are managed by the
General Partner, which is wholly owned by CRIIMI MAE, a corporation whose shares
are listed on the New York Stock Exchange.
The general partner of the Advisor is AIM Acquisition and the limited
partners include, but are not limited to, AIM Acquisition, The Goldman Sachs
Group, L.P., Sun America Investments, Inc. and CRI/AIM Investment, L.P., an
affiliate of CRIIMI MAE. Pursuant to the terms of certain amendments to the
partnership agreement, the General Partner is required to receive the consent of
the Advisor prior to taking certain significant actions, including but not
limited to the disposition of mortgages, any transaction or agreement with the
General Partner, or its affiliates, or any material change as to policies
regarding distributions or reserves of the Partnership. CMSLP, an affiliate of
CRIIMI MAE, manages the Partnership's portfolio, pursuant to the Sub-Advisory
Agreement. The general partner of CMSLP is CRIIMI MAE Services, Inc., an
affiliate of CRIIMI MAE.
The General Partner is also the general partner of AIM 84, AIM 85 and AIM
88, limited partnerships with investment objectives similar to those of the
Partnership.
The following table sets forth information concerning the executive
officers and directors of CRIIMI MAE, the sole shareholder of the General
Partner as of March 15, 2000:
Name Age Position
- ------- ----- ----------
William B. Dockser 63 Chairman of the Board
H. William Willoughby 53 President, Secretary and Director
Cynthia O. Azzara 40 Senior Vice President,
Chief Financial Officer and
Treasurer
David B. Iannarone 39 Senior Vice President and
General Counsel
Brian L. Hanson 38 Senior Vice President
Garrett G. Carlson, Sr. 62 Director
G. Richard Dunnells 62 Director
Robert Merrick 54 Director
Robert E. Woods 52 Director
William B. Dockser has served as Chairman of the Board of the General
Partner since 1991. Mr. Dockser has been Chairman of the Board of CRIIMI MAE
since 1989 and Chairman of the Board of CRIIMI MAE Financial Corporation since
1995. Mr. Dockser is also the founder of C.R.I., Inc. ("CRI"), serving as its
Chairman of the Board since 1974.
H. William Willoughby has served as President and Secretary of the General
Partner since 1991. Mr. Willoughby has been President of CRIIMI MAE since 1990
and a Director and Secretary of CRIIMI MAE since 1989. He has also served as a
director of CRIIMI MAE Financial Corporation since 1995. Mr. Willoughby has been
a director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President
of CRI since 1990.
Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994. Ms. Azzara has served as Chief Financial Officer of CRIIMI
MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since
1995 and Treasurer of CRIIMI MAE since 1997, Accounting and Finance Departments
of CRI from 1985 to June 1995.
David B. Iannarone has served as Senior Vice President of the General
Partner since March 1998. Mr. Iannarone has served as Senior Vice President of
CRIIMI MAE since March 1998; General Counsel of CRIIMI MAE since July 1996;
Counsel-Securities and Finance for Federal Deposit Insurance
Corporation/Resolution Trust Corporation from 1991 to July 1996.
Brian L. Hanson has served as Senior Vice President of the General Partner
since March 1998. Mr. Hanson has served as Senior Vice President of CRIIMI MAE
since March 1998; Group Vice President of CRIIMI MAE from March 1996 to March
1998; Chief Operating Officer, Director of Asset Operations and Portfolio
Director of JCF Partners, Lanham, Maryland from 1991 to March 1996.
Garrett G. Carlson, Sr. has served as Director of the General Partner since
1989. Mr. Carlson has served as Director of CRIIMI MAE since 1989; President of
Can-American Realty Corp. and Canadian Financial Corp. since 1979 and 1974,
respectively; President of Garrett Real Estate Development since 1982; President
of the Satellite Broadcasting Corporation since 1996; Chairman of the Board of
SCA Realty Holdings Inc. from 1985 to 1995; Vice Chairman of Shelter Development
Corporation Ltd. from 1983 to 1995 and member of the board of Bank Windsor from
1992 to 1994.
G. Richard Dunnells has served as Director of the General Partner since
1991. Mr. Dunnells has served as Director of CRIIMI MAE since 1991; Firm-wide
Hiring Partner of the law firm of Holland & Knight since 1995; Chairman of the
Washington, D.C. law firm of Dunnells & Duvall from 1989 to 1993; Senior Partner
of such law firm from 1973 to 1993; Special Assistant to the Under-Secretary and
Deputy Assistant Secretary for Housing and Urban Renewal and Deputy Assistant
Secretary for Housing Management with the U.S. Department of Housing and Urban
Development from 1969 to 1973; President's Commission on Housing from 1981 to
1982.
Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as Director of CRIIMI MAE since 1997; Chief Credit
Officer and Director of MCG Credit Corporation since February 1998; Executive
Vice President from 1985 and Chief Credit Officer of Signet Banking Corporation
through 1997, also served as Chairman of the Credit Policy Committee and member
of the Asset and Liability Committee and Management Committee; Credit
Officer-Virginia Banking Corporation, an affiliate of Signet Bank/Virginia, from
1980 to 1984; Senior Vice President of Bank of Virginia from 1976 to 1980.
Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing Director and
head of loan syndications for the Americas at Societe Generale, New York since
1997; Managing Director, head of Real Estate Capital Markets and Mortgage-backed
Securities division, Citicorp from 1991 to 1997, Head of Citicorp's
syndications, private placements, money markets and asset-backed businesses from
1985 to 1990.
(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) Section 16(a) Beneficial Interest Ownership Compliance Reporting -
Based solely on its review of Forms 3, 4, and 5 and amendments thereto
furnished to the Partnership, and written representations from certain
reporting persons that no Form 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, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner receive compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated by reference herein to Note 7 of the Notes to
Financial Statements of the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth certain information regarding the beneficial
ownership of Units as of February 17, 2000, by holders of more than five
percent (5%) of the Partnership's Units.
Number of Percent of
Name Address Units Class
- ---- ------- --------- ----------
Private Management 20 Corporate Park 924,336 9.65%
Group, Inc. Suite 400
Irvine, CA 92606
Financial and Investment 417 St. Joseph Street
Management Group, Ltd. P.O. Box 40 605,040 6.32%
Suttins Bay, MI 49682
(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of February 17, 2000 by each
director of the General Partner, each named executive officer of the
General Partner, and by affiliates of the Partnership. Unless otherwise
indicated, each Unitholder has sole voting and investment power with
respect to the Units beneficially owned.
Amount and Nature Percentage
of Units of Units
Name Beneficially Owned Outstanding
- ------------------ ------------------ -----------
William B. Dockser 11,000 (1) *
CRIIMI MAE 500 *
(1) Includes 4,000 Units held by Mr. Dockser's wife
* Less than 1%
(c) There are no arrangements known to the Partnership, the operation of which
may at any subsequent date result in a change in control of the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
Note 7 of the Notes to Financial Statements of the Partnership's report
which contains a discussion of the amounts, fees and other compensation
paid or accrued by the Partnership to the directors and executive officers
of the General Partner and their affiliates, is hereby incorporated by
reference herein.
(b) Certain business relationships.
Other than as set forth in Item 11 of this report which is hereby
incorporated by reference herein, the Partnership has no business
relationship with entities of which the General Partner of the Partnership
are officers, directors or equity owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
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, 1999 and 1998............................................... 21
Statements of Income and Comprehensive Income for the years ended December 31, 1999, 1998
and 1997................................................................................... 22
Statements of Changes in Partners' Equity for the years ended December 31, 1999, 1998 and 1997 23
Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997................. 24
Notes to Financial Statements................................................................. 25
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate............................................................ 34
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:
4.0 Amended and Restated Certificate of Limited Partnership is
incorporated by reference to Exhibit 4(a) to Amendment No. 1 to the
Partnership's Registration Statement on Form S-11 (No. 33-1735) dated
March 6, 1986 (such Registration Statement, as amended, is referred to
herein as the "Amended Registration Statement").
4.1 Second Amended and Restated Agreement of Limited Partnership is
incorporated by reference in Exhibit 3 to the Amended Registration
Statement.
4.2 Material Amendments to the Second Amended and Restated Agreement of
Limited Partnership are incorporated by reference to Exhibit 4(a) to
the Annual Report on Form 10-K for the year ended December 31, 1987.
4.3 Amendment to the Second Amended and Restated Agreement of Limited
Partnership of the Partnership dated February 12, 1990, incorporated
by reference to Exhibit 4(b) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1989.
4.4 Amendment to Partnership Agreement dated September 4, 1991,
incorporated by reference to Exhibit 28(c), to the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1991.
10.0 Escrow Agreement is incorporated by reference to Exhibit 10(a) to the
Amended Registration Statement.
10.1 Origination and Acquisition Services Agreement is incorporated by
reference to Exhibit 10(b) to the Amended Registration Statement.
10.2 Management Services Agreement is incorporated by reference to Exhibit
10(c) to the Amended Registration Statement.
10.3 Disposition Services Agreement is incorporated by reference to Exhibit
10(d) to the Amended Registration Statement.
10.4 Agreement among the former managing general partner, the former
associate general partner and Integrated Resources, Inc. is
incorporated by reference to Exhibit 10(e) to the Amended Registration
Statement.
10.5 Reinvestment Plan is incorporated by reference to the Prospectus
contained in the Amended Registration Statement.
10.6 Pages A-1 - A-5 of the Partnership Agreement of Registrant,
incorporated by reference to Exhibit 28 to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.
10.7 Purchase Agreement among AIM Acquisition, the former managing general
partner, the former corporate general partner, IFI and Integrated
dated as of December 13, 1990, as amended January 9, 1991,
incorporated by reference to Exhibit 28(a) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990.
10.8 Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the former
managing general partner, the former corporate general partner, 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.
10.9 Sub-Management Agreement by and between AIM Acquisition and CRI/AIM
Management, Inc., dated as of March 1, 1991, incorporated by reference
to Exhibit 28(e) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1992.
10.10 Expense Reimbursement Agreement by Integrated Funding Inc. and the
AIM Funds, effective December 31, 1992, incorporated by reference to
Exhibit 28(f) to the Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993.
10.11 Non-negotiable promissory note to American Insured Mortgage Investors
L.P. - Series 88 in the amount of $478,612 dated April 1, 1994,
incorporated by reference to Exhibit 10(p) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1994.
10.12 Amendment No. 1 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective April 1, 1994, incorporated by
reference to Exhibit 10(q) to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1994.
10.13 Non-negotiable promissory note to American Insured Mortgage Investors
L.P. -Series 88 in the amount of $658,486 dated April 1, 1997,
incorporated by reference to Exhibit 10.13 to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997.
10.14 Amendment No. 2 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective April 1, 1997, incorporated by
reference to Exhibit 10.14 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997.
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.
PART IV
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN INSURE MORTGAGE
INVESTORS L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ March 6, 2000 /s/ William B. Dockser
- --------------------------- ---------------------------
DATE William B. Dockser
Chairman of the Board
/s/ March 6, 2000 /s/ H. William Willoughby
- --------------------------- ---------------------------
DATE H. William Willoughby
President and Secretary
/s/ March 6, 2000 /s/ Cynthia O. Azzara
- --------------------------- ---------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
/s/ March 6, 2000 /s/ Garrett G. Carlson, Sr.
- --------------------------- ---------------------------
DATE Garrett G. Carlson, Sr.
Director
/s/ March 6, 2000 /s/ G. Richard Dunnells
- --------------------------- ---------------------------
DATE G. Richard Dunnells
Director
/s/ March 6, 2000 /s/ Robert J. Merrick
- --------------------------- ---------------------------
DATE Robert J. Merrick
Director
/s/ March 6, 2000 /s/ Robert E. Woods
- --------------------------- ---------------------------
DATE Robert E. Woods
Director
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
Financial Statements
as of December 31, 1999 and 1998
and for the Years Ended
December 31, 1999, 1998 and 1997
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of American Insured Mortgage Investors L.P. - Series 86:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 86 (the "Partnership") as of December 31, 1999
and 1998, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 1999, 1998
and 1997. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1999 and 1998, and the results of its operations and its cash flows
for the years ended December 31, 1999, 1998 and 1997, in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate
as of December 31, 1999 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
Vienna, VA
March 15, 2000
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
December 31, December 31,
1999 1998
------------- -------------
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Originated insured mortgages $ -- $ 22,479,721
Acquired insured mortgages 31,452,045 33,305,292
------------ ------------
31,452,045 55,785,013
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,242,873 33,853,462
Acquired insured mortgages 967,057 975,086
------------ ------------
5,209,930 34,828,548
Asset held for sale under coinsurance program 4,656,113 -
Cash and cash equivalents 20,199,791 1,064,294
Investment in affiliate 642,504 650,803
Receivables and other assets 8,635,200 4,797,104
------------ ------------
Total assets $ 70,795,583 $ 97,125,762
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 20,038,714 $ 1,409,759
Note payable and due to affiliate 658,486 658,494
Accounts payable and accrued expenses 117,520 179,641
------------ ------------
Total liabilities 20,814,720 2,247,894
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 58,242,654 100,084,995
General partners' deficit (6,884,381) (4,728,466)
Accumulated other comprehensive income (1,377,410) (478,661)
------------ ------------
Total partners' equity 49,980,863 94,877,868
------------ ------------
Total liabilities and partners' equity $70,795,583 $97,125,762
=========== ===========
The accompanying notes are an integral part
of these financial statements.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
1999 1998 1997
------------ ------------ ------------
Income:
Mortgage investment income $ 3,448,550 $ 5,626,084 $ 10,130,219
Interest and other income 462,058 431,667 498,501
------------ ------------ ------------
3,910,608 6,057,751 10,628,720
------------ ------------ ------------
Expenses:
Asset management fee to related parties 540,758 746,504 976,807
General and administrative 287,840 327,691 334,053
Interest expense to affiliate 47,740 47,740 44,480
------------ ----------- ------------
876,338 1,121,935 1,355,340
------------ ----------- ------------
Earnings before gain (loss) on mortgage
dispositions and loan losses 3,034,270 4,935,816 9,273,380
Gains on mortgage dispositions 698,402 437,120 589,659
Loss on mortgage dispositions (101,219) - (39,725)
Loan loss - - (387,325)
----------- ------------ ------------
Net earnings $ 3,631,453 $ 5,372,936 $ 9,435,989
============ ============ ============
Other comprehensive income (898,749) (214,454) 3,148,174
------------ ------------ ------------
Comprehensive income $ 2,732,704 $ 5,158,482 $ 12,584,163
============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 3,453,512 $ 5,109,662 $ 8,973,626
General partner - 4.9% 177,941 263,274 462,363
------------ ------------ ------------
$ 3,631,453 $ 5,372,936 $ 9,435,989
============ ============ ============
Net earnings per Limited Partnership Unit - Basic $ 0.36 $ 0.53 $ 0.94
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 1999, 1998, and 1997
Accumulated
Other
General Limited Comprehensive Partners'
Partner Partner Income Equity
------------- ------------- ------------- -------------
Balance, January 1, 1997 $ (2,612,029) $ 141,161,141 $ (3,412,381) $ 135,136,731
Net Earnings 462,363 8,973,626 - 9,435,989
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 3,148,174 3,148,174
Distributions paid or accrued of $3.59 per Unit,
including return of capital of $2.65 per Unit (1,771,362) (34,378,885) - (36,150,247)
------------ ------------- ------------- -------------
Balance, December 31, 1997 (3,921,028) 115,755,882 (264,207) 111,570,647
Net Earnings 263,274 5,109,662 - 5,372,936
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (214,454) (214,454)
Distributions paid or accrued of $2.17 per Unit,
including return of capital of $1.64 per Unit (1,070,712) (20,780,549) - (21,851,261)
------------- ------------- ------------- -------------
Balance, December 31, 1998 (4,728,466) 100,084,995 (478,661) 94,877,868
Net Earnings 177,941 3,453,512 - 3,631,453
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - (898,749) (898,749)
Distributions paid or accrued of $4.73 per Unit,
including return of capital of $4.37 per Unit (2,333,856) (45,295,853) - (47,629,709)
------------- ------------- ------------- -------------
Balance, December 31, 1999 $ (6,884,381) $ 58,242,654 $ (1,377,410) $ 49,980,863
============= ============= ============= =============
Limited Partnership Units outstanding - Basic, as of
December 31, 1999, 1998, and 1997 9,576,290
=============
The accompanying notes are an integral part
of these financial statements.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 3,631,453 $ 5,372,936 $ 9,435,989
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on mortgage dispositions (698,402) (437,120) (589,659)
Loss on mortgage dispositions 101,219 - 39,725
Loan loss reserve - - 387,325
Changes in assets and liabilities:
Decrease (increase) in investment in affiliate and due to affiliate 8,291 7,691 (7,503)
(Decrease) increase in accounts payable and accrued expenses (62,121) 9,202 34,745
Decrease (increase) in receivables and other assets 413,228 (44,194) (1,794,082)
------------ ----------- ------------
Net cash provided by operating activities 3,393,668 4,908,515 7,506,540
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 44,301,514 16,163,377 22,268,941
Receipt of principal from scheduled payments 441,069 690,260 1,069,862
------------ ----------- ------------
Net cash provided by investing activities 44,742,583 16,853,637 23,338,803
------------ ----------- ------------
Cash flows from financing activities:
Distributions paid to partners (29,000,754) (44,709,492) (45,414,377)
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents 19,135,497 (22,947,340) (14,569,034)
Cash and cash equivalents, beginning of year 1,064,294 24,011,634 38,580,668
------------ ------------ ------------
Cash and cash equivalents, end of year $ 20,199,791 $ 1,064,294 $ 24,011,634
============ ============ ============
Non cash investing activity:
Receivables due from Patrician as a result of the foreclosure
and sale of the properties underlying the mortgages on
St. Charles Place-Phase II and The Villas $ 4,251,324 $ - $ -
The accompanying notes are an integral part
of these financial statements.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 4.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners L.P. (the "Advisor") serves as the advisor to the
Partnership, pursuant to an advisory agreement (the "Advisory Agreement"). 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., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.
Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.
Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans ("Originated Insured Mortgages") and acquiring mortgage loans
("Acquired Insured Mortgages" and, together with Originated Insured Mortgages,
referred to herein as "Insured Mortgages"). In accordance with the terms of the
partnership agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The partnership agreement
states that the Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the partnership agreement.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the bankruptcy court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership. Furthermore, the bankruptcy filings could negatively impact CMSLP
which could result in the need to obtain another party to perform the services
currently performed by CMSLP, as sub-advisor, pursuant to the Sub-Advisory
Agreement.
On December 23, 1999, CRIIMI MAE and CRIIMI MAE Management, Inc. filed
their Amended Joint Plan of Reorganization and proposed disclosure statement
with the United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court"). The filing of such Amended Joint
Plan of Reorganization and proposed disclosure statement on December 23, 1999
was filed with the full support of the official committee of Equity Security
Holders in the CRIIMI MAE Chapter 11 case, which is a co-proponent of such
Amended Joint Plan of Reorganization. On or about February 11, 2000, the
Official Committee of Unsecured Creditors of CRIIMI MAE filed its own second
amended plan of reorganization and second amended proposed disclosure statement,
which, in general, provides for the liquidation of the assets of CRIIMI MAE. A
hearing has been scheduled for April 25 and April 26, 2000 on the proposed
disclosure statements filed with the Bankruptcy Court. There can be no assurance
at this time that CRIIMI MAE's Amended Joint Plan of Reorganization will be
confirmed and consummated.
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.
Reclassifications
- -----------------
Certain amounts in the financial statements for the years ended December
31, 1997 have been reclassified to conform to the 1999 and 1998 presentation.
Investment in Insured Mortgages
- -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to FHA programs
("FHA-Insured Certificates"), mortgage-backed securities guaranteed by GNMA
("GNMA Mortgage-Backed Securities") and FHA-insured mortgage loans ("FHA-Insured
Loans"). The mortgages underlying the FHA-Insured Certificates, GNMA
Mortgage-Backed Securities, and FHA-Insured Loans are non-recourse first liens
on multifamily residential developments or retirement homes.
Payments of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans are insured by the United States Department of Housing and
Urban Development ("HUD") pursuant to Title 2 of the National Housing Act.
Payments of principal and interest on GNMA Mortgage-Backed Securities are
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
As of December 31, 1999, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 27 years. However, the partnership agreement
states that the Partnership will terminate in approximately 21 years, on
December 31, 2020, unless previously terminated under the provisions of the
partnership agreement. As the Partnership is anticipated to terminate prior to
the weighted average remaining term of its investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, the Partnership does not have the
ability or intent, at this time, to hold these investments to maturity.
Consequently, the General Partner believes that the Partnership's investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates should be included
in the Available for Sale category. 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.
In connection with this classification, as of December 31, 1999 and 1998,
the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates are recorded at fair value, with the unrealized losses on these
assets reported as other comprehensive income and as a separate component of
partners' equity. Subsequent increases or decreases in the fair value of GNMA
Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available
for Sale, will be included as a separate component of partners' equity. Realized
gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured
Certificates, classified as Available for Sale, will continue to be reported in
earnings. The amortized cost of the GNMA Mortgage-Backed Securities and
FHA-Insured Certificates in this category is adjusted for amortization of
discounts and premiums to maturity. Such amortization is included in mortgage
investment income.
As of December 31, 1999 and 1998, Investment in FHA-Insured Loans is
recorded at amortized cost.
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.
Asset Held for Sale under Coinsurance Program
- ---------------------------------------------
Asset Held for Sale under Coinsurance Program ("AHFS") represents property
Integrated Funding, Inc. ("IFI"), an affiliate of the Partnership, has taken
title of and the Partnership intends to sell. The Partnership accounts for AHFS
at the lower of cost, or fair value less costs to sell, since its intent is to
sell the asset in the short term and file coinsurance claims with HUD. The
General Partner initially determined the estimated fair value of the AHFS and
the General Partner periodically assesses the estimated current fair value of
the property to determine whether additional loan losses are appropriate due to,
among other factors, a change in market conditions affecting the properties. The
loan losses related to this AHFS reduce the carrying value of the property.
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
four months or less.
Investment in affiliate
- -----------------------
Represents an investment in IFI. This investment is accounted for under the
equity method, which results in the original invested amount being increased for
the Partnership's share of income and decreased for the Partnership's share of
losses and distributions.
Income Taxes
- ------------
No provision has been made for Federal, state or local income taxes in the
accompanying statements of income and comprehensive income 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, 1999, 1998 and 1997. Since the statements of cash flows are
intended to reflect only cash receipt and cash payment activity, the statements
of cash flows do not reflect operating activities that affect recognized assets
and liabilities while not resulting in cash receipts or cash payments.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.
As of December 31, 1999 As of December 31, 1998
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Originated Insured Mortgages $ -- $ -- $23,066,799 $22,479,721
Acquired Insured Mortgages 32,829,455 31,452,045 33,196,875 33,305,292
----------- ----------- ----------- -----------
$32,829,455 $31,452,045 $56,263,674 $55,785,013
=========== ============ =========== ===========
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 4,242,873 $ 3,968,952 $33,853,462 $33,031,725
Acquired Insured Mortgage 967,057 941,753 975,086 1,013,193
----------- ----------- ----------- -----------
$ 5,209,930 $ 4,910,705 $34,828,548 $34,044,918
=========== =========== =========== ===========
Cash and cash equivalents $20,199,791 $20,199,791 $ 1,064,294 $ 1,064,294
Accrued interest receivable $ 356,155 $ 356,155 $ 4,186,044 $ 4,186,044
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Investment in FHA-Insured Certificates, GNMA Mortgage-Backed Securities
and FHA-Insured Loans
- -----------------------------------------------------------------------
The fair value of the fully insured FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market
prices from an investment banking institution which trades these instruments as
part of its day-to-day activities. In order to determine the fair value of the
coinsured FHA-Insured Certificates, the Partnership valued the coinsured
FHA-Insured Certificates as though they were fully insured (in the same manner
fully insured FHA-Insured Certificates were valued). From this amount, the
Partnership deducted a discount factor from the face value of the loan. This
discount factor is based on the Partnership's historical analysis of the
difference in fair value between coinsured FHA-Insured Certificates and fully
insured FHA-Insured Certificates.
Cash and cash equivalents and accrued interest receivable
- ---------------------------------------------------------
The carrying amount approximates fair value because of the short maturity
of these instruments.
4. COMPREHENSIVE INCOME
Comprehensive Income includes net earnings as currently reported by the
Partnership adjusted for other comprehensive income. Other comprehensive income
for the Partnership is changes in unrealized gains and losses related to the
Partnership's mortgages accounted for as available for sale. The table below
breaks out other comprehensive income for the periods presented into the
following two categories: (1) the change to unrealized gains and losses that
relate to mortgages which were disposed of during the period with the resulting
realized gain or loss reflected in net earnings (reclassification adjustments)
and (2) the change in the unrealized gain or loss related to those investments
that were not disposed of during the period.
1999 1998 1997
----------- ----------- -----------
Reclassification adjustment for losses (gains)
included in net income $ 618,688 $ (82,441) $ 1,092,899
Unrealized holding (losses) gains arising during
the period (1,517,437) (132,013) 2,055,275
----------- ----------- -----------
Net adjustment to unrealized gains (losses)
on mortgages $ (898,749) $ (214,454) $ 3,148,174
=========== =========== ===========
5. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:
A. Fully Insured Originated Insured Mortgages and Acquired Insured Mortgages
---------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully Insured
Mortgages as of December 31, 1999 and 1998:
December 31,
1999 1998
------------ ------------
Fully Insured Originated Mortgages:
Number of Mortgages(1)(2) 1 4
Amortized Cost $ 4,242,873 $ 33,853,462
Face Value 4,088,804 32,697,883
Fair Value 3,968,952 33,031,725
Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 33,796,512 $ 34,171,962
Face Value 33,726,879 34,099,137
Fair Value 32,393,798 34,318,485
(1) In February 1999, the mortgages on Iroquois Club Apartments and Greenbriar
Place were prepaid. The Partnership received net proceeds of approximately
$19.1 million and $5.7 million and recognized a gain of approximately
$330,000 and a loss of approximately $101,000 for the mortgages on Iroquois
Club Apartments and Greenbriar Place, respectively, for the year ended
December 31, 1999. An aggregate distribution of $2.46 per Unit related to
these prepayments was declared in March 1999 and was paid to Unitholders in
May 1999.
(2) In September 1999, the mortgage on Argyle Place was prepaid. The
Partnership received net proceeds of approximately $5.3 million and
recognized a gain of approximately $369,000 for the year ended December 31,
1999. A distribution of $0.53 per Unit related to the prepayment of this
mortgage was declared in October 1999 and was paid to Unitholders in
February 2000.
As of March 1, 2000, all of the Partnership's fully insured mortgage
investments are current with respect to the payment of principal and interest.
In addition to base interest payments from fully Insured Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development and of the net
proceeds from the refinancing, sale or other disposition of the underlying
development (referred to as "Participations"). During the years ended December
31, 1999, 1998 and 1997, the Partnership received additional interest of
$12,503, $74,112, and $95,744, respectively, from the fully insured
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of income and comprehensive income.
B. Coinsured Mortgages
-------------------
Under the HUD coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits if a mortgagor
defaults and the sale of the development collateralizing the mortgage produces
insufficient net proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the first part of such
loss in an amount up to 5% of the outstanding principal balance of the mortgage
as of the date foreclosure proceedings are instituted or the deed is acquired in
lieu of foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is prohibited
from entering into any workout arrangement with the borrower without the
Partnership's consent and must file a claim for coinsurance benefits with HUD,
upon default, if the Partnership so directs. As an ongoing HUD-approved
coinsurance lender, and under the terms of the participation documents, the
coinsurance lender is required to satisfy certain minimum net worth requirements
as set forth by HUD. However, it is possible that the coinsurance lender's
potential liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would bear the
risk of loss if the coinsurance lenders were unable to meet their coinsurance
obligations. In addition, HUD's obligation for the payment of its share of the
loss could be diminished under certain conditions, such as the lender not
adequately pursuing regulatory violations of the borrower or the failure to
comply with other terms of the mortgage. However, the General Partner is not
aware of any conditions or actions that would result in HUD diminishing its
insurance coverage.
1. Asset Held for Sale under Coinsurance Program
---------------------------------------------
As of December 31, 1999, the Partnership had invested in one AHFS,
Spring Lake Village, with an amortized cost of approximately $4.6 million
and a face value of approximately $4.9 million. Spring Lake Village is a
141-unit garden apartment complex located in St. Petersburg, Florida. In
July 1997, the General Partner instructed the servicer to file a notice of
default with HUD. As of January 1, 1998, the Partnership discontinued the
accrual of interest income. In March 1998, IFI completed foreclosure
proceedings and obtained title to this property. A claim was filed with HUD
on April 1, 1999. The Partnership expects to receive approximately $1.1
million from HUD, which includes net claim proceeds plus accrued interest
on the unpaid principal balance of the mortgage, by the end of April 2000.
Spring Lake Village is currently generating cash flows of approximately
$20,000 per month. The cash reserve balance, as of March 1, 2000, is
approximately $262,000. Outstanding capital improvements are expected to be
paid from these reserves and should be completed within the next three to
six months. The Partnership expects that the proceeds from the sale of this
property, plus the claim from HUD will result in the recovery of a
significant portion of amounts due and believes the cumulative loss reserve
recognized, of $502,626, is adequate.
As of December 31, 1998, the Partnership had recorded its investment
in the mortgage on Spring Lake Village as Investment in FHA-Insured
Certificate, at fair value, on the balance sheet. The loan amounts as of
December 31, 1998 are as follows:
Cumulative
Amortized Face Fair Loan Losses
Cost Value Value Recognized
----------- ----------- ----------- -----------
Spring Lake
Village $ 4,656,113 $ 4,898,740 $ 4,675,962 $ 502,626
2. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages coinsured by an
unaffiliated third party coinsurance lender, The Patrician Mortgage
Company ("Patrician"), under the HUD coinsurance program.
December 31, 1999 December 31, 1998
---------------------------------------- ------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
----------- ----------- ------------ ------------ ------------ ------------
The Villas (a) $ -- $ -- $ -- $ 15,412,759 $ 15,646,469 $ 14,905,685
St. Charles Place -
Phase II (b) -- -- -- 3,035,688 3,035,688 2,898,074
----------- ----------- ------------ ------------ ------------ ------------
Total $ -- $ -- $ -- $ 18,448,447 $ 18,682,157 $ 17,803,759
=========== =========== ============ ============ ============ ============
(a) On October 14, 1993, Patrician filed a foreclosure action on the property
underlying the coinsured mortgage on The Villas. On November 2, 1993, the
mortgagor filed for protection under chapter 11 of the U. S. Bankruptcy
Code. The property was acquired and vested with Patrician in November 1998
and subsequently sold on September 30, 1999. In October 1999, the
Partnership received sales proceeds of approximately $11.7 million. Prior
to the sale, the mortgagor had made payments of principal and interest due
on the original mortgage through December 1995, and had made payments of
principal and interest due under a modification agreement through August
1993. Patrician filed a coinsurance claim for insurance benefits with HUD
in October 1999, for remaining amounts due, including past due interest.
The remaining balance due, including accrued interest, as of December 31,
1999, is approximately $9.7 million and is expected to be received in the
second half of 2000. A distribution of $1.16 per Unit related to the sale
was declared in October 1999 and was paid to Unitholders in February 2000.
The Partnership does not expect to recognize a loss related to this
disposition, as the Partnership expects to recover all amounts due from HUD
and Patrician.
(b) On October 14, 1993, Patrician filed a foreclosure action on the property
underlying this coinsured mortgage. On November 2, 1993, the mortgagor
filed for protection under chapter 11 of the U. S. Bankruptcy Code. The
property was acquired and vested with Patrician in November 1998 and
subsequently sold on October 12, 1999. Patrician filed a coinsurance claim
for insurance benefits with HUD in October 1999, for remaining amounts due,
including past due interest. In November 1999, the Partnership received
sales proceeds of approximately $2.5 million. Prior to the sale, the
mortgagor had made payments of principal and interest due on the mortgage
through November 1995 to the Partnership. The remaining balance due,
including accrued interest, as of December 31, 1999, is approximately $1.7
million and is expected to be received in the second half of 2000. The
amount of the Partnership's investment in this mortgage represents the
Partnership's approximate 45% ownership interest in the mortgage. The
remaining 55% ownership interest is held by American Insured Mortgage
Investors L.P. - Series 88 ("AIM 88"), an affiliate of the Partnership. A
distribution of $0.24 per Unit related to the sale was declared in November
1999 and was paid to Unitholders in February 2000. The Partnership does not
expect to recognize a loss related to this disposition, as it expects to
recover all amounts due from Patrician.
The General Partner intends to continue to oversee the Partnership's
interest in these liabilities to ensure that Patrician meets its coinsurance
obligations. However, the General Partner does not believe that there would be a
material adverse impact on the Partnership's financial condition or its results
of operations should Patrician be unable to comply with its full coinsurance
obligation.
In connection with the FHA-Insured Certificates secured by coinsured
mortgages, the Partnership has sought, in addition to base interest payments,
additional interest (commonly termed Participations) based on a percentage of
the net cash flow from the development and the net proceeds from the
refinancing, sale or other disposition of the underlying development. All of the
FHA-Insured Certificates secured by coinsured mortgages contain such
Participations. During the years ended December 31, 1999, 1998 and 1997, the
Partnership did not receive any additional interest from the coinsured
Participations.
6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD regulations,
in April 1994, AIM 88, an affiliate of the Partnership, transferred a GNMA
mortgage-backed security in the amount of $2.0 million to IFI. The Partnership
and American Insured Mortgages Investors L.P. - Series 85 ("AIM 85"), an
affiliate of the Partnership, each issued a demand note payable to AIM 88 and
recorded an investment in IFI through an affiliate ("AIM Mortgage, Inc") in
proportion to each entity's coinsured mortgages for which IFI was mortgagee of
record as of April 1, 1994. Interest expense on the note payable is based on an
interest rate of 7.25% per annum. In April 1997, the GNMA mortgage-backed
security, with a current balance of $1.9 million, was reallocated between the
Partnership and AIM 88, since AIM 85 no longer holds coinsured mortgages.
As of December 31, 1999, the Partnership owns a 34% ownership interest in
AIM Mortgage, Inc. The remaining 66% ownership interest is held by AIM 88. AIM
Mortgage, Inc. owns all of the outstanding preferred stock and common stock of
IFI.
IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 85 and AIM 88 (collectively the "AIM Funds") whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement and the Partnership's equity interest in IFI's net income or loss,
substantially equals the interest the Partnership pays on the note. In April
1997, this agreement was amended to exclude AIM 85 which no longer holds
coinsured mortgages.
7. TRANSACTIONS WITH RELATED PARTIES
The principal officers of the General Partner for the years ended December
31, 1999, 1998 and 1997 did not receive fees for serving as officers of the
General Partner, nor are any fees expected to be paid to the officers in the
future.
The General Partner, CMSLP and certain affiliated entities have, during the
years ended December 31, 1999, 1998 and 1997, earned or received compensation or
payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
Capacity in Which For the years ended December 31,
Name of Recipient Served/Item 1999 1998 1997
- ----------------- ---------------------------- ---------- ---------- ----------
CRIIMI, Inc. (1) General Partner/Distribution $2,333,856 $1,070,712 $1,771,362
AIM Acquisition Advisor/Asset Management Fee 540,758 746,504 976,807
Partners, L.P. (2)
CRIIMI MAE
Management, Inc. Affiliate of General Partner/ 45,744 42,883 52,530
Expense Reimbursement
(1) The General Partner, pursuant to amendments to the partnership agreement,
effective September 6, 1991, is entitled to receive 4.9% of the
Partnership's income, loss, capital and distributions, including, without
limitation, the Partnership's adjusted cash from operations and proceeds of
mortgage prepayments, sales or insurance (both as defined in the
partnership agreement).
(2) The Advisor, pursuant to the partnership agreement, effective October 1,
1991, is entitled to an Asset Management Fee equal to 0.75% of Total
Invested Assets. CMSLP, the sub-advisor to the Partnership, is entitled to
a fee of 0.28% of Total Invested Assets from the Advisor's Asset Management
Fee. Of the amounts paid to the Advisor, CMSLP earned a fee equal to
$201,856, $278,684 and $364,368 for the years ended December 31, 1999, 1998
and 1997, respectively. The limited partner of CMSLP is a wholly-owned
subsidiary of CRIIMI MAE, which filed for protection under Chapter 11 of
the U.S. Bankruptcy Code.
8. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
-------- -------- --------
Quarter ended March 31 $ 2.56(1) $ 0.15 $ 0.75(5)(6)
Quarter ended June 30, 0.10(2) 1.75(4) 0.21
Quarter ended September 30, 0.08 0.13 0.22(6)
Quarter ended December 31, 1.99(3) 0.14 2.41(7)
-------- -------- --------
$ 4.73 $ 2.17 $ 3.59
======== ======== ========
(1) This amount includes approximately $2.46 per Unit representing return of
capital and gain from the prepayment of the following mortgages: Iroquis
Club Apartments of $1.89 per Unit and Greenbriar Place of $0.57 per Unit.
(2) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
(3) This amount includes approximately $0.53 per Unit representing return of
capital and gain from the prepayment of the mortgage on Argyle Place
Apartments. In addition, this amount includes approximately $1.40 per Unit
representing partial return of capital received as a result of the sale of
St. Charles Place-Phase II and The Villas.
(4) This amount includes approximately $1.60 per Unit representing return of
capital from the prepayment of the following mortgages: Oak Grove
Apartments of $0.67 per Unit and Arbor Station Apartments of $0.93 per
Unit.
(5) This amount includes approximately $0.53 per Unit representing return of
capital from the prepayment of the mortgage on Carmen Drive Estates.
(6) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from St. Charles Place-Phase II
and The Villas.
(7) This amount includes approximately $2.21 per Unit representing return of
capital from the prepayment of the following mortgages: Ridgeview Chase
Apartments of $0.95 per Unit and Woodland Apartments of $1.26 per Unit.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages. Although Insured Mortgages
yield a fixed monthly mortgage payment once purchased, the cash distributions
paid to the Unitholders will vary during each quarter due to (1) the fluctuating
yields in the short-term money market where the monthly mortgage payment
receipts are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base resulting from monthly
mortgage payments received or mortgage dispositions, (3) variations in the cash
flow attributable to the delinquency or default of Insured Mortgages and
professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.
9. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests ("Units") were issued at a stated value of $20. A total of 9,576,165
Units were issued for an aggregate capital contribution of $191,523,300. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.
10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1999, 1998 and 1997:
(In Thousands, Except Per Unit Data)
1999
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 1,198 $ 880 $ 917 $ 916
Net gain on mortgage dispositions 228 -- 369 --
Net earnings 1,166 680 1,071 714
Net earnings per Limited Partnership Unit - Basic $ 0.12 $ 0.07 $ 0.11 $ 0.06
1998
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 1,819 $ 1,424 $ 1,495 $ 1,320
Gain on mortgage dispositions -- 437 -- --
Net earnings 1,507 1,575 1,244 1,047
Net earnings per Limited Partnership Unit - Basic $ 0.15 $ 0.16 $ 0.12 $ 0.10
1997
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 2,838 $ 2,658 $ 2,570 $ 2,563
Net gain on mortgage dispositions -- -- -- 550
Loan loss -- -- -- (387)
Net earnings 2,491 2,291 2,219 2,435
Net earnings per Limited Partnership Unit - Basic $ 0.25 $ 0.22 $ 0.22 $ 0.25
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
Annual Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Mortgage Amount of Value Interest)
Location Date (4)(5) Mortgage (3) (3)(6)(7)(10) (4)(8)
- -------------------- -------- -------- ----------- ----------- -----------
ACQUIRED INSURED MORTGAGES:
- ---------------------------
Investment in FHA-Insured Certificates
(carried at fair value)
Southampton Apts., Grove City, OH 4/27 8.50% $ 1,939,227 $ 1,882,511 $ 183,038
Pleasantview Nursing Home, Union, NJ 6/29 7.75% 3,362,460 3,163,043 290,532
----------- -----------
Total investment in FHA-Insured Certificates -
Acquired Insured Mortgages 5,301,687 5,045,554
----------- -----------
ACQUIRED INSURED MORTGAGES:
- ---------------------------
Investment in GNMA Mortgage-Backed Securities
(carried at fair value)
Brighton Manor, Petersburg, VA 3/29 7.50% 996,350 957,252 80,487
Cyress Cove, Jacksonville, FL 2/28 7.30% 6,732,247 6,468,772 547,655
Hickory Tree Apts., Indianapolis, IN 4/27 7.375% 3,375,779 3,243,833 279,281
Main Street Square, Roundrock, TX 9/29 8.75% 1,333,333 1,304,101 122,820
Maple Manor, Syracuse, NY 4/29 7.375% 1,205,252 1,157,973 97,570
Mountain Village Apts., Tucson, AZ 5/29 7.50% 1,308,262 1,256,912 105,511
Oakwood Garden Apts., San Jose, CA 10/23 7.75% 9,334,968 8,972,495 813,878
Regency Park Apts., North St. Paul, MN 4/24 7.00% 1,395,915 1,341,831 116,236
Sunflower Apts., Tucson, AZ 5/29 7.50% 1,772,911 1,703,322 142,984
----------- -----------
Total investment in GNMA Mortgage- Backed
Securities-Acquired Insured Mortgages 27,455,017 26,406,491
----------- -----------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 32,756,704 31,452,045
----------- -----------
ORIGINATED INSURED MORTGAGE:
- ----------------------------
Fully Insured Mortgage
- ----------------------
Investment in FHA-Insured Loans
(carried at amortized cost) (2)
Colony Square Apts, Rocky Mount, NC (1) 10/28 8.25% 4,088,804 4,242,873 372,352
----------- -----------
Total investment in FHA-Insured Loans -
Fully Insured Mortgages 4,088,804 4,242,873
----------- -----------
ACQUIRED INSURED MORTGAGE:
- --------------------------
Investment in FHA-Insured Loan
(carried at amortized cost)(2)
Winburn Square, Lexington, KY 1/27 9.00% 970,175 967,057 95,829
----------- -----------
Total investment in FHA-Insured Loans 5,058,979 5,209,930
----------- -----------
TOTAL INVESTMENT IN INSURED MORTGAGES 37,815,683 36,661,975
----------- -----------
ASSETS HELD FOR SALE UNDER COINSURANCE PROGRAM:
- -----------------------------------------------
Spring Lake Village, St. Petersburg, FL 7/29 8.75% 4,898,740(9) 4,656,113 458,031
----------- -----------
TOTAL $42,714,423 $41,318,088
=========== ===========
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
(1) The mortgage on Colony Square Apartments possesses a special assignment
option, in its mortgage document, which allows the Partnership, anytime
after April 2002, to require payment of the unpaid principal balance of the
mortgage. At such time, the borrower must make payment to the Partnership
or the Partnership may cancel the FHA insurance and institute foreclosure
proceedings.
(2) Inclusive of closing costs and acquisition fees.
(3) Prepayment of these insured mortgages would be based upon the unpaid
principal balance at the time of prepayment.
(4) This represents the base interest rate during the permanent phase of this
insured mortgage loan. Additional interest (referred to as Participations)
measured as a percentage of the net cash flow from the development and of
the net proceeds from sale, refinancing or other disposition of the
underlying development (as defined in the participation agreements), will
also be due. During the years ended December 31, 1999, 1998 and 1997, the
Partnership received additional interest of $12,503, $74,112 and $95,744,
respectively, from the Participations.
(5) In addition, the servicer or the sub-servicer of the Insured Mortgage,
primarily unaffiliated third parties, is entitled to receive compensation
for certain services rendered.
(6) A reconciliation of the carrying value of the Insured Mortgages, including
AHFS, for the years ended December 31, 1999 and 1998, is as follows:
1999 1998
------------ ------------
Beginning balance $ 90,613,561 $107,244,532
Amount reclassified to Receivables and other assets
related to The Villas and St. Charles Place - Phase II (4,251,324) --
Principal receipts on Insured Mortgages (441,069) (690,260)
Gain on mortgage dispositions 698,402 437,120
Loss on mortgage dispositions (101,219) --
Disposition of mortgages (44,301,514) (16,163,377)
Adjustment to unrealized gains (losses) on
investments in Insured Mortgages (898,749) (214,454)
------------ ------------
Ending balance $ 41,318,088 $ 90,613,561
============ ============
(7) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or
retirement homes.
(8) Principal and interest are payable at level amounts over the life of the
Insured Mortgages.
(9) Represents principal amount subject to delinquent principal or interest.
The cumulative loan loss reserve as of December 31, 1999 is $502,626. See
Note 5 of the Notes to Financial Statements.
(10) As of December 31, 1999 and 1998, the tax basis of the Insured Mortgages,
including AHFS, was approximately $42.0 million and $88.7 million,
respectively.