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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, 2000 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 12, 2001, 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 $31,121,318.
Documents incorporated by Reference
None
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business....................................................................... 4
Item 2. Properties..................................................................... 5
Item 3. Legal Proceedings.............................................................. 5
Item 4. Submission of Matters to a Vote of Security Holders............................ 5
PART II
Item 5. Market for Registrant's Securities and Related Security Holder Matters......... 5
Item 6. Selected Financial Data........................................................ 6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 6
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................... 11
Item 8. Financial Statements and Supplementary Data.................................... 11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 11
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 12
Item 11. Executive Compensation......................................................... 13
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 13
Item 13. Certain Relationships and Related Transactions................................. 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 15
Signatures ............................................................................... 17
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, 2000, 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 page
27.
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 2000.
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 2000 and 1999 were as
follows:
Amount of
2000 Distribution
Quarter Ended High Low Per Unit
------------- --------- --------- ------------
March 31 $ 5.2500 $ 3.6250 $ 0.070
June 30 4.0000 3.5625 0.095 (1)
September 30 4.2500 3.2500 0.075
December 31 4.3750 3.2500 1.105 (2)
-------
$ 1.345
=======
Amount of
1999 Distribution
Quarter Ended High Low Per Unit
------------- --------- --------- ------------
March 31 $ 8.7500 $ 7.7500 $ 2.56(3)
June 30 8.3750 5.5000 0.10(4)
September 30 5.8750 5.3125 0.08
December 31 5.6250 4.8750 1.99(5)
------
$ 4.73
======
(1) This amount includes approximately $0.02 per Unit of interest from receipt
of HUD debenture in exchange for the Spring Lake Village HUD coinsurance
claim.
(2) This amount includes approximately $1.02 per Unit return of capital
received from the coinsurer of the mortgage on The Villas, as a result of
its coinsurance claim filed with HUD.
(3) This amount includes approximately $2.46 per Unit representing return of
capital and gain from the prepayment of the following mortgages: Iroquois
Club Apartments of $1.89 per Unit and Greenbriar Place of $0.57 per Unit.
(4) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
(5) 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.
Approximate Number of
Unitholders
Title of Class as of December 31, 2000
-------------- -----------------------
Depositary Units of Limited
Partnership Interest 8,400
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Income $ 3,134 $ 3,911 $ 6,058 $ 10,629 $ 13,473
Net gain on mortgage dispositions 4,753 597 437 550 1,616
Loan loss -- -- -- (387) --
Net earnings 7,245 3,631 5,373 9,436 13,069
Net earnings per Limited
Partnership Unit - Basic (1) $ 0.720 $ 0.360 $ 0.530 $ .940 $ 1.300
Distributions per Limited
Partnership Unit (1)(2) $ 1.345 $ 4.730 $ 2.170 $ 3.590 $ 4.830
As of December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total assets $ 55,785 $ 70,796 $ 97,126 $ 136,668 $ 169,283
Partners' equity 44,529 49,981 94,878 111,571 135,137
(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, 2000, 1999, 1998, 1997 and 1996, 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,
2000, 1999 and 1998, and the balance sheet data as of December 31, 2000 and
1999, 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, 1997 and 1996 and the
balance sheet data as of December 31, 1998, 1997 and 1996 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.
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, 2000, the Partnership had invested in 13 Insured
Mortgages, with an aggregate amortized cost of approximately $38 million, a face
value of approximately $37 million and a fair value of approximately $37
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, 2000 and 1999:
December 31,
2000 1999
------------ ------------
Fully Insured Originated Mortgages:
Number of Mortgages 1 1
Amortized Cost $ 4,202,201 $ 4,242,873
Face Value 4,052,423 4,088,804
Fair Value 4,049,248 3,968,952
Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 33,391,521 $ 33,796,512
Face Value 33,325,178 33,726,879
Fair Value 32,863,745 32,393,798
As of March 1, 2001, 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, 2000, 1999 and 1998, the Partnership received additional interest of
$16,844, $12,503, and $74,112, 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
---------------------------------------------
The Partnership had previously invested in one Asset Held for Sale
under Coinsurance Program ("AHFS"), Spring Lake Village. 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. In January 1998, the Partnership discontinued
the accrual of interest income. In March 1998, Integrated Funding, Inc.
("IFI"), an affiliate of the Partnership and coinsurance lender, completed
foreclosure proceedings and obtained title to this property. A claim was
filed with HUD on April 1, 1999. In April 2000, the Partnership received
assignment proceeds in the form of a 9.125% debenture. The debenture, with
a face value of approximately $784,000, earned interest semi-annually on
January 1 and July 1. In January 2001, proceeds of approximately $784,000
were received upon redemption of this debenture. A distribution of $0.08
per Unit related to this coinsurance claim was declared in January 2001 and
will be paid to Unitholders in May 2001. In addition, approximately
$178,000 of retroactive interest was received in April 2000; this amount
represents interest earned on the debenture at a rate of 9.125%, from the
date of default of the mortgage through January 1, 2000. A distribution of
$0.02 per Unit related to this coinsurance claim was declared in April 2000
and was paid to Unitholders in August 2000.
In December 2000, the Partnership received approximately $4.5 million
from the sale of Spring Lake Village and recognized a gain of approximately
$1.3 million for the year ended December 31, 2000. A distribution of
approximately $0.44 per Unit related to the sale of this property was
declared in January 2001 and will be paid to Unitholders in May 2001.
In January 2001, the Partnership received additional assignment
proceeds in the form of a 9.125% debenture. The debenture, with a face
value of approximately $231,000, will earn interest semi-annually on
January 1 and July 1. The Partnership plans to hold the debenture until it
is called or date of maturity, on July 1, 2017, whichever comes first. At
that time, debenture proceeds will be distributed to Unitholders. In
addition, approximately $74,000 of retroactive interest was received in
January 2001; this amount represents interest earned on the debenture at a
rate of 9.125%, from the date of default of the mortgage through January 1,
2001. A distribution of $0.01 per Unit related to this coinsurance claim
was declared in February 2001 and will be paid to Unitholders in May 2001.
The cash escrow balance held by the servicer, CMSLP, as of December 31,
2000, is approximately $330,000. The Partnership expects to receive
approximately $300,000 of this amount after all outstanding expenses have
been paid. At that time, the surplus cash will be distributed to
Unitholders. As of December 31, 2000, these amounts are included on the
balance sheet in Receivables and other assets.
2. Coinsured by third party
------------------------
The following is a discussion of the two Originated Insured Mortgages
coinsured by an unaffiliated third party coinsurance lender, The Patrician
Mortgage Company ("Patrician"), under the HUD coinsurance program.
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. A
distribution of approximately $1.16 per Unit related to the sale was
declared in October 1999 and was paid to Unitholders in February 2000.
Patrician filed a coinsurance claim for insurance benefits with HUD in
October 1999, for remaining amounts due, including past due interest. In
October 2000, the Partnership received proceeds from Patrician of
approximately $10.3 million and recognized a gain of approximately $3.4
million for the year ended December 31, 2000. A distribution of
approximately $1.02 per Unit related to the disposition of this mortgage
was declared in October 2000 and was paid to Unitholders in February 2001.
The remaining balance due is approximately $182,000 as of December 31,
2000.
On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on St. Charles Place-Phase II.
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. A distribution of approximately $0.24 per Unit related to the
sale was declared in November 1999 and was paid to Unitholders in February
2000. In February 2001, the Partnership received claim proceeds from
Patrician of approximately $1.8 million and expects to recognize a gain of
approximately $679,000. The claim proceeds represent the remaining balance
due on the mortgage, including interest from November 1, 1995 through the
date of receipt. The Partnership expects to distribute approximately $0.18
per Unit related to the disposition of this mortgage in May 2001. As of
December 31, 2000, approximately $1.2 million of this amount is included on
the balance sheet in Receivables and other assets. 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 AIM 88, an affiliate of the Partnership.
Results of Operations
- ---------------------
2000 versus 1999
- ----------------
Net earnings increased for 2000 as compared to 1999, primarily due to an
increase in gains on mortgage dispositions, as discussed below. This increase
was offset by a decrease in mortgage investment income.
Mortgage investment income decreased for 2000 as compared to 1999,
primarily due to a reduction in the mortgage base. The mortgage base decreased
as a result of three mortgage dispositions since February 1999 with an aggregate
principal balance of approximately $29 million, representing an approximate 43%
decrease in the aggregate principal balance of the fully insured mortgages.
Interest and other income decreased for 2000 as compared to 1999, 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 2000 as compared to
1999, due to the reduction in the mortgage base.
General and administrative expense decreased for 2000 as compared to 1999.
The decrease is primarily due to the decrease in the mortgage base, a decrease
in temporary employment costs and a decrease in coinsurance expense related to
the disposition of Spring Lake Village.
Net gains on mortgage dispositions increased for 2000 as compared to 1999.
During 2000, the Partnership recognized a gain of approximately $3.4 million on
the disposition of The Villas, a delinquent mortgage co-insured by a third
party, as previously discussed. In addition, the Partnership recognized a gain
of approximately $1.3 million on the sale of the AHFS, Spring Lake Village, as
discussed previously. During 1999, the Partnership recognized gains of
approximately $698,000 from the prepayment of the mortgages on Iroquois Club
Apartments and Argyle Apartments and a loss of approximately $101,000 on the
prepayment of the mortgage on Greenbriar Place.
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.
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.
On November 22, 2000, the United States Bankruptcy Court for the District
of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court") confirmed CRIIMI
MAE's and CRIIMI MAE Management, Inc.'s Third Amended Joint Plan of
Reorganization (as amended and supplemented by praecipes filed with the
Bankruptcy Court on July 13, 14 and 21, and November 22, 2000, the "Plan").
CRIIMI MAE is working to complete the debt documentation, evidencing the secured
financings to be provided by (1) the unsecured creditors, and (2) Merrill Lynch
Mortgage Capital, Inc. and German American Capital Corporation (collectively the
"New Debt Documents"). On March 9, 2001, the Bankruptcy Court approved an
extension of the date by which the Plan must be effective to April 13, 2001. The
Official Committee of Unsecured Creditors had previously filed its own plan of
reorganization and proposed disclosure statement, but has asked the Bankruptcy
Court, subject to completion of mutually acceptable debt documentation, to defer
consideration of its plan and proposed disclosure statement. There can be no
assurance at this time that CRIIMI MAE will be able to complete the New Debt
Documents and effectuate the Plan by April 13, 2001.
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, 2000, 1999 and 1998. The
Partnership anticipates its cash flows to be sufficient to meet operating
expense requirements for 2001.
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 - 2000 versus 1999
- ----------------------------
Net cash provided by operating activities decreased for 2000 as compared to
1999, primarily due to the decrease in mortgage investment income, as discussed
previously.
Net cash provided by investing activities decreased for 2000 as compared to
1999, primarily due to a decrease in proceeds received from the disposition of
mortgages. This decrease was partially offset by (1) an increase in proceeds
received from Patrician for the disposition of the delinquent mortgage on The
Villas, as previously discussed; and (2) an increase in proceeds received from
the disposition of the AHFS, Spring Lake Village, as previously discussed.
Net cash used in financing activities decreased for 2000 as compared to
1999, due to a reduction in the amount of distributions paid to partners in
2000.
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.
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.
2001 2002 2003 2004 2005 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Insured Mortgages
(in millions) $5.6 $5.2 $4.9 $6.5 $5.8 $28.2 $56.1 $36.9
Average Interest Rate 7.41% 7.39% 7.38% 7.37% 7.37% 7.43% 7.43% --
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 18.
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. (successor to Broad, 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 February 20, 2001:
Name Age Position
- ---- --- --------
William B. Dockser 63 Chairman of the Board
H. William Willoughby 54 President, Secretary and Director
David B. Iannarone 40 Executive Vice President
Cynthia O. Azzara 41 Senior Vice President,
Chief Financial Officer and
Treasurer
Brian L. Hanson 39 Senior Vice President
Garrett G. Carlson, Sr. 63 Director
G. Richard Dunnells 63 Director
Robert Merrick 55 Director
Robert E. Woods 53 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. 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. Mr. Willoughby has been a
director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President of
CRI since 1990.
David B. Iannarone has served as Executive Vice President of the General
Partner since December 2000. Mr. Iannarone has served as Executive Vice
President CRIIMI MAE since December 2000; as Senior Vice President of CRIIMI MAE
from March 1998 to December 2000; and General Counsel of CRIIMI MAE from July
1996 to December 2000. He served as Counsel-Securities and Finance for Federal
Deposit Insurance Corporation/Resolution Trust Corporation from 1991 to July
1996.
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, and in the Accounting and Finance
Departments of CRI from 1985 to June 1995.
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; and Chief Operating Officer, Director of Asset Operations and Portfolio
Director of JCF Partners 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; and Vice Chairman of Shelter
Development Corporation Ltd. from 1983 to 1995.
G. Richard Dunnells has served as Director of the General Partner since
1991. Mr. Dunnells has served as Director of CRIIMI MAE since 1991; Hiring
Partner of the law firm of Holland & Knight since January 1995; and 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.
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 Capital 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.
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, 2000.
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 16, 2001, 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 626,780 6.55%
Group, Inc. Suite 400
Irvine, CA 92606
Financial and Investment 417 St. Joseph Street
Management Group, Ltd. P.O. Box 40 928,506 9.70%
Suttins Bay, MI 49682
(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of February 16, 2001 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
of Units Percentage 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, 2000 and 1999............................................................... 20
Statements of Income and Comprehensive Income for the years ended December 31, 2000, 1999 and 1998............ 21
Statements of Changes in Partners' Equity for the years ended December 31, 2000, 1999 and 1998................ 22
Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998................................. 23
Notes to Financial Statements................................................................................. 24
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate............................................................................ 32
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, 1998.
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, 1998.
10.15 Amendment No. 3 to Reimbursement Agreement by Integrated Funding, Inc.
and the AIM Funds, effective January 1, 2000 (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 INSURED MORTGAGE
INVESTORS L.P. - SERIES 86 (Registrant)
By: CRIIMI, Inc.
General Partner
March 12, 2001 /s/William B. Dockser
- -------------- --------------------------
DATE William B. Dockser
Chairman of the Board
March 08, 2001 /s/H. William Willoughby
- -------------- --------------------------
DATE H. William Willoughby
President and Secretary
March 29, 2001 /s/Cynthia O. Azzara
- -------------- --------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
March 07, 2001 /s/Garrett G. Carlson, Sr.
- -------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director
March 12, 2001 /s/G. Richard Dunnells
- -------------- --------------------------
DATE G. Richard Dunnells
Director
march 08, 2001 /s/Robert J. Merrick
- -------------- --------------------------
DATE Robert J. Merrick
Director
March 09, 2001 /s/Robert E. Woods
- -------------- --------------------------
DATE Robert E. Woods
Director
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
Financial Statements
as of December 31, 2000 and 1999
and for the Years Ended
December 31, 2000, 1999 and 1998
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, 2000
and 1999, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 2000, 1999
and 1998. 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, 2000 and 1999, and the results of its operations and its cash flows
for the years ended December 31, 2000, 1999 and 1998, 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, 2000 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, Virginia
March 15, 2001
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
December 31, December 31,
2000 1999
------------- ------------
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 31,903,173 $ 31,452,045
------------ ------------
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 4,202,201 4,242,873
Acquired insured mortgages 958,273 967,057
------------ ------------
5,160,474 5,209,930
Asset held for sale under coinsurance program - 4,656,113
Cash and cash equivalents 15,872,119 20,199,791
Investment in FHA debenture 783,981 -
Investment in affiliate - 642,504
Receivables and other assets 2,065,477 8,635,200
------------ ------------
Total assets $ 55,785,224 $ 70,795,583
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 11,127,025 $ 20,038,714
Note payable and due to affiliate 24,948 658,486
Accounts payable and accrued expenses 103,905 117,520
------------ ------------
Total liabilities 11,255,878 20,814,720
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 52,252,446 58,242,654
General partners' deficit (7,193,025) (6,884,381)
Accumulated other comprehensive loss (530,075) (1,377,410)
------------ ------------
Total partners' equity 44,529,346 49,980,863
------------ ------------
Total liabilities and partners' equity $ 55,785,224 $ 70,795,583
============ ============
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,
2000 1999 1998
----------- ----------- -----------
Income:
Mortgage investment income $ 2,820,566 $ 3,448,550 $ 5,626,084
Interest and other income 313,713 462,058 431,667
----------- ----------- -----------
3,134,279 3,910,608 6,057,751
----------- ----------- -----------
Expenses:
Asset management fee to related parties 374,943 540,758 746,504
General and administrative 221,394 287,840 327,691
Interest expense to affiliate 45,994 47,740 47,740
----------- ----------- -----------
642,331 876,338 1,121,935
----------- ----------- -----------
Earnings before gain (loss) on mortgage
dispositions and loan losses 2,491,948 3,034,270 4,935,816
Gains on mortgage dispositions 4,752,954 698,402 437,120
Loss on mortgage dispositions - (101,219) -
----------- ----------- -----------
Net earnings $ 7,244,902 $ 3,631,453 $ 5,372,936
=========== =========== ===========
Other comprehensive income (loss) 847,335 (898,749) (214,454)
----------- ----------- -----------
Comprehensive income $ 8,092,237 $ 2,732,704 $ 5,158,482
----------- ----------- -----------
Net earnings allocated to:
Limited partners - 95.1% $ 6,889,902 $ 3,453,512 $ 5,109,662
General partner - 4.9% 355,000 177,941 263,274
----------- ----------- -----------
$ 7,244,902 $ 3,631,453 $ 5,372,936
=========== =========== ===========
Net earnings per Limited Partnership Unit - Basic $ 0.72 $ 0.36 $ 0.53
=========== =========== ===========
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, 2000, 1999, and 1998
Accumulated
Other Total
General Limited Comprehensive Partners'
Partner Partner Loss Equity
------------- ------------- ------------- -------------
Balance, January 1, 1998 $ (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
Net Earnings 355,000 6,889,902 - 7,244,902
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - 847,335 847,335
Distributions paid or accrued of $1.345 per Unit,
including return of capital of $0.625 per Unit. (663,644) (12,880,110) - (13,543,754)
------------- ------------- ------------- -------------
Balance, December 31, 2000 $ (7,193,025) $ 52,252,446 $ (530,075) $ 44,529,346
============= ============= ============= =============
Limited Partnership Units outstanding - Basic, as of
December 31, 2000, 1999, and 1998 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,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 7,244,902 $ 3,631,453 $ 5,372,936
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gain on mortgage dispositions (4,752,954) (698,402) (437,120)
Loss on mortgage dispositions - 101,219 -
Changes in assets and liabilities:
Decrease in investment in affiliate and due to affiliate 8,966 8,291 7,691
(Decrease) increase in accounts payable and accrued expenses (13,615) (62,121) 9,202
Decrease (increase) in receivables and other assets 316,271 413,228 (44,194)
------------ ------------ ------------
Net cash provided by operating activities 2,803,570 3,393,668 4,908,515
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of mortgages - 44,301,514 16,163,377
Proceeds received from Patrician 10,307,216 - -
Proceeds from disposition of Asset held for sale under coinsurance program 4,571,322 - -
Receipt of principal from scheduled payments 445,663 441,069 690,260
------------ ------------ ------------
Net cash provided by investing activities 15,324,201 44,742,583 16,853,637
------------ ------------ ------------
Cash flows from financing activities:
Distributions paid to partners (22,455,443) (29,000,754) (44,709,492)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (4,327,672) 19,135,497 (22,947,340)
Cash and cash equivalents, beginning of year 20,199,791 1,064,294 24,011,634
------------ ------------ ------------
Cash and cash equivalents, end of year $ 15,872,119 $ 20,199,791 $ 1,064,294
============ ============ ============
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 $ -
9.125% debenture received from HUD as a result of the disposition of
Asset held for sale under coinsurance program 783,981 - -
Receivables resulting from the the disposition of Asset held for
sale under coinsurance program 640,109 - -
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.
On November 22, 2000, the United States Bankruptcy Court for the District
of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court") confirmed CRIIMI
MAE's and CRIIMI MAE Management, Inc.'s Third Amended Joint Plan of
Reorganization (as amended and supplemented by praecipes filed with the
Bankruptcy Court on July 13, 14 and 21, and November 22, 2000, the "Plan").
CRIIMI MAE is working to complete the debt documentation, evidencing the secured
financings to be provided by (1) the unsecured creditors, and (2) Merrill Lynch
Mortgage Capital, Inc. and German American Capital Corporation (collectively the
"New Debt Documents"). On March 9, 2001, the Bankruptcy Court approved an
extension of the date by which the Plan must be effective to April 13, 2001. The
Official Committee of Unsecured Creditors had previously filed its own plan of
reorganization and proposed disclosure statement, but has asked the Bankruptcy
Court, subject to completion of mutually acceptable debt documentation, to defer
consideration of its plan and proposed disclosure statement. There can be no
assurance at this time that CRIIMI MAE will be able to complete the New Debt
Documents and effectuate the Plan by April 13, 2001.
2. SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
- --------------------
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Investment in Insured Mortgages
- -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to FHA programs
("FHA-Insured Certificates"), mortgage-backed securities guaranteed by 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, 2000, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 26 years. However, the partnership agreement
states that the Partnership will terminate in approximately 20 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, 2000 and 1999,
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, 2000 and 1999, 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 to 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
three 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
responsibility of the Unitholders.
Statements of Cash Flows
- ------------------------
No cash payments were made for interest expense during the years ended
December 31, 2000, 1999 and 1998. 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, 2000 As of December 31, 1999
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Acquired Insured Mortgages $32,433,248 $31,903,173 $32,829,455 $31,452,045
=========== =========== =========== ===========
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 4,202,201 $ 4,049,248 $ 4,242,873 $ 3,968,952
Acquired Insured Mortgage 958,273 960,572 967,057 941,753
----------- ----------- ----------- -----------
$ 5,160,474 $ 5,009,820 $ 5,209,930 $ 4,910,705
=========== =========== =========== ===========
Cash and cash equivalents $15,872,119 $15,872,119 $20,199,791 $20,199,791
Accrued interest receivable $ 232,385 $ 232,385 $ 356,155 $ 356,155
Investment in FHA debenture $ 783,981 $ 783,981 $ -- $ --
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Investment in FHA-Insured Certificates, GNMA Mortgage-Backed Securities,
FHA-Insured Loans and FHA debenture
- ------------------------------------------------------------------------
The fair value of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans is priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair value; the cash flows were
discounted using a discount rate that, in the Partnership's view, was
commensurate with the market's perception of risk and value. The Partnership
used a variety of sources to determine its discount rate including: (i)
institutionally-available research reports, (ii) a relative comparison of dealer
provided quotes from the previous year to those disclosed in recent research
reports and incorporating adjustments to reflect changes in the market, and
(iii) communications with dealers and active insured mortgage security investors
regarding the valuation of comparable securities. The fair value of the FHA
Debenture is based upon the prices of other comparable securities that trade in
the market.
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 consists of 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.
2000 1999 1998
---------- ---------- ----------
Reclassification adjustment for losses (gains)
included in net income $ -- $ 618,688 $ (82,441)
Unrealized holding gains (losses) arising during
the period 847,335 (1,517,437) (132,013)
---------- ---------- ----------
Net adjustment to unrealized gains (losses)
on mortgages $ 847,335 $ (898,749) $ (214,454)
========== ========== ==========
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, 2000 and 1999:
December 31,
2000 1999
------------ ------------
Fully Insured Originated Mortgages:
Number of Mortgages 1 1
Amortized Cost $ 4,202,201 $ 4,242,873
Face Value 4,052,423 4,088,804
Fair Value 4,049,248 3,968,952
Fully Insured Acquired Mortgages:
Number of GNMA Mortgage-Backed Securities 9 9
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 33,391,521 $ 33,796,512
Face Value 33,325,178 33,726,879
Fair Value 32,863,745 32,393,798
As of March 1, 2001, 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, 2000, 1999 and 1998, the Partnership received additional interest of
$16,844, $12,503, and $74,112, 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
---------------------------------------------
The Partnership had previously invested in one Asset Held for Sale
under Coinsurance Program ("AHFS"), Spring Lake Village. 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. In January 1998, the Partnership discontinued
the accrual of interest income. In March 1998, Integrated Funding, Inc.
("IFI"), an affiliate of the Partnership and coinsurance lender, completed
foreclosure proceedings and obtained title to this property. A claim was
filed with HUD on April 1, 1999. In April 2000, the Partnership received
assignment proceeds in the form of a 9.125% debenture. The debenture, with
a face value of approximately $784,000, earned interest semi-annually on
January 1 and July 1. In January 2001, proceeds of approximately $784,000
were received upon redemption of this debenture. A distribution of $0.08
per Unit related to this coinsurance claim was declared in January 2001 and
will be paid to Unitholders in May 2001. In addition, approximately
$178,000 of retroactive interest was received in April 2000; this amount
represents interest earned on the debenture at a rate of 9.125%, from the
date of default of the mortgage through January 1, 2000. A distribution of
$0.02 per Unit related to this coinsurance claim was declared in April 2000
and was paid to Unitholders in August 2000.
In December 2000, the Partnership received approximately $4.5 million
from the sale of Spring Lake Village and recognized a gain of approximately
$1.3 million for the year ended December 31, 2000. A distribution of
approximately $0.44 per Unit related to the sale of this property was
declared in January 2001 and will be paid to Unitholders in May 2001.
In January 2001, the Partnership received additional assignment
proceeds in the form of a 9.125% debenture. The debenture, with a face
value of approximately $231,000, will earn interest semi-annually on
January 1 and July 1. The Partnership plans to hold the debenture until it
is called or date of maturity, on July 1, 2017, whichever comes first. At
that time, debenture proceeds will be distributed to Unitholders. In
addition, approximately $74,000 of retroactive interest was received in
January 2001; this amount represents interest earned on the debenture at a
rate of 9.125%, from the date of default of the mortgage through January 1,
2001. A distribution of $0.01 per Unit related to this coinsurance claim
was declared in February 2001 and will be paid to Unitholders in May 2001.
The cash escrow balance held by the servicer, CMSLP, as of December 31,
2000, is approximately $330,000. The Partnership expects to receive
approximately $300,000 of this amount after all outstanding expenses have
been paid. At that time, the surplus cash will be distributed to
Unitholders. As of December 31, 2000, these amounts are included on the
balance sheet in Receivables and other assets.
2. Coinsured by third party
------------------------
The following is a discussion of the two Originated Insured Mortgages
coinsured by an unaffiliated third party coinsurance lender, The Patrician
Mortgage Company ("Patrician"), under the HUD coinsurance program.
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. A
distribution of approximately $1.16 per Unit related to the sale was
declared in October 1999 and was paid to Unitholders in February 2000.
Patrician filed a coinsurance claim for insurance benefits with HUD in
October 1999, for remaining amounts due, including past due interest. In
October 2000, the Partnership received proceeds from Patrician of
approximately $10.3 million and recognized a gain of approximately $3.4
million for the year ended December 31, 2000. A distribution of
approximately $1.02 per Unit related to the disposition of this mortgage
was declared in October 2000 and was paid to Unitholders in February 2001.
The remaining balance due is approximately $182,000 as of December 31,
2000.
On October 14, 1993, Patrician filed a foreclosure action on the
property underlying the coinsured mortgage on St. Charles Place-Phase II.
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. A distribution of approximately $0.24 per Unit related to the
sale was declared in November 1999 and was paid to Unitholders in February
2000. In February 2001, the Partnership received claim proceeds from
Patrician of approximately $1.8 million and expects to recognize a gain of
approximately $679,000. The claim proceeds represent the remaining balance
due on the mortgage, including interest from November 1, 1995 through the
date of receipt. The Partnership expects to distribute approximately $0.18
per Unit related to the disposition of this mortgage in May 2001. As of
December 31, 2000, approximately $1.2 million of this amount is included on
the balance sheet in Receivables and other assets. 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 AIM 88, an affiliate of the Partnership.
6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE
As of December 31, 2000, the Partnership, along with AIM 88 and American
Insured Mortgages Investors L.P. - Series 85 ("AIM 85"), affiliates of the
General Partner, equally own AIM Mortgage, Inc. In turn, AIM Mortgage, Inc. owns
all of the outstanding preferred stock and common stock of IFI. 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 approximately $2.0 million to IFI.
As part of AIM 88's transfer of the GNMA to IFI, the Partnership and AIM 85
each issued a demand note payable to AIM 88 and recorded an investment in IFI
through AIM Mortgage, Inc. in proportion to each entity's coinsured mortgages
for which IFI was 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 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, 2000, the Investment in affiliate and
related demand note payable from the Partnership were cancelled as it no longer
holds mortgages coinsured by IFI (see Note 5).
In connection with these transfers, 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. In December 2000, this
agreement was amended to exclude AIM 86, which no longer holds coinsured
mortgages.
7. TRANSACTIONS WITH RELATED PARTIES
The principal officers of the General Partner for the years ended December
31, 2000, 1999 and 1998 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, 2000, 1999 and 1998, 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 2000 1999 1998
- ----------------- ----------- ---- ---- ----
CRIIMI, Inc. (1) General Partner/Distribution $ 663,644 $2,333,856 $1,070,712
AIM Acquisition
Partners, L.P. (2) Advisor/Asset Management Fee 374,943 540,758 746,504
CRIIMI MAE Affiliate of General Partner/
Management, Inc. Expense Reimbursement 41,959 45,744 42,883
(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
$140,800, $201,856 and $278,684 for the years ended December 31, 2000, 1999
and 1998, 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, 2000, 1999 and 1998 are as follows:
2000 1999 1998
---- ---- ----
Quarter ended March 31, $ 0.070 $ 2.56 (3) $ 0.15
Quarter ended June 30, 0.095 (1) 0.10 (4) 1.75(6)
Quarter ended September 30, 0.075 0.08 0.13
Quarter ended December 31, 1.105 (2) 1.99 (5) 0.14
--------- -------- --------
$ 1.345 $ 4.73 $ 2.17
========= ======== ========
(1) This amount includes approximately $0.02 per Unit of interest from receipt
of HUD debenture in exchange for the Spring Lake Village HUD coinsurance
claim.
(2) This amount includes approximately $1.02 per Unit return of capital
received from the coinsurer of the mortgage on The Villas, as a result of
its coinsurance claim filed with HUD.
(3) This amount includes approximately $2.46 per Unit representing return of
capital and gain from the prepayment of the following mortgages: Iroquois
Club Apartments of $1.89 per Unit and Greenbriar Place of $0.57 per Unit.
(4) This amount includes approximately $0.01 per Unit representing previously
undistributed accrued interest receivable from Spring Lake Village.
(5) 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.
(6) 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.
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, 2000, 1999 and 1998:
(In Thousands, Except Per Unit Data)
2000
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 835 $ 721 $ 717 $ 861
Net gain on mortgage dispositions -- -- -- 4,753
Net earnings 676 543 553 5,473
Net earnings per Limited Partnership Unit - Basic $ 0.07 $ 0.05 $ 0.05 $ 0.55
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
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2000
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Maturity Mortgage Amount of Value Interest)
Development Name/Location Date (4)(5) Mortgage (3) (3)(6)(7)(9) (4)(8)
- ------------------------- -------- -------- ------------ ------------ -----------
ACQUIRED INSURED MORTGAGES:
Investment in FHA-Insured Certificates (carried at fair value)
Southampton Apts., Grove City, OH 4/27 8.50% $ 1,920,297 $ 1,918,941 $ 183,038
Pleasantview Nursing Home, Union, NJ 6/29 7.75% 3,331,431 3,217,513 290,532
------------ ------------
Total investment in FHA-Insured Certificates -
Acquired Insured Mortgages 5,251,728 5,136,454
------------ ------------
ACQUIRED INSURED MORTGAGES:
Investment in GNMA Mortgage-Backed Securities (carried at fair value)
Brighton Manor, Petersburg, VA 3/29 7.50% 986,500 973,250 80,487
Cyress Cove, Jacksonville, FL 2/28 7.30% 6,656,622 6,567,986 547,655
Hickory Tree Apts., Indianapolis, IN 4/27 7.375% 3,335,632 3,291,409 279,281
Main Street Square, Roundrock, TX 9/29 8.75% 1,323,444 1,317,980 122,820
Maple Manor, Syracuse, NY 4/29 7.375% 1,193,136 1,177,127 97,570
Mountain Village Apts., Tucson, AZ 5/29 7.50% 1,295,509 1,278,092 105,511
Oakwood Garden Apts., San Jose, CA 10/23 7.75% 9,192,525 9,073,375 813,878
Regency Park Apts., North St. Paul, MN 4/24 7.00% 1,373,154 1,355,475 116,236
Sunflower Apts., Tucson, AZ 5/29 7.50% 1,755,627 1,732,025 142,984
------------ ------------
Total investment in GNMA Mortgage- Backed
Securities-Acquired Insured Mortgages 27,112,149 26,766,719
------------ ------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 32,363,877 31,903,173
------------ ------------
ORIGINATED INSURED MORTGAGE:
Investment in FHA-Insured Loans (carried at amortized cost) (2)
Colony Square Apts, Rocky Mount, NC (1) 10/28 8.25% 4,052,423 4,202,201 372,352
ACQUIRED INSURED MORTGAGE:
Investment in FHA-Insured Loan (carried at amortized cost) (2)
Winburn Square, Lexington, KY 1/27 9.00% 961,301 958,273 95,829
------------ ------------
Total investment in FHA-Insured Loans 5,013,724 5,160,474
------------ ------------
TOTAL INVESTMENT IN INSURED MORTGAGES $ 37,377,601 $ 37,063,647
============ ============
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2000
(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, 2000, 1999 and 1998, the
Partnership received additional interest of $16,844, $12,503 and $74,112,
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, 2000 and 1999, is as follows:
2000 1999
----------- -----------
Beginning balance $41,318,088 $90,613,561
Amount reclassified to Receivables and other assets
related to The Villas and St. Charles Place - Phase II -- (4,251,324)(c)
Principal receipts on Insured Mortgages (445,663) (441,069)
Gain on mortgage dispositions 1,339,299 (a) 698,402
Loss on mortgage dispositions -- (101,219)
Disposition of mortgages -- (44,301,514)
Disposition of AHFS (5,995,412)(b) --
Adjustment to unrealized gains (losses) on
investments in Insured Mortgages 847,335 (898,749)
----------- -----------
Ending balance $37,063,647 $41,318,088
=========== ===========
(a) This amount represents the gain recognized on the sale of the AHFS,
Spring Lake Village.
(b) This amount represents cash proceeds of $4,571,322 and non-cash
proceeds of $1,424,090 as reflected on the Statement of Cash Flows.
(c) This amount represents all non-cash proceeds as reflected on the
Statement of Cash Flows.
(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) As of December 31, 2000 and 1999, the tax basis of the Insured Mortgages,
including AHFS, was approximately $37.1 million and $42.0 million,
respectively.
EXHIBIT 10.15
THIRD AMENDMENT TO REIMBURSEMENT AGREEMENT
------------------------------------------
THIS THIRD AMENDMENT TO REIMBURSEMENT AGREEMENT is made effective as of
January 1, 2000 by and among Integrated Funding, Inc., a New York corporation
("IFI"), American Insured Mortgage Investors L.P. - Series 86 ("AIM 86"), and
American Insured Mortgage Investors L.P. - Series 88 ("AIM 88") (AIM 86 and AIM
88 collectively referred to as the "AIM Funds").
RECITALS
--------
A. The parties hereto entered into the Expense Reimbursement Agreement
effective as of December 31, 1992 (the "Agreement") in order to allocate to IFI
a portion of the expenses incurred by the AIM Funds in connection with the
Subadvisor's management of the funds.
B. The parties hereto entered into the amendment to Reimbursement Agreement
effective as of April 1, 1994 (the "First Amendment") in order to change the
allocation of expenses to each fund based on the outstanding principal balance
of coinsured loans for which IFI acts as the mortgagee of record as of April 1,
1994.
C. The parties hereto entered into the amendment to Reimbursement Agreement
effective as of April 1, 1997 (the "Second Amendment") in order to change the
allocation of expenses to each fund based on the outstanding principal balance
of coinsured loans for which IFI acts as the mortgagee of record as of April 1,
1997.
D. The parties seek to change the allocation of expenses to each fund based
on the outstanding principal balance of coinsured loans for which IFI acts as
the mortgagee of record as of January 1, 2000.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Section 1 of the Agreement is hereby deleted in its entirety and the
following is substituted in lieu thereof:
"1. Reimbursement. IFI will reimburse the AIM Funds a total expense amount
calculated as .95793% annually of the outstanding principal balance of the
coinsured loans for which IFI acts the mortgagee of record (approximately
$14 million as of January 1, 2000). The total expense reimbursement shall
be allocated to each AIM Fund as follows:
AIM FUND % of Coinsured Loan Balance
-------- ---------------------------
AIM 86 34%
AIM 88 66%
2. Except as modified above, all other provisions of the Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
INTEGRATED FUNDING, INC.
By:/s/ William B. Dockser
-------------------------
William B. Dockser
Chairman of the Board
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 86
By: CRIIMI, Inc.,
General Partner
By:/s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 88
By: CRIIMI, Inc.,
General Partner
By:/s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer