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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2002
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Commission file number 1-12724
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AMERICAN INSURED MORTGAGE INVESTORS L.P.-SERIES 88
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-3398206
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of June 30, 2002, 8,802,091 depositary units of limited partnership interest
were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001................. 3
Statements of Income and Comprehensive Income - for the three and six
months ended June 30, 2002 and 2001 (unaudited) ............................... 4
Statement of Changes in Partners' Equity - for the six months ended
June 30, 2002 (unaudited)...................................................... 5
Statements of Cash Flows - for the six months ended June 30, 2002
and 2001 (unaudited)........................................................... 6
Notes to Financial Statements (unaudited)........................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.................................................................... 12
Item 3. Qualitative and Quantitative Disclosures About Market Risk ........................ 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................................... 15
Signature ................................................................................... 16
3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 30,798,277 $ 32,300,617
Originated insured mortgages 8,341,731 8,473,167
------------ ------------
39,140,008 40,773,784
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgages 5,545,609 5,573,879
Cash and cash equivalents 813,448 5,626,184
Investment in affiliate 1,758,760 1,789,536
Receivables and other assets 347,974 365,767
------------ ------------
Total assets $ 47,605,799 $ 54,129,150
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 833,005 $ 5,784,760
Accounts payable and accrued expenses 101,260 129,533
------------ ------------
Total liabilities 934,265 5,914,293
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
8,802,091 Units issued and outstanding 52,934,711 55,338,877
General partners' deficit (6,410,569) (6,286,695)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other comprehensive income (loss) 766,142 (218,575)
------------ ------------
Total partners' equity 46,671,534 48,214,857
------------ ------------
Total liabilities and partners' equity $ 47,605,799 $ 54,129,150
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 900,161 $ 1,066,426 $ 1,819,965 $ 2,162,647
Interest and other income 4,171 40,450 15,625 153,291
------------ ------------ ------------ ------------
904,332 1,106,876 1,835,590 2,315,938
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 121,473 141,711 245,793 291,672
General and administrative 41,229 39,638 81,601 112,612
------------ ------------ ------------ ------------
162,702 181,349 327,394 404,284
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 741,630 925,527 1,508,196 1,911,654
Gains on mortgage dispositions - - 82,518 940,833
Adjustment to provision for loss - (475,624) - (475,624)
------------ ------------ ------------ ------------
Net earnings $ 741,630 $ 449,903 $ 1,590,714 $ 2,376,863
============ ============ ============ ============
Other comprehensive income(loss)-adjustment to unrealized
gains (losses) on investments in insured mortgages 737,131 (706,661) 984,717 (606,777)
------------ ------------ ------------ ------------
Comprehensive income (loss) $ 1,478,761 $ (256,758) $ 2,575,431 $ 1,770,086
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 705,290 $ 427,858 $ 1,512,769 $ 2,260,397
General Partner - 4.9% 36,340 22,045 77,945 116,466
------------ ------------ ------------ ------------
$ 741,630 $ 449,903 $ 1,590,714 $ 2,376,863
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.08 $ 0.05 $ 0.17 $ 0.26
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 2002
(Unaudited)
Repurchased Accumulated
Limited Other
General Limited Partnership Comprehensive
Partner Partners Units Income (Loss) Total
------------ ------------ ------------ -------------- ------------
Balance, December 31, 2001 $ (6,286,695) $ 55,338,877 $ (618,750) $ (218,575) $ 48,214,857
Net Earnings 77,945 1,512,769 - - 1,590,714
Adjustment to unrealized gains (losses) on
investments in insured mortgages - - - 984,717 984,717
Distributions paid or accrued of $0.445 per Unit,
including return of capital of $0.275 per Unit (201,819) (3,916,935) - - (4,118,754)
------------ ------------ ------------ ------------ ------------
Balance, June 30, 2002 $ (6,410,569) $ 52,934,711 $ (618,750) $ 766,142 $ 46,671,534
============ ============ ============ ============ ============
Limited Partnership Units outstanding - basic, as
of June 30, 2002 8,802,091
=========
The accompanying notes are an integral part
of these financial statements.
6
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings $ 1,590,714 $ 2,376,863
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gains on mortgage dispositions (82,518) (940,833)
Adjustments to provision for loss - 475,624
Changes in assets and liabilities:
Decrease in accounts payable and accrued expenses (28,273) (294,400)
Decrease in investment in affiliate, receivables and other assets 48,569 68,726
------------ ------------
Net cash provided by operating activities 1,528,492 1,685,980
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 299,383 315,060
Proceeds received from Patrician - 2,241,218
Proceeds from mortgage dispositions 2,429,898 6,234,315
------------ ------------
Net cash provided by investing activities 2,729,281 8,790,593
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (9,070,509) (17,122,897)
------------ ------------
Net decrease in cash and cash equivalents (4,812,736) (6,646,324)
Cash and cash equivalents, beginning of period 5,626,184 7,605,734
------------ ------------
Cash and cash equivalents, end of period $ 813,448 $ 959,410
============ ============
The accompanying notes are an integral part
of these financial statements.
7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the State of Delaware on
February 13, 1987. The Partnership Agreement ("Partnership Agreement") states
that the Partnership will terminate on December 31, 2021, unless terminated
earlier under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner"), a wholly owned subsidiary of CRIIMI
MAE Inc. ("CRIIMI MAE"), holds a partnership interest of 4.9%. AIM Acquisition
Partners, L.P. (the "Advisor") serves as the advisor to the Partnership pursuant
to certain advisory agreements (collectively, the "Advisory Agreements") between
the Advisor and the Partnership. The general partner of the Advisor is AIM
Acquisition Corporation ("AIM Acquisition") and the limited partners include,
but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., 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 Agreements, the Advisor renders services to the
Partnership, including but not limited to, the management and disposition of the
Partnership's portfolio of mortgages. Such services are subject to the review
and ultimate authority of the General Partner. However, the General Partner is
required to receive the consent of the Advisor prior to taking certain
significant actions, including but not limited to the disposition of mortgages,
any transaction or agreement with the General Partner or its affiliates, or any
material change as to policies regarding distributions or reserves of the
Partnership. The Advisor is permitted to delegate the performance of services
pursuant to a submanagement agreement (the "Sub-Advisory Agreement"). The
delegation of such services does 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 CMSLP Management
Company, Inc., a wholly owned subsidiary of CRIIMI MAE.
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration ("FHA") programs ("FHA-Insured Certificates"), mortgage-backed
securities guaranteed by the Government National Mortgage Association ("GNMA")
("GNMA Mortgage-Backed Securities") and FHA-insured mortgage loans ("FHA-Insured
Loans" and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities, referred to herein as "Insured Mortgages"). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, one of the FHA-Insured Certificates is secured by a
coinsured mortgage.
8
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 2002 and
December 31, 2001, the results of its operations for the three and six months
ended June 30, 2002 and 2001, and its cash flows for the six months ended June
30, 2002 and 2001.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
("GAAP") have been condensed or omitted. While the General Partner believes that
the disclosures presented are adequate to make the information not misleading,
these financial statements should be read in conjunction with the financial
statements and the notes to the financial statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2001.
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED SECURITIES
Fully Insured Mortgage Investments
- ----------------------------------
Listed below is the Partnership's aggregate investment in fully insured
acquired FHA-Insured Certificates and GNMA Mortgage-Backed Securities:
June 30, 2002 December 31, 2001
------------- -----------------
Number of:
GNMA Mortgage-Backed Securities (1)(2) 11 13
FHA-Insured Certificates 1 1
Amortized Cost $ 30,610,799 $ 33,196,354
Face Value 30,475,313 33,067,185
Fair Value 30,798,277 32,300,617
(1) In January 2002, the mortgage on Orchard Creek Apartments was prepaid. The
Partnership received net proceeds of approximately $1.3 million and
recognized a gain of approximately $33,000 for the six months ended June
30, 2002. A distribution of approximately $0.14 per Unit related to the
prepayment of this mortgage was declared in February 2002 and paid to
Unitholders in May 2002.
(2) In February 2002, the mortgage on Westview Terrace Apartments was prepaid.
The Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $49,000 for the six months ended June
30, 2002. A distribution of approximately $0.12 per Unit related to the
prepayment of this mortgage was declared in March 2002 and paid to
Unitholders in May 2002.
As of August 1, 2002, all fully insured FHA-Insured Certificates and GNMA
Mortgage-Backed Securities were current with respect to the payment of principal
and interest.
Coinsured by Affiliate
- ----------------------
As of June 30, 2002 and December 31, 2001, the Partnership held an
investment in one FHA-Insured Certificate secured by a coinsured mortgage,
Summerwind Apartments-Phase II, in which the coinsurance lender is Integrated
Funding Inc. ("IFI"), an affiliate of the Partnership.
9
June 30, 2002 December 31, 2001
------------- -----------------
Number of Mortgages 1 1
Amortized Cost $7,714,099 $7,747,039
Face Value 9,008,890 9,057,300
Fair Value 8,341,731 8,473,167
As of August 1, 2002, the IFI coinsured mortgage was current with respect
to the payment of principal and interest.
4. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in its fully insured
originated FHA-Insured Loan as of June 30, 2002 and December 31, 2001:
June 30, 2002 December 31, 2001
------------- -----------------
Number of Mortgages 1 1
Amortized Cost $5,545,609 $5,573,879
Face Value 5,545,609 5,573,879
Fair Value 5,550,843 5,230,714
As of August 1, 2002, the Partnership's FHA-Insured Loan was current with
respect to the payment of principal and interest.
5. INVESTMENT IN AFFILIATE
In order to capitalize IFI with sufficient net worth under regulations of
the United States Department of Housing and Urban Development ("HUD"), in April
1994, the Partnership transferred a GNMA Mortgage-Backed Security in the face
amount of approximately $2.0 million (the "GNMA Security") to IFI. As of June
30, 2002 and December 31, 2001, this GNMA Security had a face value and a fair
value of approximately $1.8 million. The Partnership's interest in this security
is included on the balance sheet in Investment in affiliate. The Partnership,
along with two affiliates, American Insured Mortgage Investors - Series 85, L.P.
("AIM 85") and American Insured Mortgage Investors L.P. - Series 86 ("AIM 86"),
equally own AIM Mortgage, Inc. In turn, AIM Mortgage, Inc., owns all of the
outstanding preferred and common stock of IFI.
As part of the Partnership's transfer of the GNMA Security to IFI, the
Partnership is reimbursed for expenses related to IFI, pursuant to an expense
reimbursement agreement, as amended on January 1, 2001. The Partnership's
expense reimbursement and the Partnership's equity interest in IFI's net income
or loss substantially equals the mortgage interest on the GNMA Security
transferred to IFI. The Partnership received expense reimbursements of
approximately $33,036 and $66,072 for the three and six months ended June 30,
2002, respectively, and $33,368 and $66,735 for the three and six months ended
June 30, 2001, respectively, which are included in general and administrative
expense on the accompanying statements of income and comprehensive income.
10
6. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 2002 and 2001 are as follows:
2002 2001
-------- --------
Quarter ended March 31, $ 0.355(1)(2) $ 1.010(3)
Quarter ended June 30, 0.090 0.105
-------- --------
$ 0.445 $ 1.115
======== ========
(1) This amount includes approximately $0.14 per Unit representing net proceeds
from the prepayment of the mortgage on Orchard Creek Apartments.
(2) This amount includes approximately $0.12 per Unit representing net proceeds
from the prepayment of the mortgage on Westview Terrace Apartments.
(3) This amount includes approximately $0.90 per Unit of net proceeds from the
disposition of the following mortgages: Silver Lake Apartments of $0.56 per
Unit, Holton Manor of $0.10 per Unit and St. Charles Place - Phase II of
$0.24 per Unit.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages pay a fixed monthly mortgage payment, the cash distributions
paid to the Unitholders will vary during each quarter due to (1) the fluctuating
yields in the short-term money market where the monthly mortgage payments
received are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base and monthly mortgage payments
due to monthly mortgage payments received or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and professional fees and foreclosure costs incurred in
connection with those Insured Mortgages and (4) variations in the Partnership's
operating expenses. As the Partnership continues to liquidate its mortgage
investments and Unitholders receive distributions of return of capital and
taxable gains, Unitholders should expect a reduction in earnings and
distributions due to the decreasing mortgage base.
11
7. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities have earned or received
compensation for services or received distributions from, the Partnership during
the three and six months ended June 30, 2002 and 2001 as follows:
For the three months For the six months
Capacity in Which ended June 30, ended June 30,
Name of Recipient Served/Item 2002 2001 2002 2001
- ----------------- ------------------------------- ---------- ---------- ---------- ----------
CRIIMI, Inc.(1) General Partner/Distribution $ 40,817 $ 47,620 $ 201,819 $ 505,681
AIM Acquisition Advisor/Asset Management Fee 121,473 141,711 245,793 291,672
Partners, L.P. (2)
CRIIMI MAE Management, Affiliate of General Partner/ 14,683 14,091 27,744 25,604
Inc. Expense Reimbursement
(1) The General Partner, pursuant to amendments to the Partnership Agreement,
is entitled to receive 4.9% of the Partnership's income, loss, capital and
distributions, including, without limitation, the Partnership's adjusted
cash flow from operations and proceeds of mortgage prepayments, sales or
insurance (as defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
Management Fee equal to 0.95% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP 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 $35,799 and $72,437 for
the three and six months ended June 30, 2002, respectively, and $41,763 and
$85,947 for the three and six months ended June 30, 2001, respectively. The
general partner and limited partner of CMSLP are wholly owned subsidiaries
of CRIIMI MAE.
12
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
prior and future filings by the Partnership with the Securities and Exchange
Commission 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.
General
- -------
As of June 30, 2002, the Partnership had invested in 14 Insured Mortgages
with an aggregate amortized cost of approximately $43.9 million, a face value of
approximately $45.0 million and a fair value of approximately $44.7 million.
As of August 1, 2002, all of the FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans were current with respect to
the payment of principal and interest.
Results of Operations
- ---------------------
Net earnings increased by approximately $292,000 for the three months ended
June 30, 2002 and decreased by approximately $786,000 for the six months ended
June 30, 2002, as compared to the corresponding periods in 2001. The increase
for the three month period is primarily due to the absence of an adjustment to
provision for loss that was recognized in 2001, partially offset by lower
mortgage investment income. The decrease for the six month period is primarily
due to a decrease in gains on mortgage dispositions, mortgage investment income
and interest and other income, partially offset by the absence of an adjustment
to provision for loss that was recognized in 2001, as discussed below.
Mortgage investment income decreased by approximately $166,000 and $343,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due to a reduction in the mortgage
base. The mortgage base decreased as a result of six mortgage dispositions with
an aggregate principal balance of approximately $8.5 million, representing an
approximate 16% decrease in the aggregate principal balance of the total
mortgage portfolio since February 2001, as compared to June 2002.
Interest and other income decreased by approximately $36,000 and $138,000
for the three and six months ended June 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due to the amounts and timing of
temporary investment of mortgage disposition proceeds prior to distribution to
Unitholders.
13
Asset management fee to related parties decreased by approximately $20,000
and $46,000 for the three and six months ended June 30, 2002, respectively, as
compared to the corresponding periods in 2001, due to the reduction in the
mortgage base, as discussed previously.
General and administrative expenses increased by approximately $1,600 for
the three months ended June 30, 2002 and decreased by approximately $31,000 for
the six months ended June 30, 2002, as compared to the corresponding periods in
2001. The decrease for the six month period is primarily due to a decrease in
legal expenses related to the litigation of the mortgage on Water's Edge of New
Jersey, which was settled in 2001.
Gains on mortgage dispositions decreased by approximately $858,000 for the
six months ended June 30, 2002, as compared to the corresponding period in 2001.
During the first six months of 2002, the Partnership recognized aggregate gains
of approximately $83,000 from the prepayment of the mortgages on Orchard Creek
Apartments and Westview Terrace Apartments. During the first six months of 2001,
the Partnership recognized aggregate gains of approximately $119,000 from the
prepayment of the mortgages on Silver Lake Plaza Apartments and Holton Manor. In
addition, during the first six months of 2001, the Partnership recognized a gain
of approximately $822,000 on the disposition of the mortgage on St. Charles
Place - Phase II, a delinquent mortgage coinsured by a third party, The
Patrician Mortgage Company ("Patrician").
During the six months ended June 30, 2001, there was an adjustment to
provision for loss of approximately $476,000 due to litigation, which was
settled in 2001, related to the disposition of the mortgage on Water's Edge of
New Jersey.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments are the Partnership's principal sources of cash flows and
were sufficient during the first six months of 2002 to meet operating
requirements. The basis for paying distributions to Unitholders is net proceeds
from mortgage dispositions, if any, and cash flow from operations, which
includes regular interest income and principal received from Insured Mortgages.
Although the Insured Mortgages pay a fixed monthly mortgage payment, the cash
distributions paid to the Unitholders will vary during each quarter due to (1)
the fluctuating yields in the short-term money market where the monthly mortgage
payments received are temporarily invested prior to the payment of quarterly
distributions, (2) the reduction in the asset base and monthly mortgage payments
due to monthly mortgage payments received or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
insured mortgages and professional fees and foreclosure costs incurred in
connection with those insured mortgages and (4) variations in the Partnership's
operating expenses. As the Partnership continues to liquidate its mortgage
investments and Unitholders receive distributions of return of capital and
taxable gains, Unitholders should expect a reduction in earnings and
distributions due to the decreasing mortgage base.
Net cash provided by operating activities decreased by approximately
$157,000 for the six months ended June 30, 2002, as compared to the
corresponding period in 2001, primarily due to the decrease in mortgage base, as
previously discussed.
Net cash provided by investing activities decreased by approximately $6.1
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001. This decrease is primarily due to a reduction in proceeds
received from mortgage dispositions. In addition, the Partnership received
approximately $2.2 million from Patrician for the disposition of the delinquent
mortgage on St. Charles Place - Phase II in 2001.
Net cash used in financing activities decreased by approximately $8.1
million for the six months ended June 30, 2002, as compared to the corresponding
period in 2001, due to a decrease in the amount of distributions paid to
partners during the first six months of 2002 as compared to the same period in
2001.
14
ITEM 3. 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. The Partnership will experience fluctuations
in the market value of its assets related to (i) changes in the interest rates
of U.S. Treasury securities, (ii) changes in the spread between the interest
rates on U.S. Treasury securities and the interest rates on the Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages, determined by reviewing the attributes of the Insured Mortgages in
relation to the current market interest rates. The weighted average life of the
Insured Mortgages decreased as of June 30, 2002 compared to December 31, 2001,
due to the lower market interest rates and other attributes of the Partnership's
Insured Mortgages.
The General Partner has determined that there has not been a material
change as of June 30, 2002, in market risk from December 31, 2001 as reported in
the Partnership's Annual Report on Form 10-K for the year ended December 31,
2001.
15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
99.1 Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Date
----
May 10, 2002 To report the General Partner's decision to
dismiss the Partnership's independent auditors,
Arthur Andersen LLP.
June 7, 2002 To report: (1) the General Partner's selection
of Ernst & Young LLP as the independent auditors
for the Partnership's consolidated financial
statements for the year ending on December 31,
2002, and (2) the resignation of Alan M. Jacobs
from the Board of Directors of the General
Partner.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 88
(Registrant)
By: CRIIMI, Inc.
General Partner
August 14, 2002 /s/ Cynthia O. Azzara
- --------------- ---------------------------
Date Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer