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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 September 30, 2002
------------------
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 September 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 SEPTEMBER 30, 2002
PAGE
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001............ 3
Statements of Income and Comprehensive Income - for the three and nine
months ended September 30, 2002 and 2001 (unaudited) .......................... 4
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2002 (unaudited)................................................. 5
Statements of Cash Flows - for the nine months ended September 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
Item 4. Controls and Procedures............................................................ 14
PART II. Other Information
Item 5. Other Information.................................................................. 15
Item 6. Exhibits and Reports on Form 8-K................................................... 15
Signature ................................................................................... 16
Certifications ................................................................................... 17
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 26,332,173 $ 32,300,617
Originated insured mortgage 8,318,766 8,473,167
------------ ------------
34,650,939 40,773,784
Investment in FHA-Insured Loan, at amortized cost,
net of unamortized discount and premium:
Originated insured mortgage 5,531,045 5,573,879
Cash and cash equivalents 6,093,969 5,626,184
Investment in affiliate 1,758,760 1,789,536
Receivables and other assets 320,166 365,767
------------ ------------
Total assets $ 48,354,879 $ 54,129,150
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 6,062,429 $ 5,784,760
Accounts payable and accrued expenses 58,347 129,533
------------ ------------
Total liabilities 6,120,776 5,914,293
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
8,802,091 Units issued and outstanding 47,927,083 55,338,877
General partner's deficit (6,668,586) (6,286,695)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other comprehensive income (loss) 1,594,356 (218,575)
------------ ------------
Total partners' equity 42,234,103 48,214,857
------------ ------------
Total liabilities and partners' equity $ 48,354,879 $ 54,129,150
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 881,935 $ 1,053,577 $ 2,701,900 $ 3,216,224
Interest and other income 7,113 11,592 22,738 164,883
------------ ------------ ------------ ------------
889,048 1,065,169 2,724,638 3,381,107
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 121,473 140,415 367,266 432,087
General and administrative 11,613 31,291 93,214 143,903
------------ ------------ ------------ ------------
133,086 171,706 460,480 575,990
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 755,962 893,463 2,264,158 2,805,117
Gains on mortgage dispositions 40,824 42,064 123,342 982,897
Adjustment to provision for loss - 167,440 - (308,184)
------------ ------------ ------------ ------------
Net earnings $ 796,786 $ 1,102,967 $ 2,387,500 $ 3,479,830
============ ============ ============ ============
Other comprehensive income - adjustment to unrealized
gains and losses on investments in insured mortgages 828,214 1,446,511 1,812,931 839,734
------------ ------------ ------------ ------------
Comprehensive income $ 1,625,000 $ 2,549,478 $ 4,200,431 $ 4,319,564
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 757,743 $ 1,048,922 $ 2,270,513 $ 3,309,318
General Partner - 4.9% 39,043 54,045 116,987 170,512
------------ ------------ ------------ ------------
$ 796,786 $ 1,102,967 $ 2,387,500 $ 3,479,830
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.09 $ 0.12 $ 0.26 $ 0.38
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 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 116,987 2,270,513 - - 2,387,500
Adjustment to unrealized gains and losses
on investments in insured mortgages - - - 1,812,931 1,812,931
Distributions paid or accrued of $1.10 per Unit,
including return of capital of $0.84 per Unit (498,878) (9,682,307) - - (10,181,185)
------------- ------------- ------------- ------------- -------------
Balance, September 30, 2002 $ (6,668,586) $ 47,927,083 $ (618,750) $ 1,594,356 $ 42,234,103
============= ============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of September 30, 2002 8,802,091
=========
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings $ 2,387,500 $ 3,479,830
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gains on mortgage dispositions (123,342) (982,897)
Adjustments to provision for loss - 308,184
Changes in assets and liabilities:
Decrease in accounts payable and accrued expenses (71,186) (222,546)
Decrease (increase) in investment in affiliate, receivables and other assets 76,377 (132,881)
------------ ------------
Net cash provided by operating activities 2,269,349 2,449,690
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 443,497 475,511
Proceeds from mortgage dispositions 7,658,455 10,294,244
------------ ------------
Net cash provided by investing activities 8,101,952 10,769,755
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (9,903,516) (18,094,747)
------------ ------------
Net increase (decrease) in cash and cash equivalents 467,785 (4,875,302)
Cash and cash equivalents, beginning of period 5,626,184 7,605,734
------------ ------------
Cash and cash equivalents, end of period $ 6,093,969 $ 2,730,432
============ ============
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 and the limited partners include, but are not limited
to, 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 September 30,
2002 and December 31, 2001, the results of its operations for the three and nine
months ended September 30, 2002 and 2001, and its cash flows for the nine months
ended September 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:
September 30, 2002 December 31, 2001
------------------ -----------------
Number of:
GNMA Mortgage-Backed Securities (1)(2)(3) 10 13
FHA-Insured Certificates 1 1
Amortized Cost $ 25,310,608 $ 33,196,354
Face Value 25,223,571 33,067,185
Fair Value 26,332,173 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 nine months ended
September 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 nine months ended
September 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.
(3) In September 2002, the mortgage on Stoney Creek was prepaid. The
Partnership received net proceeds of approximately $5.2 million and
recognized a gain of approximately $41,000 for the three and nine months
ended September 30, 2002. A distribution of approximately $0.565 per Unit
related to the prepayment of this mortgage was declared in September 2002
and paid to Unitholders in November 2002.
As of November 1, 2002, all fully insured FHA-Insured Certificates and
GNMA Mortgage-Backed Securities were current with respect to the payment of
principal and interest.
9
Coinsured by Affiliate
----------------------
As of September 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.
September 30, 2002 December 31, 2001
------------------ -----------------
Number of Mortgages 1 1
Amortized Cost $ 7,697,007 $ 7,747,039
Face Value 8,983,896 9,057,300
Fair Value 8,318,766 8,473,167
As of November 1, 2002, the IFI coinsured mortgage was current with
respect to the payment of principal and interest.
4. INVESTMENT IN FHA-INSURED LOAN
Listed below is the Partnership's aggregate investment in its fully insured
originated FHA-Insured Loan as of September 30, 2002 and December 31, 2001:
September 30, 2002 December 31, 2001
------------------ -----------------
Number of Mortgages 1 1
Amortized Cost $5,531,045 $5,573,879
Face Value 5,531,045 5,573,879
Fair Value 5,536,375 5,230,714
As of November 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
September 30, 2002, this GNMA Security had a face value of approximately $1.8
million and a fair value of approximately $1.9 million and as of 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 $33,000 and $99,000 for the three and nine months ended September
30, 2002, respectively, and approximately $33,000 and $100,000 for the three and
nine months ended September 30, 2001, respectively, which are netted against
general and administrative expenses 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 nine months ended September 30, 2002 and 2001 are as follows:
2002 2001
-------- --------
Quarter ended March 31 $ 0.355(1) $ 1.010(3)
Quarter ended June 30 0.090 0.105
Quarter ended September 30 0.655(2) 0.305(4)
-------- --------
$ 1.100 $ 1.420
======== ========
(1) This amount includes approximately $0.26 per Unit representing net proceeds
from the prepayment of the following mortgages: Orchard Creek Apartments of
$0.14 and Westview Terrace Apartments of $0.12.
(2) This amount includes approximately $0.565 per Unit representing net
proceeds from the prepayment of the mortgage on Stoney Creek.
(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.
(4) This amount includes approximately $0.20 per Unit return of capital and
gain from the disposition of the following mortgages: Water's Edge of New
Jersey of $0.09 and Lorenzo Carolina Apartments of $0.11.
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 nine months ended September 30, 2002 and 2001 as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the nine months
Capacity in Which ended September 30, ended September 30,
Name of Recipient Served/Item 2002 2001 2002 2001
- ----------------- ------------------------- ---------- ---------- ---------- ----------
CRIIMI, Inc.(1) General Partner/Distribution $ 297,059 $ 138,325 $ 498,878 $ 644,006
AIM Acquisition Advisor/Asset Management Fee 121,473 140,415 367,266 432,087
Partners, L.P. (2)
CRIIMI MAE Management, Affiliate of General Partner/ 7,351 12,329 35,095 37,933
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 $108,236 for
the three and nine months ended September 30, 2002, respectively, and
$41,381 and $127,338 for the three and nine months ended September 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 September 30, 2002, the Partnership had invested in 12 fully Insured
Mortgages and one co-insured mortgage with an aggregate amortized cost of
approximately $38.5 million, a face value of approximately $39.7 million and a
fair value of approximately $40.2 million.
As of November 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 decreased by approximately $306,000 and $1.1 million for the
three and nine months ended September 30, 2002, respectively, as compared to the
corresponding periods in 2001, primarily due to a decrease in gains on mortgage
dispositions, mortgage investment income and interest and other income, as
discussed below. The decreases were also impacted by an adjustment to provision
for loss that was recognized in 2001.
Mortgage investment income decreased by approximately $172,000 and $514,000
for the three and nine months ended September 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 five mortgage
dispositions with an aggregate principal balance of approximately $7.5 million,
representing an approximate 14% decrease in the aggregate principal balance of
the total mortgage portfolio since July 2001, as compared to September 2002.
Interest and other income decreased by approximately $4,000 and $142,000
for the three and nine months ended September 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.
Asset management fee to related parties decreased by approximately $19,000
and $65,000 for the three and nine months ended September 30, 2002,
respectively, as compared to the corresponding periods in 2001, due to the
reduction in the mortgage base, as discussed previously.
13
General and administrative expenses decreased by approximately $20,000 and
$51,000 for the three and nine months ended September 30, 2002, respectively, as
compared to the corresponding periods in 2001, 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 $1,000 and
$860,000 for the three and nine months ended September 30, 2002, as compared to
the corresponding period in 2001. During the first nine months of 2002, the
Partnership recognized aggregate gains of approximately $123,000 from the
prepayment of the mortgages on Orchard Creek Apartments, Westview Terrace
Apartments and Stoney Creek. During the first nine months of 2001, the
Partnership recognized aggregate gains of approximately $161,000 from the
prepayment of the mortgages on Silver Lake Plaza Apartments, Holton Manor and
Lorenzo Carolina Apartments. In addition, during the first nine 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.
During the first nine months of 2001, the Partnership recognized a loss of
approximately $308,000 on the disposition of the mortgage on Water's Edge of New
Jersey. The loss decreased by approximately $167,000 from the second quarter
2001 due to the final settlement reached in the third quarter of 2001. During
the three and nine months ended September 30, 2002, the Partnership recognized
no losses.
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 nine months ended September 30, 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
$180,000 for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, primarily due to the decrease in mortgage
investment income and interest and other income, as previously discussed. The
2001 cash flows from operations were reduced by the payment of legal expenses
related to the Water's Edge of New Jersey litigation in the third quarter 2001
and an increase in receivables and other assets primarily due to the timing of
the receipt of proceeds due from a delinquent mortgage in 2001.
Net cash provided by investing activities decreased by approximately $2.7
million for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, primarily due to a decrease in proceeds from
mortgage dispositions.
14
Net cash used in financing activities decreased by approximately $8.2
million for the nine months ended September 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 nine months of 2002 as compared to the same
period in 2001.
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 September 30, 2002 compared to December 31,
2001, due to the lower market interest rates, which may imply faster prepayment
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 September 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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Quarterly Report on form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
Chairman of the Board (CEO) and the Chief Financial Officer (CFO), of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation,
the General Partner's CEO and CFO concluded that its disclosure controls and
procedures are effective and timely in alerting them to material information
relating to the Partnership required to be included in the Partnership's
periodic SEC filings. There were no significant changes in the General Partner's
internal controls or in other factors that could significantly affect these
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
15
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Section 10(A)(i)(2) of the Securities Exchange Act of 1934, as amended,
requires issuers to disclose the approval by an audit committee of the issuer of
a non-audit service to be performed by the auditor of the issuer. On August 14,
2002, the Audit Committee of the Board of Directors of the General Partner's
parent, CRIIMI MAE Inc., subject to any rules that may be adopted by the Public
Accounting Oversight Board, approved the engagement of Ernst & Young LLP, the
Partnership's auditor, to provide tax services to the Partnership during the
fiscal year ending December 31, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
----------- -------
99.1 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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
November 13, 2002 /s/ Cynthia O. Azzara
- ----------------- -------------------------------------------
Date Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer
17
CERTIFICATION
I, William B. Dockser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors L.P.-Series 88;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 88
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 13, 2002 /s/ William B. Dockser
- ----------------------- -----------------------------------------
William B. Dockser
Chairman of the Board and Chief Executive
Officer
18
CERTIFICATION
I, Cynthia O. Azzara, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors L.P.- Series 88;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 88
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 13, 2002 /s/ Cynthia O. Azzara
- ----------------------- -------------------------------------------
Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer