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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, 2002 Commission file number 1-12724
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
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(Exact name of registrant as specified in its charter)
Delaware 13-3398206
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(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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Indicated 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of December 31, 2002, 8,802,091 depositary units of limited partnership
interest were outstanding. The aggregate market value of such units held by
non-affiliates of the Registrant based on the last reported sale price on June
28, 2002 was $43,126,600.
Documents incorporated by Reference
None
2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business....................................................................... 3
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......... 6
Item 6. Selected Financial Data........................................................ 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations............................................................... 8
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................... 14
Item 8. Financial Statements and Supplementary Data.................................... 14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 14
PART III
Item 10. Directors and Executive Officers of the Registrant............................. 16
Item 11. Executive Compensation......................................................... 18
Item 12. Security Ownership of Certain Beneficial Owners, Management and Related
Unitholder Matters........................................................... 18
Item 13. Certain Relationships and Related Transactions................................. 18
Item 14. Controls and Procedures........................................................ 19
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 20
Signatures ............................................................................... 23
Certifications ............................................................................... 24
3
PART II
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, the
words "believe," "anticipate," "expect," "contemplate," "may," "will," 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 prior and
future filings by the Partnership (defined below) with the Securities and
Exchange Commission ("SEC") 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, (v) defaulted mortgages, (vi) errors in servicing
defaulted mortgages and (vii) sales of mortgage investments below fair market
value. 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
- ---------------------------------------
American Insured Mortgage Investors L.P. - Series 88 (the "Partnership")
was formed pursuant to a limited partnership agreement ("Partnership Agreement")
under the Uniform Limited Partnership Act of the State of Delaware on February
13, 1987. During the period from October 2, 1987 (the initial closing date of
the Partnership's public offering) through March 10, 1989 (the termination date
of the offering), the Partnership, pursuant to its public offering of Units,
raised a total of $177,039,320 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., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 4.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (the "Advisor") to the Partnership. The
general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") 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., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. AIM Acquisition is a Delaware
corporation that is primarily owned by Sun America Investments, Inc. and The
Goldman Sachs Group, L.P.
Pursuant to the terms of certain origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
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 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 (collectively the
4
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore the Advisor has retained its Consent Rights.
The General Partner also serves as the General Partner for American Insured
Mortgage Investors ("AIM 84"), American Insured Mortgage Investors. - Series 85,
L.P ("AIM 85") and American Insured Mortgage Investors L.P. - Series 86 ("AIM
86") and owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 86 are collectively
referred to as the "AIM Limited Partnerships".
Prior to December 1996, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured 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 of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2021, unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.
Additional information concerning the business of the Partnership is
contained in Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Notes 1, 5, 6 and 7 of the Notes to
Financial Statements (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 Partnership's Insured Mortgages (as defined below)
as of December 31, 2002, which is incorporated herein by reference.
Employees and Management of the Partnership
- -------------------------------------------
The Partnership has no employees. The business of the Partnership is
managed by its General Partner while its portfolio of mortgages is managed by
the Advisor and CMSLP pursuant to the Advisory Agreements and Sub-Advisory
Agreement, respectively, as discussed above. A wholly-owned subsidiary of CRIIMI
MAE, CRIIMI MAE Management, Inc., provides personnel and administrative services
to the Partnership on behalf of the General Partner. The Partnership reimburses
CRIIMI MAE Management, Inc. for these services on an actual cost basis pursuant
to the terms of the Partnership Agreement.
The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.95% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP, as sub-advisor, a fee of 0.28% (the "Sub-Advisory Fee")
of Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 7 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.
Competition
- -----------
The Partnership's business consists of holding government insured mortgage
investments primarily on multifamily housing properties, and distributing the
payments of principal and interest on such mortgage investments, including
debentures issued by the United States Department of Housing and Urban
Development ("HUD") in exchange for such mortgages, to the holders of its
5
depository units of limited partnership interests ("Unitholders"). The
Partnership may elect to dispose of its mortgage investments through a sale to
third parties. 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
mortgages investments than the Partnership.
CRIIMI MAE and its affiliates also may serve as general partners or
managers of real estate limited partnerships, real estate investment trusts or
other similar 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 other
AIM Limited Partnerships and/or other entities managed by CRIIMI MAE or its
affiliates, or the Advisor or its affiliates, are attempting to dispose of
mortgages. As a result of market conditions that could have the effect of
limiting the number of mortgage dispositions or adversely affecting the proceeds
received from such dispositions, CMSLP, the General Partner and the Advisor and
their affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of and at which price. CMSLP, the General Partner
and the Advisor, however, are required to exercise their fiduciary duties of
good faith, care and loyalty when evaluating the appropriate action to be taken
when faced with such conflicts.
ITEM 2. PROPERTIES
The Partnership does not own any properties. Generally, the mortgages
underlying the Partnership's mortgage investments are non-recourse first liens
on multifamily residential developments or retirement homes.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's Unitholders during
the fourth quarter of 2002.
6
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
Principal Market and Market Price for Units and Distributions
- -------------------------------------------------------------
The depository units of Limited Partnership interests ("Limited Partnership
Units") are listed for trading on the American Stock Exchange ("AMEX") under the
symbol "AIK." The high and low trade prices for the Units as reported on AMEX
and the distributions, as applicable, for each quarterly period in 2002 and 2001
were as follows:
2002 Amount of
Distribution
Quarter Ended High Low Per Unit
------------- ------ ------ --------
March 31, $ 5.90 $ 5.07 $ 0.355
June 30, 5.13 4.83 0.090
September 30, 5.05 4.42 0.655
December 31, 4.75 4.18 0.560
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$ 1.660
=======
2001 Amount of
Distribution
Quarter Ended High Low Per Unit
------------- ------ ------ --------
March 31, $ 6.05 $ 5.33 $ 1.010
June 30, 5.60 5.16 0.105
September 30, 5.80 5.25 0.305
December 31, 5.85 5.20 0.625
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$ 2.045
=======
Detailed information regarding quarterly distributions is contained in Note
8 of the Notes to Financial Statements (filed in response to Item 8 hereof)
incorporated by reference herein.
There are no material legal restrictions upon the Partnership's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement.
The 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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested, by the General Partner,
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, the timing of receipt of debentures, the interest rate on
debentures and debenture redemptions, and (4) changes 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.
As of December 31, 2002, there were approximately 5,800 Unitholders.
The Partnership has no compensation plans or individual compensation
arrangements under which equity securities of the Partnership are authorized for
issuance.
7
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Income $ 3,497 $ 4,388 $ 5,501 $ 7,294 $ 9,998
Net gains on mortgage
dispositions 195 910 387 1,072 756
Net earnings 3,111 4,551 4,738 7,053 9,179
Net earnings per Limited
Partnership Unit - Basic (1) $ 0.34 $ 0.49 $ 0.51 $ 0.76 $ 0.99
Distributions per Limited
Partnership Unit (1)(2) $ 1.66 $ 2.045 $ 1.78 $ 5.06 $ 4.34
As of December 31,
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
Total assets $ 42,383 $ 54,129 $ 71,288 $ 83,455 $ 116,464
Partners' equity $ 37,133 $ 48,215 $ 63,131 $ 73,702 $ 114,442
(1) Calculated based upon the weighted average number of Limited Partnership
Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 2002, 2001, 2000, 1999 and 1998, which were
partially paid subsequent to year end. See Notes 7 and 8 of the Notes to
Financial Statements.
The selected income statement data presented above for the years ended
December 31, 2002, 2001 and 2000, and the selected balance sheet data as of
December 31, 2002 and 2001, are derived from, and are qualified by, reference to
the Partnership's financial statements, which are included elsewhere in this
Annual Report on Form 10-K. The selected income statement data for the years
ended December 31, 1999 and 1998, and the selected balance sheet data as of
December 31, 2000, 1999 and 1998 are derived from audited financial statements
not included as part of this Annual Report on Form 10-K. This data should be
read in conjunction with the financial statements and the notes thereto.
8
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.
Mortgage Investments
- --------------------
As of December 31, 2002, the Partnership had invested in 12 Insured
Mortgages with an aggregate amortized cost, face value and fair value of
approximately $34.1 million, $35.3 million and $35.0 million, respectively, as
discussed below.
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 the 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"). The mortgages underlying the FHA-Insured
Certificates, the GNMA Mortgage-Backed Securities and the 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:
Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities
- --------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully insured
FHA-Insured Certificates and GNMA Mortgage-Backed Securities as of December 31,
2002 and 2001:
2002 2001
------------ ------------
Number of:
GNMA Mortgage-Backed Securities (1)(2)(3)(4) 9 13
FHA-Insured Certificates 1 1
Amortized Cost $ 20,908,052 $ 33,196,354
Face Value 20,822,378 33,067,185
Fair Value 21,211,314 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 year ended December 31,
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 year ended December 31,
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 year ended December 31,
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.
(4) In November 2002, the mortgage on Hewitt Gardens Apartments was prepaid.
The Partnership received net proceeds of approximately $4.4 million and
recognized a gain of approximately $72,000 for the year ended December 31,
2002. A distribution of approximately $0.47 per Unit related to the
prepayment of this mortgage was declared in December 2002 and paid to
Unitholders in February 2003.
As of March 1, 2003, all of the Partnership's fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities are current with respect to the
payment of principal and interest.
9
Coinsured Program
- -----------------
Under the HUD coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits if a mortgagor
defaults and the sale of the development collateralizing the mortgage produces
insufficient net proceeds to repay the mortgage obligation. In such cases, the
coinsurance lender will be liable to the Partnership for the first part of such
loss in an amount up to 5% of the outstanding principal balance of the mortgage
as of the date foreclosure proceedings are instituted or the deed is acquired in
lieu of foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is prohibited
from entering into any workout arrangement with the borrower without the
Partnership's consent and must file a claim for coinsurance benefits with HUD,
upon default, if the Partnership so directs. As an ongoing HUD approved
coinsurance lender, and under the terms of the participation documents, the
coinsurance lender is required to satisfy certain minimum net worth requirements
as set forth by HUD. However, it is possible that the coinsurance lender's
potential liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would bear the
risk of loss if the coinsurance lenders were unable to meet their coinsurance
obligations. In addition, HUD's obligation for the payment of its share of the
loss could be diminished under certain conditions, such as the lender not
adequately pursuing regulatory violations of the borrower or the failure to
comply with other terms of the mortgage. However, the General Partner is not
aware of any conditions or actions that would result in HUD diminishing its
insurance coverage.
As of December 31, 2002 and 2001, the Partnership held one investment in a
coinsured FHA-Insured Certificate secured by a coinsured mortgage. The remaining
FHA-Insured Certificate is coinsured by Integrated Funding, Inc. ("IFI"), an
affiliate of the Partnership. The following is a discussion of the Partnership's
coinsured mortgage investments.
a. Coinsured by affiliate
----------------------
As of December 31, 2002 and 2001, the Partnership held one investment in an
FHA-Insured Certificate secured by a coinsured mortgage, where the coinsurance
lender is IFI. This investment was made on behalf of the Partnership by the
former managing general partner. As structured by the former managing general
partner the Partnership bears the risk of loss upon default for IFI's portion of
the coinsurance loss on this mortgage investment. There was no loan loss
recognized for the years ended 2002, 2001 and 2000. A cumulative loan loss of
$1,511,743 was recognized in prior years for the mortgage on Summerwind
Apartments - Phase II when it appeared probable the mortgagor would default on
the loan.
Listed below is the Partnership's investment in the mortgage coinsured by
affiliate as of December 31, 2002 and 2001:
2002 2001
------------ ------------
Amortized Cost $ 7,679,488 $ 7,747,039
Face Value 8,958,360 9,057,300
Fair Value 8,293,338 8,473,167
As of March 1, 2003, the mortgagor was current with respect to payment of
principal and interest on this coinsured mortgage.
b. Coinsured by third party
------------------------
The previously owned mortgage on St. Charles Place - Phase II, was
coinsured by The Patrician Mortgage Company ("Patrician"), an unaffiliated third
party coinsurance lender under the HUD coinsurance program. On October 14, 1993,
10
Patrician filed a foreclosure action on the property underlying this coinsured
mortgage. On November 2, 1993, the mortgagor filed for protection under chapter
11 of the U.S. Bankruptcy Code. The property was acquired and vested with
Patrician in November 1998 and subsequently sold on October 12, 1999. Patrician
filed a coinsurance claim for insurance benefits with HUD in October 1999, for
remaining amounts due, including past due interest. In November 1999, the
Partnership received sales proceeds of approximately $3 million. A distribution
of approximately $0.32 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 $2.2 million
and recognized a gain of approximately $822,000 for the year ended December 31,
2001. The claim proceeds represent the remaining balance due on the mortgage,
including interest from November 1, 1995 through the date of receipt. A
distribution of approximately $0.24 per Unit related to the prepayment of this
mortgage was declared in March 2001 and paid to Unitholders in May 2001. The
amount of the Partnership's investment in this mortgage represented the
Partnership's approximate 55% ownership interest in the mortgage. The remaining
45% ownership interest was held by AIM 86.
Investment in FHA-Insured Loan
- ------------------------------
Listed below is the Partnership's investment in the one FHA-Insured Loan as
of December 31, 2002 and 2001:
2002 2001
------------ ------------
Amortized Cost $ 5,516,188 $ 5,573,879
Face Value 5,516,188 5,573,879
Fair Value 5,520,512 5,230,714
As of March 1, 2003, the Partnership's FHA-Insured Loan was current with
respect to payment of principal and interest.
Results of Operations
- ---------------------
2002 compared to 2001
- ---------------------
Net earnings decreased approximately $1.4 million for 2002 as compared to
2001, primarily due to decreases in gains on mortgage dispositions, mortgage
investment income and interest and other income, as discussed below. The
decrease was also impacted by an adjustment to provision for loss that was
recognized in 2001.
Mortgage investment income decreased approximately $747,000 for 2002 as
compared to 2001, due to a reduction in the mortgage base. The mortgage base
decreased as a result of four mortgage dispositions with an aggregate principal
balance of approximately $12 million, representing an approximate 25% decrease
in the aggregate principal balance of the total mortgage portfolio since
December 2001.
Interest and other income decreased approximately $144,000 for 2002 as
compared to 2001, primarily due to the amounts and timing of temporary
investment of mortgage disposition proceeds prior to distribution to
Unitholders.
Asset management fee expense decreased approximately $93,000 for 2002 as
compared to 2001. This decrease was due to the reduction in the mortgage base,
as previously discussed.
General and administrative expenses decreased approximately $73,000 for
2002 as compared to 2001, primarily due to a decrease in costs associated with
the size of the mortgage base and a decrease in legal expenses related to the
litigation of the mortgage on Water's Edge of New Jersey, which was settled in
2001.
11
Gains on mortgage dispositions decreased approximately $1.0 million for
2002 as compared to 2001. During 2002, the Partnership recognized gains of
approximately $195,000 from the prepayment of the mortgages on Orchard Creek
Apartments, Westview Terrace Apartments, Stoney Creek and Hewitt Garden
Apartments, as previously discussed. During 2001, the Partnership recognized
gains of approximately $403,000 from the prepayment of the mortgages on Silver
Lake Plaza Apartments, Holton Manor, Lorenzo Carolina Apartments, Beauvoir Manor
Apartments and Woodcrest Townhomes. In addition, the Partnership recognzed 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, as
previously discussed.
In 2001, the Partnership recognized an adjustment to provision for loss of
approximately $315,000 on the disposition of the mortgage on Water's Edge of New
Jersey. In February 1996, the General Partner instructed the servicer for the
mortgage on Water's Edge of New Jersey, a fully insured acquired construction
loan, to file a Notice of Default and an Election to Assign the mortgage with
HUD. The property underlying this construction loan was a nursing home located
in Trenton, New Jersey. As of January 31, 1997, the Partnership had received
approximately $10.2 million of the assignment proceeds, including partial
repayment of the outstanding principal and accrued interest. HUD had disallowed
approximately $1.65 million of the assignment claim. The General Partner
retained counsel in this matter and pursued litigation against the loan
servicer, Greystone Servicing Corporation, Inc. ("Greystone"), for the amount
disallowed by HUD. On July 30, 1998, the Partnership filed a Motion for
Judgement against Greystone in the Circuit Court of Fauquier County, Virginia.
On June 1, 2001, a jury rendered a verdict in favor of the Partnership and
against Greystone in the amount of approximately $780,000. On August 17, 2001,
the Partnership received this amount plus accrued interest of approximately
$9,000. A distribution of approximately $0.09 per Unit related to this court
order was declared in September 2001 and paid to Unitholders in November 2001.
In September 2001, the Partnership and Greystone agreed on a final settlement of
approximately $238,000 for reimbursement of legal fees, to the Partnership. This
amount was received on October 4, 2001. A distribution of approximately $0.03
per Unit related to the reimbursement of legal fees was declared in October 2001
and paid to Unitholders in February 2002. During the year ended December 31,
2001, the Partnership incurred a loss of approximately $315,000 related to this
litigation. This loss includes legal fees incurred from April 1 through December
31, 2001, of approximately $199,000. As of December 31, 2002, the Partnership
had recognized aggregate losses of approximately $894,000 related to the
disposition of the mortgage on Water's Edge of New Jersey, which includes losses
recognized in 1996, 1997 and 2001. The Partnership did not recognize a loss on
this mortgage in 2002 and does not expect to incur any additional losses related
to this mortgage.
2001 compared to 2000
- ---------------------
Net earnings decreased approximately $187,000 for 2001 as compared to 2000,
primarily due to a decrease in mortgage investment income, which was largely
offset by an increase in net gains on mortgage dispositions and a decrease in
expenses, as discussed below.
Mortgage investment income decreased by approximately $1.1 million for 2001
as compared to 2000, due to a reduction in the mortgage base. The mortgage base
decreased as a result of nine mortgage dispositions with an aggregate principal
balance of approximately $22 million, representing an approximate 31% decrease
in the aggregate principal balance of the total mortgage portfolio during the
period from February 2000 to December 2001.
Interest and other income decreased by approximately $43,000 for 2001 as
compared to 2000. This decrease was primarily due to the timing of the temporary
investment of proceeds from mortgage prepayments.
Asset management fee expense decreased by approximately $148,000 for 2001
as compared to 2000. This decrease was due to the reduction in the mortgage
base, as previously discussed.
General and administrative expenses decreased approximately $255,000 for
2001 as compared to 2000, primarily due to a decrease in legal expense related
to the litigation of the mortgage on Water's Edge of New Jersey, which was
settled in 2001.
12
Gains on mortgage dispositions increased approximately $839,000 for
2001 as compared to 2000. During 2001, the Partnership recognized gains of
approximately $403,000 from the prepayment of the mortgages on Silver Lake Plaza
Apartments, Holton Manor, Lorenzo Carolina Apartments, Beauvoir Manor Apartments
and Woodcrest Townhomes; and a gain of approximately $822,000 on the disposition
of the mortgage on St. Charles Place - Phase II, as previously discussed. This
compares to gains recognized in 2000 of approximately $387,000 related to the
prepayment of the mortgages on Linville Manor, Park Avenue Plaza, Lioncrest
Towers Apartments and Kingsway Apartments.
Adjustment to provision for loss increased approximately $315,000 for 2001
as compared to 2000. The Partnership recognized an additional loss of
approximately $315,000 on the disposition of the mortgage on Water's Edge of New
Jersey, as previously discussed.
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 years ended December 31, 2002, 2001 and 2000 to meet
operating requirements. The Partnership anticipates its cash flows will be
sufficient to meet operating expense requirements for 2003.
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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested, by the General Partner,
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, the timing of receipt of debentures, the interest rate on
debentures and debenture redemptions, and (4) changes 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.
Since the Partnership is obligated to distribute the proceeds of mortgage
prepayments, sales and insurance on Insured Mortgages (as defined in the
partnership agreement) to its Unitholders, the size of the Partnership's
portfolio will continue to decrease. The magnitude of the decrease will depend
upon the amount of the Insured Mortgages, which are prepaid, sold or assigned
for insurance proceeds.
Cash flow - 2002 compared to 2001
- ---------------------------------
Net cash provided by operating activities decreased by approximately
$377,000 for 2002 as compared to 2001. This decrease is primarily due to the
decrease in mortgage base partially offset by the change in accounts payable and
accrued expenses. The change in accounts payable and accrued expenses is
primarily due to the payment of legal expenses in 2001 related to the Water's
Edge of New Jersey litigation, as discussed previously.
Net cash provided by investing activities decreased by approximately $3.0
million for 2002 as compared to 2001. This decrease is primarily due to proceeds
received from Patrician in 2001 for the disposition of the delinquent mortgage
on St. Charles Place - Phase II and proceeds received from Greystone in 2001 as
a result of the settlement of Water's Edge of New Jersey litigation.
Net cash used in financing activities decreased by approximately $5.0
million for 2002 as compared to 2001, due to a decrease in the amount of
distributions paid to partners during 2002, as compared to the same period in
2001. The decrease in distributions is due to a decrease in investing
activities, as discussed above.
13
Cash flow - 2001 compared to 2000
- ---------------------------------
Net cash provided by operating activities decreased by approximately $1.5
million for 2001 as compared to 2000. This decrease is primarily due to the
decrease in mortgage base. The change in accounts payable and accrued expenses
is primarily due to the payment of legal expenses related to the Water's Edge of
New Jersey litigation, as discussed previously.
Net cash provided by investing activities increased by approximately $3.9
million for 2001 as compared to 2000. This increase is primarily due to: (1)
proceeds received from Patrician for the disposition of the delinquent mortgage
on St. Charles Place - Phase II; (2) proceeds received from Greystone as a
result of the settlement of Water's Edge of New Jersey litigation; and (3) an
increase in the receipt of proceeds from mortgage dispositions. These increases
were slightly offset by a decrease in scheduled principal payments as a result
of the reduction in mortgage base.
Net cash used in financing activities increased by approximately $2.6
million for 2001 as compared to 2000, due to an increase in the amount of
distributions paid to partners during 2001, as compared to the same period in
2000. The increase in distributions is due to an increase in investing
activities, as discussed above.
Critical Accounting Policies
- ----------------------------
The Partnership's significant accounting polices are described in Note 2 to
the Financial Statements. The Partnership believes its most critical accounting
policy (a critical accounting policy being one that is both very important to
the portrayal of the Partnership's financial condition and results of operations
and requires management's most difficult, subjective, or complex judgments)
is the determination of fair value of Insured Mortgages.
- - Fair Value of Insured Mortgages - The Partnership estimates the fair value
of its Insured Mortgages internally. The Partnership uses a discounted cash
flow methodology to estimate the fair value. This requires the Partnership
to make certain estimates regarding discount rates and expected
prepayments. 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,
and (ii) communications with dealers and active insured mortgage security
investors regarding the valuation of comparable securities. Increases in
the discount rate used by the Partnership would generally result in a
corresponding decrease in the fair value of the Partnership's insured
mortgages. Decreases in the discount rate used by the Partnership would
generally result in a corresponding increase in the fair value of the
Partnership's insured mortgages. The Partnership also makes certain
assumptions regarding the prepayment speeds of its Insured Mortgages. In a
low interest rate environment, mortgages are more likely to prepay even if
the mortgage contains prepayment penalties. In general, if the Partnership
increases its assumed prepayment speed, the fair value of the Insured
Mortgages will decrease. If the Partnership decreases its assumed
prepayment speed, the fair value of the Insured Mortgages will increase.
Recent Accounting Pronouncements
- --------------------------------
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
14
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.
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. 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 December 31, 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 Partnership has changed its method of presenting market risk
disclosures from those disclosures presented in the December 31, 2001 Annual
Report on Form 10-K. The Partnership believes that the market risk disclosures
presented below provide more meaningful information to its Unitholders in
assessing the affect of changes in interest rates on the values of its assets.
As of December 31, 2002, the weighted average life of the U.S. Treasury
securities that were used to value the insured mortgage securities were shorter
than those used at December 31, 2001 due to lower market interest rates and
other loan attributes of the underlying insured mortgage securities, which made
the likelihood of the mortgage assets prepaying greater than the previous year.
If the Partnership assumed that the discount rate used to determine the fair
values of its insured mortgage securities increased by 100 basis points and 200
basis points, the increase in the discount rate would have resulted in a
corresponding decrease in the fair values of its insured mortgage securities by
approximately $229,000 (or 0.7%) and approximately $453,000 (or 1.3%),
respectively, as of December 31, 2002. A 100 basis point and 200 basis point
increase in the discount rate would have resulted in a corresponding decrease in
the fair values of the Partnership's insured mortgage securities by
approximately $2.0 million (or 4.3%) and approximately $3.8 million (or 8.3%),
respectively, as of December 31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is set forth in this Annual Report on
Form 10-K commencing on page 26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
On May 8, 2002, the Board of Directors of the General Partner of the
Partnership dismissed Arthur Andersen LLP ("Arthur Andersen") as the
Partnership's independent auditors. Arthur Andersen had served as the
Partnership's independent accountants since 1991.
Arthur Andersen's reports on the Partnership's financial statements for
each of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.
15
During each of the Partnership's two most recent fiscal years and through
the date of Arthur Andersen's dismissal, there were: (i) no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on the Partnership's financial
statements for such years; and (ii) there were no reportable events as defined
in Item 304(a)(1)(v) of Regulation S-K.
The Partnership has provided Arthur Andersen with a copy of the foregoing
disclosure. The Partnership requested Arthur Andersen to furnish it with a
letter addressed to the SEC stating whether it agrees with the above statements.
A copy of that letter dated May 9, 2002 was filed as Exhibit 16 to the Form 8-K
filed with the SEC by the Partnership on May 10, 2002.
On June 5, 2002, the General Partner of the Partnership appointed Ernst &
Young LLP to audit the Partnership's financial statements for the year ending
December 31, 2002. During the years ended December 31, 2001 and 2000 and the
subsequent interim period through June 5, 2002, neither the Partnership nor
anyone on its behalf consulted Ernst & Young LLP with respect to the application
of accounting principles to a specified transaction either completed or
proposed; or the type of audit opinion that might be rendered on the
Partnership's financial statements or any other matters or reportable events
listed in Items 304(a)(2)(1) and (11) of Regulation S-K.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no executive officers or directors. The Partnership
does not directly employ any persons responsible for managing or operating the
Partnership or for providing services relating to day-to-day business affairs.
The affairs of the Partnership are managed by its General Partner, CRIIMI, Inc.
a wholly-owned subsidiary of CRIIMI MAE, a corporation whose shares are listed
on the New York Stock Exchange. CRIIMI, Inc. holds a general partnership
interest of 4.9%.
The business of the Partnership is managed by its General Partner, while
its portfolio of mortgages is managed by the Advisor and CMSLP pursuant to the
Advisory Agreements and Sub-Advisory Agreement, respectively, as discussed
above. A wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.,
provides personnel and administrative services to the Partnership on behalf of
the General Partner.
The General Partner is also the general partner of AIM 84, AIM 85 and AIM
86, limited partnerships with investment objectives similar to those of the
Partnership.
The Board of Directors of the General Partner has established a committee
(the "Audit Committee") consisting of independent directors (as defined in
Section 121 of the AMEX listing standards.) The Audit Committee of the General
Partner has appointed Ernst & Young LLP as the Partnership's independent public
accountants for the fiscal year ending December 31, 2003, such appointment to
continue at the discretion of the Audit Committee.
All directors of the General Partner are elected annually by CRIIMI MAE.
All executive officers serve at the discretion of the General Partner. There are
no family relationships among any directors or executive officers of the General
Partner.
The following table sets forth information concerning the executive
officers and the directors of the General Partner as of March 5, 2003:
Name Age Position
- ---- --- --------
Barry S. Blattman 40 Chairman of the Board of Directors,
President and Chief Executive Officer
David B. Iannarone 42 Executive Vice President,
Chief Operating Officer and a Director
Cynthia O. Azzara 43 Senior Vice President, Chief Financial
Officer and Treasurer
Craig M. Lieberman 41 Senior Vice President and
Chief Portfolio Risk Officer
Brian L. Hanson 41 Senior Vice President
John R. Cooper 55 Director
Robert J. Merrick 57 Director
Robert E. Woods 55 Director
17
Barry S. Blattman has been Chairman of the Board of Directors, Chief
Executive Officer and President of the General Partner since January 23, 2003.
Mr. Blattman is the Managing Partner of Brascan Real Estate Financial Partners.
From 1996 until the end of 2001, Mr. Blattman was a Managing Director of Real
Estate Investment Banking at Merrill Lynch.
David B. Iannarone has served as Chief Operating Officer and Director of
the General Partner since January 2003 and Executive Vice President of the
General Partner since December 2000, as Senior Vice President and General
Counsel of the General Partner from March 1998 to December 2000; and as Vice
President and General Counsel of the General Partner from July 1996 to March
1998.
Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994, as Senior Vice President of the General Partner since 1995
and Treasurer of the General Partner since 1997.
Craig M. Lieberman has served as Senior Vice President and Chief Portfolio
Risk Officer of the General Partner since February 2003. From 2001 to January
2003, Mr. Lieberman was a managing partner for Quantico Partners. From 1998 to
2001, Mr. Lieberman served as the Director of Commercial Mortgage-Backed
Securitization for First Union Securities. From 1996 to 1998 Mr. Lieberman
practiced as both a partner and counsel in the law firm of Kilpatrick &
Stockton, LLP.
Brian L. Hanson has served as Senior Vice President of the General Partner
since March 1998; and as Group Vice President of the General Partner from March
1996 to March 1998.
John R. Cooper has served as Director of the General Partner since April
2001. Mr. Cooper was Senior Vice President, Finance, of PG&E National Energy
Group, Inc. until February 2003. He had been with PG&E National Energy Group,
Inc. and its predecessor, U.S. Generating Company, since its inception in 1989.
Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as 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. While at Signet, Mr.
Merrick also served as Chairman of the Credit Policy Committee and member of the
Asset and Liability Committee and the Management Committee.
Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as 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 at Citicorp
from 1991 to 1997
Section 16(a) Beneficial Ownership Reporting Compliance - Section 16 of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") requires each
director and executive officer of the General Partner and each person who owns
more than 10% of the Partnership's Units to report to the SEC by a specified
date, his, her or its beneficial ownership of, and certain transactions in the
Partnership's Units. 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 5's were required for those persons,
the Partnership believes that all directors, executive officers and beneficial
owners of more than 10% of the Partnership's Units have filed on a timely basis
Forms 3, 4 and 5 as required in the fiscal year ended December 31, 2002.
18
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or executive officers. The
Partnership does not directly employ any persons responsible for managing or
operating the Partnership or for providing services relating to day to day
business affairs. The General Partner provides such services for the
Partnership. None of the directors or executive officers of the General Partner,
however, received compensation from the Partnership, and the General Partner
does not receive reimbursement from the Partnership for any portion of their
salaries or other compensation. The Partnership's portfolio of mortgages is
managed by the Advisor and CMSLP pursuant to the Advisory Agreements and
Sub-Advisory Agreement, respectively, as discussed above. A wholly-owned
subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc. provides personnel and
administrative services to the Partnership on behalf of the General Partner. The
Partnership reimburses CRIIMI MAE Management, Inc. for these services on an
actual cost basis.
The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.95% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP, as sub-advisor, a fee of 0.28% (the "Sub-Advisory Fee")
of Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 7 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND RELATED UNITHOLDER MATTERS
(a) As of March 5, 2003, no person was known by the Partnership to be the
beneficial owner of more than five percent (5%) of the outstanding Units of
the Partnership.
(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of March 5, 2003 by each person
known by the Partnership to be the beneficial owner of more than 5% of its
Units, 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
---- ------------------ -----------
CRIIMI MAE 744 *
* 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 contains a
discussion of the amounts, fees and other compensation paid or accrued by
the Partnership to the directors and executive officers of the General
Partner and their affiliates, and is hereby incorporated by reference
herein.
19
(b) Certain business relationships.
Other than as set forth in Item 11 of this Annual Report on Form 10-K which
is hereby incorporated by reference herein, the Partnership has no business
relationship with entities of which the current General Partner of the
Partnership are officers, directors or equity owners.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Annual Report on Form 10-K,
the General Partner carried out an evaluation, under the supervision and with
the participation of the General Partner's management, including the General
Partner's Chief Executive Officer (CEO) and the Chief Financial Officer (CFO),
of the effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. 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 its most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
20
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
Page
Description Number
- ----------- ------
Balance Sheets as of December 31, 2002 and 2001 ................................................................ 29
Statements of Income and Comprehensive Income for the years ended December 31, 2002,
2001 and 2000 ............................................................................................... 30
Statements of Changes in Partners' Equity for the years ended December 31, 2002,
2001 and 2000............................................................................................... 31
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 .................................. 32
Notes to Financial Statements .................................................................................. 33
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate ............................................................................. 44
All other schedules have been omitted because they are not applicable, not
required, or the information is included in the Financial Statements or Notes
thereto.
(a)(3) Exhibits:
3.0 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. 33-12479) filed with the Commission on
June 10, 1987.
4.0 Agreement of Limited Partnership, incorporated by reference to Exhibit
3 to the Post-Effective Amendment No. 1 to the Partnership's
Registration Statement on Form S-11 (No. 33-12479) filed with the
Commission on March 8, 1988 (such Amendment is referred to as
Post-Effective Amendment No.1).
4.1 Material Amendments to Agreement of Limited Partnership are
incorporated by reference to Exhibit 3(a) to Post-Effective Amendment
No.1.
4.2 Amendment to the Amended and Restated Agreement of Limited Partnership
of the Partnership dated February 12, 1990.
10.1 Origination and Acquisition Services Agreement is incorporated by
reference to Exhibit 10(b) to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1987.
10.2 Management Services Agreement is incorporated by reference to Exhibit
10(c) to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1987.
21
10.3 Disposition Services Agreement is incorporated by reference to Exhibit
10(d) to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1987.
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 Partnership's Annual
Report on Form 10-K for the year ended December 31, 1987.
10.5 Reinvestment Plan is incorporated by reference to Exhibit 10(f) to
Post- Effective Amendment No. 1.
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 Amendments to partnership agreement dated August 13, 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.
10.10 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) the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1992.
10.11 Amendment No. 3 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective January 1, 2000, incorporated by
reference to exhibit 10.19 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 2000.
10.12 Amendment No. 4 to Reimbursement Agreement by Integrated Funding,
Inc. and the AIM Funds, effective January 1, 2001, incorporated by
reference to exhibit 10.20 to the Partnership's Annual Report on Form
10-K for the year ended December 31, 2001.
16.0 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 9, 2002, regarding the General Partner's decision
to change its certifying accountant, incorporated by reference to
Exhibit 16 to the Partnership's Form 8-K filed on May 10, 2002.
99.0 Letter to Securities and Exchange Commission from the Partnership
dated March 20, 2002, regarding the representation received from
Arthur Andersen LLP in performing the audit of the December 31, 2001
financial statements, incorporated by reference to Exhibit 99.0 to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 2001.
22
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Barry S. Blattman, Chief Executive Officer of the General
Partner (Filed herewith).
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Cynthia O. Azzara, Chief Financial Officer of the General
Partner (Filed herewith).
(b) Reports on Form 8-K filed during the last quarter of the fiscal year:
None.
All other items are not applicable.
23
SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Barry S. Blattman, his attorney-in-fact,
each with the power of substitution for him in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
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 88
(Registrant)
By: CRIIMI, Inc.
General Partner
March 19, 2003 /s/Barry S. Blattman
- -------------- --------------------------------------
DATE Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
March 24, 2003 /s/Cynthia O. Azzara
- -------------- --------------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
March 19, 2003 /s/David B. Iannarone
- -------------- --------------------------------------
DATE David B. Iannarone
Executive Vice President,
Chief Operating Officer and a Director
March 19, 2003 /s/John R. Cooper
- -------------- --------------------------------------
DATE John R. Cooper
Director
March 19, 2003 /s/Robert J. Merrick
- -------------- --------------------------------------
DATE Robert J. Merrick
Director
March 19, 2003 /s/Robert E. Woods
- -------------- --------------------------------------
DATE Robert E. Woods
Director
24
CERTIFICATION
I, Barry S. Blattman, Chairman of the Board, Chief Executive Officer and
President, certify that:
1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors L.P. - Series 88;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual report whether 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: March 19, 2003 /s/Barry S. Blattman
-------------- ------------------------------------
Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
25
I, Cynthia O. Azzara, Senior Vice President, Chief Financial Officer and
Treasurer, certify that:
1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors L.P. - Series 88;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual report whether 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: March 24, 2003 /s/ Cynthia O. Azzara
-------------- ----------------------------------------------
Cynthia O. Azzara
Senior Vice President, Chief Financial Officer
and Treasurer
26
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
Financial Statements
as of December 31, 2002 and 2001
and for the Years Ended
December 31, 2002, 2001 and 2000
27
REPORT OF INDEPENDENT AUDITORS
Partners
American Insured Mortgage Investors L.P. - Series 88
We have audited the accompanying balance sheet of American Insured Mortgage
Investors L.P. - Series 88 (the Partnership) as of December 31, 2002, and the
related statements of income and comprehensive income, changes in partners'
equity, and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at Item 15(a)(2). These
financial statements and schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audit. The financial statements of the
Partnership as of December 31, 2001, and for the years ended December 31, 2001
and 2000, were audited by other auditors who have ceased operations and whose
report dated March 4, 2002, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the financial position of the Partnership at
December 31, 2002, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/Ernst & Young LLP
McLean, Virginia
March 14, 2003
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of American Insured Mortgage Investors L.P. - Series 88:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 88 (the "Partnership") as of December 31, 2001
and 2000, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 2001, 2000
and 1999. 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, 2001 and 2000, and the results of its operations and its cash flows
for the years ended December 31, 2001, 2000 and 1999, 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, 2001 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.
/s/Arthur Andersen LLP
Vienna, Virginia
March 4, 2002
- --------------------------------------------------------------------------------
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Partnership's filing of its Annual Report on Form 10-K for
the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this Annual Report on Form 10-K. See
exhibit 16.0 for further discussion.
29
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
December 31, December 31,
2002 2001
------------ ------------
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 21,211,314 $ 32,300,617
Originated insured mortgages 8,293,338 8,473,167
------------ ------------
29,504,652 40,773,784
Investment in FHA-Insured Loan at cost
Originated insured mortgage 5,516,188 5,573,879
Cash and cash equivalents 5,240,883 5,626,184
Investment in affiliate 1,843,066 1,789,536
Receivables and other assets 278,608 365,767
------------ ------------
Total assets $ 42,383,397 $ 54,129,150
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 5,183,145 $ 5,784,760
Accounts payable and accrued expenses 67,315 129,533
------------ ------------
Total liabilities 5,250,460 5,914,293
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
8,802,091 Units issued and outstanding 43,686,324 55,338,877
General partner's deficit (6,887,087) (6,286,695)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other comprehensive income (loss) 952,450 (218,575)
------------ ------------
Total Partners' equity 37,132,937 48,214,857
------------ ------------
Total liabilities and partners' equity $ 42,383,397 $ 54,129,150
============ ============
The accompanying notes are an integral part
of these financial statements.
30
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
2002 2001 2000
------------ ------------ ------------
Income:
Mortgage investment income $ 3,458,465 $ 4,205,728 $ 5,276,523
Interest and other income 38,566 182,126 224,751
------------ ------------ ------------
3,497,031 4,387,854 5,501,274
------------ ------------ ------------
Expenses:
Asset management fee to related parties 471,887 565,368 712,869
General and administrative 108,943 181,816 437,036
------------ ------------ ------------
580,830 747,184 1,149,905
------------ ------------ ------------
Earnings before gains (losses) on
mortgage dispositions 2,916,201 3,640,670 4,351,369
Gains on mortgage dispositions 195,182 1,225,250 386,654
Adjustment to provision for loss - (315,155) -
------------ ------------ ------------
Net earnings $ 3,111,383 $ 4,550,765 $ 4,738,023
============ ============ ============
Other comprehensive income (loss) - adjustment to unrealized
gains and losses on investments in insured mortgages 1,171,025 (538,874) 1,165,618
------------ ------------ ------------
Comprehensive income $ 4,282,408 $ 4,011,891 $ 5,903,641
============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 2,958,925 $ 4,327,778 $ 4,505,860
General Partner - 4.9% 152,458 222,987 232,163
------------ ------------ ------------
$ 3,111,383 $ 4,550,765 $ 4,738,023
============ ============ ============
Net earnings per Limited Partnership
Unit outstanding - Basic $ 0.34 $ 0.49 $ 0.51
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
31
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 2002, 2001 and 2000
Repurchased Accumulated
Limited Other Total
General Limited Partnership Comprehensive Partners'
Partner Partners Units Income (Loss) Equity
------------- ------------- ------------- ------------- -------------
Balance, January 1, 2000 $ (5,007,111) $ 80,173,264 $ (618,750) $ (845,319) $ 73,702,084
Net Earnings 232,163 4,505,860 - - 4,738,023
Adjustment to unrealized gains and losses
on investments in Insured Mortgages - - - 1,165,618 1,165,618
Distributions paid or accrued of $1.78
per Unit, including return of capital
of $1.27 per Unit (807,275) (15,667,722) - - (16,474,997)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2000 (5,582,223) 69,011,402 (618,750) 320,299 63,130,728
Net Earnings 222,987 4,327,778 - - 4,550,765
Adjustment to unrealized gains and losses
on investments in Insured Mortgages - - - (538,874) (538,874)
Distributions paid or accrued of $2.045
per Unit, including return of capital of
$1.555 per Unit (927,459) (18,000,303) - - (18,927,762)
------------- ------------- ------------- ------------ -------------
Balance, December 31, 2001 (6,286,695) 55,338,877 (618,750) (218,575) 48,214,857
Net Earnings 152,458 2,958,925 - - 3,111,383
Adjustment to unrealized gains and losses
on investments in Insured Mortgages - - - 1,171,025 1,171,025
Distributions paid or accrued of $1.66
per Unit, including return of capital of
$1.32 per Unit (752,850) (14,611,478) - - (15,364,328)
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2002 $ (6,887,087) $ 43,686,324 $ (618,750) $ 952,450 $ 37,132,937
============= ============= ============= ============= =============
Limited Partnership Units outstanding -
basic, as of December 31, 2002, 2001,
and 2000 8,802,091
=========
The accompanying notes are an integral part
of these financial statements.
32
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
For the years ended December 31,
2002 2001 2000
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 3,111,383 $ 4,550,765 $ 4,738,023
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net gains on mortgage dispositions (195,182) (1,225,250) (386,654)
Adjustment to provision for loss - 315,155 -
Changes in assets and liabilities:
Decrease in investment in affiliate 30,776 28,489 42,360
Decrease in receivables and other assets 87,159 109,205 154,071
(Decrease) increase in accounts payable and accrued expenses (62,218) (429,545) 256,015
------------ ------------ ------------
Net cash provided by operating activities 2,971,918 3,348,819 4,803,815
------------ ------------ ------------
Cash flows provided by investing activities:
Proceeds from mortgage prepayments 12,033,478 11,697,541 11,008,711
Proceeds received from Greystone, related to the mortgage
on Water's Edge of New Jersey - 1,026,921 -
Proceeds received from Patrician, related to the mortgage
on St. Charles Place - Phase II - 2,241,218 -
Receipt of mortgage principal from scheduled payments 575,246 623,671 707,084
------------ ------------ ------------
Net cash provided by investing activities 12,608,724 15,589,351 11,715,795
------------ ------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (15,965,943) (20,917,720) (18,326,120)
------------ ------------ ------------
Net decrease in cash and cash equivalents (385,301) (1,979,550) (1,806,510)
Cash and cash equivalents, beginning of year 5,626,184 7,605,734 9,412,244
------------ ------------ ------------
Cash and cash equivalents, end of year $ 5,240,883 $ 5,626,184 $ 7,605,734
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
33
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the "Partnership")
was formed pursuant to a limited partnership agreement ("Partnership Agreement")
under the Uniform Limited Partnership Act of the State of Delaware on February
13, 1987. During the period from October 2, 1987 (the initial closing date of
the Partnership's public offering) through March 10, 1989 (the termination date
of the offering), the Partnership, pursuant to its public offering of Units,
raised a total of $177,039,320 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., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 4.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (the "Advisor") to the Partnership. The
general partner of the Advisor is AIM Acquisition Corporation ("AIM
Acquisition") 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., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. AIM Acquisition is a Delaware
corporation that is primarily owned by Sun America Investments, Inc. and The
Goldman Sachs Group, L.P.
Pursuant to the terms of certain origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
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 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 (collectively the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore the Advisor has retained its Consent Rights.
The General Partner also serves as the General Partner for American Insured
Mortgage Investors ("AIM 84"), American Insured Mortgage Investors. - Series 85,
L.P ("AIM 85") and American Insured Mortgage Investors L.P. - Series 86 ("AIM
86") and owns general partner interests therein of 2.9%, 3.9% and 4.9%,
respectively. The Partnership, AIM 84, AIM 85 and AIM 86 are collectively
referred to as the "AIM Limited Partnerships".
Prior to December 1996, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured 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 of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2021, unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.
34
2. SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
- --------------------
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP 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 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 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"). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
primarily non-recourse first liens on multifamily residential developments.
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, 2002, the weighted average remaining term of the
Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates is approximately 23 years. However, the Partnership Agreement
states that the Partnership will terminate in approximately 19 years, on
December 31, 2021, unless terminated earlier under the provisions of the
Partnership Agreement. As the Partnership is anticipated to terminate prior to
the weighted average remaining term of its investment 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
classified as available for sale. 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 presently intend to voluntarily dispose of these assets other than those
which may be assigned to HUD as a result of a default.
In connection with this classification the Partnership's investments in
GNMA Mortgage-Backed Securities and FHA-Insured Certificates are recorded at
fair value, as of December 31, 2002 and 2001, with the net unrealized gains and
losses on these assets reported as other comprehensive income (loss) 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 in other comprehensive income
(loss) and 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.
As of December 31, 2002 and 2001, Investment in FHA-Insured Loan is
recorded at amortized cost.
The amortized cost of the investments in GNMA Mortgage-Backed Securities,
FHA-Insured Certificates and FHA-Insured Loan is adjusted for amortization of
discounts and premiums to maturity. Such amortization is included in mortgage
investment income.
Mortgage investment income consists of amortization of the discount or
premiums plus the stated mortgage interest payments received or accrued. The
difference between the cost and the unpaid principal balance at the time of
35
purchase is carried as a discount or premium and amortized over the remaining
contractual life of the mortgage using the effective interest method. The
effective interest method provides a constant yield of income over the term of
the mortgage.
Gains from dispositions of mortgage investments are recognized upon the
receipt of cash or HUD debentures.
Losses on dispositions of mortgage investments are recognized when it
becomes probable that a mortgage will be disposed of and that the disposition
will result in a loss. In the case of Insured Mortgages fully insured by HUD,
the Partnership's maximum exposure for purposes of determining the loan losses
would generally be an assignment fee charged by HUD representing approximately
1% of the unpaid principal balance of the Insured Mortgage at the date of
default, plus the unamortized balance of acquisition fees and closing costs paid
in connection with the acquisition of the Insured Mortgage and the loss of
approximately 30 days accrued interest.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents consist of money market funds and time and demand
deposits with original maturities of three months or less.
Investment in affiliate
- -----------------------
Investment in affiliate represents an investment in Integrated Funding,
Inc. ("IFI"), an affiliate of the Partnership. 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, as a
pass-through entity, all income taxes assessed on the Partnership's income are
the responsibility of its Unitholders.
Recent Accounting Pronouncements
- --------------------------------
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.
36
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial
instruments are presented in accordance with GAAP which defines 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, 2002 As of December 31, 2001
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
Investment in FHA-Insured
Certificates and GNMA
Mortgage-Backed Securities:
Acquired Insured Mortgages $20,908,052 $21,211,314 $33,196,354 $32,300,617
Originated Insured Mortgages 7,679,488 8,293,338 7,747,039 8,473,167
----------- ----------- ----------- -----------
$28,587,540 $29,504,652 $40,943,393 $40,773,784
=========== =========== =========== ===========
Investment in FHA-Insured Loan:
Acquired Insured Mortgage $ 5,516,188 $ 5,520,512 $ 5,573,879 $ 5,230,714
Cash and cash equivalents $ 5,240,883 $ 5,240,883 $ 5,626,184 $ 5,626,184
GNMA Mortgage-Backed Security
contributed to affiliate $ 1,774,479 $ 1,809,818 $ 1,807,729 $ 1,758,760
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Investment in FHA-Insured Certificates,
GNMA Mortgage-Backed Securities and FHA-Insured Loans
- -----------------------------------------------------
The fair values of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans are priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair values; 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, and (ii) communications with dealers
and active insured mortgage security investors regarding the valuation of
comparable securities.
Cash and cash equivalents
- -------------------------
The carrying amount approximates fair value because of the short maturity
of these instruments.
37
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 Insured 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 Insured 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 gains or losses related to
those investments that were not disposed of during the period.
2002 2001 2000
---- ---- ----
Reclassification adjustment for losses (gains)
included in net income $ 220,158 $ (61,266) $ 187,450
Unrealized holding gains (losses) arising during
the period 950,867 (477,608) 978,168
----------- ----------- -----------
Net adjustment to unrealized gains and losses on investments in
Insured Mortgages $ 1,171,025 $ (538,874) $ 1,165,618
=========== =========== ===========
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-BACKED SECURITIES
The following is a discussion of the Partnership's Insured Mortgage
investments, along with the risks related to each type of investment:
Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities
- --------------------------------------------------------------------------
Listed below is the Partnership's aggregate investment in fully insured
FHA-Insured Certificates and GNMA Mortgage-Backed Securities as of December 31,
2002 and 2001:
2002 2001
---- ----
Number of:
GNMA Mortgage-Backed Securities(1)(2)(3)(4) 9 13
FHA-Insured Certificates 1 1
Amortized Cost $ 20,908,052 $ 33,196,354
Face Value 20,822,378 33,067,185
Fair Value 21,211,314 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 year ended December 31,
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 year ended December 31,
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 year ended December 31,
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.
(4) In November 2002, the mortgage on Hewitt Gardens Apartments was prepaid.
The Partnership received net proceeds of approximately $4.4 million and
recognized a gain of approximately $72,000 for the year ended December 31,
2002. A distribution of approximately $0.47 per Unit related to the
prepayment of this mortgage was declared in December 2002 and paid to
Unitholders in February 2003.
As of March 1, 2003, all of the Partnership's fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities are current with respect to the
payment of principal and interest.
In February 1996, the General Partner instructed the servicer for the
mortgage on Water's Edge of New Jersey, a fully insured acquired construction
loan, to file a Notice of Default and an Election to Assign the mortgage with
38
HUD. The property underlying this construction loan was a nursing home located
in Trenton, New Jersey. As of January 31, 1997, the Partnership had received
approximately $10.2 million of the assignment proceeds, including partial
repayment of the outstanding principal and accrued interest. HUD had disallowed
approximately $1.65 million of the assignment claim. The General Partner
retained counsel in this matter and pursued litigation against the loan
servicer, Greystone Servicing Corporation, Inc. ("Greystone"), for the amount
disallowed by HUD. On July 30, 1998, the Partnership filed a Motion for
Judgement against Greystone in the Circuit Court of Fauquier County, Virginia.
On June 1, 2001, a jury rendered a verdict in favor of the Partnership and
against Greystone in the amount of approximately $780,000. On August 17, 2001,
the Partnership received this amount plus accrued interest of approximately
$9,000. A distribution of approximately $0.09 per Unit related to this court
order was declared in September 2001 and paid to Unitholders in November 2001.
In September 2001, the Partnership and Greystone agreed on a final settlement of
approximately $238,000 for reimbursement of legal fees, to the Partnership. This
amount was received on October 4, 2001. A distribution of approximately $0.03
per Unit related to the reimbursement of legal fees was declared in October 2001
and paid to Unitholders in February 2002. During the year ended December 31,
2001, the Partnership incurred a loss of approximately $315,000 related to this
litigation. This loss includes legal fees incurred from April 1 through December
31, 2001, of approximately $199,000. As of December 31, 2001, the Partnership
had recognized aggregate losses of approximately $894,000 related to the
disposition of the mortgage on Water's Edge of New Jersey, which includes losses
recognized in 1996, 1997 and 2001. The Partnership did not recognize a loss on
this mortgage in 2002 and does not expect to incur any additional losses related
to this mortgage.
Coinsured Program
- -----------------
Under the HUD coinsurance program, both HUD and the coinsurance lender are
responsible for paying a portion of the insurance benefits if a mortgagor
defaults and the sale of the development collateralizing the mortgage produces
insufficient net proceeds to repay the mortgage obligation. In such cases, the
coinsurance lender will be liable to the Partnership for the first part of such
loss in an amount up to 5% of the outstanding principal balance of the mortgage
as of the date foreclosure proceedings are instituted or the deed is acquired in
lieu of foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne on a
pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the
mortgage, the coinsurance lender is responsible for the timely payment of
principal and interest to the Partnership. The coinsurance lender is prohibited
from entering into any workout arrangement with the borrower without the
Partnership's consent and must file a claim for coinsurance benefits with HUD,
upon default, if the Partnership so directs. As an ongoing HUD approved
coinsurance lender, and under the terms of the participation documents, the
coinsurance lender is required to satisfy certain minimum net worth requirements
as set forth by HUD. However, it is possible that the coinsurance lender's
potential liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would bear the
risk of loss if the coinsurance lenders were unable to meet their coinsurance
obligations. In addition, HUD's obligation for the payment of its share of the
loss could be diminished under certain conditions, such as the lender not
adequately pursuing regulatory violations of the borrower or the failure to
comply with other terms of the mortgage. However, the General Partner is not
aware of any conditions or actions that would result in HUD diminishing its
insurance coverage.
As of December 31, 2002 and 2001, the Partnership held one investment in a
coinsured FHA-Insured Certificate secured by a coinsured mortgage. The remaining
FHA-Insured Certificate is coinsured by Integrated Funding, Inc. ("IFI"), an
affiliate of the Partnership. The following is a discussion of the Partnership's
coinsured mortgage investments.
a. Coinsured by affiliate
----------------------
As of December 31, 2002 and 2001, the Partnership held one investment in an
FHA-Insured Certificate secured by a coinsured mortgage, where the coinsurance
lender is IFI. This investment was made on behalf of the Partnership by the
former managing general partner. As structured by the former managing general
partner the Partnership bears the risk of loss upon default for IFI's portion of
39
the coinsurance loss on this mortgage investment. There was no loan loss
recognized for the years ended 2002, 2001 and 2000. A cumulative loan loss of
$1,511,743 was recognized in prior years for the mortgage on Summerwind
Apartments - Phase II when it appeared probable the mortgagor would default on
the loan.
Listed below is the Partnership's investment in the mortgage coinsured by
affiliate as of December 31, 2002 and 2001:
2002 2001
------------ ------------
Amortized Cost $ 7,679,488 $ 7,747,039
Face Value 8,958,360 9,057,300
Fair Value 8,293,338 8,473,167
As of March 1, 2003, the mortgagor was current with respect to payment of
principal and interest on this coinsured mortgage.
b. Coinsured by third party
------------------------
The previously owned mortgage on St. Charles Place - Phase II, was
coinsured by The Patrician Mortgage Company ("Patrician"), an unaffiliated third
party coinsurance lender under the HUD coinsurance program. On October 14, 1993,
Patrician filed a foreclosure action on the property underlying this coinsured
mortgage. On November 2, 1993, the mortgagor filed for protection under Chapter
11 of the U.S. Bankruptcy Code. The property was acquired and vested with
Patrician in November 1998 and subsequently sold on October 12, 1999. Patrician
filed a coinsurance claim for insurance benefits with HUD in October 1999, for
remaining amounts due, including past due interest. In November 1999, the
Partnership received sales proceeds of approximately $3 million. A distribution
of approximately $0.32 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 $2.2 million
and recognized a gain of approximately $822,000 for the year ended December 31,
2001. The claim proceeds represent the remaining balance due on the mortgage,
including interest from November 1, 1995 through the date of receipt. A
distribution of approximately $0.24 per Unit related to the prepayment of this
mortgage was declared in March 2001 and paid to Unitholders in May 2001. The
amount of the Partnership's investment in this mortgage represented the
Partnership's approximate 55% ownership interest in the mortgage. The remaining
45% ownership interest was held by AIM 86.
6. INVESTMENT IN FHA-INSURED LOAN
Listed below is the Partnership's investment in the one FHA-Insured Loan as
of December 31, 2002 and 2001:
2002 2001
------------ ------------
Amortized Cost $ 5,516,188 $ 5,573,879
Face Value 5,516,188 5,573,879
Fair Value 5,520,512 5,230,714
As of March 1, 2003, the Partnership's FHA-Insured Loan was current with
respect to payment of principal and interest.
40
7. TRANSACTIONS WITH RELATED PARTIES
The principal executive officers of the General Partner for the years ended
December 31, 2002, 2001 and 2000 did not receive fees for serving as executive
officers of the General Partner, nor are any fees expected to be paid to the
executive officers in the future.
The General Partner, CMSLP and certain affiliated entities have, during the
years ended December 31, 2002, 2001 and 2000, 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 2002 2001 2000
- ----------------- ----------------- ---- ----- ----
CRIIMI, Inc. (1) General Partner/Distribution $ 752,850 $ 927,459 $ 807,275
AIM Acquisition Advisor/Asset Management Fee 471,887 565,368 712,869
Partners, L.P. (2)
CRIIMI MAE Affiliate of General Partner/ 49,422 48,892 46,164
Management, Inc. (3) Expense Reimbursement
(1) The General Partner, pursuant to amendments to the partnership agreement,
effective September 6, 1991, is entitled to receive 4.9% of the
Partnership's income, loss, capital and distributions, including, without
limitation, the Partnership's adjusted cash from operations and proceeds of
mortgage prepayments, sales or insurance (both as defined in the
partnership agreement).
(2) The Advisor 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 equal to 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 $139,069, $166,617 and $210,081 for the years ended
December 31, 2002, 2001 and 2000, respectively. The general and limited
partners of CMSLP are wholly-owned subsidiaries of CRIIMI MAE Inc.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
41
8. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 2002, 2001 and 2000 are as follows:
2002 2001 2000
---------- ---------- ----------
Quarter ended March 31 $ 0.355 (1)(2) $ 1.010 (5)(6)(7) $ 0.37 (13)
Quarter ended June 30 0.090 0.105 0.42 (14)(15)
Quarter ended September 30 0.655 (3) 0.305 (8)(9) 0.15
Quarter ended December 31 0.560 (4) 0.625 (10)(11)(12) 0.84 (16)
---------- ---------- ----------
$ 1.660 $ 2.045 $ 1.78
========== ========== ==========
The following disposition proceeds are included in the distributions listed
above:
Date Net
Proceeds Type of Proceeds
Complex Name received Disposition Per Unit
------------ -------- ----------- --------
(1) Orchard Creek Apartments Jan 2002 Prepayment $ 0.14
(2) Westview Terrace Apartments Feb 2002 Prepayment 0.12
(3) Stoney Creek Sep 2002 Prepayment 0.565
(4) Hewitt Gardens Nov 2002 Prepayment 0.47
(5) Silver Lake Plaza Apartments Jan 2001 Prepayment 0.56
(6) Holton Manor Feb 2001 Prepayment 0.10
(7) St. Charles Place-Phase II Feb 2001 Coinsurance Claim 0.24
(8) Water's Edge of New Jersey Aug 2001 Assignment 0.09
(9) Lorenzo Carolina Apartments Aug 2001 Prepayment 0.11
(10) Water's Edge of New Jersey Oct 2001 Assignment 0.03
(11) Beauvoir Manor Apartments Oct 2001 Prepayment 0.14
(12) Woodcrest Townhomes Nov 2001 Prepayment 0.34
(13) Linville Manor Mar 2000 Prepayment 0.22
(14) Park Avenue Plaza May 2000 Prepayment 0.22
(15) Kingsway Apartments May 2000 Prepayment 0.05
(16) Lioncrest Towers Nov 2000 Prepayment 0.70
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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested, by the General Partner,
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, the timing of receipt of debentures, the interest rate on
debentures and debenture redemptions, and (4) changes 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.
42
9. INVESTMENT IN AFFILIATE
In addition to the related party transactions described in Note 7, in order
to capitalize IFI with sufficient net worth under HUD regulations, in April
1994, the Partnership transferred a GNMA Mortgage-Backed Security in the amount
of approximately $2.0 million to IFI. As of December 31, 2002 and 2001, this
GNMA Mortgage-Backed 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. As of December 31, 2002, the
Partnership along with AIM 85 and AIM 86 equally own AIM Mortgage, Inc. In turn,
AIM Mortgage, Inc. owns all of the outstanding preferred stock and common stock
of IFI.
As part of the Partnership's transfer of the GNMA Mortgage-Backed Security
to IFI, AIM 85 and AIM 86 each issued a demand note payable to the Partnership
and recorded an investment in IFI through AIM Mortgage, Inc. at an amount
proportionate to each entity's coinsured mortgages for which IFI was the
mortgagee of record as of April 1, 1994. In April 1997, the GNMA Mortgage-Backed
Security was reallocated between the Partnership and AIM 86 as AIM 85 no longer
held any mortgages coinsured by IFI. As a result, a new demand note payable from
AIM 86 was issued and the investment in IFI was reallocated. As of December 31,
2000, the Partnership's demand note receivable from AIM 86 was cancelled as AIM
86 no longer held mortgages coinsured by IFI. As a result the investment in IFI
was reallocated. Interest income on this note was $0, $0 and $45,994 during the
years ended December 31, 2002, 2001 and 2000, respectively, and is included in
interest and other income on the accompanying statements of income and
comprehensive income.
In connection with these transfers, the expense reimbursement agreement was
amended as of April 1, 1997, to adjust the allocation of the expense
reimbursement to the AIM Limited Partnerships to an amount proportionate to each
entity's coinsured mortgage investments for which IFI was the mortgagee of
record as of April 1, 1997. The expense reimbursement, as amended, along with
the Partnership's interest income from the notes receivable, and the
Partnership's equity interest in IFI's net income or loss, substantially equals
the mortgage interest on the GNMA Mortgage-Backed Security transferred to IFI.
In April 1997, this agreement was amended to exclude AIM 85, which no longer
held mortgages coinsured by IFI. In December 2000, this agreement was amended to
exclude AIM 86, which no longer held mortgages coinsured by IFI. The Partnership
received expense reimbursements of $132,146, $130,470 and $89,336 during the
years ended December 31, 2002, 2001 and 2000, respectively, which offset general
and administrative expenses on the accompanying statements of income and
comprehensive income.
10. PARTNERS' EQUITY
In a public offering which ended in March 1989, depositary Units
representing economic rights in limited partnership interests ("Units") were
issued at a stated value of $20. A total of 8,851,966 Units were issued for an
aggregate capital contribution of $177,039,320. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership in exchange for 125
Units and the former general partners contributed a total of $1,000 to the
Partnership. During 1994, the Partnership repurchased 50,000 Units.
42
11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS
(Dollars In Thousands, Except Per Unit Data)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 2002, 2001 and 2000:
2002
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 931 $ 904 $ 889 $ 773
Net earnings 849 742 797 723
Net gains from mortgage
dispositions 82 - 41 72
Net earnings per
Limited Partnership Unit - Basic 0.09 0.08 0.09 0.08
2001
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 1,209 $ 1,106 $ 1,065 $ 1,008
Net earnings 1,927 450 1,103 1,071
Net gains (losses) from mortgage
dispositions 941 (476) 210 235
Net earnings per
Limited Partnership Unit - Basic 0.21 0.05 0.12 0.11
2000
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 1,464 $ 1,383 $ 1,339 $ 1,315
Net earnings 1,329 1,252 1,117 1,040
Net gains from mortgage
dispositions 107 100 -- 180
Net earnings per
Limited Partnership Unit - Basic 0.14 0.14 0.12 0.11
44
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
Interest Annual Payment
Rate on Face Net Principal and
Maturity Mortgage Value of Carrying Value Interest
Development Name/Location Date (5) Mortgage (3) (3)(6)(7)(9) (5)(8)
- ------------------------- ---- --- ------------ ------------ ------
ACQUIRED INSURED MORTGAGE:
FHA-Insured Certificate (carried at fair value)
- -----------------------------------------------
Sylvan Manor, Silver Spring, MD 5/21 7.500% $ 2,830,343 $ 2,835,984 $ 284,523
------------ ------------
GNMA Mortgage-Backed Securities (carried at fair value)
- -------------------------------------------------------
Burlwood Apts., Portland, OR 8/15 9.000% 533,037 544,708 62,748
Collin Care Centers, Plano, TX 9/30 8.125% 1,632,726 1,663,888 144,356
Garden Terrace, Douglasville, GA 1/20 7.125% 2,391,356 2,441,174 236,948
Greenview Garden, Butler, PA 7/33 9.000% 859,257 880,829 78,348
Lamplighter Apts., Port Arthur, TX 10/29 9.000% 2,148,750 2,203,204 207,316
Oaklawn Apts., Boise, ID 8/24 9.000% 450,752 459,564 40,599
Oakwood Gardens, San Jose, CA 10/23 7.750% 1,064,690 1,085,894 97,932
San Jose South, San Jose, CA 10/23 7.750% 7,613,407 7,765,042 700,292
Tehama Estates, Sacramento, CA 7/29 8.750% 1,298,060 1,331,027 122,831
------------ ------------
Total Investment in GNMA Mortgage-Backed Securities, carried at fair value 17,992,035 18,375,330
------------ ------------
Total Investment in Acquired Insured Mortgages, carried at fair value 20,822,378 21,211,314
------------ ------------
ORIGINATED INSURED MORTGAGES:
Coinsured FHA-Insured Certificate (carried at fair value)
- ---------------------------------------------------------
Summerwind Apartments-Phase II, Naples, FL(1)(4) 6/30 8.500% 8,958,360 8,293,338 865,175
------------ ------------
Total Investment in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities, carried at fair value 29,780,738 29,504,652
------------ ------------
Fully Insured FHA-Insured Loan (carried at amortized cost)(2)
- -------------------------------------------------------------
The Turn at Gresham, Gresham, Oregon(1) 8/29 8.000% 5,516,188 5,516,188 (2) 501,516
------------ ------------ ----------
TOTAL INVESTMENT IN INSURED MORTGAGES $ 35,296,926 $ 35,020,840
============ ============
TOTAL ANNUAL PRINCIPAL AND INTEREST $3,342,584
==========
45
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
(1) Two Insured Mortgages, Summerwind - Phase II and The Turn at Gresham,
contain a special assignment option which allows the Partnership to require
payment from the borrower of the unpaid principal balance of the mortgage,
anytime after a certain date. Upon such request, the borrower must make
payment to the Partnership or the Partnership may cancel the FHA insurance
applicable to the mortgage 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 mortgage is insured under the HUD coinsurance program. IFI is the
HUD-approved coinsurance lender and the Partnership bears the risk of any
coinsurance loss, as previously discussed. The Partnership has recorded a
cumulative loan loss of $1,511,743 in prior years, related to this
mortgage. No loan losses were recognized for the years ended 2002, 2001 and
2000.
(5) In addition, the servicer or the sub-servicer of the mortgage, primarily
unaffiliated third parties, is entitled to receive compensation for certain
services rendered.
(6) A reconciliation of the carrying value of the Partnership's investment in
Insured Mortgages, for the years ended December 31, 2002 and 2001, is as
follows:
2002 2001
------------ ------------
Beginning balance $ 46,347,663 $ 58,768,702
Principal receipts on mortgages (575,246) (623,671)
Proceeds from disposition of mortgages (12,033,478) (11,697,541)
Net gains on mortgage prepayments 195,182 402,811
Net unrealized gains (losses) on investment in FHA-Insured
Certificates and GNMA Mortgage-Backed Securities 1,086,719 (502,638)
------------ ------------
Ending balance $ 35,020,840 $ 46,347,663
============ ============
(7) The mortgages underlying the Partnership's investments in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
primarily non-recourse first liens on multifamily residential developments
or retirement homes.
(8) Principal and interest are payable at relatively level amounts over the
life of the Insured Mortgages.
(9) As of December 31, 2002 and 2001, the tax basis of the Insured Mortgages
was approximately $35 million and $48 million, respectively.