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1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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Commission file number 1-11059
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AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
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(Exact name of registrant as specified in charter)
California 13-3257662
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
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(Address of principal executive offices) (Zip Code)
(301) 816-2300
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Depositary Units of Limited American Stock Exchange
Partnership Interest
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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2
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 5, 1999, 12,079,514 Depositary Units of Limited Partnership
Interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $138,868,411.
3
AMERICAN INSURED MORTGAGE INVESTORS
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business................................................ 4
Item 2. Properties.............................................. 6
Item 3. Legal Proceedings....................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders...................................... 6
PART II
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Item 5. Market for Registrant's Securities and
Related Security Holder Matters....................... 6
Item 6. Selected Financial Data................................. 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 9
Item 7A. Qualitative and Quantitative Disclosures
About Market Risk..................................... 19
Item 8. Financial Statements and Supplementary Data............. 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 19
PART III
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Item 10. Directors and Executive Officers of the
Registrant............................................ 20
Item 11. Executive Compensation.................................. 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................. 24
Item 13. Certain Relationships and Related
Transactions.......................................... 24
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 25
Signatures ........................................................ 30
4
PART I
ITEM 1. BUSINESS
Development and Description of Business
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Information concerning the business of American Insured Mortgage
Investors - Series 85, L.P. (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 the financial statements
of the Partnership (filed in response to Item 8 hereof), which is incorporated
herein by reference. Also see Schedule IV-Mortgage Loans on Real Estate, for the
table of the Insured Mortgages (as defined below) invested in by the Partnership
as of December 31, 1998, which is hereby incorporated by reference herein.
Employees
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The Partnership has no employees. The business of the Partnership is
managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages
is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an
advisory agreement (the Advisory Agreement). CRIIMI, Inc. is a wholly owned
subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). CRIIMI MAE was formerly managed by
an affiliate of CRI, Inc. (CRI).
The general partner of the Advisor is AIM Acquisition Corporation (AIM
Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement
(the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an
affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered real estate
investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory
Agreement. As a result of this transaction, effective June 30, 1995, CRIIMI MAE
Services Limited Partnership, an affiliate of CRIIMI MAE, manages the
Partnership's portfolio. These transactions had no effect on the Partnership's
financial statements.
Competition
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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 or their respective affiliates. Some of these entities may have
substantially greater capital resources and experience in disposing of Federal
Housing Administration (FHA) insured mortgages than the Partnership.
5
PART I
ITEM 1. BUSINESS - Continued
CRIIMI MAE and its affiliates also may serve as general partners,
sponsors or managers of real estate limited partnerships, REITs or other
entities in the future. The Partnership may attempt to dispose of mortgages at
or about the same time that CRIIMI MAE, one or more of the other "AIM Funds"
(defined as the Partnership, American Insured Mortgage Investors ("AIM 84"),
American Insured Mortgage Investors L.P. - Series 86 ("AIM 86") and American
Insured Mortgage Investors L.P. - Series 88 ("AIM 88")), and/or other entities
sponsored or managed by CRIIMI MAE, are attempting to dispose of mortgages. As a
result of market conditions that could limit dispositions, CRIIMI MAE Services
Limited Partnership (CMSLP) and its affiliates could be faced with conflicts of
interest in determining which mortgages would be disposed of. Both CRIIMI MAE
Services Limited Partnership (CMSLP) and CRIIMI, Inc., however, are subject to
their fiduciary duties in evaluating the appropriate action to be taken when
faced with such conflicts.
Forward-Looking Statements
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In accordance with the Private Securities Litigation Reform Act of
1995, the Partnership can obtain a "Safe Harbor" for forward-looking statements
by identifying those statements and by accompanying those statements with
cautionary statements which identify factors that could cause actual results to
differ from those in the forward-looking statements. Accordingly, the following
information contains or may contain forward-looking statements: (1) information
included or incorporated by reference in this Annual Report on Form 10-K,
including, without limitation, statements made under Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, (2)
information included or incorporated by reference in future filings by the
Partnership with the Securities and Exchange Commission including, without
limitation, statements with respect to growth, projected revenues, earnings,
returns and yields on its portfolio of mortgage assets, the impact of interest
rates, costs and business strategies and plans and (3) information contained in
written material, releases and oral statements issued by or on behalf of, the
Partnership, including, without limitation, statements with respect to growth,
projected revenues, earnings, returns and yields on its portfolio of mortgage
assets, the impact of interest rates, costs and business strategies and plans.
The Partnership's actual results may differ materially from those contained in
the forward-looking statements identified above. Factors which may cause such a
difference to occur include, but are not limited to (i) regulatory and
litigation matters, (ii) interest rates, (iii) trends in the economy, (iv)
prepayment of mortgages and (v) defaulted mortgages.
6
ITEM 2. PROPERTIES
Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are non-recourse
first liens on the respective multifamily residential developments or retirement
homes.
ITEM 3. LEGAL PROCEEDINGS
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 the security holders to be voted on during
the fourth quarter of 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS
Principal Market and Market Price for Units and Distributions
- -------------------------------------------------------------
Since April 8, 1992, the Limited Partnership Units (Units) have traded
on the American Stock Exchange (AMEX) with a trading symbol of "AII."
The high and low trade prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1998 and 1997 were as
follows:
Amount of
1998 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- ---------------
March 31 $14 1/2 $13 9/16 $ 1.07 (1)
June 30 13 3/4 12 7/8 0.58 (2)
September 30 13 3/4 12 13/16 0.53 (3)
December 31 13 5/8 11 5/8 1.27 (4)
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$ 3.45
==============
Amount of
1998 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- ---------------
March 31 $ 15 1/4 14 3/8 $ 0.39 (5)
June 30 15 1/8 14 1/4 0.30
September 30 15 13 13/16 0.84 (6)
December 31 14 7/8 13 7/8 1.23 (7)
-------------
$ 2.76
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7
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS - Continued
(1) This amount includes approximately $0.77 per Unit representing net
proceeds from the prepayment of the mortgage on Spanish Trace
Apartments.
(2) This amount includes approximately $0.31 per Unit representing net
proceeds from the prepayment of the mortgages on Isle of Pines Village
Apartments, Emerald Green Apartments, and Stoney Brook Apartments.
(3) This amount includes approximately $0.27 per Unit representing net
proceeds from the prepayment of the mortgages on Amador Residential,
Continental Village, and Bentgrass Hills Apartments.
(4) This amount includes approximately $1.00 per Unit representing net
proceeds from the prepayment of the mortgages on Northdale Commons,
Cedar Bluff Apartments, and Wayland Health Center.
(5) This amount includes approximately $0.07 per Unit from the disposition
of the following mortgages: net proceeds from the assignment of the
mortgage on Meadow Park Apartments I of $0.05 per Unit and net
proceeds from the prepayment of the mortgage on Security Apartments of
$0.02 per Unit.
(6) This amount includes approximately $0.54 per Unit from the following
mortgages: final settlement of the mortgage on Pine Tree Lodge of
$0.02 per Unit and net proceeds from the prepayment of the mortgage on
Peachtree Place North of $0.52 per Unit.
(7) This amount includes approximately $0.92 per Unit representing net
proceeds from the prepayment of the mortgages on Ashford Place
Apartments, Fleetwood Village Apartments, Silverwood Village
Apartments and Maryland Meadows.
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.
Approximate Number of Unitholders
Title of Class as of December 31, 1998
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Depositary Units of Limited
Partnership Interest 11,800
8
PART II
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Income $ 14,744 $ 16,761 $ 17,943 $ 18,589 $ 19,167
Net gains (losses) on mortgage
dispositions/modifications 1,403 908 522 36 (151)
Net earnings 13,893 15,137 15,789 15,903 16,155
Net earnings per Limited
Partnership Unit - Basic (1) 1.11 1.20 1.26 1.27 1.29
Distributions per Limited
Partnership Unit (1)(2) 3.45 2.76 2.25 1.54 1.96
As of December 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Total assets $170,970 $203,450 $215,951 $225,691 $214,823
Partners' equity 153,543 187,682 204,687 220,681 209,557
(1) Calculated based upon the weighted average number of Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal
quarters ended December 31, 1998, 1997, 1996, 1995 and 1994, which were
paid subsequent to year end. See Notes 3 and 7 of the notes to the
financial statements of the Partnership contained in Item 8, "Financial
Statements and Supplementary Data."
The selected statements of income and comprehensive income data
presented above for the years ended December 31, 1998, 1997 and 1996, and the
balance sheet data as of December 31, 1998 and 1997, are derived from and are
qualified by reference to the Partnership's financial statements which have been
included elsewhere in this Form 10-K. The statements of income and comprehensive
income data for the years ended December 31, 1995 and 1994 and the balance sheet
data as of December 31, 1996, 1995 and 1994 are derived from audited financial
statements not included in this Form 10-K. This data should be read in
conjunction with the financial statements and the notes thereto.
9
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
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American Insured Mortgage Investors - Series 85, L.P. (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of California
on June 26, 1984. During the period from March 8, 1985 (the initial closing date
of the Partnership's public offering) through January 27, 1986 (the termination
date of the offering), the Partnership, pursuant to its public offering of
12,079,389 Depository Units of limited partnership interest (Units), raised a
total of $241,587,780 in gross proceeds. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership and received 125
units of limited partnership interest in exchange therefor.
CRIIMI, Inc. (the General Partner) holds a partnership interest of
3.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE). Prior to June 30, 1995, CRIIMI MAE was managed by an advisor
whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995,
CRIIMI MAE became a self-administered real estate investment trust (REIT) and,
as a result, the advisor no longer advises CRIIMI MAE.
AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of
the Partnership. The general partner of the Advisor is AIM Acquisition
Corporation (AIM Acquisition) and the limited partners include, but are not
limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and
CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership
Agreement, the General Partner is required to receive the consent of the Advisor
prior to taking certain significant actions which affect the management and
policies of the Partnership.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of
CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this
transaction, effective June 30, 1995, CMSLP, manages the Partnership's
portfolio. These transactions had no effect on the Partnership's financial
statements.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner and
the parent of AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate
of CRIIMI MAE and provider of personnel and administrative services to the
10
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Partnership, filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership; however, CRIIMI MAE has not historically
represented a significant source of capital for the General Partner or the
Partnership. Such bankruptcy filings could also result in the potential need to
replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
Year 2000
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The Year 2000 issue is a computer programming issue that may affect
many electronic processing systems. Until relatively recently, in order to
minimize the length of data fields, most date-sensitive programs eliminated the
first two digits of the year. This issue could affect information technology
("IT") systems and date sensitive embedded technology that controls certain
systems (such as telecommunications systems, security systems, etc.) leaving
them unable to properly recognize or distinguish dates in the twentieth and
twenty-first centuries. This treatment could result in significant
miscalculations when processing critical date-sensitive information relating to
dates after December 31, 1999.
The General Partner is currently in the process of assessing and
testing Year 2000 compliance of its IT systems, which include software systems
to administer and manage mortgage assets and software systems used for
internal accounting purposes. A majority of the IT systems used by the
Partnership is licensed from third parties. These third parties have either
provided upgrades to existing systems or have indicated that their systems
are Year 2000 compliant. The General Partner has applied upgrades and has
completed a substantial amount of compliance testing as of March 30, 1999.
There can be no assurance, however, that the Partnership's IT systems will
be Year 2000 compliant by December 31, 1999.
The Year 2000 issue may also affect the General Partner's
date-sensitive embedded technology, which controls systems such as the
telecommunications systems, security systems, etc. The General Partner does not
11
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
believe that the cost to modify or replace such technology to make it Year 2000
compliant will be material. The failure of any such systems to be Year 2000
compliant could be material to the Partnership.
The potential impact of the Year 2000 issue depends not only on the
corrective measures the General Partner has undertaken and will undertake, but
also on the ways in which the Year 2000 issue is addressed by third parties with
whom the Partnership directly interfaces or whose financial condition or
operations are important to the Partnership. The Partnership has initiated
communications with third parties with which it directly interfaces to evaluate
the risk of their failure to be Year 2000 compliant and the extent to which the
Partnership may be vulnerable to such failure. There can be no assurance that
the systems of these third parties will be Year 2000 compliant by December 31,
1999. The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of the Partnership.
The Partnership believes that its greatest risk with respect to the
Year 2000 issue relates to failures by third parties to be Year 2000 compliant.
In addition to risks posed by third parties with which the Partnership
interfaces directly, risks are created by third parties providing services to
large segments of society. The failure of third parties to be Year 2000
compliant could, among other things, cause disruptions in the capital and real
estate markets and borrower defaults on real estate loans and mortgage-backed
securities as well as the pools of mortgage loans underlying such securities.
The Partnership believes that its greatest exposure to the Year 2000 issue
involves the loan servicing operations of an affiliate of the Partnership. An
affiliate of the Partnership, CMSLP, currently services approximately 21% of the
total mortgage investments in the AIM Funds. CMSLP has applied a vendor upgrade
and has substantially completed compliance testing on the upgrade.
Currently the Partnership estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.
Although the General Partner has substantially completed its compliance
testing and remediation, it is also in the process of developing contingency
plans for the risks of the failure of the Partnership or third parties to be
Year 2000 compliant. The General Partner intends to complete contingency plans
for the Year 2000 issue by May 31, 1999. Due to the inability to predict all of
the potential problems that may arise from the Year 2000 issue, there can be no
assurance that all contingencies will be adequately addressed by such plans.
12
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage Investments
- --------------------
Prior to the expiration of the Partnership's reinvestment period in
December 1993, the Partnership was engaged in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages and, together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the Partnership Agreement.
As of December 31, 1998, the Partnership had invested in 69 Insured
Mortgages, with an aggregate amortized cost of approximately $145.9 million, a
face value of approximately $151.8 million and a fair value of approximately
$153.8 million, as discussed below.
Investment in Insured Mortgages
- -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to FHA programs
(FHA-Insured Certificates), mortgage-backed securities guaranteed by GNMA (GNMA
Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans).
The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans are non-recourse first liens on multifamily
residential developments or retirement homes.
The following is a discussion of the types of the Partnership's
mortgage investments, along with the risks related to each type of investment:
13
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Fully Insured GNMA Mortgage-Backed Securities and FHA-Insured
Certificates
- -------------------------------------------------------------
Listed below is the Partnership's aggregate investment in Fully Insured
Mortgages:
December 31,
1998 1997
------------ ------------
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed Securities(1) 8 9
FHA-Insured Certificates
(2)(3)(4)(5)(6)(7)(8)(9) 46 55
Amortized Cost $104,595,386 $132,530,176
Face Value 108,690,257 137,674,964
Fair Value 110,253,225 142,822,793
Fully Insured Originated Insured:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $16,899,484 $ 17,017,276
Face Value 16,542,867 16,660,658
Fair Value 16,738,030 16,887,282
(1) In February 1998, the mortgage on Spanish Trace Apartments was prepaid.
The Partnership received net proceeds of approximately $9.7 million,
and recognized a loss of approximately $96,000 for the year ended
December 31, 1998. A distribution of $0.77 per Unit related to this
prepayment was declared in March 1998 and paid to Unitholders in May
1998.
(2) In April 1998, the mortgages on Isle of Pines Village Apartments and
Emerald Green Apartments were prepaid. The Partnership received net
proceeds of approximately $1.3 million and $1.1 million, respectively,
and recognized gains of approximately $290,000 and $230,000,
respectively, for the year ended December 31, 1998. A distribution of
$0.19 per Unit related to these prepayments was declared in May 1998
and paid to Unitholders in August 1998.
(3) In May 1998, the mortgage on Stoney Brook Apartments was prepaid. The
Partnership received net proceeds of approximately $1.5 million, and
recognized a gain of approximately $338,000 for the year ended December
31, 1998. A distribution of $0.12 per Unit related to this prepayment
was declared in June 1998 and paid to Unitholders in August 1998.
(4) In July 1998, the mortgage on Amador Residential was prepaid. The
Partnership received net proceeds of approximately $1.4 million, and
recognized a gain of approximately $64,000 for the year ended December
31, 1998. A distribution of $0.11 per Unit related to this prepayment
was declared in July 1998 and paid to Unitholders in November 1998.
(5) In August 1998, the mortgage on Bentgrass Hills Apartments was prepaid.
The Partnership received net proceeds of approximately $238,000, and
recognized a gain of approximately $54,000 for the year ended December
31, 1998. A distribution of $0.02 per Unit related to this prepayment
was declared in September 1998 and paid to Unitholders in November
1998.
(6) In October 1998, the mortgage on Northdale Commons was prepaid. The
Partnership received net proceeds of approximately $718,000, and
recognized a gain of approximately $24,000 for the year ended December
31, 1998. A distribution of $0.06 per Unit related to this prepayment
was declared in November 1998 and paid to Unitholders in February 1999.
14
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
(7) In November 1998, the mortgage on Cedar Bluff was prepaid. The
Partnership received net proceeds of approximately $4.6 million, and
recognized a gain of approximately $170,000 for the year ended December
31, 1998. A distribution of $0.36 per Unit related to this prepayment
was declared in December 1998 and paid to Unitholders in February 1999.
(8) In November 1998, the mortgage on Wayland Health Center was prepaid.
The Partnership received net proceeds of approximately $7.3 million,
and recognized a gain of approximately $9,000 for the year ended
December 31, 1998. A distribution of $0.58 per Unit related to this
prepayment was declared in December 1998 and paid to Unitholders in
February 1999.
(9) In December 1998, the mortgage on Gamel & Gamel Apartments (Brown Gable
Apartments) was prepaid. The Partnership received net proceeds of
approximately $703,000, and recognized a gain of approximately $36,000
for the year ended December 31, 1998. A distribution of $0.06 per Unit
related to this prepayment was declared in February 1999 and is
expected to be paid to Unitholders in May 1999.
As of March 26, 1999, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are current with respect to the payment
of principal and interest, except for the mortgages on Woodland Villas and Quail
Creek Apartments. These mortgages are delinquent with respect to the January
1999 payment. The Partnership does not anticipate problems regarding the
collection of these payments.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred to as
Participations). During the years ended December 31, 1998, 1997 and 1996, the
Partnership received $76,991, $51,457 and $0, respectively, from the
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of income and comprehensive income.
In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) at the date of default, plus the
unamortized balance of acquisition fees and closing costs of the Insured
Mortgage and the loss of approximately 30 days accrued interest.
15
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Fully Insured FHA-Insured Loans
- -------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
December 31,
1998 1997
--------------- ----------------
Fully Insured Acquired Insured:
Number of Loans (1)(2) 10 12
Amortized Cost $ 11,617,321 $ 14,416,917
Face Value 14,068,282 17,165,551
Fair Value 14,087,092 17,432,816
Fully Insured Originated Insured:
Number of Loans 3 3
Amortized Cost $ 12,818,519 $ 12,928,572
Face Value 12,488,890 12,589,214
Fair Value 12,747,524 13,431,769
(1) In March 1998, HUD issued assignment proceeds in the form of a 9.5%
debenture for the mortgage on Portervillage I Apartments. This
mortgage was owned 50% by AIM 85 and 50% by an affiliate of the
Partnership, American Insured Mortgage Investors (AIM 84). The
debenture, with a face value of $2,296,098, was issued to the
Partnership, with interest payable semi-annually on January 1 and
July 1. The Partnership recognized a gain of approximately $200,000 on
the assignment of this loan for the year ended December 31, 1998. In
January 1999, proceeds of approximately $2.4 million, including accrued
interest of approximately $109,000, were received upon redemption of
these debentures, of which approximately $1.2 million were due to the
Partnership. Accordingly, a distribution of $0.10 per Unit related to
this assignment was declared in January 1999 and is expected to be paid
to Unitholders in May 1999.
(2) In August 1998, the mortgage on Continental Village was prepaid. The
Partnership received net proceeds of approximately $1.8 million, and
recognized a gain of approximately $84,000 for the year ended December
31, 1998. A distribution of $0.14 per Unit related to this prepayment
was declared in September 1998 and paid to Unitholders in November
1998.
As of March 26, 1999, all of the fully insured FHA-Insured
Loans were current with respect to the payment of principal and
interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development
(referred to as Participations). During the years ended December 31,
1998, 1997 and 1996, the Partnership received $34,553, $37,766 and
$42,417, respectively, from the Participations. These amounts are
included in mortgage investment income on the accompanying statements
of income and comprehensive income.
16
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
- ---------------------
1998 versus 1997
- ----------------
Net earnings decreased for 1998 as compared to 1997 primarily due to a
decrease in mortgage investment income. Partially offsetting this decrease was
an increase in net gains on mortgage dispositions and modifications, as
discussed below.
Mortgage investment income decreased for 1998 as compared to 1997
primarily due to the reduction in mortgage base from 12 dispositions during 1998
with an aggregate cost balance of approximately $29.6 million.
Interest and other income increased for 1998 as compared to 1997
primarily due to the temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders. During 1998, twelve mortgages were disposed of,
as compared to seven dispositions in 1997.
Asset management fees to related parties decreased for 1998 as compared
to 1997 as a result of the reduction in the mortgage base.
Interest expense to affiliate decreased for 1998 as compared to 1997
due to the cancellation of the note payable to American Insured Mortgage
Investors L.P. - Series 88 (AIM 88) in April 1997, as discussed in Note 8 of the
Notes to the Financial Statements.
Net gains from dispositions and modifications increased as a result of
twelve mortgage dispositions or assignments in 1998, as discussed above, versus
eight dispositions, modifications or assignments in 1997.
1997 versus 1996
- ----------------
Net earnings decreased for 1997 as compared to 1996 primarily due to a
decrease in mortgage investment income. Partially offsetting this decrease was
an increase in net gains on mortgage dispositions and modifications, as
discussed above.
Mortgage investment income decreased for 1997 as compared to 1996
primarily due to the reduction in mortgage base due to the disposition of
mortgages, as discussed.
17
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Interest and other income increased for 1997 as compared to 1996
primarily due to the temporary investment of mortgage disposition proceeds prior
to distribution to Unitholders.
Asset management fees to related parties decreased for 1997 as compared
to 1996 as a result of the reduction in the mortgage base.
Gains from dispositions and modifications increased as a result of
seven mortgage dispositions in 1997, as discussed, versus 1996 activity as
follows: a modification agreement on the mortgage on Oakforest Apartments II and
the prepayment of mortgages on Cambridge Arms Apartments, Bear Creek Apartments
II and Westlake Village Apartments. Losses from dispositions and modifications
decreased due to no losses in 1997 versus 1996 activity as follows: a
modification agreement on the mortgage of Waterford Green Apartments and the
1996 assignment of the mortgage on Woodland Village Apartments.
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, 1998, 1997 and 1996 to
meet operating requirements. The Partnership anticipates its cash flows to be
sufficient to meet operating expense requirements for 1999.
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 after paying all
expenses of the Partnership. Although the Insured Mortgages yield a fixed
monthly mortgage payment once purchased, the cash distributions paid to the
Unitholders will vary during each quarter due to (1) the fluctuating yields in
the short-term money market where the monthly mortgage payment receipts are
temporarily invested prior to the payment of quarterly distributions, (2) the
reduction in the asset base resulting from monthly mortgage payment receipts or
mortgage dispositions, (3) variations in the cash flow attributable to the
delinquency or default of Insured Mortgages and professional fees and
foreclosure costs incurred in connection with those Insured Mortgages and (4)
variations in the Partnership's operating expenses.
18
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 size of the Insured Mortgages which are prepaid, sold or assigned for
insurance proceeds as reflected in the preceding table.
Cash flow - 1998 versus 1997
- ----------------------------
Net cash provided by operating activities decreased for 1998 as
compared to 1997, primarily due to the reduction in mortgage investment income,
as discussed above.
Net cash provided by investing activities increased in 1998 as compared
to 1997 due to the increase in proceeds from mortgage dispositions, as discussed
previously.
Net cash used in financing activities increased for 1998 as compared to
1997, as a result of an increase in distributions paid to partners.
Distributions paid to partners in 1998 included proceeds resulting from the
disposition of eleven mortgages during the fourth quarter of 1997 and the first
three quarters of 1998. This compares to distributions paid to partners in 1997
which included proceeds resulting from the disposition of five mortgages during
the fourth quarter of 1996 and the first three quarters of 1997.
Cash flow - 1997 versus 1996
- ----------------------------
Net cash provided by operating activities decreased for 1997 as
compared to 1996. This decrease was primarily due to a decrease in mortgage
investment income, as discussed above. In addition, receivables and other assets
decreased due to the receipt of the remaining proceeds from the mortgage on
Woodland Village.
Net cash provided by investing activities increased in 1997 as compared
to 1996 due to the increase in proceeds from mortgage dispositions, as discussed
previously. In addition, receipt of mortgage principal from scheduled payments
increased slightly for 1997 as compared to 1996 due to the normal amortization
of mortgages.
19
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash used in financing activities increased for 1997 as compared to
1996, as a result of an increase in distributions paid to partners.
Distributions paid to partners in 1997 included special distributions resulting
from the disposition of the mortgages on Meadow Park Apartments I, Security
Apartments, Peachtree Apartments, Ashford Place Apartments, Silverwood Village
Apartments, Fleetwood Village Apartments and Maryland Meadows.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in interest rates
in the US Treasury market, which coupled with the related spread to treasury
investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of Partnership's assets.
The table below provides information about the Partnership's Insured Mortgages,
all of which were entered into for purposes other than trading. The table
presents anticipated principal and interest cash flows based upon the
assumptions used in determining the fair value of these securities and the
related weighted average interest rates by expected maturity.
1999 2000 2001 2002 2003 Thereafter Total Fair Value
Insured
Mortgages
(in millions) $26.8 $25.0 $22.2 $20.4 $18.8 $126.6 $239.8 $153.8
Average Interest
Rate 7.90% 7.91% 7.91% 7.92% 7.92% 8.16% -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is on pages 31 through 62.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a),(b),(c),(e)
The Partnership has no officers or directors. CRIIMI, Inc. (the General
Partner) holds a general partnership interest of 3.9%. The affairs of the
Partnership are managed by the General Partner, which is wholly owned by CRIIMI
MAE, a corporation whose shares are listed on the New York Stock Exchange. Prior
to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner was
CRI. However, effective June 30, 1995, CRIIMI MAE became a self-administered
REIT and, as a result, the advisor no longer advises CRIIMI MAE.
AIM Acquisition Partners, L.P. (the Advisor) serves as the advisor of
the Partnership. AIM Acquisition Corporation is the general partner of the
Advisor and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P, Broad, Inc. and CRIIMI MAE. Pursuant
to the terms of certain amendments to the Partnership Agreement, the General
Partner is required to receive the consent of the Advisor prior to taking
certain significant actions which affect the management and policies of the
Partnership.
Effective September 6, 1991, and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of
CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this
transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership,
an affiliate of CRIIMI MAE, manages the Partnership's portfolio.
The General Partner is also the general partner of American Insured
Mortgage Investors (AIM 84), American Insured Mortgage Investors L.P.-Series 86
(AIM 86) and American Insured Mortgage Investors L.P.-Series 88 (AIM 88),
limited partnerships with investment objectives similar to those of the
Partnership.
The following table sets forth information concerning the executive officers and
directors of the General Partner as of March 15, 1999:
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
Name Age Position
- ------- ----- ------------
William B. Dockser 62 Chairman of the Board
H. William Willoughby 52 President and Secretary
Frederick J. Burchill (a) 50 Executive Vice President
Cynthia O. Azzara 39 Senior Vice President, Chief Financial
Officer and Treasurer
Brian L. Hanson 37 Senior Vice President
David B. Iannarone 38 Senior Vice President and General
Counsel
Garrett G. Carlson, Sr. 61 Director
G. Richard Dunnells 61 Director
Robert Merrick 54 Director
Robert E. Woods 51 Director
William B. Dockser has served as Chairman of the Board of the General
Partner since 1991. Mr. Dockser has been Chairman of the Board of CRIIMI
MAE since 1989 and Chairman of the Board of CRIIMI MAE Financial
Corporation since 1995. Mr. Dockser is also the founder of CRI, serving as its
Chairman of the Board since 1974.
H. William Willoughby has served as President and Secretary of the
General Partner since 1991. Mr. Willoughby has been President of CRIIMI MAE
since 1990 and a Director and Secretary of CRIIMI MAE since 1989. He has also
served as a director of CRIIMI MAE Financial Corporation since 1995. Mr.
Willoughby has been a director of CRI since 1974, Secretary of CRI from 1974 to
1990 and President of CRI since 1990.
(a) Mr. Burchill was Executive Vice President of the General Partner
until his resignation from CRIIMI MAE and the General Partner on February 8,
1999.
Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994. Ms. Azzara has served as Chief Financial Officer of CRIIMI
MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since
1995 and Treasurer of CRIIMI MAE since 1997, Accounting and Finance Departments
of CRI from 1985 to June 1995.
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
Brian L. Hanson has served as Senior Vice President of the General
Partner since March 1998. Mr. Hanson has served as Senior Vice President of
CRIIMI MAE since March 1998; Group Vice President of CRIIMI MAE from March 1996
to March 1998; Chief Operating Officer, Director of Asset Operations and
Portfolio Director of JCF Partners, Lanham, Maryland from 1991 to March 1996.
David B. Iannarone has served as Senior Vice President of the General
Partner since March 1998. Mr. Iannarone has served as Senior Vice President of
CRIIMI MAE since March 1998; General Counsel of CRIIMI MAE since July 1996;
Counsel-Securities and Finance for Federal Deposit Insurance
Corporation/Resolution Trust Corporation from 1991 to July 1996.
Garrett G. Carlson, Sr. has served as Director of the General Partner
since 1989. Mr. Carlson has served as Director of CRIIMI MAE since 1989;
President of Can-American Realty Corp. and Canadian Financial Corp. since 1979
and 1974, respectively; President of Garrett Real Estate Development since 1982;
President of the Satellite Broadcasting Corporation since 1996; Chairman of
the Board of SCA Realty Holdings Inc. from 1985 to 1995; Vice Chairman of
Shelter Development Corporation Ltd. from 1983 to 1995 and member of the board
of Bank Windsor from 1992 to 1994.
G. Richard Dunnells has served as Director of the General Partner since
1991. Mr. Dunnells has served as Director of CRIIMI MAE since 1991; Firm-wide
Hiring Partner, Partner in the Washington, D.C. office and former Director of
the law firm of Holland & Knight since January 1994; Chairman of the Washington,
D.C. law firm of Dunnells & Duvall from 1989 to 1993; Senior Partner of such law
firm from 1973 to 1993; Special Assistant to the Under-Secretary and Deputy
Assistant Secretary for Housing and Urban Renewal and Deputy Assistant Secretary
for Housing Management with the U.S. Department of Housing and Urban Development
from 1969 to 1973; President's Commission on Housing from 1981 to 1982.
Robert J. Merrick has served as Director of the General Partner since
1997. Mr. Merrick has served as Director of CRIIMI MAE since 1997; Director of
MCG Credit Corporation since February 1998; Executive Vice President from 1985
and Chief Credit Officer of Signet Banking Corporation through 1997, also served
as Chairman of the Credit Policy Committee and member of the Asset and Liability
Committee and Management Committee; Credit Officer-Virginia Banking Corporation,
an affiliate of Signet Bank/Virginia, from 1980 to 1984; Senior Vice President
of Bank of Virginia from 1976 to 1980.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
Robert E. Woods has served as Director of the General Partner since
1998. Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing
Director and head of loan syndications for the Americas at Societe Generale, New
York since 1997; Managing Director, head of Real Estate Capital Markets and
Mortgage-backed Securities division, Citicorp from 1991 to 1997, Head of
Citicorp's syndications, private placements, money markets and asset-backed
businesses from 1985 to 1990.
(d) There is no family relationship between any of the
officers and directors of the General Partner.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons. Not applicable.
(h) Section 16(a) Beneficial Ownership Reporting
Compliance - Based solely on its review of Forms 3, 4
and 5 and amendments thereto furnished to the
Partnership, and written representations from certain
reporting persons that no Form 5s were required for
those persons, the Partnership believes that all
reporting persons have filed on a timely basis Forms
3, 4 and 5 as required in the fiscal year ended
December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner received compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated herein by reference herein to Note 3 of the notes
to the financial statements of the Partnership.
24
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) As of December 31, 1998, 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) As of December 31, 1998, neither the officers and directors, as a
group, of the General Partner nor any individual director of the
General Partner, are known to own more than 1% of the outstanding Units
of the Partnership.
(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 3 of the notes to the 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.
25
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Continued
(b) Certain business relationships.
Other than as set forth in Item 11 of this report which is
hereby incorporated by reference herein, the Partnership has
no business relationship with entities of which the current
General Partner of the Partnership are officers, directors or
equity owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)(1) Financial Statements:
Page
Description Number
----------- --------------
Balance Sheets as of December 31, 1998
and 1997 33
Statements of Income and Comprehensive Income
for the years ended December 31, 1998,
1997, and 1996 34
Statements of Changes in Partners' Equity for
the years ended December 31, 1998, 1997 and
1996 35
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 36
Notes to Financial Statements 37
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate 50
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
All other schedules have been omitted because they are
inapplicable, not required, or the information is included in
the Financial Statements or Notes thereto.
(a)(3) Exhibits:
4.0 Amended and Restated Certificates of Limited
Partnership are incorporated by reference to Exhibit
4(a) to the Registration Statement on Form S-11 (No.
2-93294) dated January 28, 1985 (such Registration
Statement, as amended, is referred to herein as the
"Registration Statement").
4.1 Second Amended and Restated Partnership Agreement is
incorporated by reference to Exhibit 3 to the
Registration Statement.
4.2 Amendment No. 1 to the Second Amended and Restated
Partnership Agreement is incorporated by reference to
Exhibit 4(a) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1986.
4.3 Amendment No. 2 to the Second Amended and Restated
Partnership Agreement is incorporated by reference to
exhibit 4(b) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1986.
4.4 Amendment No. 3 dated February 12, 1990, to the
Second Amended and Restated Agreement of Limited
Partnership of the Partnership incorporated by
reference to Exhibit 4(c) to the Partnership's Annual
Report on Form 10-K for the year ended December 31,
1989.
10.0 Escrow Agreement, dated January 14, 1985, among the
Partnership, the Managing General Partner and
Integrated Resources Marketing, Inc., incorporated by
reference to Exhibit 10(a) to the Registration
Statement.
10.1 Amended and Restated Origination and Acquisition
Services Agreement, dated as of January 8, 1985,
between the Partnership and IFI, incorporated by
reference to Exhibit 10(b) to the Registration
Statement.
10.2 Amended and Restated Management Services Agreement,
dated as of January 8, 1985, between the Partnership
and IFI, incorporated by reference to Exhibit 10(c)
to the Registration Statement.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.3 Amended and Restated Disposition Services Agreement,
dated as of January 8, 1985, between the Partnership
and IFI, incorporated by reference to Exhibit 10(d)
to the Registration Statement.
10.4 Agreement, dated as of January 8, 1985, among the
former managing general partner, the former associate
general partner and Integrated Resources, Inc.,
incorporated by reference to Exhibit 10(e) to the
Registration Statement.
10.5 Reinvestment Plan, incorporated by reference to the
Prospectus contained in the Registration Statement.
10.6 Declaration of Trust and Pooling Servicing Agreement
dated as of July 1, 1982 as to Pass-Through
Certificates, is incorporated by reference to Exhibit
10(h) to Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986.
10.7 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.
10.8 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 Exhibit 28(a) to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1990.
10.9 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.
10.10 Amendment to Partnership Agreement dated September 4,
1991, incorporated by reference to Exhibit 28(c), to
the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1991.
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.11 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(f) to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.12 Expense Reimbursement Agreement by and among
Integrated Funding Inc. and the Partnership, American
Insured Mortgage Investors L.P. - Series 86, and
American Insured Mortgage Investors L.P. - Series 88,
effective December 31, 1992, incorporated by
reference to Exhibit 28(g) to the Partnership's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991.
10.13 Non-negotiable promissory note to American Insured
Mortgage Investors L.P. - Series 88 in the amount of
$319,074.67 dated April 1, 1994, incorporated by
reference to Exhibit 10(q) to the Partnership's
Annual Report on Form 10-K for the year ended
December 31, 1994.
10.14 Amendment No. 1 to Reimbursement Agreement by and
among Integrated Funding Inc. and the Partnership,
American Insured Mortgage Investors L.P. - Series 86,
and American Insured Mortgage Investors L.P. -
Series 88, effective April 1, 1994, incorporated by
reference to Exhibit 10(r) to the Partnership's
Annual Report on Form 10-K for the year ended
December 31, 1994.
10.15 Amendment No. 2 to Reimbursement Agreement by
Integrated Funding, Inc., and American Insured
Mortgage Investors L.P.-Series 86, and American
Insured Mortgage Investors L.P.-Series 88, effective
April 1, 1997, incorporated by reference to Exhibit
10.15 to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1997.
27. Financial Data Schedule (filed herewith).
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
(b) Reports on Form 8-K filed during the last quarter
of the fiscal year: None.
All other items are not applicable.
30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ March 30, 1999 /s/ William B. Dockser
- --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
/s/ March 30, 1999 /s/ H. William Willoughby
- --------------------------- -------------------------
DATE H. William Willoughby
President and Director
/s/ March 30, 1999 /s/ Cynthia O. Azzara
- --------------------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
/s/ March 30, 1999 /s/ Garrett G. Carlson, Sr.
- --------------------------- ---------------------------
DATE Garrett G. Carlson, Sr.
Director
/s/ March 30, 1999 /s/ G. Richard Dunnells
- --------------------------- -------------------------
DATE G. Richard Dunnells
Director
/s/ March 30, 1999 /s/ Robert J. Merrick
- --------------------------- -------------------------
DATE Robert J. Merrick
Director
/s/ March 30, 1999 /s/ Robert E. Woods
- --------------------------- -------------------------
DATE Robert E. Woods
Director
31
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
Financial Statements as of December 31, 1998 and 1997
and for the Years Ended December 31, 1998, 1997 and 1996
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
American Insured Mortgage Investors - Series 85, L.P.:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors - Series 85, L.P. (the Partnership) as of December 31, 1998
and 1997, and the related statements of income and comprehensive income, changes
in partners' equity and cash flows for the years ended December 31, 1998, 1997
and 1996. 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 generally accepted auditing
standards. 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, 1998 and 1997, and the results of its operations and its cash
flows for the years ended December 31, 1998, 1997 and 1996 in conformity with
generally accepted accounting principles.
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, 1998 is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic financial statements. The information in this schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
March 30, 1999
33
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
ASSETS
December 31, December 31,
1998 1997
------------ ------------
Investment in FHA-Insured Certificates and GNMA Mortgage-Backed
Securities, at fair value:
Acquired insured mortgages $110,253,225 $142,822,793
Originated insured mortgages 16,738,030 16,887,282
------------ ------------
126,991,255 159,710,075
------------ ------------
Investment in FHA-Insured Loans,
at amortized cost, net of unamortized discount and premium:
Acquired insured mortgages 11,617,321 14,416,917
Originated insured mortgages 12,818,519 12,928,572
------------ ------------
24,435,840 27,345,489
Cash and cash equivalents 15,793,919 14,718,103
Investment in FHA debentures 2,296,098 --
Receivables and other assets 1,453,292 1,676,021
------------ ------------
Total assets $170,970,404 $203,449,688
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 15,963,562 $ 15,460,772
Accounts payable and accrued expenses 184,236 306,715
Due to affiliate 1,279,178 --
------------ ------------
Total liabilities 17,426,976 15,767,487
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units
authorized, 12,079,514 Units issued and outstanding 151,721,136 180,044,243
General partner's deficit (3,674,093) (2,524,665)
Accumulated other
comprehensive income 5,496,385 10,162,623
------------ ------------
Total partners' equity 153,543,428 187,682,201
------------ ------------
Total liabilities and partners' equity $170,970,404 $203,449,688
============ ==========
The accompanying notes are an
integral part of these financial
statements.
34
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
1998 1997 1996
------------ ------------ ------------
Income:
Mortgage investment income $ 14,067,956 $ 16,350,497 $ 17,731,547
Interest and other income 675,768 410,839 211,779
------------ ------------ ------------
14,743,724 16,761,336 17,943,326
------------ ------------ ------------
Expenses:
Asset management fee to related parties 1,617,625 1,873,563 1,997,649
General and administrative 550,640 652,511 655,426
Interest expense to affiliate 85,565 5,783 23,132
------------ ------------ ------------
2,253,830 2,531,857 2,676,207
------------ ------------ ------------
Earnings before gains (losses)
on mortgage dispositions/ modifications 12,489,894 14,229,479 15,267,119
Mortgage dispositions/modifications:
Gains 1,499,412 907,923 666,179
Losses (96,262) -- (144,595)
------------ ------------ ------------
Net earnings $ 13,893,044 $ 15,137,402 $ 15,788,703
============ ============ ============
Other comprehensive income (4,666,238) 2,549,887 (3,500,793)
------------ ------------ ------------
Comprehensive income 9,226,806 17,687,289 12,287,910
============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 13,351,215 $ 14,547,043 $ 15,172,944
General partner - 3.9% 541,829 590,359 615,759
------------ ------------ ------------
$ 13,893,044 $ 15,137,402 $ 15,788,703
============ ============ ============
Net earnings per Limited
Partnership Unit - Basic $ 1.11 $ 1.20 $ 1.26
============ ============ ============
The accompanying notes are an integral
part of these financial statements.
35
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
Accumulated
Other Total
General Limited Comprehensive Partners'
Partner Partners Income Equity
---------- ----------- ------------- -----------
Balance, January 1, 1996 (1,274,782) 210,842,615 11,113,529 220,681,362
Net earnings 615,759 15,172,944 -- 15,788,703
Adjustment to unrealized gains (losses)
on investment in insured mortgages -- -- (3,500,793) (3,500,793)
Distributions paid or accrued of
$2.25 per Unit, including return of
capital of $0.99 per Unit (1,102,994) (27,178,907) -- (28,281,901)
----------- ------------ ------------- ------------
Balance, December 31, 1996 (1,762,017) 198,836,652 7,612,736 204,687,371
Net earnings 590,359 14,547,043 -- 15,137,402
Adjustment to unrealized gains
(losses) on investments in
insured mortgages -- -- 2,549,887 2,549,887
Distributions paid or accrued of
$2.76 per Unit, including return
of capital of $1.56 per Unit (1,353,007) (33,339,452) -- (34,692,459)
----------- ------------ ------------- ------------
Balance, December 31, 1997 (2,524,665) 180,044,243 10,162,623 187,682,201
Net earnings 541,829 13,351,215 -- 13,893,044
Adjustment to unrealized gains
(losses) on investments in
insured mortgages -- -- (4,666,238) (4,666,238)
Distributions paid or accrued of
$3.45 per Unit, including return
of capital of $2.34 per Unit (1,691,257) (41,674,322) -- (43,365,579)
----------- ------------ ------------- ------------
Balance, December 31, 1998 (3,674,093) 151,721,136 5,496,385 153,543,428
=========== ============ ============= ============
Limited Partnership Units outstanding -
basic, as of December 31, 1998, 1997,
and 1996 12,079,514
==========
The accompanying notes are an integral
part of these financial statements.
36
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
------------ ------------- -------------
Cash flows from operating activities:
Net earnings $ 13,893,044 $ 15,137,402 $ 15,788,703
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Losses on mortgage dispositions/modification 96,262 -- 144,595
Gains on mortgage dispositions/modification (1,499,412) (907,923) (666,179)
Changes in assets and liabilities:
Decrease in receivables and other assets 222,729 51,641 186,942
(Decrease) increase in accounts payable and
accrued expenses (122,476) 107,751 35,227
Increase (decrease) in due to affiliate 131,129 (66,805) 59,957
Return on investment in affiliate -- -- 3,079
------------ ------------- -------------
Net cash provided by operating activities 12,721,276 14,322,066 15,552,324
------------ ------------- -------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 29,895,275 18,996,279 11,346,665
Receipt of mortgage principal from scheduled payments 1,322,056 1,598,933 1,571,828
------------ ------------- -------------
Net cash provided by investing activities 31,217,331 20,595,212 12,918,493
------------ ------------- -------------
Cash flows from financing activities:
Distributions paid to partners (42,862,791) (29,915,961) (22,122,731)
------------ ------------- -------------
Net increase in cash and cash equivalents 1,075,816 5,001,317 6,348,086
Cash and cash equivalents, beginning of year 14,718,103 9,716,786 3,368,700
------------ ------------- -------------
Cash and cash equivalents, end of year $ 15,793,919 $ 14,718,103 $ 9,716,786
============ ============= =============
Non-cash investing activity:
9.5% debenture received from HUD in exchange for
the mortgage on Portervillage I Apartments $ 2,296,098 -- --
Portion of debenture due to affiliate, AIM 84 (1,148,049) -- --
============ ============= =============
The accompanying notes are an integral
part of these financial statements.
37
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of California
on June 26, 1984.
CRIIMI, Inc. (the General Partner) holds a partnership interest of
3.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE). From inception through June 30, 1995, CRIIMI MAE was managed by
an advisor whose general partner was CRI, Inc. (CRI). However, effective June
30, 1995, CRIIMI MAE became a self-administered real estate investment trust
(REIT) and, as a result, the advisor no longer advises CRIIMI MAE.
AIM Acquisition Partners, L.P., (the Advisor) serves as the advisor to
the Partnership. AIM Acquisition Corporation (AIM Acquisition) is the general
partner of the Advisor, and the limited partners include, but are not limited
to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement as
discussed below, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions which affect the management
and policies of the Partnership.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory
agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc.,
an affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of
CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this
transaction, effective June 30, 1995, CMSLP, an affiliate of CRIIMI MAE, manages
the Partnership's portfolio.
Prior to the expiration of the Partnership's reinvestment period in
December 1993, the Partnership was engaged in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages and, together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the Partnership Agreement.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner and
the parent of AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate
of CRIIMI MAE and provider of personnel and administrative services to the
Partnership, filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership; however, CRIIMI MAE has not historically
represented a significant source of capital for the General Partner or the
Partnership. Such bankruptcy filings could also result in the potential need to
replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
38
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
--------------------
The Partnership's financial statements are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassification
----------------
Certain amounts in the financial statements for the years
ended December 31, 1997 and 1996 have been reclassified to conform to
the 1998 presentation.
Investment in Insured Mortgages
-------------------------------
The Partnership's investment in Insured Mortgages is comprised
of participation certificates evidencing a 100% undivided beneficial
interest in government insured multifamily mortgages issued or sold
pursuant to FHA programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association
(GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans
(FHA-Insured Loans). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or
retirement homes.
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.
39
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
As of December 31, 1998, the weighted average remaining term
of the Partnership's investments in GNMA Mortgage-Backed Securities and
FHA-Insured Certificates is approximately 29 years. However, the
Partnership Agreement states that the Partnership will terminate in
approximately 11 years, on December 31, 2009, unless previously
terminated under the provisions of the Partnership Agreement. As the
Partnership is anticipated to terminate prior to the weighted average
remaining term of its investments in GNMA Mortgage-Backed Securities
and FHA-Insured Certificates, the Partnership does not have the
ability, at this time, to hold these investments to maturity.
Consequently, the General Partner believes that the Partnership's
investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates should be included in the Available for Sale category.
Although the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are classified as Available for
Sale for financial statement purposes, the General Partner does not
intend to voluntarily sell these assets other than those which may be
sold as a result of a default or those which are eligible to be put to
FHA at the expiration of 20 years from the date of the final
endorsement.
In connection with this classification, as of December 31,
1998 and 1997, all of the Partnership's investments in GNMA
Mortgage-Backed Securities and FHA-Insured Certificates are recorded at
fair value, with the net unrealized gains or losses on these assets
reported as other comprehensive income and as a separate component of
partners' equity. Subsequent increases or decreases in the fair value
of GNMA Mortgage-Backed Securities and FHA-Insured Certificates,
classified as Available for Sale, will be included as a separate
component of partners' equity. Realized gains and losses on GNMA
Mortgage-Backed Securities and FHA-Insured Certificates, classified as
Available for Sale, will continue to be reported in earnings. The
amortized cost of the investments in GNMA Mortgage-Backed Securities
and FHA-Insured Certificates in this category is adjusted for
amortization of discounts and premiums to maturity. Such amortization
is included in mortgage investment income.
As of December 31, 1998 and 1997, Investment in FHA-Insured
Loans are recorded at amortized cost.
Gains from dispositions of mortgage investments are recognized
upon the receipt of cash or HUD debentures.
Losses on dispositions of mortgage investments are recognized
when it becomes probable that a mortgage will be disposed of and that
the disposition will result in a loss. In the case of Insured Mortgages
fully insured by HUD, the Partnership's maximum exposure for purposes
of determining the loan losses would generally be an assignment fee
charged by HUD representing approximately 1% of the unpaid principal
40
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
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.
Investment in FHA Debenture
---------------------------
From time to time, the Partnership assigns defaulted loans to
HUD in order to collect the amount of delinquent principal and
interest. HUD determines if the claim will be settled in cash or by the
issuance of debentures. Debentures are obligations of the mortgage
insurance funds and are unconditionally guaranteed by the United
States. The term of the debentures is 20 years and the rate is set
based upon the rate in effect at the commitment date to provide
insurance or at the final endorsement date, whichever ever is greater.
AIM 85 classifies its Investment in FHA Debentures as Available for
Sale debt securities with changes in fair value recorded as an
adjustment to equity and other comprehensive income.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time
and demand deposits, commercial paper and repurchase agreements with
original maturities of three months or less.
Income Taxes
------------
No provision has been made for Federal, state or local income
taxes in the accompanying statements of income and comprehensive income
since they are the personal responsibility of the Unitholders.
Statements of Cash Flows
------------------------
No cash payments were made for interest expense during the
years ended December 31, 1998, 1997 and 1996. Since the statements of
cash flows are intended to reflect only cash receipt and cash payment
activity, the statements of cash flows do not reflect operating
activities that affect recognized assets and liabilities while not
resulting in cash receipts or cash payments.
41
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards
------------------------
During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive
Income" (FAS 130). FAS 130 states that all items that are required to
be recognized under accounting standards as components of comprehensive
income are to be reported in a separate statement of income. This
includes net income as currently reported by the Partnership adjusted
for unrealized gains and losses related to the Partnership's mortgages
accounted for as "available for sale." FAS 130 was adopted by the
Partnership on January 1, 1998. Unrealized gains and losses are
reported in the equity section of the "Balance Sheet" as "accumulated
other comprehensive income." The table below breaks out the adjustment
to unrealized gains and losses that relate to mortgages which were
disposed of during the period with the resulting gain or loss reflected
in the "Statements of Income and Comprehensive Income"
(reclassification adjustments) and the portion of the adjustment that
relates to those investments that were not disposed of during the
period.
1998 1997 1996
---------- ---------- ----------
Reclassification adjustment for (gains) losses
included in net income (1,944,214) (780,085) (350,328)
Unrealized holding gains (losses) arising during
the period (2,722,024) 3,329,972 (3,150,465)
---------- ----------- -----------
Net adjustment to unrealized gains (losses) on mortgages (4,666,238) 2,549,887 (3,500,793)
---------- ------------ -----------
3. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described in Note 8, the
General Partner and certain affiliated entities, during the years ended December
31, 1998, 1997 and 1996, earned or received compensation or payments for
services from the Partnership as follows:
42
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
3. TRANSACTIONS WITH RELATED PARTIES - Continued
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
Capacity in Which For the years ended December31,
Name of Recipient Served/Item 1998 1997 1996
---------------------------- ---------------- -------------- -------------
CRIIMI, Inc. General Partner/Distribution $1,691,257 $1,353,007 $1,102,994
AIM Acquisition Advisor/Asset Management Fee 1,617,625 1,873,563 1,997,649
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 54,497 62,274 68,328
Management, Inc. Expense Reimbursement
American Insured Affiliate of Partnership/
Mortgage Investors Share of FHA Debenture 1,202,581 -- --
(see Footnote 6)
(1) The Advisor, pursuant to the Partnership Agreement, effective October
1, 1991, is entitled to an Asset Management Fee equal to 0.95% of Total
Invested Assets (as defined in the Partnership Agreement). The
sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee
equal to 0.28% of Total Invested Assets from the Advisors Asset
Management Fee. Of the amounts paid to the Advisor, CRIIMI MAE Services
Limited Partnership (CMSLP) earned a fee equal to $476,800,
$552,222 and $590,353 for the years ended December 31, 1998,
1997, and 1996, respectively. The limited partner of CMSLP is a
wholly-owned subsidiary of CRIIMI MAE Inc., which filed for protection
under Chapter 11 of the U.S. Bankruptcy Code.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.
43
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1998 As of December 31, 1997
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------ ------------ ------------
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities:
Acquired insured mortgages $104,595,386 $110,253,225 $132,530,176 $142,822,793
Originated insured mortgages 16,899,484 16,738,030 17,017,276 16,887,282
------------ ------------ ------------ ------------
$121,494,870 $126,991,255 $149,547,452 $159,710,075
============ ============ ============ ============
Investment in FHA-Insured Loans:
Acquired insured mortgages $ 11,617,321 $ 14,087,092 $ 14,416,917 $ 17,432,816
Originated insured mortgages 12,818,519 12,747,524 12,928,572 13,431,769
------------ ------------ ------------ ------------
$ 24,435,840 $ 26,834,616 $ 27,345,489 $ 30,864,585
============ ============ ============ ============
Cash and cash equivalents $ 15,793,919 $ 15,793,919 $ 14,718,103 $ 14,718,103
============ ============ ============ ============
Accrued interest receivable $ 1,180,042 $ 1,180,042 $ 1,421,935 $ 1,421,935
============ ============ ============ ============
Investment in FHA Debenture $ 2,296,098 $ 2,296,098 -- --
============ ============ ============ ============
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Investment in FHA-Insured Certificates, GNMA Mortgage-Backed
Securities, FHA-Insured Loans and FHA Debentures
------------------------------------------------------------
The fair value of the FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans is based on quoted
market prices from an investment banking institution which trades these
instruments as part of its day-to-day activities. The fair value of the
FHA Debenture is based upon the prices of other comparable securities
that trade in the market.
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of the
short maturity of these instruments.
44
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
GNMA Mortgage-Backed Securities and Fully Insured FHA-
Insured Certificates
------------------------------------------------------
Listed below is the Partnership's aggregate investment in Fully Insured
Mortgages:
December 31,
1998 1997
---------------- ----------------
Fully Insured Acquired Insured:
Number of
GNMA Mortgage-Backed Securities(1) 8 9
FHA-Insured Certificates(2)(3)(4)(5) 46 55
(6)(7)(8)(9)
Amortized Cost $104,595,386 $132,530,176
Face Value 108,690,257 137,674,964
Fair Value 110,253,225 142,822,793
Fully Insured Originated Insured:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $16,899,484 $ 17,017,276
Face Value 16,542,867 16,660,658
Fair Value 16,738,030 16,887,282
(1) In February 1998, the mortgage on Spanish Trace Apartments was prepaid.
The Partnership received net proceeds of approximately $9.7 million,
and recognized a loss of approximately $96,000 for the year ended
December 31, 1998. A distribution of $0.77 per Unit related to this
prepayment was declared in March 1998 and paid to Unitholders in May
1998.
(2) In April 1998, the mortgages on Isle of Pines Village Apartments and
Emerald Green Apartments were prepaid. The Partnership received net
proceeds of approximately $1.3 million and $1.1 million, respectively,
and recognized gains of approximately $290,000 and $230,000,
respectively, for the year ended December 31, 1998. A distribution of
$0.19 per Unit related to this prepayment was declared in May 1998 and
paid to Unitholders in August 1998.
(3) In May 1998, the mortgage on Stoney Brook Apartments was prepaid. The
Partnership received net proceeds of approximately $1.5 million, and
recognized a gain of approximately $338,000 for the year ended December
31, 1998. A distribution of $0.12 per Unit related to this prepayment
was declared in June 1998 and paid to Unitholders in August 1998.
(4) In July 1998, the mortgage on Amador Residential was prepaid. The
Partnership received net proceeds of approximately $1.4 million, and
recognized a gain of approximately $64,000 for the year ended December
31, 1998. A distribution of $0.11 per Unit related to this prepayment
was declared in July 1998 and paid to Unitholders in November 1998.
(5) In August 1998, the mortgage on Bentgrass Hills Apartments was prepaid.
The Partnership received net proceeds of approximately $238,000, and
recognized a gain of approximately $54,000 for the year ended December
31, 1998. A distribution of $0.02 per Unit related to this prepayment
was declared in September 1998 and paid to Unitholders in November
1998.
(6) In October 1998, the mortgage on Northdale Commons was prepaid. The
Partnership received net proceeds of approximately $718,000, and
recognized a gain of approximately $24,000 for the year ended December
31, 1998. A distribution of $0.06 per Unit related to this prepayment
was declared in November 1998 and paid to Unitholders in February 1999.
45
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
(7) In November 1998, the mortgage on Cedar Bluff was prepaid. The
Partnership received net proceeds of approximately $4.6 million, and
recognized a gain of approximately $170,000 for the year ended December
31, 1998. A distribution of $0.36 per Unit related to this prepayment
was declared in December 1998 and paid to Unitholders in February 1999.
(8) In November 1998, the mortgage on Wayland Health Center was prepaid.
The Partnership received net proceeds of approximately $7.3 million,
and recognized a gain of approximately $9,000 for the year ended
December 31, 1998. A distribution of $0.58 per Unit related to this
prepayment was declared in December 1998 and paid to Unitholders in
February 1999.
(9) In December 1998, the mortgage on Gamel & Gamel Apartments (Brown Gable
Apartments) was prepaid. The Partnership received net proceeds of
approximately $703,000, and recognized a gain of approximately $36,000
for the year ended December 31, 1998. A distribution of $0.06 per Unit
related to this prepayment was declared in February 1999 and is
expected to be paid to Unitholders in May 1999.
As of March 26, 1999, all of the fully insured GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are current with respect to the payment
of principal and interest, except for the mortgages on Woodland Villas and Quail
Creek Apartments. These mortgages are delinquent with respect to the January
1999 payment. The Partnership does not anticipate problems regarding the
collection of these payments.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred to as
Participations). During the years ended December 31, 1998, 1997 and 1996, the
Partnership received $76,991, $51,457 and $0, respectively, from the
Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of income and comprehensive income.
In the case of fully insured Originated Insured Mortgages and Acquired
Insured Mortgages, the Partnership's maximum exposure for purposes of
determining loan losses would generally be approximately 1% of the unpaid
principal balance of the Originated Insured mortgage or Acquired Insured
Mortgage (an assignment fee charged by FHA) at the date of default, plus the
unamortized balance of acquisition fees and closing costs of the Insured
Mortgage and the loss of approximately 30 days accrued interest.
46
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
6. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in
FHA-Insured Loans:
December 31,
1998 1997
---------------- ----------------
Fully Insured Acquired Insured:
Number of Loans(1)(2) 10 12
Amortized Cost $ 11,617,321 $ 14,416,917
Face Value 14,068,282 17,165,551
Fair Value 14,087,092 17,432,816
Fully Insured Originated Insured:
Number of Loans 3 3
Amortized Cost $ 12,818,519 $ 12,928,572
Face Value 12,488,890 12,589,214
Fair Value 12,747,524 13,431,769
(1) In March 1998, HUD issued assignment proceeds in the form of a 9.5%
debenture for the mortgage on Portervillage I Apartments. This
mortgage was owned 50% by AIM 85 and 50% by an affiliate of the
Partnership, American Insured Mortgage Investors (AIM 84). The
debenture, with a face value of $2,296,098, was issued to the
Partnership, with interest payable semi-annually on January 1 and July
1. The Partnership recognized a gain of approximately $200,000 on the
assignment of this loan for the year ended December 31, 1998. In
January 1999, proceeds of approximately $2.4 million, including accrued
interest of approximately $109,000, were received upon redemption of
these debentures, of which approximately $1.2 million were due to the
Partnership. Accordingly, a distribution of $0.10 per Unit related to
this assignment was declared in January 1999 and is expected to be paid
to Unitholders in May 1999.
(2) In August 1998, the mortgage on Continental Village was prepaid. The
Partnership received net proceeds of approximately $1.8 million, and
recognized a gain of approximately $84,000 for the year ended December
31, 1998. A distribution of approximately $0.14 per Unit related to
this prepayment was declared in September 1998 and paid to Unitholders
in November 1998.
As of March 26, 1999, all of the fully insured FHA-Insured
Loans were current with respect to the payment of principal and
interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on
a percentage of the net cash flow from the underlying development
(referred to as Participations). During the years ended December 31,
1998, 1997 and 1996, the Partnership received $34,553, $37,766 and
$42,417, respectively, from the Participations. These amounts are
included in mortgage investment income on the accompanying statements
of income and comprehensive income.
47
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis
for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
---------- ----------- ----------
Quarter ended March 31, $ 1.07(1) $ 0.39(5) 0.33
Quarter ended June 30, 0.58(2) 0.30 0.64(8)
Quarter ended September 30, 0.53(3) 0.84(6) 0.43(9)
Quarter ended December 31, 1.27(4) 1.23(7) 0.85(10)
------ ------ ------
$ 3.45 $ 2.76 $ 2.25
====== ====== ======
(1) This amount includes approximately $0.77 per Unit representing net
proceeds from the prepayment of the mortgage on Spanish Trace
Apartments.
(2) This amount includes approximately $0.31 per Unit representing net
proceeds from the prepayment of the mortgages on Isle of Pines Village
Apartments, Emerald Green Apartments, and Stoney Brook Apartments.
(3) This amount includes approximately $0.27 per Unit representing net
proceeds from the prepayment of the mortgages on Amador Residential,
Continental Village, and Bentgrass Hills Apartments.
(4) The amount includes approximately $1.00 per Unit representing net
proceeds from the prepayment of the mortgages on Northdale Commons,
Cedar Bluff, and Wayland Health Center.
(5) This amount includes approximately $0.07 per Unit from the disposition
of the following mortgages: net proceeds from the assignment of the
mortgage on Meadow Park Apartments I of $0.05 per Unit and net proceeds
from the prepayment of the mortgage on Security Apartments of $0.02 per
Unit.
(6) This amount includes approximately $0.54 per Unit from the following
mortgages: final settlement of the mortgage on Pine Tree Lodge of $0.02
per Unit and net proceeds from the prepayment of the mortgage on
Peachtree Place North of $0.52 per Unit.
(7) This amount includes approximately $0.92 per Unit representing net
proceeds from the prepayment of the mortgages on Ashford Place
Apartments, Fleetwood Village Apartments, Silverwood Village Apartments
and Maryland Meadows.
(8) This amount includes approximately $0.31 per Unit representing net
proceeds from the prepayment of the mortgages on Harbor View Estates,
Bear Creek Apartments II, and Cambridge Arms Apartments.
(9) This amount includes approximately $0.10 per Unit representing net
proceeds from the assignment of the mortgage on Woodland Village
Apartments.
(10) This amount includes approximately $0.51 per Unit representing net
proceeds from the prepayment of the mortgage on Westlake Village. In
addition, it includes approximately $0.01 per Unit representing net
proceeds from the modification of mortgage on Oak Forest Apartments II
and the partial prepayment of the mortgage on Cambridge Arms
Apartments.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from
monthly mortgage payments received or mortgage dispositions, (3) variations in
the cash flow attributable to the delinquency or default of Insured Mortgages
and professional fees and foreclosure costs incurred in connection with those
Insured Mortgages and (4) variations in the Partnership's operating expenses.
48
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
8. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE
Integrated Funding, Inc. (IFI), an affiliate of the Partnership, was
the coinsurance lender for coinsured mortgages previously held by the
Partnership. In order to capitalize IFI with sufficient net worth under HUD
regulations, in April 1994, American Insured Mortgage Investors L.P. - Series 88
(AIM 88), an affiliate of the Partnership, transferred a GNMA mortgage-backed
security in the amount of $2.0 million to IFI. The Partnership and American
Insured Mortgage Investors L.P. - Series 86 (AIM 86), an affiliate of the
Partnership, each issued a demand note payable to AIM 88 and recorded an
investment in IFI through an affiliate (AIM Mortgage, Inc.) in proportion to
each entity's coinsured mortgages for which IFI was mortgagee of record as of
April 15, 1994. Interest expense on the note payable was based on an interest
rate of 7.25% per annum.
IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 86 and AIM 88 (collectively the AIM Funds) whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement, interest from the two notes and the Partnership's equity interest
in IFI's net income or loss, substantially equals the mortgage principal and
interest on the GNMA mortgage-backed security transferred to IFI.
The final coinsured mortgages held by the Partnership were prepaid in
late 1996. As a result, the aforementioned demand note payable to AIM 88 and the
expense reimbursement agreement from IFI were cancelled as of April 1, 1997.
9. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 12,079,389
Units were issued for an aggregate capital contribution of $241,587,780. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.
49
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Unit Data)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1998, 1997 and 1996.
1998
Quarter ended
March 31 June 30 September 30 December 31
----------- ---------- ----------------- ----------------
Income $ 3,859 $ 3,751 $ 3,521 $ 3,613
Net gains from mortgage
dispositions 104 858 202 239
Net earnings 3,400 4,055 3,236 3,202
Net earnings per Limited
Partnership Unit - Basic 0.27 0.32 0.26 0.26
1997
Quarter ended
March 31 June 30 September 30 December 31
------------ ---------- ----------------- ----------------
Income $ 4,274 $ 4,318 $ 4,123 $ 4,046
Net gains from mortgage
dispositions 205 -- -- 703
Net earnings 3,848 3,675 3,480 4,134
Net earnings per Limited
Partnership Unit - Basic 0.31 0.29 0.28 0.32
1996
Quarter ended
March 31 June 30 September 30 December 31
------------ ---------- ----------------- ----------------
Income $ 4,612 $ 4,529 $ 4,447 $ 4,355
Net gains (losses) from
mortgage dispositions (1) 556 (40) 7
Net earnings 3,928 4,417 3,790 3,654
Net earnings per Limited
Partnership Unit - Basic 0.31 0.35 0.30 0.30
50
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value)
The Executive House
Dayton, Ohio 8/21 12/01 7.5% $ 857,103 $ 858,310 $ 78,855(4)
Walnut Apartments
La Puente, California 3/20 11/01 7.5% 2,619,224 2,623,565 248,862(4)
Woodland Hills Apartments
Auburn, Alabama 10/19 6/99 7.5% 708,850 710,082 68,044(4)
Fairlawn II
Waterbury, Connecticut 6/20 5/00 7.5% 780,931 782,156 73,364(4)
Willow Dayton
Chicago, Illinois 8/19 12/00 7.5% 1,041,829 1,043,598 99,489(4)
Cedar Ridge Apartments
Richton Park, Illinois 4/20 2/01 7.5% 2,787,488 2,791,930 262,699(4)
Park Hill Apartments
Lexington, Kentucky 3/19 3/00 7.5% 1,804,728 1,807,916 173,845(4)
Fairfax House
Buffalo, New York 11/19 5/00 7.5% 2,206,092 2,209,748 209,608(4)
Country Club Terrace Apt.
Holidaysburg, Pennsylvania 8/19 6/00 7.5% 1,492,624 1,495,157 142,537(4)
Summit Square Manor
Rochester, Minnesota 8/19 5/99 7.5% 1,963,118 1,966,450 187,467(4)
Park Place
Rochester, Minnesota 3/20 10/99 7.5% 777,327 778,626 73,980(4)
51
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Nevada Hills Apartments
Reno, Nevada 2/21 8/00 7.5% 1,189,021 1,190,774 110,345(4)
Colony West Apartments
Chico, California 7/20 12/00 7.5% 664,906 665,941 62,365(6)
Dunhaven Apartments Section I
Baltimore County, Maryland 1/20 12/99 7.5% 923,228 924,734 87,429(6)
Kings Villa/Discovery Commons
Sacramento, California 7/19 11/99 7.5% 1,112,457 1,114,360 106,414(6)
Steeplechase Apartments
Aiken, South Carolina 9/18 8/98 7.5% 520,954 521,936 50,921(6)
Walnut Hills Apartments
Plainfield, Indiana 9/19 3/00 7.5% 500,278 501,120 47,692(6)
Woodland Villas
Jasper, Alabama 8/19 3/00 7.5% 319,060 319,601 30,468(6)
Ashley Oaks Apartments
Carrollton, Georgia 3/22 4/02 7.5% 573,876 574,642 52,292(7)
Highland Oaks Apartments,
Phase III
Wichita Falls, Texas 2/21 4/02 7.5% 967,000 968,426 89,741(7)
Holden Court Apartments
Seattle, Washington 12/21 4/02 7.5% 223,663 223,966 20,435(7)
Magnolia Place Apartments
Franklin, Tennessee 5/20 4/02 7.5% 327,381 327,898 30,804(7)
52
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Quail Creek Apartments
Howell, Michigan 5/20 4/02 7.5% 548,095 548,962 51,572(7)
Rainbow Terrace Apartments
Milwaukee, Wisconsin 7/22 4/02 7.5% 326,347 326,770 29,581(7)
Rock Glen Apartments
Baltimore, Maryland 1/22 4/02 7.5% 1,087,649 1,089,123 99,375(7)
Stonebridge Apartments, Phase I
Montgomery, Alabama 4/20 4/02 7.5% 1,051,813 1,053,489 99,125(7)
Village Knoll Apartments
Harrisburg, Pennsylvania 4/20 4/02 7.5% 1,092,031 1,093,771 102,914(7)
Bowling Brook, Section 1
Towson, Maryland 5/30 N/A 8.50% 11,917,371 12,162,230 1,090,128
Executive Tower
Toledo, Ohio 3/27 N/A 8.75% 2,874,160 2,933,651 275,283
New Castle Apartments
Austin, Texas 3/18 N/A 8.75% 2,033,495 2,077,643 219,143
Lincoln Green
Burrillville, Rhode Island 6/33 N/A 10.25% 3,124,094 3,281,152 330,066
Turtle Creek Apartments
San Antonio, Texas 4/16 N/A 8.95% 1,651,255 1,687,723 188,596
Sangnok Villa
Los Angeles, California 1/30 N/A 10.25% 904,714 950,305 96,825
The Meadows of Livonia
Livonia, Michigan 9/34 N/A 10.00% 6,442,329 6,637,494 627,836
53
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Eaglewood Villa Apartments
Springfield, Ohio 2/27 N/A 8.875% 2,733,643 2,790,180 264,707
Gold Key Village Apartments
Englewood, Ohio 6/27 N/A 9.00% 2,888,491 2,948,122 282,030
Stafford Towers
Baltimore, Maryland 8/16 N/A 9.50% 360,872 372,407 42,613
Garden Court Apartments
Lexington, Kentucky 8/27 N/A 8.60% 1,175,490 1,199,801 110,583
Northwood Place
Meridian, Mississippi 6/34 N/A 8.75% 4,500,755 4,592,358 412,635
Cheswick Apartments
Indianapolis, Indiana 9/27 N/A 8.75% 3,102,197 3,166,291 295,736
Nassau Apartments
New Orleans, Louisiana 11/27 N/A 8.63% 872,426 890,456 82,139
The Gate House Apartments
Lexington, Kentucky 2/28 N/A 8.55% 2,829,559 2,888,021 264,092
Bradley Road Nursing
Bay Village, Ohio 5/34 N/A 8.875% 2,517,551 2,568,769 233,708
Franklin Plaza
Cleveland, Ohio 5/23 N/A 8.175% 5,313,176 5,318,873 503,183
Heritage Heights Apartments
Harrison, Arizona 4/32 N/A 9.50% 416,171 428,808 41,313
54
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Pleasant View Nursing Home
Union, New Jersey 6/29 N/A 7.75% 7,508,916 7,513,997 643,312
----------- --------------
Total FHA-Insured Certificates -
Acquired Insured Mortgages,
carried at fair value 91,633,738 92,921,332
----------- --------------
GNMA Mortgage-Backed Securities
(carried at fair value)
Pine Tree Lodge
Pasadena, Texas 12/33 N/A 9.50% 2,021,248 2,021,858 194,348
Stone Hedge Village Apts.
Farmington, New York 11/27 N/A 7.00% 1,807,780 1,841,023 143,352
Afton Square Apartments
Portsmouth, Virginia 12/28 N/A 7.25% 1,059,738 1,079,125 81,520
Carlisle Apartments
Houston, Texas 12/28 N/A 7.125% 2,117,283 2,156,060 166,018
Independence Park
Largo, Florida 9/29 N/A 7.75% 3,987,849 4,060,323 330,993
Ridgecrest Timbers
Portland, Oregon 12/28 N/A 7.25% 1,542,731 1,570,953 120,989
56
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at fair value) - Continued
Huntington Apartments
Concord, North Carolina 12/29 N/A 7.25% 2,939,579 2,993,339 233,288
Northwood Apartments
Mockville, North Carolina 12/29 N/A 7.25% 1,580,311 1,609,212 125,415
----------- ---------------
Total GNMA Mortgage-Backed
Securities 17,056,519 17,331,893
----------- ---------------
Total investment in Acquired
Insured Mortgages, carried
at fair value 108,690,257 110,253,225
----------- ---------------
56
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
GNMA Mortgage-Backed Security
(carried at fair value)
Oak Forest Apartments II
Ocoee, Florida 12/31 11/09 8.25% 10,565,903 10,757,070 840,359
FHA-Insured Certificate
(carried at fair value)
Waterford Green Apartments
South St. Paul, Minnesota(11) 11/30 12/04 8.50% 5,976,964 5,980,960 481,564
----------- -------------
Total investment in Originated Insured
Mortgages, carried at fair value 16,542,867 16,738,030
----------- -------------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities 125,233,124 126,991,255
----------- -------------
57
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Loans
(carried at amortized cost)(2)
Bay Pointe Apartments
Lafayette, Indiana 2/23 11/00 7.5% 2,038,674 1,688,629 185,272(8)
Baypoint Shoreline Apartments
Duluth, Minnesota 1/22 8/00 7.5% 962,790 794,753 87,967(8)
Berryhill Apartments
Grass Valley, California 1/21 8/99 7.5% 1,247,019 1,032,320 115,899(8)
Brougham Estates II
Kansas City, Kansas 11/22 8/00 7.5% 2,560,054 2,107,404 230,860(8)
College Green Apartments
Wilmington, North Carolina 3/23 6/01 7.5% 1,375,840 1,131,782 123,455(8)
Fox Run Apartments
Dothan, Alabama 10/19 12/97 7.5% 1,219,703 1,014,176 116,242(8)
Kaynorth Apartments
Lansing, Michigan 4/23 3/01 7.5% 1,866,941 1,535,231 167,318(8)
Lakeside Apartments
Bennettsville, South Carolina 1/22 3/01 7.5% 386,387 319,254 35,303(8)
Town Park Apartments
Rockingham, North Carolina 10/22 6/01 7.5% 628,194 517,746 56,755(8)
58
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
ACQUIRED INSURED MORTGAGES
- --------------------------
FHA-Insured Certificates
(carried at amortized cost)(2) - Continued
Westbrook Apartments
Kokomo, Indiana 11/22 12/00 7.5% 1,782,680 1,476,026 163,177(8)
----------- --------------
Total investment in Acquired
Insured Mortgages, carried
at amortized cost 14,068,282 11,617,321
----------- --------------
ORIGINATED INSURED MORTGAGES
- ----------------------------
Fully Insured Mortgages
- -----------------------
FHA-Insured Loans
(carried at amortized cost)(2) - Continued
Cobblestone Apartments
Fayetteville, North Carolina 3/28 12/02 8.50% 4,983,313 5,130,821 462,703
59
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Face Net Annual Payment
Maturity Put Rate on Value of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10)
- ------------------------- --------- -------- -------------- ----------- -------------- ----------------
Longleaf Lodge
Hoover, Alabama 7/26 -- 8.25% 3,072,241 3,110,518 282,958
The Plantation
Greenville, North Carolina 4/28 4/03 8.25% 4,433,336 4,577,180 402,046
------------ --------------
Total investment in Originated
Insured Mortgages, carried at
amortized cost 12,488,890 12,818,519
------------ --------------
Total investment in FHA-Insured Loans 26,557,172 24,435,840
------------ --------------
TOTAL INVESTMENT IN INSURED MORTGAGES $151,790,296 $ 151,427,095
============ ==============
60
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(1) Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign an Insured Mortgage (put)
to FHA at the expiration of 20 years from the date of final
endorsement, if the Insured Mortgage is not in default at such time.
Any mortgagee electing to assign a FHA-insured mortgage to FHA will
receive, in exchange therefore, HUD debentures having a total face
value equal to the then outstanding principal balance of the
FHA-insured mortgage plus accrued interest to the date of assignment.
These HUD debentures will mature 10 years from the date of assignment
and will bear interest at the "going Federal rate" at such date. This
assignment procedure is applicable to an Insured Mortgage which had a
firm or conditional FHA commitment for insurance on or before November
30, 1983 and, in the case of a mortgage sold in a GNMA auction, was
sold in an auction prior to February 1984. Certain of the Partnership's
Insured Mortgages may have the right of assignment under this program.
Certain mortgages that do not qualify under this program possess a
special assignment option, in certain Insured Mortgage documents, which
allow the Partnership, anytime after this date, the option to require
payment by the borrower of the unpaid principal balance of the Insured
Mortgages. At such time, the borrowers must make payment to the
Partnership, or the Partnership, at its option, may cancel the FHA
insurance and institute foreclosure proceedings.
(2) Inclusive of closing costs and acquisition fees.
(3) The mortgages underlying the Partnership's investments in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments and
retirement homes. Prepayment of these Insured Mortgages would be based
upon the unpaid principal balance at the time of prepayment.
(4) In April and July 1985, and February 1986, the Partnership purchased
pass-through certificates representing undivided fractional interests
of 157/537, 69/537 and 259/537, respectively, in a pool of 19
FHA-insured mortgages. In July 1986 and October 1987, the Partnership
sold undivided fractional interests of 67/537 and 40/537, respectively,
in this pool. Accordingly, the Partnership now owns an undivided
fractional interest aggregating 378/537, or approximately 70.4%, in
this pool. For purposes of illustration only, the amounts shown in this
table represent the Partnership's current share of these items as if an
undivided interest in each mortgage was acquired.
(5) In addition, the servicer or the sub-servicer of the Insured Mortgage,
primarily unaffiliated third parties, is entitled to receive
compensation for certain services rendered.
(6) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 317/392 and
11/392, respectively, in a pool of 13 FHA-insured mortgages. In January
and February 1988, the Partnership sold undivided fractional interests
of 100/392 and 104/392, respectively, in this pool. Accordingly, the
Partnership now owns an undivided fractional interest aggregating
124/392, or approximately 31.6%, in this pool. For purposes of
illustration only, the amounts shown in this table represent the
Partnership's share of these items as if an undivided interest in each
mortgage was acquired.
(7) In June 1985 and February 1986, the Partnership purchased pass-through
certificates representing undivided fractional interests of 200/341 and
101/341, respectively, in a pool of 12 FHA-insured mortgages. In
October 1987, the Partnership sold undivided fractional interests of
200/341 in this pool. Accordingly, the Partnership now owns an
undivided fractional interest aggregating 101/341, or approximately
29.6%, in this pool. For purposes of illustration only, the amounts
shown in this table represent the Partnership's share of these items as
if an undivided interest in each mortgage was acquired.
(8) These amounts represent the Partnership's 50% interest in these
mortgages. The remaining 50% interest was acquired by American Insured
Mortgage Investors, an affiliate of the Partnership.
(9) This represents the base interest rate during the permanent phase of
these Insured Mortgages. Additional interest (referred to as
Participations) measured as a percentage of the net cash flow from the
development and the net proceeds from the sale, refinancing or other
disposition of the underlying development (as defined in the
Participation Agreements), will also be due. During the years ended
December 31, 1998, 1997 and 1996, the Partnership received additional
interest of $111,544, $89,223 and $42,417, respectively, from the
Participations.
(10) Principal and interest are payable at level amounts over the life of
the mortgages.
61
(11) A reconciliation of the carrying value of Insured Mortgages for the
years ended December 31, 1998 and 1997, is as follows:
1998 1997
------------ ------------
Beginning balance $187,055,564 $204,192,966
Principal receipts on mortgages (1,322,056) (1,598,933)
Proceeds from disposition of Mortgages (31,043,325)(1) (18,996,279)
Net gains on mortgage dispositions/modifications 1,403,150 907,923
Decrease (increase) in unrealized losses on investment in
Insured Mortgages (77,109) 783,102
Increase (decrease) in unrealized gains on investment in
Insured Mortgages (4,589,129) 1,766,785
------------ ------------
Ending balance $151,427,095 $187,055,564
============ ============
(1) This amount represents cash proceeds of $29,895,275 (as reflected in
the "Statement of Cash Flows") and non-cash proceeds of $1,148,050.
(12) As of December 31, 1998 and 1997, the tax basis of the Insured
Mortgages was approximately $143.5 million and $174.4 million,
respectively.