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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 1-12704
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
- - -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-2943272
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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
- - -------------------------------- ---------------------------
Depositary Units of Limited American Stock Exchange
Partnership Interest
Securities registered pursuant to Section 12(g) of the Act:
NONE
- - -----------------------------------------------------------------
(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
---- ----
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, 9,576,290 Depositary Units of Limited Partnership
Interest were outstanding and the aggregate market value of such units held by
non-affiliates of the Registrant on such date was $75,409,346.
3
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
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.............................................. 5
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............. 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 20
PART III
--------
Item 10. Directors and Executive Officers of the
Registrant............................................ 21
Item 11. Executive Compensation.................................. 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................. 24
Item 13. Certain Relationships and Related
Transactions.......................................... 25
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 26
Signatures ........................................................ 30
4
PART I
ITEM 1. BUSINESS
Development and Description of Business
- - ---------------------------------------
Information concerning the business of American Insured Mortgage
Investors L.P.-Series 86 (the Partnership) is contained in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Notes 1 and 4 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
- - ---------
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).
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 consequence to 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
- - -----------
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.
CRIIMI MAE and its affiliates also may serve as general partners,
sponsors or managers of real estate limited partnerships, REITs or other
entities in the future. The Partnership may attempt to dispose of mortgages at
or about the same time that CRIIMI MAE, one or more of the "AIM Funds" (defined
5
PART I
ITEM 1. BUSINESS - Continued
as the Partnership, American Insured Mortgage Investors ("AIM 84"), American
Insured Mortgage Investors - Series 85, L.P., ("AIM 85") and American Insured
Mortgage Investors L.P. - Series 88 ("AIM 88")), and/or other entities sponsored
or managed by CRIIMI MAE, 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 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
- - --------------------------
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.
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.
6
PART I
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 4 of the notes to the financial statements on
pages 43 through 47.
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
- - -------------------------------------------
The General Partner listed the Partnership's Units for trading on the
American Stock Exchange (AMEX) on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ."
The high and low trade prices for the Units as reported on AMEX and the
distributions, as applicable, for each quarterly period in 1998 and 1997 were as
follows:
Amount of
1998 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- -------------
March 31 $ 10 $ 8 7/8 $ 0.15
June 30 9 5/8 7 7/8 1.75(1)
September 30 9 8 1/16 0.13
December 31 8 5/8 7 3/4 0.14
------
$ 2.17
======
Amount of
1998 Distribution
Quarter Ended High Low Per Unit
--------------------- --------- --------- -------------
March 31 $ 11 3/4 $ 11 $ 0.75(2)(3)
June 30 11 3/4 11 0.21
September 30 11 9/16 11 1/8 0.22(3)
December 31 11 3/8 9 3/8 2.41(4)
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$ 3.59
=======
(1) This amount includes approximately $1.60 per Unit return of capital
from the prepayment of the following mortgages: Oak Grove Apartments of
$0.67 per Unit and Arbor Station Apartments of $0.93 per Unit.
(2) This amount includes approximately $0.53 per Unit return of capital
from the prepayment of the mortgage on Carmen Drive Estates.
(3) This amount includes approximately $0.01 per Unit representing
previously undistributed accrued interest receivable from St. Charles
Place-Phase II and The Villas.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY
HOLDER MATTERS - Continued
(4) This amount includes approximately $2.21 per Unit return of capital
from the prepayment of the following mortgages: Ridgeview Chase
Apartments of $0.95 per Unit and Woodland Apartments of $1.26 per Unit.
Approximate Number of Unitholders
Title of Class as of December 31, 1998
- - --------------------------- -------------------------------
Depositary Units of Limited
Partnership Interest 9,600
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 $ 6,058 $ 10,629 $ 13,473 $ 13,927 $ 13,644
Net gain on mortgage dispositions 437 550 1,616 5 1,015
Loan loss -- (387) -- -- --
Net earnings 5,373 9,436 13,069 11,640 12,450
Net earnings per Limited
Partnership Unit - Basic (1) $ 0.53 $ 0.94 $ 1.30 $ 1.16 $ 1.24
Distributions per Limited
Partnership Unit(1)(2) $ 2.17 3.59 $ 4.83 $ 1.24 $ 1.34
As of December 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Total assets $ 97,126 $ 136,668 $ 169,283 $174,538 $ 165,694
Partners' equity 94,878 111,571 135,137 170,582 161,591
(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 5 and 7 of the notes to the financial
statements of the Partnership.
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
- - -------
American Insured Mortgage Investors L.P. - Series 86 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985. During the period from May 2, 1986 (the initial closing date
of the Partnership's public offering) through June 6, 1987 (the termination date
of the offering), the Partnership, pursuant to its public offering of 9,576,165
Depository Units of limited partnership interest (Units), raised a total of
$191,523,300 in gross proceeds. In addition, the initial limited partner
contributed $2,500 to the capital of the Partnership and received 125 units of
limited partnership interest in exchange therefor.
CRIIMI, Inc. (the General Partner) holds a partnership interest of
4.9%. 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 to
the Partnership. The general partner of the Advisor is AIM Acquisition
Corporation (AIM Acquisition) and the limited partners include, but are not
limited to, 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, an affiliate of CRIIMI MAE, 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 Investments, 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
10
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 filing 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 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 31, 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 Partnership's date-sensitive
embedded technology, which controls systems such as the telecommunications
systems, security systems, etc. The General Partner does not 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
11
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 that
rely on computers to process and manage loans. An affiliate of the Partnership,
CMSLP, currently services approximately 21% of the total loans in the AIM Funds.
CMSLP has applied a vendor upgrade and has substantially completed compliance
testing on the upgrade.
Currently the General Partner 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.
Mortgage Investments
- - --------------------
Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages and, together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the Partnership Agreement.
12
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of December 31, 1998, the Partnership had invested in 19 Insured
Mortgages, with an aggregate amortized cost of approximately $91.1 million, a
face value of approximately $90.3 million and a fair value of approximately
$89.8 million, as discussed below.
Results of Operations
- - ---------------------
1998 versus 1997
- - ----------------
Net earnings decreased by approximately $4.1 million or 43% from 1998
to 1997, primarily due to a reduction in mortgage investment.
Mortgage investment income decreased for 1998 as compared to 1997
primarily as a result of the reduction in the mortgage base due to dispositions
and the Partnership's decision to no longer accrue interest on delinquent
coinsured mortgages as of January 1998.
Interest and other income decreased by approximately $67,000 or 13% for
1998 as compared to 1997, primarily due to the timing of investment of proceeds
received from mortgage dispositions prior to distribution to Unitholders.
Asset management fees decreased in 1998 as compared to 1997 as a result
of the reduction in the mortgage base.
Gain on mortgage dispositions decreased slightly for 1998 as compared
to 1997. In 1998, the Partnership recognized gains from the prepayment of the
mortgages on Oak Grove Apartments and Arbor Station Apartments. In 1997, the
Partnership recognized a gain from the prepayment of the mortgage on Woodland
Apartments.
Loss on mortgage disposition decreased for 1998 as compared to 1997 due
to the loss recognized on the prepayment of the mortgage on Ridgeview Chase
Apartments in 1997. There were no losses recognized in 1998.
During 1997, a loan loss reserve was established on Spring Lake Village
Apartments for $387,325. The Partnership has determined that this reserve is
adequate to cover potential losses after considering disposition of this
property and reimbursements from HUD. See Note 4 to the Financial Statements for
further discussion.
1997 versus 1996
- - ----------------
Net earnings decreased for 1997 as compared to 1996 primarily due to a
reduction in mortgage investment income, a decrease in gains on mortgage
dispositions and as a result of the loan loss reserve on Spring Lake Village.
13
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Mortgage investment income decreased for 1997 as compared to 1996
primarily as a result of the reduction in the mortgage base.
Interest and other income increased for 1997 as compared to 1996
primarily due to the temporary investment of proceeds received from six mortgage
dispositions prior to distribution to Unitholders. This compares to interest
earned in 1996 from the temporary investment of proceeds received from four
mortgage dispositions. Three of these mortgage dispositions earned interest in
both 1996 and 1997, due to the timing of receipt and distribution of disposition
proceeds.
Asset management fees decreased in 1997 as compared to 1996. As of
January 1, 1997, the asset management fee to the Advisor was reduced to 0.75%
from 0.95% of Total Invested Assets, pursuant to the Partnership Agreement dated
October 1, 1991. In addition, the asset management fee decreased as a result of
the reduction in the mortgage base.
Gain on mortgage dispositions decreased for 1997 as compared to 1996.
In 1997, the Partnership recognized a gain from the prepayment of the mortgage
on Woodland Apartments. In 1996, the Partnership recognized gains from the
prepayment of the mortgages on Woodbine at Lakewood Apartments, Pembrook
Apartments, Skyridge Club and Carmen Drive Estates.
Loss on mortgage dispositions increased for 1997 as compared to 1996
due to the loss recognized on the prepayment of the mortgage on Ridgeview Chase
Apartments in 1997. There were no losses recognized in 1996.
During 1997, Spring Lake Village Apartments became delinquent on its
payments. Subsequently, in March 1998, the servicer foreclosed on the property.
Spring Lake Village is a coinsured mortgage, whereby AIM 86 is responsible for a
portion of any loss ultimately incurred. Accordingly, AIM 86 has recognized a
loan loss reserve of $387,325 for its portion of the estimated loss after
considering costs to dispose of the assets and reimbursements from HUD.
Investment in Insured Mortgages
- - -------------------------------
The Partnership's investment in Insured Mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
government insured multifamily mortgages issued or sold pursuant to programs of
the Federal Housing Administration (FHA) (FHA-Insured Certificates),
mortgage-backed securities guaranteed by the Government National Mortgage
Association (GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage
loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans are
non-recourse first liens on multifamily residential developments or retirement
homes.
14
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:
A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in
Fully Insured Mortgages as of December 31, 1998 and 1997:
December 31,
1998 1997
------------ ------------
Fully Insured Originated Insured:
Number of Mortgages(2)(3) 4 5
Amortized Cost $ 33,853,462 $ 43,068,712
Face Value 32,697,883 41,562,851
Fair Value 33,031,725 41,812,118
Fully Insured Acquired Insured:
Number of GNMA Mortgage-Backed
Securities(1) 9 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 34,171,962 $ 41,335,466
Face Value 34,099,137 41,283,184
Fair Value 34,318,485 41,791,825
(1) In March 1998, the mortgage on Oak Grove Apartments was prepaid. The
Partnership received net proceeds of approximately $6.8 million, and
recognized a gain of approximately $23,000 for the year ended December
31, 1998. A distribution of $0.67 per Unit related to this prepayment
was declared in May 1998 and paid to Unitholders in August 1998.
(2) In April 1998, the mortgage on Arbor Station Apartments was prepaid.
The Partnership received net proceeds of approximately $9.3 million,
and recognized a gain of approximately $414,000 for the year ended
December 31, 1998. A distribution of $0.93 per Unit related to this
prepayment was declared in April 1998 and paid to Unitholders in August
1998.
(3) In February 1999, the mortgages on Iroquois Club Apartments and
Greenbriar Place were prepaid. The Partnership received net proceeds of
approximately $19.4 million and $5.9 million and recognized a gain of
approximately $280,000 and a loss of approximately $210,000 for the
mortgages on Iroquois Club Apartments and Greenbriar Place,
respectively. A distribution of $2.46 per Unit related to these
prepayments was declared in March 1999 and is expected to be paid in
May 1999.
As of March 5, 1999, all of the Partnership's fully insured
mortgage investments are current with respect to the payment of
principal and interest.
15
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In addition to base interest payments from Fully Insured
Originated Insured Mortgages, the Partnership is entitled to additional
interest based on a percentage of the net cash flow from the underlying
development and of the net proceeds from the refinancing, sale or other
disposition of the underlying development (referred to as
Participations). During the years ended December 31, 1998, 1997 and
1996, the Partnership received additional interest of $74,112, $95,744
and $171,848, respectively, from the fully insured Participations.
These amounts are included in mortgage investment income on the
accompanying statements of income and comprehensive income.
B. Coinsured Mortgages
-------------------
Under the HUD coinsurance program, both HUD and the
coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the
development collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the first part
of such loss in an amount up to 5% of the outstanding principal balance
of the mortgage as of the date foreclosure proceedings are instituted
or the deed is acquired in lieu of foreclosure. For any loss greater
than 5% of the outstanding principal balance, the responsibility for
paying the insurance benefits will be borne on a pro-rata basis, 85% by
HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under
the mortgage, the coinsurance lender is responsible for the timely
payment of principal and interest to the Partnership. The coinsurance
lender is prohibited from entering into any workout arrangement with
the borrower without the Partnership's consent and must file a claim
for coinsurance benefits with HUD, upon default, if the Partnership so
directs. As an ongoing HUD-approved coinsurance lender, and under the
terms of the participation documents, the coinsurance lender is
required to satisfy certain minimum net worth requirements as set forth
by HUD. However, it is possible that the coinsurance lender's potential
liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would
bear the risk of loss if the coinsurance lenders were unable to meet
their coinsurance obligations. In addition, HUD's obligation for the
payment of its share of the loss could be diminished under certain
conditions, such as the lender not adequately pursuing regulatory
violations of the borrower or the failure to comply with other terms of
the mortgage. However, the General Partner is not aware of any
conditions or actions that would result in HUD diminishing its
insurance coverage.
16
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of December 31, 1998 and 1997, the Partnership had invested
in three FHA-Insured Certificates secured by coinsured mortgages. As of
December 31, 1998, two of the three FHA-Insured Certificates secured by
coinsured mortgages are coinsured by an unaffiliated third party
coinsurance lender, The Patrician Mortgage Company (Patrician), under
the HUD coinsurance program. The three coinsured mortgages have been
delinquent with respect to the payment of principal and interest. The
following is a discussion of the performance problems with respect to
the Partnership's coinsured mortgage investments.
1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured
by Patrician:
December 31, 1998 December 31, 1997
---------------------------------------------------- ----------------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
---------------- --------------- ---------------- ---------------- ---------------- ---------------
The Villas(1) $ 15,412,759 $ 15,646,469 $ 14,905,685 $ 15,412,759 $ 15,646,469 $ 14,871,111
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,898,074 3,035,688 3,035,688 2,885,298
---------------- --------------- ---------------- ---------------- --------------- ---------------
Total $ 18,448,447 $ 18,682,157 $ 17,803,759 $ 18,448,447 $ 18,682,157 $ 17,756,409
================ =============== ================ ================ =============== ===============
(1) As of March 5, 1999, the mortgagor has made payments of
principal and interest due on the original mortgage on the Villas
through November 1995, and has made payments of principal and interest
due under a modification agreement with the Villas through August 1993.
As the result of bankruptcy proceedings that have been ongoing since
1992, the property was acquired and vested with Patrician in November
1998. Patrician is in the process of improving the property and intends
to file its initial claim with HUD by October 1999. A coinsurance claim
will be filed with HUD for remaining amounts not collected as a result
of the disposition. Due to deferred maintenance and tax deficiencies,
the Partnership does not expect cash flow to be realized from this
property until the property is sold and claims are filed with HUD for
Multifamily Coinsurance benefits.
(2) This amount represents the Partnership's approximate 45%
ownership interest in the mortgage. The remaining 55% ownership
interest is held by American Insured Mortgage Investors L.P. - Series
88 (AIM 88), an affiliate of the Partnership. As of March 5, 1999, the
mortgagor has made payments of principal and interest due on the
mortgage through November 1995. As the result of bankruptcy proceedings
that have been ongoing since 1992, the property was acquired and vested
with Patrician in November 1998. Patrician is in the process of
improving the property and intends to file its initial claim with HUD
by October 1999. A coinsurance claim will be filed with HUD for
remaining amounts not collected as a result of the disposition. Due to
deferred maintenance and tax deficiencies, the Partnership does not
expect cash flow to be realized from this property until the property
is sold and claims are filed with HUD for Multifamily Coinsurance
benefits.
The General Partner intends to continue to oversee the
Partnership's interest in these mortgages to ensure that
Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of The Villas and
17
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
St. Charles Place-Phase II mortgages is based on the most
recent information available, and to the extent these
conditions change or additional information becomes available,
then the General Partners' assessment may change. However, the
General Partner does not believe that there would be a
material adverse impact on the Partnership's financial
condition or its results of operations should Patrician be
unable to comply with its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of December 31, 1998 and 1997, the Partnership held an
investment in one FHA-Insured Certificate, secured by a
coinsured mortgage where the coinsurance lender is Integrated
Funding, Inc. (IFI), an affiliate of the Partnership. The
Partnership bears the risk of loss upon default for IFI's
portion of the coinsurance loss.
1998 1997
--------------------------------------- -------------------------------------- Cumulative
Amortized Face Fair Amortized Face Fair Loan Losses
Cost Value Value Cost Value Value Recognized
------------- ------------ ----------- -------------- ------------ ---------- -------------
Spring Lake
Village(1) $ 4,618,353 $ 4,860,980 $4,675,962 $ 4,656,113 $ 4,898,740 $4,656,113 $ 502,626
(1) In March 1998, IFI completed foreclosure proceedings and
obtained title to this property. A Purchase and Sale agreement
is expected to be ratified in March 1999 with a projected
settlement date by the end of the second quarter 1999.
Subsequent to sale and settlement, a claim will be filed with
HUD. The Partnership expects that the claim will result in the
recovery of a significant portion of amounts due.
In connection with the FHA-Insured Certificates secured by
coinsured mortgages, the Partnership has sought, in addition
to base interest payments, additional interest (commonly
termed Participations) based on a percentage of the net cash
flow from the development and the net proceeds from the
refinancing, sale or other disposition of the underlying
development. All of the FHA-Insured Certificates secured by
coinsured mortgages contain such Participations. During the
years ended December 31, 1998, 1997 and 1996, the Partnership
received additional interest of $0, $0 and $110,253,
respectively, from the coinsured Participations. These amounts
are included in mortgage investment income on the accompanying
statements of income and comprehensive income.
18
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 source of cash flow, and
were sufficient for the years ended December 31, 1998, 1997 and 1996. The
Partnership anticipates its cash flows to be sufficient to meet operating
requirements for 1999.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages after paying all expenses
of the Partnership. Although Insured Mortgages yield a fixed monthly mortgage
payment once purchased, the cash distributions paid to the Unitholders will vary
during each quarter due to (1) the fluctuating yields in the short-term money
market where the monthly mortgage payment receipts are temporarily invested
prior to the payment of quarterly distributions, (2) the reduction in the asset
base, resulting from monthly mortgage payments or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default of
Insured Mortgages and professional fees and foreclosure costs incurred in
connection with those Insured Mortgages and (4) variations in the Partnership's
operating expenses.
Cash flow - 1998 versus 1997
- - ----------------------------
Net cash provided by operating activities decreased for 1998 as
compared to 1997 primarily due to a decrease in mortgage investment income, as
discussed previously, along with an increase in receivables and other assets
caused by the Partnership's decision to no longer accrue interest on delinquent
coinsured mortgages as of January 1998.
Net cash provided by investing activities decreased for 1998 as
compared to 1997, primarily due to a decrease in proceeds received from the
disposition of mortgages. Additionally, principal received from scheduled
payments decreased in 1998 due to mortgage dispositions.
Net cash used in financing activities decreased slightly for 1998 as
compared to 1997 due to a reduction in the amount of distributions paid to
partners in 1998.
Cash flow - 1997 versus 1996
- - ----------------------------
Net cash provided by operating activities decreased for 1997 as
compared to 1996 primarily due to a decrease in mortgage investment income, as
discussed above. In addition, receivables and other assets increased resulting
from additional delinquent mortgage payments from The Villas, St. Charles
Place - Phase II and Spring Lake Village mortgages.
19
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Net cash provided by investing activities decreased for 1997 as
compared to 1996, primarily due to a decrease in proceeds received from the
disposition of mortgages. There were two prepayments on mortgages in 1997 and
four prepayments on mortgages in 1996.
Net cash used in financing activities increased for 1997 as compared to
1996, due to the timing of distribution of proceeds from the disposition of
mortgages received in November and December 1996 and distributed in February and
May 1997.
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 the Partnership's assets.
The table below provides information about the Partnership's
Insured Mortgages, all of which were entered into for purposes other than
trading. The table presents anticipated principal and interest cash flows
based upon the assumptions used in determining the fair value of these
securities and the related weighted average interest rates by expected
maturity.
1999 2000 2001 2002 2003 Thereafter Total Fair Value
Insured
Mortgages
(in millions) $17.1 $15.4 $13.5 $11.8 $10.4 $68.2 $136.4 $89.8
Average Interest
Rate 7.81% 7.79% 7.77% 7.75% 7.72% 7.80% -- --
20
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained on pages 31 through
58.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
21
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 4.9%. The affairs of the
Partnership are managed by the General Partner, which is wholly owned by CRIIMI
MAE, a corporation whose shares are listed on the New York Stock Exchange. Prior
to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner was
CRI, Inc. 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) is the advisor to 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 - Series 85,
L.P. (AIM 85) and American Insured 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:
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
22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
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.
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.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
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.
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.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -
Continued
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
(h) Section 16(a) Beneficial Interest Ownership
Compliance Reporting - Based solely on its review of
Forms 3, 4, and 5 and amendments thereto furnished to
the Partnership, and written representations from
certain reporting persons that no Form 5s were
required for those persons, the Partnership believes
that all reporting persons have filed on a timely
basis Forms 3, 4 and 5 as required in the fiscal year
ended December 31, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. None of the
directors or officers of the General Partner receive compensation from the
Partnership, and the General Partner does not receive reimbursement from the
Partnership for any portion of their salaries. Other information required by
Item 11 is hereby incorporated by reference herein to Note 7 of the notes to the
financial statements of the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) The following table sets forth certain information regarding the beneficial
ownership of Units as of January 20, 1999 by holders of more than five percent
of the Partnership's Units. Information regarding the beneficial ownership of
more than five percent of the Partnership's Units is based upon filings received
by the Partnership under the Securities and Exchange Act of 1934 and, in
particular, a schedule 13-G/A filed by Private Management Group, Inc. with the
Securities and Exchange Commission on January 20, 1999. 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.
Number of Percent of
Name Address Units Class
- - -------- ------- --------- ----------
Private 20 Corporate Park 924,336 9.65%
Management Suite 400
Group, Inc. Irvine, CA 92606
25
PART III
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - Continued
(b) There are no arrangements known to the Partnership, the operation of
which may at any subsequent date result in a change in control of the
Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
Note 7 of the notes to the Partnership's financial statements
which contains a discussion of the amounts, fees and other
compensation paid or accrued by the Partnership to the
directors and executive officers of the General Partner and
their affiliates, is hereby incorporated by reference herein.
(b) Certain business relationships.
Other than as set forth in Item 11 of this report which is
hereby incorporated by reference herein, the Partnership has
no business relationship with entities of which the General
Partner of the Partnership are officers, directors or equity
owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
26
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 52
All other schedules have been omitted because they
are inapplicable, not required, or the information is
included in the Financial Statements or Notes
thereto.
(a)(3) Exhibits:
4.0 Amended and Restated Certificate of Limited
Partnership is incorporated by reference to
Exhibit 4(a) to Amendment No. 1 to the
Partnership's Registration Statement on Form
S-11 (No. 33-1735) dated March 6, 1986 (such
Registration Statement, as amended, is
referred to herein as the "Amended
Registration Statement").
4.1 Second Amended and Restated Agreement of
Limited Partnership is incorporated by
reference in Exhibit 3 to the Amended
Registration Statement.
4.2 Material Amendments to the Second Amended
and Restated Agreement of Limited
Partnership are incorporated by reference to
Exhibit 4(a) to the Annual Report on
Form 10-K for the year ended December 31,
1987.
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
4.3 Amendment to the Second Amended and Restated
Agreement of Limited Partnership of the
Partnership dated February 12, 1990,
incorporated by reference to Exhibit 4(b) to
the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1989.
4.4 Amendment to Partnership Agreement dated
September 4, 1991, incorporated by reference
to Exhibit 28(c), to the Partnership's
Annual Report on Form 10-K for the year
ended December 31, 1991.
10.0 Escrow Agreement is incorporated by
reference to Exhibit 10(a) to the Amended
Registration Statement.
10.1 Origination and Acquisition Services
Agreement is incorporated by reference to
Exhibit 10(b) to the Amended Registration
Statement.
10.2 Management Services Agreement is
incorporated by reference to Exhibit 10(c)
to the Amended Registration Statement.
10.3 Disposition Services Agreement is
incorporated by reference to Exhibit 10(d)
to the Amended Registration Statement.
10.4 Agreement among the former managing general
partner, the former associate general
partner and Integrated Resources, Inc. is
incorporated by reference to Exhibit 10(e)
to the Amended Registration Statement.
10.5 Reinvestment Plan is incorporated by
reference to the Prospectus contained in the
Amended Registration Statement.
10.6 Pages A-1 - A-5 of the Partnership Agreement
of Registrant, incorporated by reference to
Exhibit 28 to the Partnership's Annual
Report on Form 10-K for the year ended
December 31, 1990.
10.7 Purchase Agreement among AIM Acquisition,
the former managing general partner, the
former corporate general partner, IFI and
Integrated dated as of December 13, 1990, as
amended January 9, 1991, incorporated by
reference to Exhibit 28(a) to the
Partnership's Annual Report on Form 10-K for
the year ended December 31, 1990.
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.8 Purchase Agreement among CRIIMI, Inc., AIM
Acquisition, the former managing general
partner, the former corporate general
partner, IFI and Integrated dated as of
December 13, 1990 and executed as of March
1, 1991, incorporated by reference to
Exhibit 28(b) to the Partnership's Annual
Report on Form 10-K for the year ended
December 31, 1990.
10.9 Sub-Management Agreement by and between AIM
Acquisition and CRI/AIM Management, Inc.,
dated as of March 1, 1991, incorporated by
reference to Exhibit 28(e) to the
Partnership's Annual Report on Form 10-K
for the year ended December 31, 1992.
10.10 Expense Reimbursement Agreement by
Integrated Funding Inc. and the AIM Funds,
effective December 31, 1992, incorporated by
reference to Exhibit 28(f) to the
Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.
10.11 Non-negotiable promissory note to American
Insured Mortgage Investors L.P. - Series 88
in the amount of $478,612 dated April 1,
1994, incorporated by reference to Exhibit
10(p) to the Partnership's Annual Report on
Form 10-K for the year ended December 31,
1994.
10.12 Amendment No. 1 to Reimbursement Agreement
by Integrated Funding, Inc. and the AIM
Funds, effective April 1, 1994, incorporated
by reference to Exhibit 10(q) to the
Partnership's Annual Report on Form
10-K for the year ended December 31, 1994.
10.13 Non-negotiable promissory note to American
Insured Mortgage Investors L.P. - Series 88
in the amount of $658,486 dated April 1,
1997, incorporated by reference to Exhibit
10.13 to the Partnership's Annual Report on
Form 10-K for the year ended December 31,
1997.
10.14 Amendment No. 2 to Reimbursement Agreement
by Integrated Funding, Inc. and the AIM
Funds, effective April 1, 1997, incorporated
by reference to Exhibit 10.14 to the
Partnership's Annual Report on Form
10-K for the year ended December 31, 1997.
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
27. Financial Data Schedule (filed herewith).
(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 L.P. - SERIES 86
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ March 31, 1999 /s/ William B. Dockser
- - --------------------------- -------------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer
/s/ March 31, 1999 /s/ H. William Willoughby
- - --------------------------- -------------------------
DATE H. William Willoughby
President and Director
/s/ March 31, 1999 /s/ Cynthia O. Azzara
- - --------------------------- ------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer
/s/ March 31, 1999 /s/ Garrett G. Carlson, Sr.
- - --------------------------- --------------------------
DATE Garrett G. Carlson, Sr.
Director
/s/ March 31, 1999 /s/ G. Richard Dunnells
- - --------------------------- -------------------------
DATE G. Richard Dunnells
Director
/s/ March 31, 1999 /s/ Robert J. Merrick
- - --------------------------- -------------------------
DATE Robert J. Merrick
Director
/s/ March 31, 1999 /s/ Robert E. Woods
- - --------------------------- -------------------------
DATE Robert E. Woods
Director
31
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
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 L.P. - Series 86:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 86 (the Partnership) as of December 31, 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 31, 1999
33
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
As of December 31,
1998 1997
------------- -------------
ASSETS
Investment in FHA-Insured Certificates and
GNMA Mortgage- Backed Securities, at fair value:
Originated insured mortgages $ 22,479,721 $ 22,412,522
Acquired insured mortgages 33,305,292 40,780,876
------------- -------------
55,785,013 63,193,398
------------- -------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Originated insured mortgages 33,853,462 43,068,712
Acquired insured mortgage 975,086 982,422
------------- -------------
34,828,548 44,051,134
Cash and cash equivalents 1,064,294 24,011,634
Investment in affiliate 650,803 658,486
Receivables and other assets 4,797,104 4,752,910
------------- ------------
Total assets $ 97,125,762 $136,667,562
============= ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,409,759 $ 24,267,990
Note payable and due to affiliate 658,494 658,486
Accounts payable and accrued expenses 179,641 170,439
------------- ------------
Total liabilities 2,247,894 25,096,915
------------- ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
9,576,290 Units issued and outstanding 100,084,995 115,755,882
General partner's deficit (4,728,466) (3,921,028)
Accumulated other
comprehensive income (478,661) (264,207)
------------- ------------
Total partners' equity 94,877,868 111,570,647
------------- ------------
Total liabilities and
partners' equity $ 97,125,762 $136,667,562
============= =============
The accompanying notes are an integral
part of these financial statements.
34
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
1998 1997 1996
------------ ------------ ------------
Income:
Mortgage investment income $ 5,626,084 $ 10,130,219 $ 13,096,453
Interest and other income 431,667 498,501 376,054
------------ ------------ ------------
6,057,751 10,628,720 13,472,507
------------ ------------ ------------
Expenses:
Asset management fee to related
parties 746,504 976,807 1,578,579
General and administrative 327,691 334,053 406,794
Interest expense to affiliate 47,740 44,480 34,700
------------ ------------ ------------
1,121,935 1,355,340 2,020,073
------------ ------------ ------------
Earnings before gain on mortgage
dispositions and loan losses 4,935,816 9,273,380 11,452,434
Gain on mortgage dispositions 437,120 589,659 1,616,449
Loss on mortgage disposition -- (39,725) --
Loan loss -- (387,325) --
------------ ------------ ------------
Net earnings $ 5,372,936 $ 9,435,989 $ 13,068,883
============ ============ ============
Other comprehensive income (214,454) 3,148,174 122,177
------------ ------------ ------------
Comprehensive income 5,158,482 12,584,163 13,191,060
============ ============ ============
Net earnings allocated to:
Limited partners - 95.1% $ 5,109,662 $ 8,973,626 $ 12,428,508
General partner - 4.9% 263,274 462,363 640,375
------------ ------------ ------------
$ 5,372,936 $ 9,435,989 $ 13,068,883
============ ============ ============
Net earnings per Limited
Partnership Unit - Basic $ 0.53 $ 0.94 $ 1.30
============ ============ ============
The accompanying notes are an integral
part of these financial statements.
35
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
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 (869,206) 174,986,113 (3,534,558) 170,582,349
Net earnings 640,375 12,428,508 -- 13,068,883
Adjustment to unrealized gains
(losses) on investment in
insured mortgages -- -- 122,177 122,177
Distributions paid or accrued of
$4.83 per Unit, including return
of capital of $3.53 per Unit (2,383,198) (46,253,480) -- (48,636,678)
----------- ------------- --------------- ---------------
Balance, December 31, 1996 (2,612,029) 141,161,141 (3,412,381) 135,136,731
Net earnings 462,363 8,973,626 -- 9,435,989
Adjustment to unrealized gains
(losses) on investments in
insured mortgages -- -- 3,148,174 3,148,174
Distributions paid or accrued of
$3.59 per Unit, including return
of capital of $2.65 per Unit (1,771,362) (34,378,885) -- (36,150,247)
----------- ------------- --------------- ---------------
Balance, December 31, 1997 (3,921,028) 115,755,882 (264,207) 111,570,647
Net earnings 263,274 5,109,662 -- 5,372,936
Adjustment to unrealized gains
(losses) on investments in
insured mortgages -- -- (214,454) (214,454)
Distributions paid or accrued of
$2.17 per Unit, including return
of capital of $1.64 per Unit (1,070,712) (20,780,549) -- (21,851,261)
----------- -------------- --------------- ---------------
Balance, December 31, 1998 (4,728,466) 100,084,995 (478,661) 94,877,868
=========== ============= =============== ===============
Limited Partnership Units outstanding -
basic, as of December 31, 1998, 1997,
and 1996 9,576,290
==========
The accompanying notes are an integral
part of these financial statements.
36
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 5,372,936 $ 9,435,989 $ 13,068,883
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Gain on mortgage dispositions (437,120) (589,659) (1,616,449)
Loss on mortgage dispositions -- 39,725 --
Loan loss reserve -- 387,325 --
Changes in assets and liabilities:
Increase (decrease) in investment in affiliate
and due to affiliate 7,691 (7,503) --
Increase (decrease) in accounts payable and
accrued expenses 9,202 34,745 (18,304)
Increase in receivables and other assets (44,194) (1,794,082) (632,922)
Return on investment in affiliate -- -- 4,617
------------- ------------ ------------
Net cash provided by operating activities 4,908,515 7,506,540 10,805,825
------------- ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 16,163,377 22,268,941 36,343,358
Receipt of principal from scheduled payments 690,260 1,069,862 1,084,392
------------- ------------ ------------
Net cash provided by investing activities 16,853,637 23,338,803 37,427,750
------------- ------------ ------------
Cash flows from financing activities:
Distributions paid to partners (44,709,492) (45,414,377) (18,427,561)
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents (22,947,340) (14,569,034) 29,806,014
Cash and cash equivalents, beginning of year 24,011,634 38,580,668 8,774,654
------------- ------------ ------------
Cash and cash equivalents, end of year $ 1,064,294 $ 24,011,634 $ 38,580,668
============= ============ ============
The accompanying notes are an integral
part of these financial statements.
37
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 86 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware on
October 31, 1985.
CRIIMI, Inc. (the General Partner) holds a partnership interest of
4.9%. 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 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. 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, an affiliate of CRIIMI MAE, manages
the Partnership's portfolio. These transactions had no effect on the
Partnership's financial statements.
Prior to the expiration of the Partnership's reinvestment period in
December 1994, the Partnership was engaged in the business of originating
mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans
(Acquired Insured Mortgages and, together with Originated Insured Mortgages,
referred to herein as Insured Mortgages). In accordance with the terms of the
Partnership Agreement, the Partnership is no longer authorized to originate or
acquire Insured Mortgages and, consequently, its primary objective is to manage
its portfolio of mortgage investments, all of which are insured under Section
221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement
states that the Partnership will terminate on December 31, 2020, unless
previously terminated under the provisions of the Partnership Agreement.
The General Partner listed the Partnership's Units for trading on the
American Stock Exchange (AMEX) on January 18, 1994 in order to provide
investment liquidity as contemplated in the Partnership's original prospectus.
The Units are traded under the symbol "AIJ."
38
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION - Continued
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
the parent of AIM Investments, 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 filing could also result in the potential need to
replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
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.
Reclassifications
-----------------
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 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.
39
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Payments of principal and interest on FHA-Insured Certificates
and FHA-Insured Loans are insured by the United States Department of
Housing and Urban Development (HUD) pursuant to Title 2 of the National
Housing Act. Payments of principal and interest on GNMA Mortgage-Backed
Securities are guaranteed by GNMA pursuant to Title 3 of the National
Housing Act.
As of December 31, 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 22 years, on December 31, 2020, unless previously
terminated under the provisions of the Partnership Agreement. As the
Partnership is anticipated to terminate prior to the weighted average
remaining term of its investments in GNMA Mortgage-Backed Securities
and FHA-Insured Certificates, the Partnership does not have the
ability, at this time, to hold these investments to maturity.
Consequently, the General Partner believes that the Partnership's
investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates should be included in the Available for Sale category.
Although the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are classified as Available for
Sale for financial statement purposes, the General Partner does not
intend to voluntarily sell these assets other than those which may be
sold as a result of a default.
In connection with this classification, as of December 31,
1998 and 1997, the Partnership's investments in GNMA Mortgage-Backed
Securities and FHA-Insured Certificates are recorded at fair value,
with the unrealized losses on these assets reported as other
comprehensive income and as a separate component of partners' equity.
Subsequent increases or decreases in the fair value of GNMA
Mortgage-Backed Securities and FHA-Insured Certificates, classified as
Available for Sale, will be included as a separate component of
partners' equity. Realized gains and losses on GNMA Mortgage-Backed
Securities and FHA-Insured Certificates, classified as Available for
Sale, will continue to be reported in earnings. The amortized cost of
the GNMA Mortgage-Backed Securities and FHA-Insured Certificates in
this category is adjusted for amortization of discounts and premiums to
maturity. Such amortization is included in mortgage investment income.
40
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
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
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.
41
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of time and demand deposits
and commercial paper 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.
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 (82,441) 1,092,899 1,973,844
Unrealized holding gains (losses) arising during
the period (132,013) 2,055,275 (1,851,667)
--------- ---------- ----------
Net adjustment to unrealized gains
(losses) on mortgages (214,454) 3,148,174 122,177
========= ========== ==========
42
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of the Partnership.
As of December 31, 1998 As of December 31, 1997
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Investment in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities:
Originated Insured Mortgages $ 23,066,799 $ 22,479,721 $ 23,104,560 $ 22,412,522
Acquired Insured Mortgages 33,196,875 33,305,292 40,353,044 40,780,876
------------ ------------ ------------ ------------
$ 56,263,674 $ 55,785,013 $ 63,457,604 $ 63,193,398
============ ============ ============ ============
Investment in FHA-Insured
Loans:
Originated Insured Mortgages $ 33,853,462 $ 33,031,725 $ 43,068,712 $ 41,812,118
Acquired Insured Mortgage 975,086 1,013,193 982,422 1,010,949
------------- ------------ ------------ ------------
$ 34,828,548 $ 34,044,918 $ 44,051,134 $ 42,823,067
============= ============ ============ ============
Cash and cash equivalents $ 1,064,294 $ 1,064,294 $ 24,011,634 $ 24,011,634
Accrued interest receivable $ 4,186,044 $ 4,186,044 $ 4,234,815 $ 4,234,815
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument:
Investment in FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans
--------------------------------------------------------
The fair value of the fully insured 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. In order
to determine the fair value of the coinsured FHA-Insured Certificates,
the Partnership valued the coinsured FHA-Insured Certificates as though
they were fully insured (in the same manner fully insured FHA-Insured
Certificates were valued). From this amount, the Partnership deducted a
43
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
discount factor from the face value of the loan. This discount factor
is based on the Partnership's historical analysis of the difference in
fair value between coinsured FHA-Insured Certificates and fully insured
FHA-Insured Certificates.
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of the
short maturity of these instruments.
4. INVESTMENT IN INSURED MORTGAGES
The following is a discussion of the Partnership's insured mortgage
investments, along with the risks related to each type of investment:
A. Fully Insured Originated Insured Mortgages and
Acquired Insured Mortgages
----------------------------------------------
Listed below is the Partnership's aggregate investment in
Fully Insured Mortgages as of December 31, 1998 and 1997:
December 31,
1998 1997
------------- ------------
Fully Insured Originated Insured:
Number of Mortgages(2)(3) 4 5
Amortized Cost $ 33,853,462 $ 43,068,712
Face Value 32,697,883 41,562,851
Fair Value 33,031,725 41,812,118
Fully Insured Acquired Insured:
Number of GNMA Mortgage-Backed
Securities(1) 9 10
FHA-Insured Certificates 2 2
FHA-Insured Loan 1 1
Amortized Cost $ 34,171,962 $ 41,335,466
Face Value 34,099,137 41,283,184
Fair Value 34,318,485 41,791,825
(1) In March 1998, the mortgage on Oak Grove Apartments was prepaid. The
Partnership received net proceeds of approximately $6.8 million, and
recognized a gain of approximately $23,000 for the year ended December
31, 1998. A distribution of $0.67 per Unit related to this prepayment
was declared in May 1998 and paid to Unitholders in August 1998.
(2) In April 1998, the mortgage on Arbor Station Apartments was prepaid.
The Partnership received net proceeds of approximately $9.3 million,
and recognized a gain of approximately $414,000 for the year ended
December 31, 1998. A distribution of $0.93 per Unit related to this
prepayment was declared in April 1998 and paid to Unitholders in August
1998.
(3) In February 1999, the mortgages on Iroquois Club Apartments and
Greenbriar Place were prepaid. The Partnership received net proceeds of
approximately $19.4 million and $5.9 million and recognized a gain of
approximately $280,000 and a loss of approximately $210,000 for the
mortgages on Iroquois Club Apartments and Greenbriar Place,
respectively. A distribution of $2.46 per Unit related to these
prepayments was declared in March 1999 and is expected to be paid in
May 1999.
44
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN INSURED MORTGAGES - Continued
As of March 5, 1999, all of the Partnership's fully insured
mortgage investments are current with respect to the payment of
principal and interest.
In addition to base interest payments from Fully Insured
Originated Insured Mortgages, the Partnership is entitled to additional
interest based on a percentage of the net cash flow from the underlying
development and of the net proceeds from the refinancing, sale or other
disposition of the underlying development (referred to as
Participations). During the years ended December 31, 1998, 1997 and
1996, the Partnership received additional interest of $74,112, $95,744
and $171,848, respectively, from the fully insured Participations.
These amounts are included in mortgage investment income on the
accompanying statements of income and comprehensive income.
B. Coinsured Mortgages
-------------------
Under the HUD coinsurance program, both HUD and the
coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the
development collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such case, the
coinsurance lender will be liable to the Partnership for the first part
of such loss in an amount up to 5% of the outstanding principal balance
of the mortgage as of the date foreclosure proceedings are instituted
or the deed is acquired in lieu of foreclosure. For any loss greater
than 5% of the outstanding principal balance, the responsibility for
paying the insurance benefits will be borne on a pro-rata basis, 85% by
HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under
the mortgage, the coinsurance lender is responsible for the timely
payment of principal and interest to the Partnership. The coinsurance
lender is prohibited from entering into any workout arrangement with
the borrower without the Partnership's consent and must file a claim
for coinsurance benefits with HUD, upon default, if the Partnership so
directs. As an ongoing HUD-approved coinsurance lender, and under the
terms of the participation documents, the coinsurance lender is
required to satisfy certain minimum net worth requirements as set forth
by HUD. However, it is possible that the coinsurance lender's potential
45
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN INSURED MORTGAGES - Continued
liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would
bear the risk of loss if the coinsurance lenders were unable to meet
their coinsurance obligations. In addition, HUD's obligation for the
payment of its share of the loss could be diminished under certain
conditions, such as the lender not adequately pursuing regulatory
violations of the borrower or the failure to comply with other terms of
the mortgage. However, the General Partner is not aware of any
conditions or actions that would result in HUD diminishing its
insurance coverage.
As of December 31, 1998 and 1997, the Partnership had invested
in three FHA-Insured Certificates secured by coinsured mortgages. As of
December 31, 1998, two of the three FHA-Insured Certificates secured by
coinsured mortgages are coinsured by an unaffiliated third party
coinsurance lender, The Patrician Mortgage Company (Patrician), under
the HUD coinsurance program. The three coinsured mortgages have been
delinquent with respect to the payment of principal and interest. The
following is a discussion of the performance problems with respect to
the Partnership's coinsured mortgage investments.
1. Coinsured by third party
------------------------
Listed below are the Originated Insured Mortgages co-insured
by Patrician:
December 31, 1998 December 31, 1997
---------------------------------------------------- ----------------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
---------------- --------------- ---------------- ---------------- ---------------- ---------------
The Villas(1) $ 15,412,759 $ 15,646,469 $ 14,905,685 $ 15,412,759 $ 15,646,469 $ 14,871,111
St. Charles Place -
Phase II(2) 3,035,688 3,035,688 2,898,074 3,035,688 3,035,688 2,885,298
---------------- --------------- ---------------- ---------------- --------------- ---------------
Total $ 18,448,447 $ 18,682,157 $ 17,803,759 $ 18,448,447 $ 18,682,157 $ 17,756,409
================ =============== ================ ================ =============== ===============
(1) As of March 5, 1999, the mortgagor has made payments of
principal and interest due on the original mortgage on the Villas
through November 1995, and has made payments of principal and interest
due under a modification agreement with the Villas through August 1993.
As the result of bankruptcy proceedings that have been ongoing since
1992, the property was acquired and vested with Patrician in November
1998. Patrician is in the process of improving the property and intends
to file its initial claim with HUD by October 1999. A coinsurance claim
will be filed with HUD for remaining amounts not collected as a result
of the disposition. Due to deferred maintenance and tax deficiencies,
the Partnership does not expect cash flow to be realized from this
property until the property is sold and claims are filed with HUD for
Multifamily Coinsurance benefits.
46
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN INSURED MORTGAGES - Continued
(2) This amount represents the Partnership's approximate 45%
ownership interest in the mortgage. The remaining 55% ownership
interest is held by American Insured Mortgage Investors L.P. - Series
88 (AIM 88), an affiliate of the Partnership. As of March 5, 1999, the
mortgagor has made payments of principal and interest due on the
mortgage through November 1995. As the result of bankruptcy proceedings
that have been ongoing since 1992, the property was acquired and vested
with Patrician in November 1998. Patrician is in the process of
improving the property and intends to file its initial claim with HUD
by October 1999. A coinsurance claim will be filed with HUD for
remaining amounts not collected as a result of the disposition. Due to
deferred maintenance and tax deficiencies, the Partnership does not
expect cash flow to be realized from this property until the property
is sold and claims are filed with HUD for Multifamily Coinsurance
benefits.
The General Partner intends to continue to oversee the
Partnership's interest in these mortgages to ensure that
Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of The Villas and
St. Charles Place-Phase II mortgages is based on the most
recent information available, and to the extent these
conditions change or additional information becomes available,
then the General Partners' assessment may change. However, the
General Partner does not believe that there would be a
material adverse impact on the Partnership's financial
condition or its results of operations should Patrician be
unable to comply with its full coinsurance obligation.
2. Coinsured by affiliate
----------------------
As of December 31, 1998 and 1997, the Partnership held an
investment in one FHA-Insured Certificate, secured by a
coinsured mortgage where the coinsurance lender is Integrated
Funding, Inc. (IFI), an affiliate of the Partnership. The
Partnership bears the risk of loss upon default for IFI's
portion of the coinsurance loss.
1998 1997
--------------------------------------- -------------------------------------- Cumulative
Amortized Face Fair Amortized Face Fair Loan Losses
Cost Value Value Cost Value Value Recognized
------------- ------------ ----------- -------------- ------------ ---------- -------------
Spring Lake
Village(1) $ 4,618,353 $ 4,860,980 $4,675,962 $ 4,656,113 $ 4,898,740 $4,656,113 $ 502,626
(1) In March 1998, IFI completed foreclosure proceedings and
obtained title to this property. A Purchase and Sale agreement
is expected to be ratified in March 1999 with a projected
settlement date by the end of the second quarter 1999.
Subsequent to sale and settlement, a claim will be filed with
HUD. The Partnership expects that the claim will result in the
recovery of a significant portion of amounts due.
In connection with the FHA-Insured Certificates secured by
coinsured mortgages, the Partnership has sought, in addition
to base interest payments, additional interest (commonly
termed Participations) based on a percentage of the net cash
flow from the development and the net proceeds from the
47
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN INSURED MORTGAGES - Continued
refinancing, sale or other disposition of the underlying
development. All of the FHA-Insured Certificates secured by
coinsured mortgages contain such Participations. During the
years ended December 31, 1998, 1997 and 1996, the Partnership
received additional interest of $0, $0 and $110,253,
respectively, from the coinsured Participations. These amounts
are included in mortgage investment income on the accompanying
statements of income and comprehensive income.
5. 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 $ 0.15 $ 0.75 (2)(3) $ 0.91 (5)(6)
Quarter ended June 30, 1.75(1) 0.21 0.30 (6)
Quarter ended September 30, 0.13 0.22 (3) 0.29 (7)
Quarter ended December 31, 0.14 2.41 (4) 3.33 (8)(3)
-------- ------- ------
$ 2.17 $ 3.59 $ 4.83
======== ======= ======
(1) This amount includes approximately $1.60 per Unit return of capital
from the prepayment of the following mortgages: Oak Grove Apartments of
$0.67 per Unit and Arbor Station Apartments of $0.93 per Unit.
(2) This amount includes approximately $0.53 per Unit return of capital
from the prepayment of the mortgage on Carmen Drive Estates.
(3) This amount includes approximately $0.01 per Unit representing
previously undistributed accrued interest receivable from St. Charles
Place-Phase II and The Villas.
(4) This amount includes approximately $2.21 per Unit return of capital
from the prepayment of the following mortgages: Ridgeview Chase
Apartments of $0.95 per Unit and Woodland Apartments of $1.26 per Unit.
(5) This amount includes approximately $0.61 per Unit return of capital
from the prepayment of the mortgage on Lakewood Villas.
(6) This amount includes approximately $0.03 per Unit representing
previously undistributed accrued interest receivable from St. Charles
Place - Phase II and The Villas.
(7) This amount includes approximately $0.02 per Unit representing
previously undistributed accrued interest receivable from St. Charles
Place - Phase II and The Villas.
(8) This amount includes approximately $3.07 per Unit return of capital and
gain from the prepayment of the following mortgages: Woodbine at
Lakewood Apartments $0.55, Pembrook Apartments $1.60, and Skyridge Club
$0.92.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions and cash flow from operations, which includes regular
interest income and principal from Insured Mortgages. Although Insured Mortgages
yield a fixed monthly mortgage payment once purchased, the cash distributions
48
AMERICAN INSURED MORTGAGED INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
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.
6. INVESTMENT IN AFFILIATE AND NOTE PAYABLE TO AFFILIATE
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 Mortgages Investors L.P. - Series 85 (AIM 85), 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 1, 1994. Interest expense on the note payable is based on an interest rate
of 7.25% per annum. In April 1997, the GNMA mortgage-backed security, with a
current balance of $1.9 million, was reallocated between the Partnership and AIM
88, since AIM 85 no longer holds coinsured mortgages. As a result, a new demand
note payable to AIM 88 was issued and the investment in IFI was increased.
IFI had entered into an expense reimbursement agreement with the
Partnership, AIM 85 and AIM 88 (collectively the AIM Funds) whereby IFI
reimburses the AIM Funds for general and administrative expenses incurred on
behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on
an amount proportionate to each entity's IFI coinsured mortgages. The expense
reimbursement, 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. In April 1997,
this agreement was amended to exclude AIM 85 which no longer holds coinsured
mortgages.
49
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
7. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described above in Note
6, 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:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
Capacity in Which For the years ended December 31,
Name of Recipient Served/Item 1998 1997 1996
- - ----------------- ---------------------------- ---------- ---------- ----------
CRIIMI, Inc. General Partner/Distribution $1,070,712 $1,771,362 $2,383,198
AIM Acquisition Advisor/Asset Management Fee 746,504 976,807 1,578,579
Partners, L.P.(1)
CRIIMI MAE
Management, Inc. Affiliate of General Partner/ 42,883 52,530 64,405
Expense Reimbursement
(1) The Advisor, pursuant to the Partnership Agreement, effective
October 1, 1991, is entitled to an Asset Management Fee equal to 0.75% of Total
Invested Assets for 1998 and 1997 and 0.95% of Total Invested Assets for 1996.
The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of
0.28% of Total Invested Assets from the Advisor's Asset Management Fee. As
discussed in Note 1, effective June 30, 1995, CRIIMI MAE Services Limited
Partnership (CMSLP) now serves as the Sub-advisor. Of the amounts paid to the
Advisor, CMSLP earned a fee equal to $278,684, $364,368 and $465,231 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.
50
8. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 9,576,165
Units were issued for an aggregate capital contribution of $191,523,300. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor.
51
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1998, 1997 and 1996:
(In Thousands, Except Per Unit Data)
1998
Quarter ended
March 31 June 30 September 30 December 31
------------ ----------- ----------------- ----------------
Income $ 1,819 $ 1,424 $ 1,495 $ 1,320
Gain on mortgage dispositions -- 437 -- --
Net earnings 1,507 1,575 1,244 1,047
Net earnings per Limited
Partnership Unit - Basic 0.15 0.16 0.12 0.10
1997
Quarter ended
March 31 June 30 September 30 December 31
------------ ----------- ----------------- ----------------
Income $ 2,838 $ 2,658 $ 2,570 $ 2,563
Gain on mortgage dispositions -- -- -- 590
Loss on mortgage dispositions -- -- -- (40)
Loan loss -- -- -- (387)
Net earnings 2,491 2,291 2,219 2,435
Net earnings per Limited
Partnership Unit - Basic 0.25 0.22 0.22 0.25
1996
Quarter ended
March 31 June 30 September 30 December 31
------------ ----------- ----------------- ----------------
Income $ 3,468 $ 3,525 $ 3,255 $ 3,225
Gain on mortgage disposition 37 -- -- 1,579
Net earnings 2,985 2,980 2,796 4,308
Net earnings per Limited
Partnership Unit - Basic 0.30 0.29 0.28 0.43
52
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(15) Loan Losses (4)(11)
- - --------------------------- --------- --------- --------- ----------- ------------- ----------- -----------
ORIGINATED INSURED MORTGAGES
Coinsured Mortgages
- - ----------------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Spring Lake Village
St. Petersburg, FL(7) 7/29 5/03 8.75% (14) $ 4,860,980(12) $ 4,675,962 $ 502,626(7) $ 458,028(14)
The Villas
Lauderhill, FL (6) 7/29 8/02 8.75% 15,646,469(12) 14,905,685 842,709 1,491,805(13)
St. Charles Place-Phase II
Miramar, FL (6) 2/30 12/03 8.625% 3,035,688(8)(12) 2,898,074 106,000 279,571(8)
---------- ---------
Total investment in FHA-Insured
Certificates-Originated Insured
Mortgages 23,543,137 22,479,721
---------- ----------
53
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- - --------------------------- --------- --------- --------- ----------- ------------- ----------- -----------
ACQUIRED INSURED
MORTGAGES:
- - -----------------------------
Investment in FHA-Insured
Certificates (carried at fair value)
Southampton Apts.
Grove City, OH 4/27 -- 8.50% 1,956,619 2,026,533 -- 183,038
Pleasantview Nursing Home
Union, NJ 6/29 -- 7.75% 3,391,182 3,393,477 -- 290,532
---------- ----------
Total investment in FHA-Insured
Certificates - Acquired Insured
Mortgages 5,347,801 5,420,010
---------- ----------
Investment in GNMA Mortgage-Backed
Securities (carried at fair value)
Brighton Manor,
Petersburg, VA 3/29 -- 7.50% 1,005,491 1,007,480 -- 80,468
Cyress Cove,
Jacksonville, FL 2/28 -- 7.30% 6,802,564 6,816,705 -- 547,562
Hickory Tree Apts.,
Indianapolis, IN 4/27 -- 7.375% 3,413,081 3,420,337 -- 279,232
Main Street Square,
Roundrock, TX 9/29 -- 8.75% 1,342,396 1,396,841 -- 122,808
Maple Manor,
Syracuse, NY 4/29 -- 7.375% 1,216,508 1,218,931 -- 97,555
54
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- - --------------------------- --------- --------- --------- ----------- ------------- ----------- -----------
ACQUIRED INSURED
MORTGAGES:
- - ---------------------------
Investment in GNMA Mortgage-Backed
Securities (carried at fair value) - Continued
Mountain Village Apts.,
Tucson, AZ 5/29 -- 7.50% 1,320,097 1,322,696 -- 105,487
Oakwood Garden Apts.,
San Jose, CA 10/23 -- 7.75% 9,466,821 9,489,203 -- 813,527
Regency Park Apts.,
North St. Paul, MN 4/24 -- 7.00% 1,417,142 1,420,619 -- 116,207
Sunflower Apts.,
Tucson, AZ 5/29 -- 7.50% 1,788,949 1,792,470 -- 142,952
----------- -----------
Total investment in GNMA Mortgage-
Backed Securities-Acquired Insured
Mortgages 27,773,049 27,885,282
----------- -----------
Total investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities $56,663,987 $55,785,013
=========== ===========
55
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Annual
Payment
Interest Net (Principal
Rate on Face Carrying and
Development Name/ Maturity Put Mortgage Amount of Value Cumulative Interest)
Location Date Date (1) (4)(5) Mortgage (3)(9)(10)(14) Loan Losses (4)(11)
- - --------------------------- --------- --------- --------- ----------- ------------- ----------- -----------
ORIGINATED INSURED
MORTGAGES:
- - -------------------------------
Fully Insured Mortgages
- - -------------------------------
Investment in FHA-Insured
Loans (carried at amortized cost)(2)
Iroquois Club Apts.
Naperville, IL 3/29 12/03 8.25% 18,101,992 18,725,128 -- 1,629,873
Colony Square Apts.
Rocky Mount, NC 10/28 4/02 8.25% 4,122,314 4,280,483 -- 372,352
Argyle Place
Hickory, NC 4/29 7/03 8.25% 4,824,097 4,989,814 -- 434,902
Greenbriar Place
Glen Ellyn, IL 4/29 7/02 8.25% 5,649,480 5,858,037 -- 508,353
----------- -----------
Total investment in FHA-Insured Loans -
Fully Insured Mortgages 32,697,883 33,853,462
----------- -----------
ACQUIRED INSURED MORTGAGE
- - -------------------------
Investment in FHA-Insured
Loan - (carried at amortized cost)(2)
Winburn Square
Lexington, KY 1/27 -- 9.00% 978,287 975,086 -- 95,829
----------- -----------
Total investment in FHA-Insured Loans 33,676,170 34,828,548
----------- -----------
TOTAL INVESTMENT IN INSURED MORTGAGES $90,340,157 $90,613,561
=========== ===========
56
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(1) Certain mortgages possess a special assignment option, in certain
mortgage documents, which allows the Partnership, anytime after this
date, to require payment of the unpaid principal balance of the
mortgages. At such time, the borrowers must make payment to the
Partnership or the Partnership may cancel the FHA insurance and
institute foreclosure proceedings.
(2) Inclusive of closing costs and acquisition fees.
(3) Prepayment of these insured mortgages would be based upon the unpaid
principal balance at the time of prepayment.
(4) This represents the base interest rate during the permanent phase of
this insured mortgage loan. Additional interest (referred to as
Participations) measured as a percentage of the net cash flow from the
development and of the net proceeds from sale, refinancing or other
disposition of the underlying development (as defined in the
participation agreements), will also be due. During the years ended
December 31, 1998, 1997 and 1996, the Partnership received additional
interest of $74,112, $95,744 and $282,101, respectively, from the
Participations.
(5) In addition, the servicer or the sub-servicer of the Insured Mortgage,
primarily unaffiliated third parties, is entitled to receive
compensation for certain services rendered.
(6) These Insured Mortgages are insured under the HUD coinsurance program,
as previously discussed. The
57
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
HUD-approved coinsurance lender for these mortgages is The Patrician
Mortgage Company.
(7) This mortgage is insured under the HUD coinsurance program, as
previously discussed. Integrated Funding, Inc. is the HUD-approved
coinsurance lender, and the Partnership bears the risk of any principal
loss, as previously discussed. As a result of payment defaults during
1997 and the subsequent foreclosure in March 1998, the Partnership has
recognized an additional loan loss reserve of $387,325 for the portion
of the estimated loss after considering costs to dispose of assets and
reimbursements from HUD.
(8) This amount represents the Partnership's 45% interest in this Insured
Mortgage. The remaining 55% interest was acquired by AIM 88.
(9) A reconciliation of the carrying value of the Insured Mortgages for the
years ended December 31, 1998 and 1997, is as
follows:
1998 1997
------------ ------------
Beginning balance $107,244,532 $127,127,854
Principal receipts on
Insured Mortgages (690,260) (1,069,862)
Gain on mortgage
dispositions 437,120 589,659
Loss on mortgage dispositions -- (39,725)
Disposition of mortgages (16,163,377) (22,268,941)
Adjustment to unrealized
losses on investment in
Insured Mortgages 7,937 2,772,264
Adjustment to unrealized
gains on investment in
Insured Mortgages (222,391) 375,910
Loan loss -- (242,627)(a)
------------ ------------
Ending balance $ 90,613,561 $107,244,532
============ ============
(a) Net of receivables and other assets of $144,698 related to Spring
Lake Village.
(10) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities, and FHA-Insured Loans
are non-recourse first liens on multifamily residential developments or
retirement homes.
58
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(11) Principal and interest are payable at level amounts over the life of the
Insured Mortgages.
(12) Represents principal amount subject to delinquent principal or
interest. See Note 4 to the financial statements.
(13) Annual payment reflects required principal and interest payments for
1998 as per the modification agreement.
(14) Pursuant to a modification agreement dated February 1996, the interest
rate on this mortgage was reduced to 6.75% for 1997. However, the
mortgage went into default as of July 1, 1997, as a result, the
mortgage was reverted back to its original note rate of 8.75% effective
July 1, 1997. See Note 4 of the financial statements for further
discussion.
(15) As of December 31, 1998 and 1997, the tax basis of the Insured
Mortgages was approximately $88.6 million and $108.6 million,
respectively.
59
EXHIBIT 10.13
AMENDED AND RESTATED
NON-NEGOTIABLE PROMISSORY NOTE
US $658,486.00 April 1, 1997
Rockville, Maryland
FOR VALUE RECEIVED, the undersigned hereby promises to pay to
the order of American Insured Mortgage Investors L.P. - Series 88, a Delaware
limited partnership (the "Partnership"), the principal sum of Six Hundred Fifty
Eight Thousand Four Hundred Eighty Six Dollars and no cents ($658,486.00) plus
interest computed on the basis of a year consisting of 360 days at a rate of
interest equal to seven and one quarter percent (7.25%) per annum.
This Note is an amendment and restatement of a promissory note
dated April 1, 1994 payable to the order of the Partnership by the undersigned
in the amount of $478,612.00.
This Note is payable upon demand. Payment shall be made in
legal tender of the United States at the offices of the Partnership, c/o C.R.I.,
Inc., The CRI Building, 11200 Rockville Pike, Rockville, Maryland 20852.
Accrued interest only on the outstanding principal amount
shall be payable on the fifteenth day of each month commencing on April 15, 1997
provided that Integrated Funding, Inc. has received on a timely basis the
interest payment due from the Government National Mortgage Association on GNMA
Pool Number 280640 in the face amount of $1,936,724.42 as of the date hereof.
If any payment of principal or interest on this Note is due on
a Saturday, Sunday or legal holiday under the laws of Maryland, such payment
shall be made on the next succeeding business day. The Note may be prepaid at
any time, without penalty.
The undersigned hereby waives presentment, demand for payment,
notice of dishonor, notice of protest, and all other notices on demand in
connection with the delivery acceptance, performance, default and endorsement of
this Note.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 86
By: CRIIMI, Inc., its
General Partner
By: /s/ Cynthia O. Azzara
-------------------------
Cynthia O. Azzara
Sr. Vice President/Chief
Financial Officer
60
EXHIBIT 10.14
SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT
-------------------------------------------
THIS SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT is made effective as
of April 1, 1997 by and among Integrated Funding, Inc., a New York corporation
("IFI"), and American Insured Mortgage Investors L.P. - Series 85 ("AIM 85"),
American Insured Mortgage Investors L.P. - Series 86 ("AIM 86"), and American
Insured Mortgage Investors L.P. - Series 88 ("AIM 88") (AIM 85, AIM 86 and AIM
88 collectively referred to as the "AIM Funds").
RECITALS
--------
A. The parties hereto entered into the Expense Reimbursement Agreement
effective as of December 31, 1992 (the "Agreement") in order to allocate to IFI
a portion of the expenses incurred by the AIM Funds in connection with the
Subadvisor's management of the funds.
B. The parties hereto entered into the amendment to Reimbursement
Agreement effective as of April 1, 1994 (the "First Amendment") in order to
change the allocation of expenses to each fund based on the outstanding
principal balance of coinsured loans for which IFI acts as the mortgagee of
record as of April 1, 1994.
C. The parties seek to change the allocation of expenses to each fund
based on the outstanding principal balance of coinsured loans for which IFI acts
as the mortgagee of record as of April 1, 1997.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Section 1 of the Agreement is hereby deleted in its entirety
and the following is substituted in lieu thereof:
"1. Reimbursement. IFI will reimburse the AIM Funds a total
expense amount calculated as .2893% annually of the
outstanding principal balance of the coinsured loans for which
IFI acts the mortgagee of record (approximately $49 million as
of April 1, 1997). The total expense reimbursement shall be
allocated to each AIM Fund as follows:
AIM FUND % of Coinsured Loan Balance
-------- ---------------------------
AIM 85 0
AIM 86 34%
AIM 88 66%
2. Except as modified above, all other provisions of the Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
[Signatures on following page]
61
INTEGRATED FUNDING, INC.
By: /s/ Frederick J. Burchill
-------------------------
Frederick J. Burchill
Vice President
AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.
By: CRIIMI, Inc., its
General Partner
By: /s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Chief Financial Officer
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 86
By: CRIIMI, Inc., its
General Partner
By: /s/ Cynthia O. Azzara
------------------------
Cynthia O. Azzara
Chief Financial Officer
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - Series 88
By: CRIIMI, Inc., its
General Partner
By: /s/ Cynthia O. Azzara
-----------------------
Cynthia O. Azzara
Chief Financial Officer