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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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 1-12724
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AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
- - -----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-3398206
- - ------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- - ----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
- - -----------------------------------------------------------------
(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, 8,802,091 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 $92,964,228.
3
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
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Item 1. Business................................................ 4
Item 2. Properties.............................................. 6
Item 3. Legal Proceedings....................................... 6
Item 4. Submission of Matters to a Vote of
Security Holders...................................... 6
PART II
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Item 5. Market for Registrant's Securities and
Related Security Holder Matters....................... 6
Item 6. Selected Financial Data................................. 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 10
Item 7A. Qualitative and Quantitative Disclosures
About Market Risk..................................... 22
Item 8. Financial Statements and Supplementary Data............. 22
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ 22
PART III
--------
Item 10. Directors and Executive Officers of the
Registrant............................................ 23
Item 11. Executive Compensation.................................. 26
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................. 26
Item 13. Certain Relationships and Related
Transactions.......................................... 27
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................... 28
Signatures ........................................................ 32
4
PART I
ITEM 1. BUSINESS
Development and Description of Business
- - ---------------------------------------
Information concerning the business of American Insured Mortgage
Investors L.P.-Series 88 (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, 4, 5 and 7 of the notes to the financial statements
of the Partnership. Also see Schedule IV-Mortgage Loans on Real Estate for a
summary of mortgage investments held 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). CRIIMI MAE was formerly managed by
an affiliate of CRI, Inc. (CRI).
The general partner of the Advisor is AIM Acquisition Corporation (AIM
Acquisition) and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement
(the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an
affiliate of CRI, managed the Partnership's portfolio. In connection with the
transaction in which CRIIMI MAE became a self-administered real estate
investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory
Agreement. As a result of this transaction, effective June 30, 1995, CRIIMI MAE
Services Limited Partnership, an affiliate of CRIIMI MAE, manages the
Partnership's portfolio. These transactions had no effect on the Partnership's
financial statements.
Competition
- - -----------
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 and their respective affiliates. Some of these entities may have
substantially greater capital resources and experience than the Partnership in
disposing of the Federal Housing Administration (FHA) insured mortgages than the
Partnership.
5
PART I
ITEM 1. BUSINESS - Continued
CRIIMI MAE and its affiliates also may serve as general partners,
sponsors or managers of real estate limited partnerships, REITS or other
entities in the future. The Partnership may attempt to dispose of mortgages at
or about the same time that one or more of the other AIM Partnerships (American
Insured Mortgage Investors L.P. - Series 84, American Insured Mortgage Investors
- - - Series 85, L.P., American Insured Mortgage Investors L.P. - Series 86,
American Insured Mortgage Investors L.P. - Series 88, collectively referred to
herein as AIM Partnerships) 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.
6
PART I
ITEM 2. PROPERTIES
Although the Partnership does not own the underlying real estate, the
mortgages underlying the Partnership's mortgage investments are primarily
non-recourse first liens on the respective multifamily residential developments
or retirement homes.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 4 of the notes to the financial statements on
pages 45 through 49.
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 "AIK."
The high and low trade prices for the Units as reported on AMEX for
each quarterly period in 1998 and 1997 were as follows:
1998
----
Quarter Ended High Low
--------------------- --------- ---------
March 31, 1998 $ 14 1/4 $ 13 5/16
June 30, 1998 14 12 1/2
September 30, 1998 13 1/4 11 7/8
December 31, 1998 12 5/8 10 11/16
7
1997
-----
Quarter Ended High Low
- - ------------------ ---------- --------
March 31, 1997 $ 15 $ 14
June 30, 1997 15 14
September 30, 1997 14 7/8 13 3/8
December 31, 1997 13 15/16 13 3/16
Distribution Information
- - ------------------------
Distributions per Unit, payable out of the cash flow of the
Partnership, during 1998 and 1997 were as follows:
Distributions for the Amount of Distribution
Quarter Ended Per Unit
------------------------- -----------------------
March 31, 1998 $ 1.21(1)
June 30, 1998 1.50(2)
September 30, 1998 1.42(3)
December 31, 1998 0.21
-----------
$ 4.34
===========
March 31, 1997 $ 0.59(4)
June 30, 1997 0.30
September 30, 1997 1.06(5)
December 31, 1997 0.38(6)
-----------
$ 2.33
===========
(1) This amount includes approximately $0.92 per Unit representing net
proceeds from the prepayment of the mortgages on Northpoint Apartments
and Olmstead Park Apartments.
(2) This amount includes approximately $0.08 per Unit representing a
curtailment of the mortgage on Olde Mill Apartments and approximately
$1.18 per Unit representing net proceeds from the prepayment of the
mortgage on Arbor Village.
(3) This amount includes approximately $1.19 per Unit representing net
proceeds from the prepayment of the mortgage on Water's Edge II
Apartments.
(4) This amount includes approximately $0.27 per Unit representing partial
receipt of proceeds from the assignment of Water's Edge of New Jersey
and approximately $0.02 per Unit representing proceeds from mortgage
dispositions not reinvested prior to the expiration of the reinvestment
period.
(5) This amount includes approximately $0.76 per Unit representing proceeds
from the prepayment of the mortgage on Parkside Estates.
(6) This amount includes approximately $0.08 per Unit representing a
curtailment on the mortgage of Olde Mill Apartments and approximately
$0.01 per Unit representing previously undistributed accrued interest
received from St. Charles Place - Phase II.
There are no material legal restrictions upon the Partnership's present
or future ability to make distributions in accordance with the provisions of the
Partnership Agreement.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS Continued
Approximate Number of Unitholders
Title of Class as of December 31, 1998
- - ----------------- -------------------------------
Depositary Units of Limited
Partnership Interest 7,000
9
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the Years Ended December 31,
1998 1997 1996 1995 1994
-------- --------- ---------- --------- ---------
Income $ 9,998 $ 12,167 $ 12,465 $ 13,236 $ 13,332
Net gains (losses) on mortgage
disposition/modification 756 (354) (378) 2,452 978
Net earnings 9,179 10,097 10,293 13,795 11,540
Net earnings per Limited
Partnership Unit - Basic (1) 0.99 1.09 1.11 1.49 1.24
Distributions per Limited
Partnership Unit (1)(2) 4.34 2.33 1.22 1.66 1.41
As of December 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Total assets $116,464 $150,616 $159,554 $161,927 $154,805
Partners' equity $114,442 $146,977 $156,644 $158,806 $150,506
(1) Calculated based upon the weighted average number of Units outstanding.
See Note 2 of the notes to the financial statements of the Partnership.
(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 6 and 8 of the notes to the
Partnership's financial statements contained in Item 8, "Financial
Statements and Supplementary Data."
The selected statements of income and comprehensive income data
presented above for the years ended December 31, 1998, 1997 and 1996, and the
balance sheet data as of December 31, 1998 and 1997, are derived from and are
qualified by reference to the Partnership's financial statements which have been
included elsewhere in this Form 10-K. The statements of income and comprehensive
income data for the years ended December 31, 1995 and 1994 and the balance sheet
data as of December 31, 1996, 1995 and 1994 are derived from audited financial
statements not included in this Form 10-K. This data should be read in
conjunction with the financial statements and the notes thereto.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- - -------
American Insured Mortgage Investors L.P. - Series 88 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware on
February 13, 1987. During the period from October 2, 1987 (the initial closing
date of the Partnership's public offering) through March 10, 1989 (the
termination date of the offering), the Partnership, pursuant to its public
offering of Units, raised a total of $177,039,320 in gross proceeds. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 units of limited partnership interest in exchange
therefor.
CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%
which includes shares acquired from the former assignor limited partner.
CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
AIM Acquisition Partners, L.P. (the Advisor), serves as the advisor to
the Partnership. AIM Acquisition Corporation (AIM Acquisition) is the general
partner of the Advisor and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE.
Pursuant to the terms of certain amendments to the Partnership Agreement, the
General Partner is required to obtain 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 real estate
investment trust (REIT) on June 30, 1995, an affiliate of CRIIMI MAE acquired
the Sub-advisory Agreement. As a consequence of this transaction, effective June
30, 1995, CMSLP manages the Partnership's portfolio. These transactions had no
effect on the Partnership's financial statements.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
the parent to AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate
of CRIIMI MAE and provider of personnel and administrative services to the
Partnership, filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership; however, CRIIMI MAE has not historically
represented a significant source of capital for the General Partner or the
Partnership. Such bankruptcy filings could also result in the potential need to
replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Year 2000
- - ---------
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
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.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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
Partnerships. CMSLP has applied a vendor upgrade and has substantially completed
compliance testing on the upgrade.
Currently the Partnership estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.
Although the General Partner has substantially completed its compliance
testing and remediation, it is also in the process of developing contingency
plans for the risks of the failure of the Partnership or third parties to be
Year 2000 compliant. The General Partner intends to complete contingency plans
for the Year 2000 issue by May 31, 1999. Due to the inability to predict all of
the potential problems that may arise from the Year 2000 issue, there can be no
assurance that all contingencies will be adequately addressed by such plans.
Mortgage Investments
- - --------------------
Until the change in the Partnership's investment policy, as discussed
below, the Partnership was 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). As of December 31, 1998, the Partnership had invested in
either Originated Insured Mortgages which are insured or guaranteed, in whole or
in part, by the Federal Housing Administration (FHA) or Acquired Insured
Mortgages which are fully insured (as more fully described below).
The Partnership's reinvestment period expired on December 31, 1996, and
the Partnership Agreement states that the Partnership will terminate on December
31, 2021, unless previously terminated under the provisions of the Partnership
Agreement.
As of December 31, 1998, the Partnership had invested in 31 Insured
Mortgages with aggregate amortized cost, face and fair values of approximately
$106 million, $108 million and $106 million, respectively.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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, the GNMA Mortgage-Backed
Securities and the FHA-Insured Loans are non-recourse first liens on multifamily
residential developments or retirement homes.
Payments of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans are insured by the United States Department of Housing and
Urban Development (HUD) pursuant to Title 2 of the National Housing Act.
Payments of principal and interest on GNMA Mortgage-Backed Securities are
guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
The following is a discussion of the Partnership's mortgage
investments, along with the risks related to each type of investment.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
A. Fully Insured FHA-Insured Certificates and GNMA
Mortgage-Backed Securities
-----------------------------------------------
Listed below is the Partnership's aggregate investment in
fully insured Acquired Insured Mortgages as of December 31, 1998 and
1997:
December 31,
1998 1997
---------------- -----------------
Number of:
GNMA Mortgage-Backed Securities 22 22
FHA-Insured Certificates(1)(2) 3 5
Amortized Cost $ 65,698,059 $ 72,251,365
Face Value 65,930,408 72,492,904
Fair Value 67,018,830 74,963,747
(1) On January 31, 1998, the mortgage on Northpoint Apartments was prepaid.
The Partnership received net proceeds of approximately $1.7 million,
and recognized a gain of approximately $6,000 for the year ended
December 31, 1998. A distribution of $0.19 per Unit related to this
prepayment was declared in February 1998 and paid to Unitholders in May
1998.
(2) On December 21, 1998, the mortgage on Olde Mill Apartments was prepaid.
The Partnership received net proceeds of approximately $3.4 million,
and recognized a gain of approximately $97,000 for the year ended
December 31, 1998. A distribution of $0.37 per Unit related to this
prepayment was declared in January 1999 and is expected to be paid to
Unitholders in May 1999.
Listed below is the Partnership's aggregate investment in fully insured
Originated Insured Mortgages as of December 31, 1998 and 1997:
December 31,
1998 1997
------------ ----------------
Number of Mortgages (3) 0 1
Amortized Cost 0 $ 11,296,412
Face Value 0 10,941,101
Fair Value 0 11,055,186
(3) On June 4, 1998, the mortgage on Arbor Village was prepaid. The
Partnership received net proceeds of approximately $10.9 million, and
recognized a loss of approximately $350,000 for the year ended December
31, 1998. A distribution of $1.18 per Unit related to this prepayment
was declared in June 1998 and paid to Unitholders in August 1998.
As of March 5, 1999, all fully insured mortgages were current
with respect to the payment of principal and interest.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
In February 1996, the General Partner instructed the servicer
for the mortgage on Water's Edge of New Jersey, a fully insured
acquired construction loan, to file a Notice of Default and an Election
to Assign the mortgage with the Department of Housing and Urban
Development (HUD). The property underlying this construction loan is a
nursing home located in Trenton, New Jersey. As of December 31, 1998,
the Partnership had received approximately $10.2 million on this
assignment including partial repayment of the outstanding principal and
accrued interest. The remainder of the proceeds, approximately $1.5
million, is included in Receivables and Other Assets. HUD has
disallowed approximately $1.5 million of the assignment claim. The
servicer, Greystone Servicing Corporation, Inc., is currently
negotiating with HUD in regard to collection of the disallowed portion
of the claim. In addition, the General Partner has retained counsel in
this matter and is actively pursuing litigation. On July 30, 1998, the
Partnership filed a Motion for Judgment against Greystone Servicing
Corporation, Inc. (the servicer) in the Circuit Court of Fauquier
County, Virginia. The Motion for Judgment alleges breach of contract
and negligence claims and seeks judgment for $1,653,396 plus interest,
attorneys' fees and costs. The Partnership believes that the allowance
for loan losses of $375,000 as of December 31, 1998, is sufficient to
provide for amounts that may not be recovered from the servicer.
B. Coinsured FHA-Insured Certificates
----------------------------------
Under the HUD coinsurance program, both HUD and the
coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the
development collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such cases, the
coinsurance lender will be liable to the Partnership for the first part
of such loss in an amount up to 5% of the outstanding principal balance
of the mortgage as of the date foreclosure proceedings are instituted
or the deed is acquired in lieu of foreclosure. For any loss greater
than 5% of the outstanding principal balance, the responsibility for
paying the insurance benefits will be borne on a pro-rata basis, 85% by
HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under
the mortgage, the coinsurance lender is responsible for the timely
payment of principal and interest to the Partnership. The coinsurance
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
lender is prohibited from entering into any workout arrangement with
the borrower without the Partnership's consent and must file a claim
for coinsurance benefits with HUD, upon default, if the Partnership so
directs. As an ongoing HUD-approved coinsurance lender, and under the
terms of the participation documents, the coinsurance lender is
required to satisfy certain minimum net worth requirements as set forth
by HUD. However, it is possible that the coinsurance lender's potential
liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would
bear the risk of loss if the coinsurance lenders were unable to meet
their coinsurance obligations. In addition, HUD's obligation for the
payment of its share of the loss could be diminished under certain
conditions, such as the lender not adequately pursuing regulatory
violations of the borrower or the failure to comply with other terms of
the mortgage. However, the General Partner is not aware of any
conditions or actions that would result in HUD diminishing its
insurance coverage.
As of December 31, 1998 and 1997, the Partnership held
investments in three coinsured FHA-Insured Certificates secured by
coinsured mortgages. One of these coinsured mortgage investments, the
mortgage on St. Charles Place - Phase II, is coinsured by The Patrician
Mortgage Company (Patrician), an unaffiliated third party coinsurance
lender under the HUD coinsurance program. As of December 31, 1998, and
1997, the remaining two FHA-Insured Certificates are coinsured by
Integrated Funding, Inc. (IFI), an affiliate of the Partnership, and
are discussed below.
1. Coinsured by third party
------------------------
St. Charles Place - Phase II is a 156-unit apartment complex
located in Miramar, Florida. Listed below is the Partnership's
investment in the St. Charles Place - Phase II mortgage as of
December 31, 1998 and 1997. These amounts represent the
Partnership's approximate 55% ownership interest in the
mortgage. The remaining 45% ownership interest is held by
American Insured Mortgage Investors L.P. - Series 86 (AIM 86),
an affiliate of the Partnership.
December 31,
1998 1997
--------------- ---------------
Amortized Cost $ 3,710,287 $ 3,710,287
Face Value 3,710,287 3,710,287
Fair Value 3,422,177 3,484,715
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
As of March 5, 1999, the mortgagor had made payments of
principal and interest due to the Partnership 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 this mortgage investment to ensure
that Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of the carrying
value of the St. Charles Place-Phase II mortgage is based on
the most recent information available, and to the extent these
conditions change or additional information becomes available,
the General Partner's 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
investments in two FHA-Insured Certificates secured by
coinsured mortgages, where the coinsurance lender is IFI.
These investments were made on behalf of the Partnership by
the former managing general partner. As structured by the
former managing general partner, with respect to these
mortgages, the Partnership bears the risk of loss upon default
for IFI's portion of the coinsurance loss on these mortgage
investments.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
December 31, 1998 December 31, 1997
Fair Amortized Face Fair Amortized Face
Mkt. Value Cost Value Mkt. Value Cost Value
----------- ------------ ------------ ------------ ----------- -----------
The Breakers at Golf
Mill(1)(2) $20,470,263 22,113,145 $ 22,113,146 $20,873,845 $22,309,235 $22,309,236
Summerwind Apts.-Phase
II(1)(2) 8,638,778 7,913,874 9,307,962 8,809,008 7,959,366 9,378,179
----------- ------------ ------------ ----------- ----------- -----------
$29,109,041 30,027,019 $ 31,421,108 $29,682,853 30,268,601 31,687,415
=========== ============ ============ =========== =========== ===========
(1) As of March 5, 1999, the mortgagor was current with respect to payment of
principal and interest on this mortgage.
(2) There were no loan losses recognized for the years ended, 1998 and
1997. The cumulative loan losses recognized in prior years were $980,000
for The Breakers at Golf Mill, and $1,511,743 for Summerwind Apartments -
Phase II.
C. FHA-Insured Loans
-----------------
Listed below is the Partnership's aggregate investment in
fully insured Originated Insured Mortgages as of December 31, 1998 and
1997:
December 31,
1998 1997
--------------- ----------------
Number of Mortgages(1)(2)(3) 1 3
Amortized Cost $ 5,721,754 $ 22,609,310
Face Value 5,721,754 22,213,954
Fair Value 5,725,377 22,428,570
(1) On February 28, 1998, the mortgage on Olmstead Park Apartments was prepaid.
The Partnership received net proceeds of approximately $6.8 million, and
recognized a gain of approximately $780,000 for the year ended December 31,
1998. A distribution of $0.73 per Unit related to this prepayment was declared
in March 1998 and paid to Unitholders in May 1998.
(2) On September 1, 1998, the mortgage on Water's Edge II was prepaid. The
Partnership received net proceeds of approximately $11.0 million, and
recognized a gain of approximately $223,000 for the year ended December 31,
1998. A distribution of $1.19 per Unit related to this prepayment was
declared in September 1998 and paid to Unitholders in November 1998.
(3) During August 1997, the mortgage on Parkside Estates was prepaid.
The Partnership received net proceeds of approximately $7.1 million and
recognized a gain of approximately $20,700 on this prepayment. A distribution
of $0.76 per Unit related to this prepayment was declared in September 1997
and was paid in November 1997.
Listed below is the Partnership's aggregate investment in
fully insured Acquired Insured Mortgages as of December 31, 1998 and
1997:
19
December 31,
1998 1997
-------------- --------------
Number of Mortgages 2 2
Amortized Cost $ 1,055,778 $ 1,094,502
Face Value 1,053,273 1,091,827
Fair Value 1,061,917 1,107,188
As of March 5, 1999, all of the Partnership's FHA-Insured
Loans were current with respect to the payment of principal and
interest.
All of the FHA-Insured Loans contain Participations. During
the years ended December 31, 1998, 1997 and 1996, the Partnership
received additional interest of $69,820, $134,769 and $63,045,
respectively, from the FHA-Insured Loans which contain Participations.
These amounts are included in mortgage investment income on the
accompanying statements of income and comprehensive income.
Results of Operations
---------------------
1998 versus 1997
----------------
Net earnings decreased approximately $900,000 or 9% for 1998 as
compared to 1997, primarily as a result of a decrease in mortgage
investment income caused by the reduction in the mortgage asset base.
This decrease was partially offset by an increase in net gains on
mortgage dispositions.
Mortgage investment income decreased by approximately $2.3 million for
1998 as compared to 1997. This decrease was primarily due to the
prepayment of the mortgages on Northpoint Apartments, Olmstead Park
Apartments, Arbor Village, Water's Edge II Apartments, and Olde Mill
Apartments, as discussed previously.
Interest and other income increased for 1998 as compared to 1997. This
increase was primarily due to the temporary investment of proceeds from
mortgage prepayments.
Net realized gains on mortgage dispositions and modifications increased
for 1998 as compared to 1997. Gains or losses on mortgage dispositions
and modifications are based on the number, carrying amounts and
proceeds of mortgage investments disposed of during the period. During
1998, the Partnership recognized gains on mortgage dispositions of
approximately $1.1 million related to the prepayment of the mortgages
on Northpoint Apartments, Olmstead Park Apartments, Water's Edge II
Apartments, and Olde Mill Apartments. This compares to gains recognized
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
in 1997 of approximately $21,000 related to the prepayment of the
mortgage on Parkside Estates. During 1998, the Partnership incurred a
loss of approximately $350,000 on the disposition of the mortgage on
Arbor Village, compared to no losses in 1997. Additionally, during
1997, the Partnership provided $375,000 to reserve for possible losses
in connection with a claim filed with HUD for the mortgage on Water's
Edge of New Jersey.
1997 versus 1996
----------------
Net earnings decreased for 1997 as compared to 1996 primarily as a
result of a decrease in the mortgage asset base.
Mortgage investment income decreased for 1997 as compared to 1996. This
decrease was primarily due to the prepayment of the mortgage on
Parkside Estates and principal curtailment on the mortgage on Olde Mill
Apartments, as discussed previously, as well as the normal amortization
of the mortgage base.
Interest and other income increased slightly for 1997 as compared to
1996. This increase was primarily due to the temporary investment of
proceeds from mortgage prepayments.
Net realized gains on mortgage dispositions and modifications increased
for 1997 as compared to 1996. During 1997, the Partnership incurred
gains on mortgage dispositions and modifications of approximately
$21,000 related to the prepayment of the mortgage on Parkside Estates.
This compares to losses recognized in 1996 of approximately $378,000
related to the prepayment of the mortgage on Harbor View Estates, the
partial settlement of the coinsurance claim in Water's Edge of New
Jersey and the modification of the mortgage on Turn at Gresham.
Additionally, during 1997, the Partnership provided $375,000 to reserve
for possible losses on its portfolio.
Liquidity and Capital Resources
-------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from
interest on short-term investments are the Partnership's principal
sources of cash flows, and were sufficient for the years ended December
31, 1998, 1997 and 1996 to meet operating requirements. The Partnership
anticipates its cash flows to be sufficient to meet operating
requirements for 1999.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which
includes regular interest income and principal from Insured Mortgages
after paying all expenses of the Partnership. Although the Insured
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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 payments received are temporarily
invested prior to the payment of quarterly distributions, (2) the
reduction in the asset base and monthly mortgage payments due to
monthly mortgage payments received or mortgage dispositions, (3)
variations in the cash flow attributable to the delinquency or default
of Insured Mortgages and professional fees and foreclosure and
acquisition 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 reduction in net earnings, which
was caused by a decrease in the mortgage asset base. Additionally, cash
provided by operating activities decreased for 1998 as compared to 1997
due to a decrease in receivables and other assets.
Net cash provided by investing activities increased for 1998 as
compared to 1997 primarily due to the increase in the amount of
mortgage disposition proceeds received in 1998 as compared to 1997.
Net cash used in financing activities increased for 1998 as compared to
1997 due to an increase in distributions paid to partners as a result
of the disposition of the mortgages on Northpoint Apartments, Olmstead
Park Apartments, Arbor Village, Water's Edge II Apartments and Olde
Mill Apartments, and a principal curtailment made on the mortgage for
Olde Mill Apartments prior to the disposition of the mortgage.
Cash flow - 1997 versus 1996
----------------------------
Net cash provided by operating activities decreased for 1997 as
compared to 1996 primarily due to a decrease in the mortgage asset
base.
Net cash provided by investing activities increased for 1997 as
compared to 1996 primarily due to the expiration of the reinvestment
period as of December 31, 1996, thereby resulting in no mortgage
acquisitions in 1997.
Net cash used in financing activities increased for 1997 as compared to
1996 due to an increase in distributions paid to partners as a result
of special distributions and capital gains in connection with the
disposition of the mortgages on Water's Edge of New Jersey and Parkside
Estates, and the principal curtailment on Olde Mill Apartments.
22
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. 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.
Fair
1999 2000 2001 2002 2003 Thereafter Total Value
---- ---- ---- ---- ---- ---------- ----- -----
Insured Mortgages
(in millions) $17.7 $16.7 $15.0 $13.7 $12.6 $92.7 $168.4 $106.3
Average Interest Rate 7.68% 7.69% 7.70% 7.70% 7.70% 7.81% -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained on pages 33 through
62.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
23
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 is
CRI. However, effective June 30, 1995, CRIIMI MAE became a self-administered
REIT, and, as a result, the advisor no longer advises CRIIMI MAE.
AIM Acquisition Partners, L.P. (the Advisor) serves as the advisor of
the Partnership. AIM Acquisition Corporation is the general partner of the
Advisor and the limited partners include, but are not limited to, AIM
Acquisition, The Goldman Sachs Group, L.P, Broad, Inc. and CRIIMI MAE. Pursuant
to the terms of certain amendments to the Partnership Agreement, the General
Partner is required to receive the consent of the Advisor prior to taking
certain significant actions which affect the management and policies of the
Partnership.
The General Partner is also the general partner of AIM 84 (American
Insured Mortgage Investors L.P. Series 84, referred to herein as AIM 84), AIM 85
(American Insured Mortgage Investors L.P. - Series 85, referred to herein as AIM
85) and AIM 86 (American Insured Mortgage Investors L.P. - Series 86, referred
to herein as AIM 86), 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
24
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.
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.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
(h) Section 16(a)-Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Based solely on its review of Forms 3 and 4 and
amendments thereto furnished to the Partnership, and
written representations from certain reporting
persons that no Form 5s were required for those
persons, the Partnership believes that all reporting
persons have filed on a timely basis Forms 3, 4 and 5
as required in the fiscal year ended December 31,
1998.
26
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. The information required by Item
11 is hereby incorporated herein by reference herein to Note 8 of the notes to
the Partnership's financial statements.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) As of December 31, 1998, no person was known by the Partnership to
be the beneficial owner of more than 5% of the outstanding Units of the
Partnership.
(b) As of December 31, 1998, neither the officers and directors, as a
group, of the General Partner nor any individual director of the General
Partner, are known to own more than 1% of the outstanding Units of the
Partnership.
(c) There are no arrangements known to the Partnership, the operation
of which may at any subsequent date result in a change in control of the
Partnership.
27
PART IV
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
(a) Transactions with management and others.
Note 8 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 former general partners or
the current General Partner of the Partnership are officers,
directors or equity owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
28
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 35
Statements of Income and Comprehensive income
for the years ended December 31, 1998, 1997
and 1996 36
Statements of Changes in Partners' Equity for
the years ended December 31, 1998, 1997 and
1996 37
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 38
Notes to Financial Statements 39
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate 55
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:
3. Certificate of Limited Partnership is incorporated by
reference to Exhibit 4(a) to Amendment No. 1 to the
Partnership's Registration Statement on Form S-11 (No.
33-12479) filed with the Commission on June 10, 1987.
4. Agreement of Limited Partnership, incorporated by
reference to Exhibit 3 to the Post-Effective Amendment No.
1 to the Partnership's Registration Statement on Form S-11
(No. 33-12479) filed with the Commission on March 8, 1988
(such Amendment is referred to hereinbelow as
Post-Effective Amendment No.1).
4.1 Material Amendments to Agreement of Limited Partnership
are incorporated by reference to Exhibit 3(a) to
Post-Effective Amendment No.1.
4.2 Amendment to the Amended and Restated Agreement of Limited
Partnership of the Partnership dated February 12, 1990.
29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10 Escrow Agreement is incorporated by reference to Exhibit
10(a) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1987.
10.1 Origination and Acquisition Services Agreement is
incorporated by reference to Exhibit 10(b) to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.2 Management Services Agreement is incorporated by reference
to Exhibit 10(c) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1987.
10.3 Disposition Services Agreement is incorporated by
reference to Exhibit 10(d) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1987.
10.4 Agreement among the former managing general partner, the
former associate general partner and Integrated Resources,
Inc. is incorporated by reference to Exhibit 10(e) to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1987.
10.5 Reinvestment Plan is incorporated by reference to Exhibit
10(f) to Post- Effective Amendment No. 1.
10.6 Mortgagor-Participant Agreement, Mortgage Assignment of
Rents and Security Agreement and Mortgage Note with
respect to The Breakers (sometimes also referred to as the
Niles Senior Lifestyle Community) is incorporated by
reference to Exhibit 10(g) to Post-Effective
Amendment No. 1.
10.7 Mortgagor-Mortgagee Agreement, Mortgage Note and Mortgage
with respect to the Arlington development is incorporated
by reference to Exhibit 10(h) to Post-Effective Amendment
No. 1.
10.8 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.
10.9 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.
30
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K - Continued
10.10 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.
10.11 Amendments to Partnership Agreement dated August 13, 1991.
Incorporated by reference to Exhibit 28(c) to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1991.
10.12 Sub-management Agreement by and between AIM Acquisition
and CRI/AIM Management, Inc., dated as of March 1, 1991,
incorporated by reference to Exhibit 28(e) the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1992.
10.13 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.
10.14 Non-negotiable promissory note from American Insured
Mortgage Investors L.P. - Series 85 in the amount of
$319,074.67 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.
10.15 Non-negotiable promissory note from American Insured
Mortgage Investors L.P. - Series 86 in the amount of
$478,612.00 dated April 1, 1994, incorporated by reference
to Exhibit 10(q) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.16 Amendment to Reimbursement Agreement by Integrated
Funding, Inc. and the AIM Funds, effective April 1, 1994,
incorporated by reference to Exhibit 10(r) to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1994.
10.17 Second Amendment to Reimbursement Agreement by Integrated
Funding, Inc. and the AIM Funds, effective April 1, 1997,
incorporated by reference to Exhibit 10.17 to the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.18 Non-negotiable promissory note from American Insured
Mortgage Investors, L.P. - Series 86, in the amount of
$658,486 dated April 1, 1997, incorporated by reference to
Exhibit 10.18 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1997.
31
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.
32
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 88
(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 Merrick
- - --------------------------- -------------------------
DATE Robert Merrick
Director
/s/ March 31, 1999 /s/ Robert E. Woods
- - --------------------------- -------------------------
DATE Robert E. Woods
Director
33
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
Financial Statements as of December 31, 1998 and 1997
and for the Years Ended December 31, 1998, 1997 and 1996
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
American Insured Mortgage Investors L.P. - Series 88:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors L.P. - Series 88 (the Partnership) as of December 31, 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
35
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
As of December 31,
1998 1997
------------ ------------
ASSETS
Investment in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities, at fair value:
Acquired insured mortgages $ 67,018,830 $ 74,963,747
Originated insured mortgages 32,531,218 44,222,754
------------ ------------
99,550,048 119,186,501
------------ ------------
Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount
and premium:
Originated insured mortgages 5,721,754 22,609,310
Acquired insured mortgages 1,055,778 1,094,502
------------ ------------
6,777,532 23,703,812
Cash and cash equivalents 5,524,324 2,721,306
Investment in affiliates 1,266,971 1,281,884
Notes receivable from affiliates and due from affiliates 705,507 728,684
Receivables and other assets 2,639,242 2,993,538
------------ ------------
Total assets $116,463,624 $150,615,725
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,943,679 $ 3,517,134
Accounts payable and accrued expenses 77,729 121,331
------------ ------------
Total liabilities 2,021,408 3,638,465
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units
authorized, 8,802,091 Units issued and outstanding 118,004,167 147,475,554
General partner's deficit (3,057,885) (1,539,380)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other
comprehensive income 114,684 1,659,836
------------ ------------
Total partners' equity 114,442,216 146,977,260
------------ ------------
Total liabilities and partners' equity $116,463,624 $150,615,725
============ ============
The accompanying notes are an integral
part of these financial statements.
36
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
1998 1997 1996
----------- ----------- -----------
Income:
Mortgage investment income $ 9,606,555 $11,892,090 $12,229,747
Interest and other income 391,565 274,652 235,386
----------- ----------- -----------
9,998,120 12,166,742 12,465,133
----------- ----------- -----------
Expenses:
Asset management fee to related parties 1,287,672 1,469,320 1,503,297
General and administrative 287,395 245,921 291,178
----------- ----------- -----------
1,575,067 1,715,241 1,794,475
----------- ----------- -----------
Earnings before gains on
mortgage dispositions/modifications 8,423,053 10,451,501 10,670,658
Gains on mortgage dispositions/modifications 1,106,588 20,746 --
Losses on mortgage dispositions/modifications (350,159) -- (377,900)
Provision for loss -- (375,000) --
----------- ----------- -----------
Net earnings $ 9,179,482 $10,097,247 $10,292,758
=========== =========== =========
Other comprehensive income (1,545,152) 1,801,409 (1,162,724)
----------- ----------- -----------
Comprehensive income $ 7,634,330 $11,898,656 $ 9,130,034
=========== =========== ===========
Net earnings allocated to:
Limited partners - 95.1% $ 8,729,687 $ 9,602,482 $ 9,788,413
General partner - 4.9% 449,795 494,765 504,345
----------- ----------- -----------
$ 9,179,482 $10,097,247 $10,292,758
=========== =========== ===========
Net earnings per Limited
Partnership Unit
outstanding - Basic $ 0.99 $ 1.09 $ 1.11
=========== =========== ===========
The accompanying notes are an integral
part of these financial statements.
37
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 1998, 1997 and 1996
Repurchased Accumulated
Limited Other Total
Limited General Partnership Comprehensive Partner's
Partners Partner Units Income Equity
-------------- -------------- ---------------- ---------------- -----------
Balance, January 1, 1996 159,332,082 (928,476) (618,750) 1,021,151 158,806,007
Net earnings 9,788,413 504,345 -- -- 10,292,758
Adjustment to unrealized gains
(losses) on investment in
insured mortgages -- -- -- (1,162,724) (1,162,724)
Distributions paid or accrued of
$1.22 per Unit, including return
of capital of
$0.11 per Unit (10,738,551) (553,301) -- -- (11,291,852)
-------------- -------------- ---------------- ---------------- -----------
Balance, December 31, 1996 158,381,944 (977,432) (618,750) (141,573) 156,644,189
Net earnings 9,602,482 494,765 -- -- 10,097,247
Adjustment to unrealized gains on
investments in insured mortgages -- -- -- 1,801,409 1,801,409
Distributions paid or accrued of
$2.33 per Unit, including return
of capital of
$1.24 per Unit (20,508,872) (1,056,713) -- -- (21,565,585)
-------------- ---------------- ------------------ ------------------ -----------
Balance, December 31, 1997 147,475,554 (1,539,380) (618,750) 1,659,836 146,977,260
Net earnings 8,729,687 449,795 -- -- 9,179,482
Adjustment to unrealized gains
(losses) on investments in
insured mortgages -- -- -- (1,545,152) (1,545,152)
Distributions paid or accrued of
$4.34 per Unit, including return
of capital of
$3.35 per Unit (38,201,074) (1,968,300) -- -- (40,169,374)
-------------- ---------------- ------------------ ------------------ -----------
Balance, December 31, 1998 118,004,167 (3,057,885) (618,750) 114,684 114,442,216
============== ================ ================== ================== ===========
Limited Partnership Units outstanding -
basic, as of December 31, 1998, 1997,
and 1996 8,802,091
==========
The accompanying notes are an integral
part of these financial statements.
38
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1998 1997 1996
------------ ------------- -----------
Cash flows from operating activities:
Net earnings $ 9,179,482 $ 10,097,247 $10,292,758
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Gains on mortgage dispositions/modifications (1,106,588) (20,746) --
Losses on mortgage dispositions/modifications 350,159 -- 377,900
Changes in assets and liabilities:
Decrease (increase) in investment in affiliate
and due from affiliates 38,090 (35,107) 11,542
Decrease (increase) in receivables and other assets 354,296 2,255,203 (335,872)
Decrease in accounts payable and accrued expenses (43,602) (12,153) (25,608)
Provision for loss -- 375,000 --
------------ ------------ -----------
Net cash provided by operating activities 8,771,837 12,659,444 10,320,720
------------ ------------ -----------
Cash flows from investing activities:
Proceeds from dispositions/modifications of
Insured Mortgages 33,845,966 7,016,157 8,571,748
Investment in Acquired Insured Mortgages and advances on
construction loans -- -- (9,416,014)
Receipt of principal payments 1,928,044 1,952,500 1,037,314
------------ ------------ -----------
Net cash provided by investing activities 35,774,010 8,968,657 193,048
------------ ------------ -----------
Cash flows from financing activities:
Distributions paid to partners (41,742,829) (20,825,136) (11,476,964)
------------ ------------ -----------
Net cash used in financing activities (41,742,829) (20,825,136) (11,476,964)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents 2,803,018 802,965 (963,196)
Cash and cash equivalents, beginning of year 2,721,306 1,918,341 2,881,537
------------ ------------ -----------
Cash and cash equivalents, end of year $ 5,524,324 $ 2,721,306 $ 1,918,341
============ ============ ===========
The accompanying notes are an integral
part of these financial statements.
39
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the Partnership)
was formed under the Uniform Limited Partnership Act of the state of Delaware
on February 13, 1987.
CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9%
which includes shares acquired from the former assignor limited partner. CRIIMI,
Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). From
September 6, 1991 through 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. AIM Acquisition Corporation (AIM Acquisition) is the general
partner of the Advisor, and the limited partners include, but are not limited
to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRIIMI MAE.
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 and directed the
acquisition and disposition of the Partnership's mortgage investments. 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.
Until the change in the Partnership's investment policy, as discussed
below, the Partnership was 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). As of December 31, 1998, the Partnership had invested in
either Originated Insured Mortgages which are insured or guaranteed, in whole or
in part, by the Federal Housing Administration (FHA) or Acquired Insured
Mortgages which are fully insured (as more fully described below).
Effective September 19, 1991, the General Partner changed, at the
Advisor's recommendation, the investment policies of the Partnership to invest
only in Acquired Insured Mortgages which are fully insured or guaranteed by the
Federal National Mortgage Association, the Government National Mortgage
Association (GNMA), FHA or the Federal Home Loan Mortgage Corporation.
The Partnership's reinvestment period expired on December 31, 1996 and
the Partnership Agreement states that the Partnership will terminate on December
31, 2021, unless previously terminated under the provisions of the Partnership
Agreement. After the expiration of the reinvestment period, the Partnership is
required (subject to the conditions set forth in the Partnership Agreement) to
distribute disposition proceeds to its Unitholders.
40
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION - Continued
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 "AIK."
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
the parent to AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate
of CRIIMI MAE and provider of personnel and administrative services to the
Partnership, filed a voluntary petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be
permitted to provide any available capital to the General Partner without
approval from the bankruptcy court. This restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership; however, CRIIMI MAE has not historically
represented a significant source of capital for the General Partner or the
Partnership. Such bankruptcy filings could also result in the potential need to
replace CRIIMI MAE Management, Inc. as a provider of personnel and
administrative services to the Partnership.
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.
41
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment in Mortgages
-----------------------
The Partnership's investment in Insured Mortgages is comprised
of participation certificates evidencing a 100% undivided beneficial
interest in government insured multifamily mortgages issued or sold
pursuant to 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.
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 23 years, on December 31, 2021, 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 the GNMA Mortgage-Backed Securities and FHA-Insured
Certificates in its portfolio, 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 net unrealized gains or losses on these investments reported
as 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
42
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Securities and FHA-Insured Certificates, classified as Available for
Sale, will continue to be reported in earnings. The amortized cost of
the investments in GNMA Mortgage-Backed Securities and FHA-Insured
Certificates in this category is adjusted for amortization of discounts
and premiums to maturity. Such amortization is included in mortgage
investment income.
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.
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.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of money market funds, time
and demand deposits, commercial paper, certificates of deposit, and
repurchase agreements with original maturities of three months or less.
Income Taxes
------------
No provision has been made for Federal, state or local income
taxes in the accompanying financial statements, since they are the
personal responsibility of the Unitholders.
Provision for Loss
------------------
The Partnership assesses the realizability of its investments
on a loan level basis. As a result, the Partnership provided a reserve
of $375,000 for the year ending December 31, 1997. No provision was
made for the year ending December 31, 1998.
43
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
New Accounting Standards
------------------------
During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive
Income" (FAS 130). FAS 130 states that all items that are required to
be recognized under accounting standards as components of comprehensive
income are to be reported in a separate statement of income. This
includes net income as currently reported by the Partnership adjusted
for unrealized gains and losses related to the Partnership's mortgages
accounted for as "available for sale." FAS 130 was adopted by the
Partnership on January 1, 1998. Accumulated other comprehensive income
is reported in the equity section of the "Balance Sheet." 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 146,033 -- (44,617)
Unrealized holding gains (losses) arising during
the period (1,691,185) 1,801,409 (1,118,107)
---------- --------- ----------
Net adjustment to unrealized gains (losses) on mortgages (1,545,152) 1,801,409 (1,162,724)
---------- --------- ----------
44
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
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:
Acquired insured mortgages $ 65,698,059 $ 67,018,830 $ 72,251,365 $ 74,963,747
Originated insured mortgages 33,737,306 32,531,218 45,275,300 44,222,754
------------ ------------ ------------- ------------
$ 99,435,365 $ 99,550,048 $ 117,526,665 $119,186,501
============ ============ ============= ============
Investment in FHA-Insured Loans:
Originated insured mortgages $ 5,721,754 $ 5,725,377 $ 22,609,310 $ 22,428,570
Acquired insured mortgages 1,055,778 1,061,917 1,094,502 1,107,188
------------ ------------ ------------- ------------
$ 6,777,532 $ 6,787,294 $ 23,703,812 $ 23,535,758
============ ============ ============= ============
Cash and cash equivalents $ 5,524,324 $ 5,524,324 $ 2,721,306 $ 2,721,306
Accrued interest receivable $ 670,406 $ 670,406 $ 1,612,260 $ 1,612,260
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. The fair
value of the mortgage security collateral and mortgages is based on the
quoted market price 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 coinsured FHA-Insured Certificates, the
Partnership valued the coinsured FHA-Insured Certificates as though
they were fully insured FHA-Insured Certificates (in the same manner
fully insured FHA-Insured Certificates were valued). From this amount,
the Partnership deducted a 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 FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
The following is a discussion of the Partnership's mortgage
investments, along with the risks related to each type of investment.
A. Fully Insured FHA-Insured Certificates and GNMA
Mortgage-Backed Securities
-----------------------------------------------
Listed below is the Partnership's aggregate investment in
fully insured Acquired Insured Mortgages as of December 31, 1998 and
1997:
December 31,
1998 1997
---------------- ----------------
Number of:
GNMA Mortgage-Backed Securities 22 22
FHA-Insured Certificates(1)(2) 3 5
Amortized Cost $ 65,698,059 $ 72,251,365
Face Value 65,930,408 72,492,904
Fair Value 67,018,830 74,963,747
(1) On January 31, 1998, the mortgage on Northpoint Apartments was prepaid.
The Partnership received net proceeds of approximately $1.7 million,
and recognized a gain of approximately $6,000 for the year ended
December 31, 1998. A distribution of $0.19 per Unit related to this
prepayment was declared in February 1998 and paid to Unitholders in May
1998.
(2) On December 21, 1998, the mortgage on Olde Mill Apartments was prepaid.
The Partnership received net proceeds of approximately $3.4 million,
and recognized a gain of approximately $97,000 for the year ended
December 31, 1998. A distribution of $0.37 per Unit related to this
prepayment was declared in January 1999 and is expected to be paid to
Unitholders in May 1999.
46
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
Listed below is the Partnership's aggregate investment in
fully insured Originated Insured Mortgages as of December 31, 1998 and
1997:
December 31,
1998 1997
------------ ----------------
Number of Mortgages(3) 0 1
Amortized Cost 0 $ 11,296,412
Face Value 0 10,941,101
Fair Value 0 11,055,186
(3) On June 4, 1998, the mortgage on Arbor Village was prepaid. The
Partnership received net proceeds of approximately $10.9 million, and
recognized a loss of approximately $350,000 for the year ended December
31, 1998. A distribution of approximately $1.18 per Unit related to
this prepayment was declared in June 1998 and paid to Unitholders in
August 1998.
As of March 5, 1999, all fully insured mortgages were current
with respect to the payment of principal and interest.
In February 1996, the General Partner instructed the servicer
for the mortgage on Water's Edge of New Jersey, a fully insured
acquired construction loan, to file a Notice of Default and an Election
to Assign the mortgage with the Department of Housing and Urban
Development (HUD). The property underlying this construction loan is a
nursing home located in Trenton, New Jersey. As of December 31, 1998,
the Partnership had received approximately $10.2 million on this
assignment including partial repayment of the outstanding principal and
accrued interest. The remainder of the proceeds, approximately $1.5
million, is included in Receivables and Other Assets. HUD has
disallowed approximately $1.5 million of the assignment claim. The
servicer, Greystone Servicing Corporation, Inc., is currently
negotiating with HUD in regard to collection of the disallowed portion
of the claim. In addition, the General Partner has retained counsel in
this matter and is actively pursuing litigation. On July 30, 1998, the
Partnership filed a Motion for Judgment against Greystone Servicing
Corporation, Inc. (the servicer) in the Circuit Court of Fauquier
County, Virginia. The Motion for Judgment alleges breach of contract
and negligence claims and seeks judgment for $1,653,396 plus interest,
47
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
attorneys' fees and costs. The Partnership believes that the allowance
for loan losses of $375,000 as of December 31, 1998, is sufficient to
provide for amounts that may not be recovered from the servicer.
B. Coinsured FHA-Insured Certificates
----------------------------------
Under the HUD coinsurance program, both HUD and the
coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the
development collateralizing the mortgage produces insufficient net
proceeds to repay the mortgage obligation. In such cases, the
coinsurance lender will be liable to the Partnership for the first part
of such loss in an amount up to 5% of the outstanding principal balance
of the mortgage as of the date foreclosure proceedings are instituted
or the deed is acquired in lieu of foreclosure. For any loss greater
than 5% of the outstanding principal balance, the responsibility for
paying the insurance benefits will be borne on a pro-rata basis, 85% by
HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under
the mortgage, the coinsurance lender is responsible for the timely
payment of principal and interest to the Partnership. The coinsurance
lender is prohibited from entering into any workout arrangement with
the borrower without the Partnership's consent and must file a claim
for coinsurance benefits with HUD, upon default, if the Partnership so
directs. As an ongoing HUD-approved coinsurance lender, and under the
terms of the participation documents, the coinsurance lender is
required to satisfy certain minimum net worth requirements as set forth
by HUD. However, it is possible that the coinsurance lender's potential
liability for loss on these developments, and others, could exceed its
HUD-required minimum net worth. In such case, the Partnership would
bear the risk of loss if the coinsurance lenders were unable to meet
their coinsurance obligations. In addition, HUD's obligation for the
payment of its share of the loss could be diminished under certain
conditions, such as the lender not adequately pursuing regulatory
violations of the borrower or the failure to comply with other terms of
the mortgage. However, the General Partner is not aware of any
conditions or actions that would result in HUD diminishing its
insurance coverage.
As of December 31, 1998 and 1997, the Partnership held
investments in three coinsured FHA-Insured Certificates secured by
coinsured mortgages. One of these coinsured mortgage investments, the
mortgage on St. Charles Place - Phase II, is coinsured by The Patrician
Mortgage Company (Patrician), an unaffiliated third party coinsurance
lender under the HUD coinsurance program. As of December 31, 1998 and
48
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
1997, the remaining two FHA-Insured Certificates are coinsured by IFI,
an affiliate of the Partnership. The following is a discussion of
actual and potential performance problems with respect to the
Partnership's coinsured mortgage investments.
Coinsured by third party
------------------------
St. Charles Place - Phase II is a 156-unit apartment complex
located in Miramar, Florida. Listed below is the Partnership's
investment in the St. Charles Place - Phase II mortgage as of
December 31, 1998 and 1997. These amounts represent the
Partnership's approximate 55% ownership interest in the
mortgage. The remaining 45% ownership interest is held by
American Insured Mortgage Investors L.P. - Series 86 (AIM 86),
an affiliate of the Partnership.
December 31,
1998 1997
--------------- ---------------
Amortized Cost $ 3,710,287 $ 3,710,287
Face Value 3,710,287 3,710,287
Fair Value 3,422,177 3,484,715
As of March 5, 1999, the mortgagor had made payments of
principal and interest due to the Partnership 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 this mortgage investment to ensure
that Patrician meets its coinsurance obligations. The General
Partner's assessment of the realizability of the carrying
value of the St. Charles Place - Phase II mortgage is based on
the most recent information available, and to the extent these
conditions change or additional information becomes available,
the General Partner's 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.
49
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
Coinsured by affiliate
----------------------
As of December 31, 1998 and 1997, the Partnership held
investments in two FHA-Insured Certificates secured by
coinsured mortgages, where the coinsurance lender is IFI.
These investments were made on behalf of the Partnership by
the former managing general partner. As structured by the
former managing general partner, with respect to these
mortgages, the Partnership bears the risk of loss upon default
for IFI's portion of the coinsurance loss on these mortgage
investments.
December 31, 1998 December 31, 1997
Fair Amortized Face Fair Amortized Face
Mkt. Value Cost Value Mkt. Value Cost Value
----------- ------------ ------------ ------------ ----------- -----------
The Breakers at Golf
Mill(1)(2) $20,470,263 22,113,145 $ 22,113,146 $20,873,845 $22,309,235 $22,309,236
Summerwind Apts.-Phase
II(1)(2) 8,638,778 7,913,874 9,307,962 8,809,008 7,959,366 9,378,179
----------- ------------ ------------ ----------- ----------- -----------
$29,109,041 30,027,019 $ 31,421,108 $29,682,853 30,268,601 31,687,415
=========== ============ ============ =========== =========== ===========
(1) As of March 5, 1999, the mortgagor was current with respect to payment of
principal and interest on this mortgage. (2) There were no loan losses
recognized for the years ended, 1998 and 1997. The cumulative loan losses
recognized in prior years were $980,000 for the Breakers at Golf Mill, and
$1,511,743 for Summerwind Apartments - Phase II.
5. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in fully insured
Originated Insured Mortgages as of December 31, 1998 and 1997:
December 31,
1998 1997
--------------- ----------------
Number of Mortgages(1)(2)(3) 1 3
Amortized Cost $ 5,721,754 $ 22,609,310
Face Value 5,721,754 22,213,954
Fair Value 5,725,377 22,428,570
(1) On February 28, 1998, the mortgage on Olmstead Park Apartments was prepaid.
The Partnership received net proceeds of approximately $6.8 million, and
recognized a gain of approximately $780,000 for the year ended December 31,
1998. A distribution of $0.73 per Unit related to this prepayment was declared
in March 1998 and paid to Unitholders in May 1998.
50
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED LOANS - Continued
(2) On September 1, 1998, the mortgage on Water's Edge II was prepaid. The
Partnership received net proceeds of approximately $11.0 million, and recognized
a gain of approximately $223,000 for the year ended December 31, 1998. A
distribution of $1.19 per Unit related to this prepayment was declared in
September 1998 and paid to Unitholders in November 1998.
(3) During August 1997, the mortgage on Parkside Estates was prepaid. The
Partnership received net proceeds of approximately $7.1 million and recognized a
gain of approximately $20,700 on this prepayment. A distribution of $0.76 per
Unit related to this prepayment was declared in September 1997 and was paid in
November 1997.
Listed below is the Partnership's aggregate investment in
fully insured Acquired Insured Mortgages as of December 31, 1998 and
1997:
December 31,
1998 1997
--------------- ---------------
Number of Mortgages 2 2
Amortized Cost $ 1,055,778 $ 1,094,502
Face Value 1,053,273 1,091,827
Fair Value 1,061,917 1,107,188
As of March 5, 1999, all of the Partnership's FHA-Insured Loans were
current with respect to the payment of principal and interest.
All of the FHA-Insured Loans contain Participations. During the years
ended December 31, 1998, 1997 and 1996, the Partnership received additional
interest of $69,820, $134,769 and $63,045, respectively, from the FHA-Insured
Loans which contain Participations. These amounts are included in mortgage
investment income on the accompanying statements of income and comprehensive
income.
6. 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:
51
1998 1997 1996
------- ------- ------
Quarter ended March 31 $ 1.21(1) $ 0.59(4) $ 0.32(7)
Quarter ended June 30 1.50(2) 0.30 0.30
Quarter ended September 30 1.42(3) 1.06(5) 0.30
Quarter ended December 31 0.21 0.38(6) 0.30
------ ------ ------
$ 4.34 $ 2.33 $ 1.22
====== ====== ======
(1) This amount includes approximately $0.92 per Unit representing net
proceeds from the prepayment of the mortgages on Northpoint Apartments
and Olmstead Park Apartments.
(2) This amount includes approximately $0.08 per Unit representing a
curtailment of the mortgage on Olde Mill Apartments and approximately
$1.18 per Unit representing net proceeds from the prepayment of the
mortgage on Arbor Village.
(3) This amount includes approximately $1.19 per Unit representing net
proceeds from the prepayment of the mortgage on Water's Edge II
Apartments.
(4) This amount includes approximately $0.27 per Unit representing partial
receipt of proceeds from the assignment of Water's Edge of New Jersey
and approximately $0.02 per Unit representing proceeds from mortgage
dispositions not reinvested prior to the expiration of the reinvestment
period.
(5) This amount includes approximately $0.76 per Unit representing proceeds
From the prepayment of the mortgage on Parkside Estates.
(6) This amount includes approximately $0.08 per Unit representing a
curtailment on the mortgage of Olde Mills Apartments and approximately
$0.01 per Unit representing previously undistributed accrued interest
received from St. Charles Place - Phase II.
(7) This amount includes approximately $0.02 per Unit representing
previously undistributed accrued interest received from Water's Edge of
New Jersey.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from the
receipt of 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 and acquisition costs incurred in
connection with those Insured Mortgages and (4) variations in the Partnership's
operating expenses.
7. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES,
DUE FROM AFFILIATES AND NOTE PAYABLE AND DUE TO AFFILIATE
In order to capitalize IFI with sufficient net worth under HUD
regulations, in April 1994, the Partnership transferred a GNMA Mortgage-Backed
Security in the amount of approximately $2.0 million to IFI. AIM 85 and AIM 86
each issued a demand note payable to the Partnership and recorded an investment
in IFI through AIM Mortgage, Inc. at an amount proportionate to each entity's
coinsured mortgages for which IFI was the mortgagee of record as of April 1,
1994. Interest income on the note, which is based on an annual interest rate of
7.25% (representing the interest rate on the GNMA Mortgage-Backed Security
52
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
7. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES,
DUE FROM AFFILIATES AND NOTE PAYABLE AND DUE TO AFFILIATE - Continued
transferred by the Partnership), was $47,740 and $50,263 during the years ended
December 31, 1998 and 1997, respectively, and is included in interest and other
income on the accompanying statements of income and comprehensive income. In
April 1997, the GNMA mortgage-backed security, with a current balance of $1.9
million, was reallocated between the Partnership and AIM 86 as AIM 85 no longer
holds any mortgages coinsured by IFI. As a result, a new demand note receivable
from AIM 86 was issued and the investment in IFI was updated.
In connection with these transfers, the expense reimbursement agreement
was amended as of April 1, 1997, to adjust the allocation of the expense
reimbursement to the AIM Funds to an amount proportionate to each entity's
coinsured mortgage investments for which IFI was the mortgagee of record as of
April 1, 1997. The expense reimbursement, as amended, along with the
Partnership's interest income from the notes receivable, and the Partnership's
equity interest in IFI's net income or loss, substantially equals the mortgage
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 mortgages coinsured by IFI.
8. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described above in Note
7, the General Partner and certain affiliated entities, during the years ended
December 31, 1998, 1997 and 1996, have 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.(1) General Partner/Distribution $1,968,300 1,056,713 $ 553,301
AIM Acquisition Advisor/Asset Management Fee 1,287,672 1,469,320 1,503,297
Partners, L.P.(2)
CRIIMI MAE Affiliate of General Partner/ 68,010 53,474 62,376
Management, Inc.(3) Expense Reimbursement
(1) The General Partner, pursuant to amendments to the Partnership
Agreement, effective September 6, 1991, is entitled to receive 4.9% of
the Partnership's income, loss, capital and distributions, including,
without limitation, the Partnership's Adjusted Cash from Operations and
Proceeds of Mortgage Prepayments, Sales or Insurance (both as defined
in the Partnership Agreement).
53
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
8. TRANSACTIONS WITH RELATED PARTIES - Continued
(2) The Advisor, pursuant to the Partnership Agreement is entitled to an
Asset Management Fee equal to 0.95% of Total Invested Assets (as
defined in the Partnership Agreement). The Sub-advisor to the
Partnership is entitled to a fee of 0.28% of Total Invested Assets of
the Advisor's Asset Management Fee. Of the amounts paid to the
Advisor, CRIIMI MAE Services Limited Partnership (CMSLP), the
Sub-advisor, earned a fee equal to $379,506, $433,040 and $443,060 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.
(3) Prior to June 30, 1995, these amounts were paid to CRI as reimbursement
for expenses incurred prior to June 30, 1995 on behalf of the General
Partner and the Partnership. The transaction in which CRIIMI MAE became
a self-administered REIT had no impact on the payments required to be
made by the Partnership, other than the expense reimbursement
previously paid by the Partnership to CRI in connection with the
provision of services by the Sub-advisor are, effective June 30, 1995,
paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management,
Inc.
9. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 8,851,966
Units were issued for an aggregate capital contribution of $177,039,320. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor, and the former general
partners contributed a total of $1,000 to the Partnership. During 1994, the
Partnership repurchased 50,000 Units.
54
10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(In thousands, except per unit data)
The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1998, 1997 and 1996:
1998
Quarter ended
March 31 June 30 September 30 December 31
----------- ---------- ---------------- ----------------
Income $ 2,812 $ 2,625 $ 2,342 $ 2,219
Net gains (losses) from
mortgage dispositions 786 (350) 223 97
Net earnings 3,170 1,778 2,174 2,057
Net earnings per
Limited Partnership Unit - Basic 0.34 0.19 0.24 0.22
1997
Quarter ended
March 31 June 30 September 30 December 31
----------- ---------- ----------------- ----------------
Income $ 3,122 $ 3,104 $ 2,982 $ 2,959
Net gains/(losses) from mortgage
disposition/modification -- -- 21 (375)
Net earnings 2,696 2,629 2,588 2,184
Net earnings per
Limited Partnership Unit - Basic 0.29 0.28 0.28 0.24
1996
Quarter ended
March 31 June 30 September 30 December 31
----------- ---------- ----------------- ----------------
Income $ 3,200 $ 3,184 $ 3,034 $ 3,047
Net gains (losses) from
mortgage dispositions/modifications 1 (379) -- --
Net earnings 2,765 2,333 2,589 2,606
Net earnings per
Limited Partnership Unit - Basic 0.30 0.25 0.28 0.28
55
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Annual Payment
Rate on Face Net Principal and
Maturity Put Mortgage Value of Carrying Value Cumulative Interest
Development Name/Location Date Date(1) (5)(6) Mortgage (3)(10)(11)(13) Loan Losses (5)(6)(12)
- - ------------------------- --------- --------- ----------- ----------- -------------- ------------ ------------
ACQUIRED INSURED MORTGAGES:
- - --------------------------
FHA-Insured Certificates
(carried at fair value)
Sylvan Manor
Silver Spring, Maryland 5/21 N/A 7.500% $ 3,079,345 3,083,782 -- $ 284,523
Heather Ridge Apartments
Fayetteville, North Carolina 4/27 N/A 8.625% 4,400,093 4,414,139 -- 416,231
Park Avenue Plaza
Omaha, Nebraska 9/29 N/A 9.000% 1,954,513 1,960,396 -- 187,923
----------- -------------
Total Investment in FHA-Insured
Certificates - Acquired Insured
Mortgages 9,433,951 9,458,317
----------- -------------
GNMA Mortgage-Backed Securities
(carried at fair value)
Garden Terrace
Douglasville, Georgia 1/20 N/A 7.125% 2,643,526 2,674,536 -- 236,402
Lioncrest Towers
Richton Park, Illinois 10/28 N/A 7.000% 6,410,286 6,479,771 -- 497,004
San Jose South
San Jose, California 10/23 N/A 7.750% 8,123,480 8,213,845 -- 698,088
Beauvoir Manor Apts.
Biloxi, Mississippi 9/18 N/A 8.875% 1,227,894 1,279,008 -- 127,591
Greenview Garden
Butler, Pennsylvania 7/33 N/A 9.000% 877,091 912,494 -- 78,272
Lorenzo Carolina Apts.
Tampa, Florida 6/26 N/A 8.250% 1,010,158 1,021,070 -- 89,246
Silver Lake Plaza Apts.
Los Angeles, California 11/35 N/A 7.950% 5,294,124 5,349,075 -- 431,672
Woodcrest Townhomes
Chaska, Minnesota 8/31 N/A 8.375% 3,090,367 3,122,797 -- 269,353
56
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Annual Payment
Rate on Face Net Principal and
Maturity Put Mortgage Value of Carrying Value Cumulative Interest
Development Name/Location Date Date(1) (5)(6) Mortgage (3)(10)(11)(13) Loan Losses (5)(6)(12)
- - ------------------------- --------- --------- ----------- ----------- -------------- ------------ ------------
ACQUIRED INSURED MORTGAGES:
- - --------------------------
GNMA Mortgage-Backed Securities
(carried at fair value) - Continued
Hewitt Gardens Apts.
Omaha, Nebraska 10/29 N/A 8.750% $ 4,429,145 4,608,763 -- $ 404,973
Lamplighter Apts.
Port Arthur, Texas 10/29 N/A 9.000% 2,213,465 2,303,165 -- 207,177
Linville Manor
Shelby, North Carolina 7/31 N/A 8.750% 1,978,249 2,058,309 -- 178,965
Oak Grove Apts.
Austin, Texas 9/26 N/A 8.750% 552,292 574,793 -- 51,702
Oakwood Gardens
San Jose, California 10/23 N/A 7.750% 1,136,019 1,148,656 -- 97,623
Seven Springs
College Park, Maryland 12/21 N/A 7.625% 4,661,812 4,714,743 -- 419,268
Stoney Creek
Washington Township, Michigan 2/29 N/A 7.500% 5,334,021 5,391,307 -- 427,208
Burlwood Apts.
Portland, Oregon 8/15 N/A 9.000% 609,891 617,330 -- 61,755
Collin Care Centers
Plano, Texas 9/30 N/A 8.125% 1,686,528 1,704,348 -- 144,240
Holton Manor
Elkhorn, Wisconsin 11/21 N/A 8.250% 995,107 1,006,298 -- 94,435
Oaklawn Apts.
Boise, Idaho 8/24 N/A 9.000% 473,677 478,814 -- 40,303
Orchard Creek Apts.
Farmington Hills, Michigan 1/30 N/A 8.625% 1,272,289 1,323,888 -- 113,177
57
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Annual Payment
Rate on Face Net Principal and
Maturity Put Mortgage Value of Carrying Value Cumulative Interest
Development Name/Location Date Date(1) (5)(6) Mortgage (3)(10)(11)(13) Loan Losses (5)(6)(12)
- - ------------------------- --------- --------- ----------- ----------- -------------- ------------ ------------
ACQUIRED INSURED MORTGAGES:
- - --------------------------
GNMA Mortgage-Backed Securities
(carried at fair value) - Continued
Tehama Estates
Sacramento, California 7/29 N/A 8.750% 1,340,159 1,394,525 -- 122,740
Westview Terrace Apts.
Tacoma, Washington 4/30 N/A 8.550% 1,136,877 1,182,978 -- 101,082
Total Investment in GNMA Mortgage-
Backed Securities, carried at fair value 56,496,457 57,560,513
---------- ----------
Total Investment in Acquired Insured
Mortgages, carried at fair value 65,930,408 67,018,830
---------- ----------
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Annual Payment
Rate on Face Net Principal and
Maturity Put Mortgage Value of Carrying Value Cumulative Interest
Development Name/Location Date Date(1) (5)(6) Mortgage (3)(10)(11)(13) Loan Losses (5)(6)(12)
- - ------------------------- --------- --------- ----------- ----------- -------------- ------------ ------------
ORIGINATED INSURED MORTGAGES:
- - ----------------------------
Coinsured Mortgages
- - -------------------------
FHA-Insured Certificates
(carried at fair value)
Summerwind Apartments-Phase II
Naples, Florida (7) 6/30 7/03 8.500% 9,307,962 8,638,778 1,511,743 23,519
St. Charles Place - Phase II
Miramar, Florida (4) 2/30 12/03 8.625% 3,710,287(4)(8)(9) 3,422,177 -- 341,697
The Breakers at Golf Mill
Niles, Illinois (7) 11/29 11/02 7.000% 22,113,146(7) 20,470,263 980,000 1,751,525
Total Investment in coinsured
FHA-Insured Certificates,
carried at fair value 35,131,395 32,531,218
------------ ---------------
Total Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
carried at fair value 101,061,803 99,550,048
------------ ---------------
59
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
Interest Annual Payment
Rate on Face Net Principal and
Maturity Put Mortgage Value of Carrying Value Cumulative Interest
Development Name/Location Date Date(1) (5)(6) Mortgage (3)(10)(11)(13) Loan Losses (5)(6)(12)
- - ------------------------- --------- --------- ----------- ----------- -------------- ------------ ------------
ACQUIRED INSURED MORTGAGES:
- - --------------------------
FHA-Insured Loans
(carried at amortized cost)(2)
Kingsway Apts.
Monroe, Louisiana 8/07 N/A 10.000% 499,132 499,901(2) -- 86,862
Kon Tiki Apts.
League City, Texas 1/27 N/A 9.875% 554,141 555,877(2) -- 58,444
Total Investment in FHA-Insured
Loans - Acquired Insured Mortgages,
carried at amortized cost 1,053,273 1,055,778
----------- ------------
ORIGINATED INSURED MORTGAGES:
- - ----------------------------
Fully Insured Mortgages
- - ----------------------------
FHA-Insured Loans
(carried at amortized cost)(2)
The Turn at Gresham
Gresham, Oregon 8/29 12/02 8.000% 5,721,754 5,721,754(2) -- 501,516
Total Investment in FHA-Insured
Loans - Originated Insured
Mortgages, carried at amortized cost 5,721,754 5,721,754
------------ ------------
Total Investment in FHA-Insured Loans 6,775,027 6,777,532
------------ ------------
TOTAL INVESTMENT IN INSURED MORTGAGES $107,836,830 $106,327,580
============ ============
60
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(1) Certain Insured Mortgages possess a special assignment option, in
certain mortgage documents, which allow the Partnership, anytime after
this date, to require payment by the borrower of the unpaid principal
balance of the Insured Mortgages. At such time, the borrowers must make
payment to the Partnership or the Partnership 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 mortgage is insured under the HUD coinsurance program, as
previously discussed. The Patrician Mortgage Company is the
HUD-approved coinsurance lender.
(5) This represents the base interest rate during the permanent phase of
this Insured Mortgage loan. Additional interest, measured as a
percentage of surplus cash (as defined in the participation
agreements) and a percentage of the proceeds from the sale or
refinancing of the development (as defined in the participation
agreements), will also be due. During the years ended 1998, 1997 and
1996, additional interest was recognized in the amount of $69,820,
$134,769 and $84,947, respectively. These amounts are included in
mortgage investment income on the accompanying statements of income and
comprehensive income.
61
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
(6) In addition, the servicer or the sub-servicer of the mortgage,
primarily unaffiliated third parties, is entitled to receive
compensation for certain services rendered.
(7) These mortgages are insured under the HUD coinsurance program. IFI is
the HUD-approved coinsurance lender and the Partnership bears the risk
of any coinsurance loss, as previously discussed.
(8) These amounts represent the Partnership's 55% interest in this
mortgage. The remaining 45% interest was acquired by AIM 86, an
affiliate of the Partnership.
(9) Represents the principal amount subject to delinquent principal or
interest. See Note 4 to the Partnership's financial statements.
(10) A reconciliation of the carrying value of the Partnership's investment
in Insured Mortgages, for the years ended December 31, 1998 and 1997,
is as follows:
62
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1998
1998 1997
----------------- ---------------
Beginning balance $142,890,313 $150,036,815
Principal receipts on mortgages (1,928,044) (1,952,500)
Proceeds from mortgages assigned
or sold (33,845,966) (7,016,157)
Net gains on mortgage
dispositions 756,429 20,746
Net unrealized (losses) gains on
investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities (1,545,152) 1,801,409
Ending balance $106,327,580 $142,890,313
============ ============
(11) The mortgages underlying the Partnership's investments in FHA-Insured
Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are
primarily non-recourse first liens on multifamily residential
developments or retirement homes.
(12) Principal and interest are payable at relatively level amounts over the
life of the Insured Mortgages.
(13) As of December 31, 1998 and 1997, the tax basis of the Insured
Mortgages was approximately $141 million and $144 million,
respectively.