-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B8omx0X7jHPGHpnTvOEmnwS8IMo/I4mI3mGtvK1cbTPjDk6O5SDT9AFIUJbD/TpB HnwKgQfcpf0+F7CDGezabw== 0000724533-98-000002.txt : 19980324 0000724533-98-000002.hdr.sgml : 19980324 ACCESSION NUMBER: 0000724533-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980323 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS CENTRAL INDEX KEY: 0000724533 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 133180848 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11060 FILM NUMBER: 98571080 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3018162300 MAIL ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 10-K 1 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ------------------ Commission file number 1-11060 ------------------ AMERICAN INSURED MORTGAGE INVESTORS - ----------------------------------------------------------------- (Exact name of registrant as specified in charter) California 13-3180848 - ------------------------------------- ---------------------- (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) Indicated by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 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 6, 1998, 10,000,000 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 $33,085,515. 3 AMERICAN INSURED MORTGAGE INVESTORS 1997 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I ------ Page ---- Item 1. Business . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings . . . . . . . . . . . . . . 5 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 5 PART II ------- Item 5. Market for Registrant's Securities and Related Security Holder Matters . . . . . . 6 Item 6. Selected Financial Data . . . . . . . . . . . 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 9 Item 8. Financial Statements and Supplementary Data . 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 14 PART III -------- Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 14 Item 11. Executive Compensation . . . . . . . . . . . 15 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 15 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . 16 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 17 Signatures . . . . . . . . . . . . . . . . . . . . . . 20 4 PART I ITEM 1. BUSINESS Development and Description of Business - --------------------------------------- Information concerning the business of American Insured Mortgage Investors (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 6 of the notes to the financial statements of the Partnership (filed in response to Item 8 hereof), which is incorporated herein by reference. Also see Schedule IV-Mortgage Loans on Real Estate for the table of the Insured Mortgages (as defined below) invested in by the Partnership as of December 31, 1997. Employees - --------- The Partnership has no employees. The business of the Partnership is managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an advisory agreement (the Advisory Agreement). CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, Inc., managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered real estate investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. Competition - ----------- In disposing of mortgage investments, the Partnership competes with private investors, mortgage banking companies, mortgage brokers, state and local government agencies, lending institutions, trust funds, pension funds, and other entities, some with similar objectives to those of the Partnership and some of which are or may be affiliates of the Partnership, its General Partner, the Advisor or their respective affiliates. Some of these entities may have substantially greater capital resources and experience in disposing of Federal Housing Administration (FHA) insured mortgages than the Partnership. CRIIMI MAE and its affiliates also may serve as general partners, sponsors or managers of real estate limited partnerships, REITS or other entities in the future. The Partnership may attempt to dispose of mortgage investments at or about the same time that CRIIMI MAE, one or more of the other 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 and its affiliates could be faced with conflicts of interest in determining which mortgages would be disposed of. Both CRIIMI MAE Services Limited Partnership 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 5 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 identifed above. Factors which may cause such a difference to occur include, but are not limited to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. ITEM 2. PROPERTIES Although the Partnership does not own the underlying real estate, the mortgages underlying the Partnership's mortgage investments are non-recourse first liens on the respective multifamily residential developments. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which the Partnership is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the security holders to be voted on during the fourth quarter of 1997. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS Principal Market and Market Price for Units and Distributions - ------------------------------------------------------------- The Units are traded on the American Stock Exchange (AMEX) with a trading symbol of "AIA". The high and low bid prices for the Units as reported on AMEX and the distributions, as applicable, for each quarterly period in 1997 and 1996 were as follows: Amount of 1997 Distribution Quarter Ended High Low Per Unit - ------------------- ------- ------- ------------ March 31 $3 1/2 3 1/4 $ 0.07 June 30 3 9/16 3 1/4 0.07 September 30 3 9/16 3 3/16 0.07 December 31 3 7/16 3 1/8 0.08 --------- $ 0.29 ========= Amount of 1996 Distribution Quarter Ended High Low Per Unit - ------------------- ------- ------- ----------- March 31 $3 9/16 $3 3/16 $ 0.08 June 30 3 7/16 3 1/8 0.08 September 30 3 7/16 3 1/8 0.07 December 31 3 7/16 3 1/8 0.07 --------- $ 0.30 ========= 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. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS - Continued Approximate Number of Unitholders as of Title of Class December 31, 1997 - --------------------------- ---------------------- Depositary Units of Limited Partnership Interest 7,600 8 PART II ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per Unit amounts)
For the years ended December 31, 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Income $ 3,415 $ 3,445 $ 3,626 $ 3,736 $ 4,487 Net gains (loss) from mortgage modifications/dispositions -- (146) -- 196 762 Net earnings 2,879 2,758 3,041 3,280 4,528 Composition of distributions per Limited Partnership Unit(1)(2): Net earnings - Basic $ 0.28 $ 0.27 $ 0.30 $ 0.32 $ 0.440 Return of capital 0.01 0.03 0.02 0.81 0.205 -------- -------- -------- -------- -------- Total $ 0.29 $ 0.30 $ 0.32 $ 1.13 $ 0.645 ======== ======== ======== ======== ======== As of December 31, ------------------ 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Total assets $ 38,551 $ 38,385 $ 39,415 $ 38,161 $ 47,630 Partners' equity 37,661 37,590 38,493 37,241 43,749 (1) Calculated based upon the weighted average number of Limited Partnership Units outstanding. (2) Includes distributions due the Unitholders for the Partnership's fiscal quarters ended December 31, 1997, 1996, 1995, 1994 and 1993 which were paid subsequent to each year end. See Notes 4 and 7 of the Notes to Financial Statements contained in Item 8. "Financial Statements and Supplementary Data."
The selected statements of operations data presented above for the years ended December 31, 1997, 1996 and 1995 and the balance sheet data as of December 31, 1997 and 1996, 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 operations data for the years ended December 31, 1994 and 1993 and the balance sheet data as of December 31, 1995, 1994 and 1993 are derived from audited financial statements not included in this Form 10-K. This data should be read in conjunction with the financial statements and the notes thereto. 9 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- American Insured Mortgage Investors (the Partnership) was formed under the Uniform Limited Partnership Act in the state of California on July 12, 1983. During the period from March 1, 1984 (the initial closing date of the Partnership's public offering) through December 31, 1984, the Partnership, pursuant to its public offering of 10,000,000 depositary units of limited partnership interest (Units), raised a total of $200,000,000 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 2.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners L.P. (the Advisor) serves as the advisor to the Partnership. The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement(the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, Inc. managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. The Partnership is currently in the process of evaluating its information technology infrastructure for Year 2000 compliance. The Partnership does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Partnership does not anticipate any material disruption in its operations as a result of any failure by the Partnership to be in compliance. The Partnership is currently evaluating the Year 2000 compliance status of its service providers. The Partnership does not expect any non Year 2000 compliance by its service providers to cause any disruption in its operations. Prior to the expiration of the Partnership's reinvestment period in November 1988, the Partnership was engaged in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages and, together with Originated Insured Mortgages, referred to herein as Insured Mortgages). In accordance with the terms of the Partnership Agreement, the Partnership is no longer authorized to originate or acquire Insured Mortgages and, consequently, its primary objective is to manage its portfolio of mortgage investments, all of which are insured under Section 221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement states that the Partnership will terminate on December 31, 2008, unless previously terminated under the provisions of the Partnership Agreement. 10 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued As of December 31, 1997, the Partnership had invested in 15 Insured Mortgages, with an aggregate amortized cost of approximately $34.3 million, a face value of approximately $39.7 million and a fair value of approximately $41.0 million, as discussed below. The Partnership's investment in Insured Mortgages consists of FHA-insured mortgage loans (FHA-Insured Loans) and participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to Federal Housing Administration (FHA) programs (FHA- Insured Certificates). The mortgages underlying the FHA-Insured Certificates and FHA-Insured Loans are non-recourse first liens on multifamily residential developments. Investment in FHA-Insured Loans - -------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans as of December 31, 1997 and 1996:
December 31, 1997 1996 ------------ ------------ Number of Acquired Insured Mortgages 4 4 Originated Insured Mortgages 2 2 Amortized Cost $ 23,096,728 $ 23,262,738 Face Value 26,077,186 26,338,828 Fair Value 26,840,133 26,801,846
All of the FHA-Insured Loans were current with respect to the payment of principal and interest as of March 1, 1998, except for the mortgage on Portervillage I Apartments, which has been delinquent since January 1997. In May 1997, the servicer of this mortgage filed a Notice of Default and an Election to Assign the mortgage with HUD. The face value of this mortgage was approximately $1.2 million at December 31, 1996. The Partnership expects to receive 99% of this amount plus accrued interest. In addition to base interest payments received from Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development and of the net proceeds from the refinancing, sale or other disposition of the underlying development (referred to as Participations). During the years ended December 31, 1997, 1996 and 1995, the Partnership received $61,988, $12,158 and $39,465, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of operations. 11 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Investment in FHA-Insured Certificates - -------------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Certificates as of December 31, 1997 and 1996:
December 31, 1997 1996 ------------ ------------ Number of mortgages 9 9 Amortized Cost $ 11,216,144 $ 11,321,727 Face Value 13,648,992 13,843,564 Fair Value 14,178,168 14,105,760
All of the FHA-Insured Certificates were current with respect to the payment of principal and interest as of March 1, 1998. Results of Operations - --------------------- 1997 versus 1996 - ---------------- Net earnings increased for 1997 as compared to 1996 primarily due to the loss incurred in 1996 on the mortgage modification of Creekside Village, as discussed below. No mortgages were disposed of or modified during 1997. 1996 versus 1995 - ---------------- Net earnings decreased for 1996 as compared to 1995 primarily due to the mortgage modification of Creekside Village, as discussed below. No mortgages were disposed of or modified during 1995. Partially offsetting the reduction in income was a decrease in general and administrative expenses, as discussed below. General and administrative expenses decreased for 1996 as compared to 1995. The decrease is primarily due to a reduction in investor relations expenses resulting from a decrease in the number of registered unitholders. In May 1996, the mortgage note on Creekside Village was amended to reduce the mortgage interest rate from 11.5% (with no lockout provision) to 7.75%, (which includes a lockout provision and prepayment penalty). In connection with this modification, the Partnership recognized a loss of $146,464 on the accompanying statements of operations for the year ended December 31, 1996, primarily representing the unamortized balance of acquisition and closing costs paid in connection with the origination of this mortgage. 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, were sufficient for the years ended December 31, 1997, 1996 and 1995 to meet operating requirements. The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes 12 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued regular interest income and principal from Insured Mortgages. Although Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each period due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and (4) changes in the Partnership's operating expenses. Since the Partnership is obligated to distribute the Proceeds of Mortgage Prepayments, Sales and Insurance of Insured Mortgages (as defined in the Partnership Agreement) to its Unitholders, the size of the Partnership's portfolio will continue to decrease. The magnitude of the decrease will depend upon the size of the Insured Mortgages which are prepaid, sold or assigned for insurance proceeds. Cash Flow - 1997 versus 1996 - ---------------------------- Net cash provided by operating activities decreased for 1997 as compared to 1996 primarily due to an increase in receivables and other assets due to the delinquent mortgage on Portervillage I Apartments, which was assigned to HUD in May 1997. Net cash provided by investing activities decreased slightly for 1997 as compared to 1996 primarily due to a reduction in the receipt of mortgage principal from scheduled payments as a result of the normal amortization of the mortgage base. Net cash used in financing activities decreased for 1997 as compared to 1996 primarily due to a decrease in the quarterly distributions in 1997 as compared to 1996. Cash flow - 1996 versus 1995 - ---------------------------- Net cash provided by operating activities decreased for 1996 as compared to 1995 primarily due to a reduction in mortgage investment income, as discussed above. Net cash provided by investing activities increased for 1996 as compared to 1995 primarily due to the receipt of mortgage principal from scheduled payments, which increased as a result of the modification of the mortgage on Creekside Village, as discussed above, and due to the normal amortization of the mortgage base. Net cash used in financing activities decreased for 1996 as compared to 1995 primarily due to the decrease in the third quarter 1996 distribution as a result of the modification of the mortgage on Creekside Village. New Accounting Standards - ------------------------ In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS 128"). FAS 128 changes the requirements for the calculation and disclosure of earnings per share. The Partnership is required to present basic net earnings per limited partnership unit as opposed to net earnings per limited partnership unit. However, the computational differences between FAS 128 and the prior accounting standard do not impact the Partnership. FAS 128 has been applied to the year ended December 31, 1997, and all prior periods. 13 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued During 1997 FASB issued SFAS No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 continues the existing requirements to disclose the pertinent rights and privileges of all securities other than ordinary common stock but expands the number of companies subject to portions of its requirements. The Partnership's disclosures comply with the requirements of this statement. 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 would include 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 is effective for years beginning on or after December 15, 1997. During 1997, FASB issued SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographical areas and major customers. FAS 131 is effective for years beginning on or after December 15, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is contained on pages 21 through 39. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a), (b), (c) and (e) The Partnership has no officers or directors. CRIIMI, Inc. (the General Partner) holds a Partnership interest of 2.9%. The affairs of the Partnership are generally managed by the General Partner, which is wholly owned by CRIIMI MAE, a company whose shares are listed on the New York Stock Exchange. Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI, Inc. However, effective June 30, 1995, CRIIMI MAE became a self- administered REIT and, as a result, such advisor no longer advises CRIIMI MAE. AIM Acquisition Partner L.P., (the Advisor) serves as the advisor to the Partnership. 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 receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub- advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued of CRIIMI MAE, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. The General Partner is also the general partner of American Insured Mortgage Investors - Series 85, L.P. (AIM 85), American Insured Mortgage Investors L.P. - Series 86 (AIM 86) and American Insured Mortgage Investors L.P. - - Series 88 (AIM 88), limited partnerships with investment objectives similar to those of the Partnership. (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) 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, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to Note 4 of the notes to the financial statements of the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, no person was known by the Partnership to be the beneficial owner of more than five percent (5%) of the outstanding Units of the Partnership. As of December 31, 1997, 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. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with management and others. Note 4 of the notes to the Partnership's financial statements of this report contains a discussion of the amounts, fees and other compensation paid or accrued by the Partnership to the directors and executive officers of the General Partner and their affiliates, and is incorporated herein by reference. (b) Certain business relationships. Other than as set forth in Item 11 of this report which is incorporated herein by reference, the Partnership has no business 15 PART III relationship with entities of which the General Partner of the Partnership are officers, directors or equity owners. (c) Indebtedness of management. None. (d) Transactions with promoters. Not applicable. 16 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements: Page Description Number - ----------- -------------- Balance Sheets as of December 31, 1997 and 1996 23 Statements of Operations for the years ended December 31, 1997, 1996 and 1995 24 Statements of Changes in Partners' Equity for the years ended December 31, 1997, 1996 and 1995 25 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 26 Notes to Financial Statements 27 (a)(2) Financial Statement Schedules: IV - Mortgage Loans on Real Estate 36 All other schedules have been omitted because they are inapplicable, not required, or the information is included in the Financial Statements or Notes thereto. (a)(3) Exhibits: 4.0 Amended and Restated Certificates of Limited Partnership are incorporated by reference to Exhibit 4(a) to the Registration Statement on Form S-11 (No. 33-6747) dated June 25, 1986 (such Registration Statement, as amended, is referred to herein as the "Registration Statement"). 4.1 Agreement of Limited Partnership, incorporated by reference to Exhibit 3 to the Registration Statement. 4.2 Form of Depository Receipt, incorporated by reference to Exhibit 4(b) to the Registration Statement. 4.3 Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated February 12, 1990, incorporated by reference to Exhibit 4(c) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1989. 4.4 Amendments to Partnership Agreement dated August 16, 1991, incorporated by reference to Exhibit 28(c) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. 10.0 Origination and Acquisition Services Agreement, dated September 1, 1983, between the Partnership and IFI, incorporated by reference to Exhibit 10(b) to the registration statement on Form S-11 (No. 2-85476) dated November 30, 1983 (such registration statement, as amended, is referred to herein as the "Initial Registration Statement"). 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 10.1 Management Services Agreement, dated November 30, 1983, between the Partnership and IFI, incorporated by reference to Exhibit 10(c) to the Initial Registration Statement. 10.2 Disposition Services Agreement, dated November 30, 1983, between the Partnership and IFI, incorporated by reference to Exhibit 10(d) to the Initial Registration Statement. 10.3 Agreement, dated November 30, 1983, among the former managing general partner, the former associate general partner and Integrated, incorporated by reference to Exhibit 10(e) to the Initial Registration Statement. 10.4 Reinvestment Plan, incorporated by reference to the Prospectus contained in the Registration Statement. 10.5 Mortgage Note dated March 26, 1986 between Mastic Associates and IFI, incorporated by reference to Exhibit 10(l) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 10.6 Mortgage dated March 26, 1986 between Mastic Associates and IFI, incorporated by reference to Exhibit 10(m) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 10.7 Mortgagor/Mortgagee Agreement dated March 26, 1986 between Mastic Associates and IFI, incorporated by reference to Exhibit 10(n) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 10.8 Lease Agreement dated as of December 10, 1984 between NHP Land Associates, as Landlord and Mastic Associates, as Tenant, incorporated by reference to Exhibit 10(o) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 10.9 Purchase Agreement among AIM Acquisition, the former managing general partner, the former corporate general partner, IFI and Integrated dated as of December 1, 1990, as amended January 9, 1991, incorporated by reference to Exhibit 28(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 10.10 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 September 6, 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 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(d) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992. 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. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN INSURED MORTGAGE INVESTORS (Registrant) By: CRIIMI, Inc. General Partner March 18, 1998 /s/ William B. Dockser - --------------------------- ---------------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer March 18, 1998 /s/ H. William Willoughby - --------------------------- ---------------------------- DATE H. William Willoughby President and Director March 18, 1998 /s/ Cynthia O. Azzara - --------------------------- ---------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer March 18, 1998 /s/ Garrett G. Carlson, Sr. - --------------------------- ---------------------------- DATE Garrett G. Carlson, Sr. Director March 18, 1998 /s/ Larry H. Dale - --------------------------- ---------------------------- DATE Larry H. Dale Director March 18, 1998 /s/ G. Richard Dunnells - --------------------------- ---------------------------- DATE G. Richard Dunnells Director March 18, 1998 /s/ Robert Merrick - --------------------------- ---------------------------- DATE Robert Merrick Director 19 AMERICAN INSURED MORTGAGE INVESTORS Financial Statements as of December 31, 1997 and 1996 and for the Years Ended December 31, 1997, 1996 and 1995 20 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of American Insured Mortgage Investors: We have audited the accompanying balance sheets of American Insured Mortgage Investors (the Partnership) as of December 31, 1997 and 1996, and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. 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 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, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995, 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, 1997 and for the year then ended 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, DC March 13, 1998 21 AMERICAN INSURED MORTGAGE INVESTORS BALANCE SHEETS
December 31, December 31, 1997 1996 ------------ ------------ ASSETS Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount: Originated insured mortgages $ 14,184,505 $ 14,274,528 Acquired insured mortgages 8,912,223 8,988,210 ------------ ------------ 23,096,728 23,262,738 Investment in FHA-Insured Certificates, at fair value 14,178,168 14,105,760 Cash and cash equivalents 878,867 656,051 Receivables and other assets 397,201 360,640 ------------ ------------ Total assets $ 38,550,964 $ 38,385,189 ============ ============ LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 823,903 $ 720,916 Accounts payable and accrued expenses 66,482 74,473 ------------ ------------ Total liabilities 890,385 795,389 ------------ ------------ Partners' equity: Limited partners' equity 39,633,683 39,737,785 General partner's deficit (4,935,128) (4,932,018) Unrealized gains on investment in FHA-Insured Certificates 2,962,024 2,784,033 ------------ ------------ Total partners' equity 37,660,579 37,589,800 ------------ ------------ Total liabilities and partners' equity $ 38,550,964 $ 38,385,189 ============ ============ The accompanying notes are an integral part of these financial statements.
22 AMERICAN INSURED MORTGAGE INVESTORS STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 1996 1995 ------------ ------------ ------------ Income: Mortgage investment income $ 3,376,465 $ 3,413,739 $ 3,589,374 Interest and other income 38,282 31,263 37,115 ------------ ------------ ------------ 3,414,747 3,445,002 3,626,489 ------------ ------------ ------------ Expenses: Asset management fee to related parties 343,092 343,092 343,092 General and administrative 192,218 197,413 242,209 ------------ ------------ ------------ 535,310 540,505 585,301 ------------ ------------ ------------ Earnings before mortgage modification 2,879,437 2,904,497 3,041,188 Loss on mortgage modification -- (146,464) -- ------------ ------------ ------------ Net earnings $ 2,879,437 $ 2,758,033 $ 3,041,188 ============ ============ ============ Net earnings allocated to: Limited partners - 97.1% $ 2,795,933 $ 2,678,050 $ 2,952,994 General partner - 2.9% 83,504 79,983 88,194 ------------ ------------ ------------ $ 2,879,437 $ 2,758,033 $ 3,041,188 ============ ============ ============ Net earnings per limited partnership Unit - Basic $ .28 $ .27 $ .30 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
23 AMERICAN INSURED MORTGAGE INVESTORS STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the years ended December 31, 1997, 1996 and 1995
Unrealized Gains on Investment General Limited in Insured Partner Partners Mortgages Total ------------ ------------ ------------ ------------- Balance, January 1, 1995 (4,915,023) 40,306,817 1,848,753 37,240,547 Net earnings 88,194 2,952,994 -- 3,041,188 Distributions paid or accrued of $0.32 per Unit, including return of capital of $0.02 per Unit (95,572) (3,200,040) -- (3,295,612) Unrealized gains on investment in FHA-insured certificates -- -- 1,507,121 1,507,121 ------------ ------------ ------------ ------------- Balance, December 31, 1995 (4,922,401) 40,059,771 3,355,874 38,493,244 Net earnings 79,983 2,678,050 -- 2,758,033 Distributions paid or accrued of $0.30 per Unit, including return of capital of $0.03 per Unit (89,600) (3,000,036) -- (3,089,636) Reduction in unrealized gains on investment in FHA-insured certificates -- -- (571,841) (571,841) ------------ ------------ ------------ ------------- Balance, December 31, 1996 $ (4,932,018) $ 39,737,785 $ 2,784,033 $ 37,589,800 Net earnings 83,504 2,795,933 -- 2,879,437 Distributions paid or accrued of $0.29 per Unit, including return of capital of $0.01 per Unit (86,614) (2,900,035) -- (2,986,649) Unrealized gains on investment in FHA-insured certificates -- -- 177,991 177,991 ------------ ------------ ------------ ------------- Balance, December 31, 1997 $ (4,935,128) $ 39,633,683 $ 2,962,024 $ 37,660,579 ============ ============ ============ ============= Limited Partnership Units outstanding - basic, as of December 31, 1997, 1996 and 1995 10,000,125 ============= The accompanying notes are an integral part of these financial statements.
24 AMERICAN INSURED MORTGAGE INVESTORS STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 2,879,437 $ 2,758,033 $ 3,041,188 Adjustments to reconcile net earnings to net cash provided by operating activities: Loss on mortgage modification -- 146,464 -- Changes in assets and liabilities: (Increase) decrease in receivables and other assets (36,561) 16,683 (2,676) (Decrease) increase in accounts payable and accrued expenses (7,991) (23,819) 1,809 ------------ ----------- ------------ Net cash provided by operating activities 2,834,885 2,897,361 3,040,321 ------------ ------------- ------------ Cash flows from investing activities: Receipt of mortgage principal from scheduled payments 271,593 277,580 206,038 ------------ ------------ ------------ Cash flows from financing activities: Distributions paid to partners (2,883,662) (3,192,623) (3,295,612) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 222,816 (17,682) (49,253) Cash and cash equivalents, beginning of year 656,051 673,733 722,986 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 878,867 $ 656,051 $ 673,733 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
25 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION American Insured Mortgage Investors (the Partnership) was formed under the Uniform Limited Partnership Act in the state of California on July 12, 1983. CRIIMI, Inc. (the General Partner) holds a partnership interest of 2.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners L.P. (the Advisor) serves as the advisor to the Partnership. The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, Inc., managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. Prior to the expiration of the Partnership's reinvestment period in November 1988, the Partnership was engaged in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages and, together with Originated Insured Mortgages, referred to herein as Insured Mortgages). In accordance with the terms of the Partnership Agreement, the Partnership is no longer authorized to originate or acquire Insured Mortgages and, consequently, its primary objective is to manage its portfolio of mortgage investments, all of which are insured under Section 221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement states that the Partnership will terminate on December 31, 2008, unless previously terminated under the provisions of the Partnership Agreement. 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. Investment in Insured Mortgages ------------------------------- The Partnership's investment in Insured Mortgages is comprised of FHA- insured mortgage loans (FHA-Insured Loans) and participation certificates evidencing a 100% undivided beneficial interest in government insured 26 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued multifamily mortgages issued or sold pursuant to programs of the Federal Housing Administration (FHA) (FHA-Insured Certificates). The mortgages underlying the FHA-Insured Certificates and FHA-Insured Loans are non- recourse first liens on multifamily residential developments. Payment of principal and interest on FHA-Insured Certificates and FHA- Insured Loans is insured by the United States Department of Housing and Urban Development (HUD) pursuant to Title 2 of the National Housing Act. As of December 31, 1997, the weighted average remaining term of the Partnership's investments in FHA-Insured Certificates is approximately 24 years. However, the Partnership Agreement states that the Partnership will terminate in approximately 11 years, on December 31, 2008, unless previously terminated under the provisions of the Partnership Agreement. As the Partnership is anticipated to terminate prior to the weighted average remaining term of its FHA-Insured Certificates, the Partnership does not have the ability, at this time, to hold these investments to maturity. Consequently, the General Partner believes that the Partnership's FHA-Insured Certificates should be included in the Available for Sale category. Although the Partnership's FHA-Insured Certificates are classified as Available for Sale for financial statement purposes, the General Partner does not intend to voluntarily sell these assets other than those which may be sold as a result of a default or those which are eligible to be put to FHA at the expiration of 20 years from the date of the final endorsement. In connection with this classification, as of December 31, 1997, 1996 and 1995, all of the Partnership's investments in FHA-Insured Certificates are recorded at fair value, with the net unrealized gains on these investments reported as a separate component of partners' equity. Subsequent increases or decreases in the fair value of FHA-Insured Certificates classified as Available for Sale will be included as a separate component of partners' equity. Realized gains and losses on FHA- Insured Certificates classified as Available for Sale will continue to be reported in earnings. The amortized cost of the investments in this category is adjusted for amortization of discounts to maturity. Such amortization is included in mortgage investment income. As of December 31, 1997, 1996 and 1995, Investment in FHA-Insured Loans, are recorded at amortized cost. Gains from dispositions of mortgage investments are recognized upon the receipt of cash or 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 Originated 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 Originated 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 Originated Insured Mortgage and the loss of 30 days accrued interest. Since Acquired Insured Mortgages were purchased at a discount from the unpaid principal balance of the mortgage, the Partnership's investment in the Acquired Insured Mortgages is less than the amount that would be 27 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued recovered from HUD in the event of a default. Therefore, the Partnership would experience no loan losses on discounted Acquired Insured Mortgages in the case of a default. Cash and Cash Equivalents ------------------------- Cash and cash equivalents consist of time and demand deposits 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. New Accounting Standards ------------------------ In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS 128"). FAS 128 changes the requirements for the calculation and disclosure of earnings per share. The Partnership is required to present basic net earnings per limited partnership unit as opposed to net earnings per limited partnership unit. However, the computational differences between FAS 128 and the prior accounting standard do not impact the Partnership. FAS 128 has been applied to the year ended December 31, 1997, and all prior periods. During 1997 FASB issued SFAS No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 continues the existing requirements to disclose the pertinent rights and privileges of all securities other than ordinary common stock but expands the number of companies subject to portions of its requirements. The Partnership's disclosures comply with the requirements of this statement. 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 would include 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 is effective for years beginning on or after December 15, 1997. During 1997, FASB issued SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographical areas and major customers. FAS 131 is effective for years beginning on or after December 15, 1997. 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. 28 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
As of December 31, 1997 As of December 31, 1996 Amortized Fair Amortized Fair Cost Value Cost Value ------------ ------------ ------------ ------------ Investment in FHA-Insured Certificates $ 11,216,144 $ 14,178,168 $ 11,321,727 $ 14,105,760 ============ ============ ------------ ------------ Investment in FHA-Insured Loans: Originated Insured Mortgages $ 14,184,505 $ 14,969,834 $ 14,274,528 $ 14,936,979 Acquired Insured Mortgage 8,912,223 11,870,299 8,988,210 11,864,867 ------------ ------------ ------------ ------------ $ 23,096,728 26,840,133 $ 23,262,738 $ 26,801,846 ============ ============ ============ ============ Cash and cash equivalents $ 878,867 $ 878,867 $ 656,051 $ 656,051 Accrued interest receivable $ 361,525 $ 361,525 $ 277,289 $ 277,289
The following methods and assumptions were used to estimate the fair value of each class of financial instrument: Investment in FHA-Insured Certificates and FHA- Insured Loans ------------------------------------------------ The fair value of the FHA-Insured Certificates and FHA-Insured Loans is based on quoted market prices. Cash and cash equivalents and accrued interest receivable --------------------------------------------------------- The carrying amount approximates fair value because of the short maturity of these instruments. 4. TRANSACTIONS WITH RELATED PARTIES The principal officers of the General Partner for the years ended December 31, 1997, 1996 and 1995 did not receive fees for serving as officers of the General Partner, nor are any fees expected to be paid to the officers in the future. The General Partner and certain affiliated entities have, during the years ended December 31, 1997, 1996 and 1995, earned or received compensation or payments for services from the Partnership as follows: 29 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 4. TRANSACTIONS WITH RELATED PARTIES - Continued
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES ---------------------------------------------- Capacity in Which For the year ended December 31, Name of Recipient Served/Item 1997 1996 1995 - ----------------- ---------------------------- -------- -------- -------- CRIIMI, Inc. General Partner/Distribution $ 86,614 $ 89,600 $ 95,572 AIM Acquisition Advisor/Asset Management Fee 343,092 343,092 343,092 Partners, L.P.(1) CRIIMI MAE Affiliate of General Partner/ 36,226 39,974 16,862 Management, Inc. (2) Expense Reimbursement CRI(2) Affiliate of General Partner/ -- -- 37,365 Expense Reimbursement
(1) The Advisor, pursuant to the Partnership Agreement, effective October 1, 1991, is entitled to an Asset Management Fee equal to .95% of Total Invested Assets (as defined in the Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee equal to 0.28% of Total Invested Assets from the Advisor's Asset Management Fee. As discussed in Note 1, effective June 30, 1995, CRIIMI MAE Services Limited Partnership now serves as the Sub-advisor. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited Partnership earned a fee equal to $101,112, $101,112 and $50,566 for the years ended December 31, 1997, and 1996 and for the six months ended December 31, 1995, respectively. CRI/AIM Management, Inc., which acted as the Sub- advisor through June 30, 1995, earned a fee equal to $50,556 for the six months ended June 30, 1995. (2) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred prior to June 30, 1995 on behalf of the General Partner and the Partnership. As discussed in Note 1, the transaction in which CRIIMI MAE became a self-administered REIT has no impact on the payments required to be made by the Partnership, other than that 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. The amounts paid to CRI during the year ended December 31, 1995 represent reimbursement of expenses incurred prior to June 30, 1995. This is included in general and administrative expenses. 5. INVESTMENT IN FHA-INSURED LOANS Listed below is the Partnership's aggregate investment in FHA-Insured Loans as of December 31, 1997 and 1996: 30 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 5. INVESTMENT IN FHA-INSURED LOANS - Continued
December 31, 1997 1996 ------------ ------------ Number of Acquired Insured Mortgages 4 4 Originated Insured Mortgages 2 2 Amortized Cost $ 23,096,728 $ 23,262,738 Face Value 26,077,186 26,338,828 Fair Value 26,840,133 26,801,846
All of the FHA-Insured Loans were current with respect to the payment of principal and interest as of March 1, 1998, except for the mortgage on Portervillage I Apartments, which has been delinquent since January 1997. In May 1997, the servicer of this mortgage filed a Notice of Default and an Election to Assign the mortgage with HUD. The face value of this mortgage was approximately $1.2 million at December 31, 1996. The Partnership expects to receive 99% of this amount plus accrued interest. In addition to base interest payments received from Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development and of the net proceeds from the refinancing, sale or other disposition of the underlying development (referred to as Participations). During the years ended December 31, 1997, 1996 and 1995, the Partnership received $61,988, $12,158 and $39,465, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of operations. 6. INVESTMENT IN FHA-INSURED CERTIFICATES Listed below is the Partnership's aggregate investment in FHA-Insured Certificates as of December 31, 1997 and 1996:
December 31, 1997 1996 ------------ ------------ Number of mortgages 9 9 Amortized Cost $ 11,216,144 $ 11,321,727 Face Value 13,648,992 13,843,564 Fair Value 14,178,168 14,105,760
All of the FHA-Insured Certificates were current with respect to the payment of principal and interest as of March 1, 1998. 7. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the years ended December 31, 1997, 1996 and 1995 are as follows: 31 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 7. DISTRIBUTIONS TO UNITHOLDERS - Continued Quarter Ended 1997 1996 1995 - ------------- -------- -------- -------- March 31 $ 0.07 $ 0.08 $ 0.08 June 30 0.07 0.08 0.08 September 30 0.07 0.07 0.08 December 31 0.08 0.07 0.08 -------- -------- -------- $ 0.29 $ 0.30 $ 0.32 ======== ======== ======== 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 Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each year due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and (4) changes in the Partnership's operating expenses. 8. PARTNERS' EQUITY Depositary Units representing economic rights in limited partnership interests (Units) were issued at a stated value of $20. A total of 10,000,000 Units were issued for an aggregate capital contribution of $200,000,000. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 Units in exchange therefor. 32 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO FINANCIAL STATEMENTS 9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1997, 1996 and 1995: (In Thousands, Except Per Unit Data)
1997 Quarter ended March 31 June 30 September 30 December 31 ---------- ---------- ------------ ----------- Income $ 901 $ 840 $ 836 $ 838 Net earnings 758 701 708 712 Net earnings per Limited Partnership Unit - Basic $ 0.07 $ 0.07 $ 0.07 $ 0.07
1996 Quarter ended March 31 June 30 September 30 December 31 ---------- ---------- ------------ ----------- Income $ 906 $ 859 $ 841 $ 839 Net earnings 754 572 722 710 Loss on mortgage modification -- (146) -- -- Net earnings per Limited Partnership Unit - Basic $ 0.07 $ 0.06 $ 0.07 $ 0.07
1995 Quarter ended March 31 June 30 September 30 December 31 ---------- ---------- ------------ ----------- Income $ 927 $ 900 $ 895 $ 904 Net earnings 758 767 749 767 Net earnings per Limited Partnership Unit - Basic $ 0.07 $ 0.08 $ 0.07 $ 0.08
33 AMERICAN INSURED MORTGAGE INVESTORS SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997
Interest Face Net Annual Payment Maturity Put Rate on Amount of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5) Mortgage (3)(7)(9)(10) Interest)(5)(8) - ------------------------- -------- ------- ------------ ------------ ----------------- --------------- Acquired Insured Mortgages - -------------------------- Investment in FHA-Insured Loans (carried at amortized cost)(2) Eastdale Apts. Montgomery, AL 3/23 10/01 7.5% $ 6,602,017 $ 5,067,311 $ 592,406 North River Place Chillecothe, OH 10/21 12/01 7.5% 3,095,607 2,380,516 279,509 Portervillage I Apts. Porterville, CA 8/21 5/01 7.5% 1,144,441 941,454 103,733(4) Town Park Apts. Rockingham, NC 10/22 10/02 7.5% 637,453 522,942 56,755(4) ------------ ------------ Total Investment in FHA-Insured Loans - Acquired Insured Mortgages 11,479,518 8,912,223 ------------ ------------ Originated Insured Mortgages - ---------------------------- Investment in FHA-Insured Loans (carried at amortized cost)(2) Creekside Village Beaverton, OR 11/25 1/01 7.75% 5,047,583 5,047,583 442,752 Waters Edge Apts. Columbus, OH 1/31 5/03 8.75% 9,550,085 9,136,922 885,419(6) ------------ ------------ Total Investment in FHA-Insured Loans - Originated Insured Mortgages 14,597,668 14,184,505 ------------ ------------ Total Investment in FHA-Insured Loans 26,077,186 23,096,728 ------------ ------------ See notes to Schedule IV - Mortgage Loans on Real Estate.
34 AMERICAN INSURED MORTGAGE INVESTORS SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997
Interest Face Net Annual Payment Maturity Put Rate on Amount of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5) Mortgage (3)(7)(9)(10) Interest)(5)(8) - ------------------------- -------- ------- ------------ ------------ ---------------- --------------- Acquired Insured Mortgages - -------------------------- Investment in FHA-Insured Certificates (carried at fair value) Bay Pointe Apts. Lafayette, IN 2/23 10/02 7.5% 2,069,768(4) 2,149,966 185,272(4) Baypoint Shoreline Apts. Duluth, MN 1/22 10/01 7.5% 977,925(4) 1,015,854 87,967(4) Berryhill Apts. Grass Valley, CA 1/21 11/02 7.5% 1,268,509(4) 1,317,862 115,899(4) Brougham Estates II Kansas City, KS 11/22 3/02 7.5% 2,597,377(4) 2,697,876 230,860(4) College Green Apts. Wilmington, NC 3/23 2/02 7.5% 1,395,308(4) 1,449,246 123,455(4) Fox Run Apts. Dothan, AL 10/19 11/99 7.5% 1,243,489(4) 1,292,094 116,242(4) Kaynorth Apts. Lansing, MI 4/23 9/02 7.5% 1,893,162(4) 1,966,332 167,318(4) Lakeside Apts. Bennettsville, SC 1/22 2/02 7.5% 392,461(4) 407,683 35,303(4) Westbrook Apts. Kokomo, IN 11/22 9/02 7.5% 1,810,993(4) 1,881,255 163,177(4) ------------ ------------ Total Investment in FHA-Insured Certificates 13,648,992 14,178,168 ------------ ------------ TOTAL INVESTMENT IN INSURED MORTGAGES $ 39,726,178 $ 37,274,896 ============ ============ See notes to Schedule IV - Mortgage Loans on Real Estate
35 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (1) Under the Section 221 program of the National Housing Act of 1937, as amended, a mortgagee has the right to assign a mortgage ("put") to FHA at the expiration of 20 years from the date of final endorsement if the mortgage is not in default at such time. Any mortgagee electing to assign an FHA-insured mortgage to FHA will receive, in exchange therefor, HUD debentures having a total face value equal to the then outstanding principal balance of the FHA-insured mortgage plus accrued interest to the date of assignment. These HUD debentures will mature 10 years from the date of assignment and will bear interest at the "going Federal rate" at such date. This assignment procedure is applicable to an insured mortgage which had a firm or conditional FHA commitment for insurance on or before November 30, 1983. The Partnership anticipates that each eligible insured mortgage, for which a prepayment has not occurred and which has not been sold, will be assigned to FHA at the expiration of 20 years from the date of final endorsement. The Partnership, therefore, does not anticipate holding any eligible insured mortgage beyond the expiration of 20 years from final endorsement of that insured mortgage. (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) These amounts represent the Partnership's 50% interest in these insured mortgages. The remaining 50% interest was acquired by American Insured Mortgage Investors - Series 85, L.P. (AIM 85). (5) In addition, the servicer of the insured mortgages (primarily unaffiliated third parties) is entitled to receive compensation for certain services rendered in an amount up to ten basis points (.10%) of the unpaid principal balance of the insured mortgages. (6) This represents the base interest rate during the permanent phase of this insured mortgage loan. Additional interest, (referred to as Participations) measured as a percentage of surplus cash and a percentage of the proceeds from sale or refinancing of the development (as defined in the Participation Agreements), will also be due. The Partnership received $61,988, $12,158 and $39,465 from the Participations for the years ended December 31, 1997, 1996 and 1995, respectively. (7) The mortgages underlying the Partnership's investment in FHA-Insured Certificates and FHA-Insured Loans are non-recourse first liens on multifamily residential developments. (8) Principal and interest are payable at level amounts over the life of the Insured Mortgages. 36 AMERICAN INSURED MORTGAGE INVESTORS NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE - Continued (9) A reconciliation of the carrying value of Insured Mortgages, for the years ended December 31, 1997 and 1996, is as follows: 1997 1996 ------------ ------------ Beginning balance $ 37,368,498 $ 38,364,383 Loss on mortgage modification -- (146,464) Principal receipts on Insured Mortgages (271,593) (277,580) Increase (decrease) in unrealized gains on investment in Insured Mortgages 177,991 (571,841) ------------ ------------ Ending balance $ 37,274,896 $ 37,368,498 ============ ============ (10) The tax basis of the Insured Mortgages was approximately $33.7 million and $34.1 million as of December 31, 1997 and 1996, respectively. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 879 14,178 23,494 0 0 0 0 0 38,551 890 0 0 0 0 37,661 38,551 0 3,415 0 0 536 0 0 2,879 0 2,879 0 0 0 2,879 .28 0
-----END PRIVACY-ENHANCED MESSAGE-----