-----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, QrrIhao5e+0lpGJ7yh0aki0Ni7Jx8wHrc7yOImwn0gsbBpn3C/W3rpL5atllS49q GvRmzqhSYsstq9xQpIFflw== 0000753281-97-000001.txt : 19970401 0000753281-97-000001.hdr.sgml : 19970401 ACCESSION NUMBER: 0000753281-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS SERIES 85 L P CENTRAL INDEX KEY: 0000753281 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 133257662 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11059 FILM NUMBER: 97569974 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED RESOURCES AMERICAN INSURED MTG INVTS SERIES 85 DATE OF NAME CHANGE: 19911203 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN INSURED MORTGAGE INVESTORS SERIES 85 DATE OF NAME CHANGE: 19900404 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED RESOURCES AMERICAN INS MORTGAGE INVTS SERIES 85 DATE OF NAME CHANGE: 19890917 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, 1996 ------------------ Commission file number 1-11059 ----------------- AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. - ----------------------------------------------------------------- (Exact name of registrant as specified in charter) California 13-3257662 - ------------------------------------- ---------------------- (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 February 27, 1997, 12,079,389 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 $176,602,564. 3 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. 1996 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 . 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . 17 PART III -------- Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . 17 Item 11. Executive Compensation . . . . . . . . . . . 17 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . 18 Item 13. Certain Relationships and Related Transactions 18 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . 19 Signatures . . . . . . . . . . . . . . . . . . . . . . 22 4 PART I ITEM 1. BUSINESS Development and Description of Business - --------------------------------------- Information concerning the business of American Insured Mortgage Investors - - Series 85, L.P. (the Partnership) is contained in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and in Notes 1, 5, 6 and 7 of the notes to the financial statements of the Partnership (filed in response to Item 8 hereof), which is incorporated herein by reference. Also see Schedule IV-Mortgage Loans on Real Estate, for the table of the Insured Mortgages (as defined below) invested in by the Partnership as of December 31, 1996. 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 or their respective affiliates. Some of these entities may have substantially greater capital resources and experience in disposing of Federal Housing Administration (FHA) insured mortgages than the Partnership. CRIIMI MAE and its affiliates also may serve as general partners, sponsors or managers of real estate limited partnerships, REITs or other entities in the future. The Partnership may attempt to dispose of mortgages at or about the same time that CRIIMI MAE, or 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. 5 PART I ITEM 2. PROPERTIES Although the Partnership does not own the underlying real estate, the mortgages underlying the Partnership's mortgage investments are non-recourse first liens on the respective multifamily residential developments or retirement homes. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which the Partnership is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the security holders to be voted on during the fourth quarter of 1996. 6 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS Principal Market and Market Price for Units and Distributions - ------------------------------------------------------------- Since April 8, 1992, the Units have traded on the American Stock Exchange (AMEX) with a trading symbol of "AII." The high and low bid prices for the Units as reported on AMEX and the distributions, as applicable, for each quarterly period in 1996 and 1995 were as follows:
Amount of 1996 Distribution Quarter Ended High Low Per Unit --------------------- ------- ------- ------------ March 31, $15 $14 3/8 $ 0.33 June 30, 14 5/8 13 3/4 0.64(1) September 30, 14 1/2 13 7/8 0.43(2) December 31, 14 7/8 14 1/8 0.85(3) ------ $ 2.25 ====== Amount of 1995 Distribution Quarter Ended High Low Per Unit --------------------- ------- ------- ------------ March 31, $14 7/8 $13 $ 0.36 June 30, 14 7/8 13 3/4 0.33 September 30, 14 3/4 14 0.49 (4) December 31, 14 3/4 14 1/4 0.36 (5) ------ $ 1.54 ======
(1) This amount includes approximately $0.31 per Unit representing net proceeds from the prepayment of the mortgages on Harbor View Estates, Bear Creek Apartments II, and Cambridge Arms Apartments. (2) This amount includes approximately $0.10 per Unit representing net proceeds from the assignment of the mortgage on Woodland Village Apartments. (3) This amount includes approximately $0.51 per Unit representing net proceeds from the prepayment of the mortgage on Westlake Village. In addition, it includes approximately $0.01 per Unit representing net proceeds from the modification of mortgage on Oak Forest Apartments II and the partial prepayment of the mortgage on Cambridge Arms Apartments. (4) This amount includes approximately $0.16 per Unit representing net proceeds from the assignment of the mortgage on El Lago Apartments. (5) This amount includes approximately $0.02 per Unit representing additional proceeds from the assignment of the mortgage on El Lago Apartments. 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 The Partnership's Dividend Reinvestment Plan (the Plan) was amended effective January 1, 1994 to exclude the amount of any special distributions from reinvestment under the Plan. A check will be issued to Plan Participants for the amount of any special distributions. The regular cash flow distributions will continue to be automatically reinvested under the Plan in additional Units as in the past. Approximate Number of Unitholders Title of Class as of December 31, 1996 - -------------------- --------------------------------- Depositary Units of Limited Partnership Interest 12,500 8 PART II ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per Unit amounts)
For the Years Ended December 31, 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Income $ 17,943 $ 18,589 $ 19,167 $ 19,202 $ 18,694 Net gains (losses) on mortgage dispositions and loan losses 522 36 (151) 2,636 (652) Net earnings 15,789 15,903 16,155 19,058 15,313 Net earnings per Limited Partnership Unit (1) 1.26 1.27 1.29 1.52 1.22 Distributions per Limited Partnership Unit (1)(2) 2.25 1.54 1.96 1.775 1.13 As of December 31, 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Total assets $215,951 $225,691 $214,823 $227,937 $229,616 Partners' equity 204,687 220,681 209,557 221,504 224,758 (1) Calculated based upon the weighted average number of Units outstanding. (2) Includes distributions due the Unitholders for the Partnership's fiscal quarters ended December 31, 1996, 1995, 1994, 1993 and 1992, which were paid subsequent to year end. See Notes 3 and 7 of the notes to the financial statements of the Partnership contained in Item 8, "Financial Statements and Supplementary Data."
The selected statements of operations data presented above for the years ended December 31, 1996, 1995 and 1994, and the balance sheet data as of December 31, 1996 and 1995, 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, 1993 and 1992 and the balance sheet data as of December 31, 1994, 1993 and 1992 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 - Series 85, L.P. (the Partnership) was formed under the Uniform Limited Partnership Act of the state of California on June 26, 1984. During the period from March 8, 1985 (the initial closing date of the Partnership's public offering) through January 27, 1986 (the termination date of the offering), the Partnership, pursuant to its public offering of 12,079,389 Depository Units of limited partnership interest (Units), raised a total of $241,587,780 in gross proceeds. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 units of limited partnership interest in exchange therefor. CRIIMI, Inc. (the General Partner) holds a partnership interest of 3.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of the Partnership. The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, 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 on December 31, 1993, and subject to 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). 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), Federal Housing Administration (FHA) or the Federal Home Loan Mortgage Corporation. As of December 31, 1996, the Partnership had invested in either Originated Insured Mortgages which are insured or guaranteed, in whole or in part, by FHA or fully insured Acquired Insured Mortgages. After the expiration of the Partnership's reinvestment period on December 31, 1993, the Partnership is required (subject to the conditions set forth in the Partnership Agreement) to distribute such proceeds to its Unitholders. The Partnership Agreement states that the Partnership will terminate on December 31, 2009, 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 Investment in Insured Mortgages - ------------------------------- The Partnership's investment in Insured Mortgages is comprised of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to FHA programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by GNMA (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes. The following is a discussion of the types of the Partnership's mortgage investments, along with the risks related to each type of investment: Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities - --------------------------------------------------------------- Listed below is the Partnership's aggregate investment in Fully Insured Mortgages:
December 31, 1996 1995 ------------ ------------ Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities 9 9 FHA-Insured Certificates 62 66 Amortized Cost $151,866,819 $157,656,694 Face Value 157,889,594 164,397,459 Fair Value 159,959,297 169,460,375 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 -- Amortized Cost $ 17,126,685 $ 10,666,346 Face Value 16,770,069 10,760,496 Fair Value 16,646,943 10,925,754
In December 1992, the Partnership entered into a modification agreement with the mortgagor of Waterford Green Apartments. This agreement effectively lowered the interest rate on the mortgage from 8.5% to 6.5% for a period continuing through November 1995. The mortgagor assumed an additional note for the difference between the interest due under the principal mortgage and the modified interest paid under the agreement. On April 30, 1996, the mortgage on Waterford Green was restated under the HUD 223(a)(7) program converting this originated mortgage from a coinsured to fully insured status at a fixed rate of 7.25%. As a result of converting a coinsured mortgage to a fully insured mortgage, the Partnership recognized a loss of approximately $103,000 on the modification. Payments due under the new mortgage began June 1, 1996. Prior to this restatement, as part of the prior workout arrangements with the borrower, a portion of the interest due under the original note had been deferred 11 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued temporarily. Concurrent with this HUD modification, the deferred interest is now evidenced in the form of a cash surplus note in the amount of $356,600. To the extent available, surplus cash, as defined by HUD, will be split 50/50 in repayment of this deferred interest and another note due the property manager for deferred management fees. Once deferred management fees have been repaid, 100% of surplus cash, if any, will be applied against the remaining deferred interest obligation. Upon repayment of both of these obligations, any surplus cash will be distributed based upon the terms of the participation agreement. As of December 31, 1996, the balance of this note is $356,600. In April 1996, the Partnership entered into a modification agreement with the mortgagor of Oak Forest Apartments II. This agreement lowered the interest rate on the mortgage from 8.5% to 7.5% effective May 1, 1996, through the maturity of the note. The agreement also modified the restrictions on prepayment of the note. The modification agreement, on this originated insured mortgage, resulted in a gain of approximately $148,000. In late March 1996, a retained yield holder in the Harbor View Estates loan, exercised its right to purchase the participation interests with respect to this acquired insured mortgage after a Notice of Default was filed with HUD. The Partnership received net proceeds of approximately $693,000 from this prepayment in late March 1996, resulting in a loss of approximately $1,100. A distribution of $0.08 per Unit related to this prepayment was declared in April 1996 and distributed to Unitholders in August 1996. In late May 1996, the mortgages on Cambridge Arms Apartments and Bear Creek Apartments II were prepaid, resulting in net proceeds of approximately $2.9 million. The Partnership recognized a gain of approximately $235,000 from the prepayment of the mortgage on Cambridge Arms Apartments and a gain of approximately $276,500 from the prepayment of the mortgage on Bear Creek Apartments II. A distribution of $0.23 per Unit related to the prepayment, on these acquired insured mortgages, was declared in June 1996 and was distributed to Unitholders in August 1996. In October 1995, the Partnership filed a Notice of Default and an Election to Assign with the United States Department of Housing and Urban Development (HUD) related to the acquired insured mortgage on Woodland Village Apartments. On August 30, 1996, the Partnership received approximately $1.4 million, representing approximately 90% of the assignment proceeds. The remaining proceeds of approximately $139,000 are included in receivables and other assets on the accompanying balance sheet as of December 31, 1996. The Partnership recognized a loss of approximately $41,000 during year end 1996. A distribution of $0.10 per Unit related to this assignment was declared in September 1996 and was paid to Unitholders in November 1996. As of March 1, 1997, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest, except for the mortgage on Meadow Park Apartments I, which was assigned in October 1996, as discussed below, and Country Club Terrace Apartments and Pleasant View Nursing Home which are delinquent with respect to the January 1997 payment of principal and interest. The Partnership expects to receive the payments on Country Club Terrace Apartments and Pleasant View Nursing Home. On October 11, 1996, the servicer of the acquired insured mortgage on Meadow Park Apartments I filed a Notice of Default and Election to Assign the mortgage with HUD. On January 24, 1997, the Partnership received approximately $628,000 representing approximately 90% of the assignment proceeds. The Partnership anticipates it will recognize a gain of approximately 12 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued $139,000 in 1997. A distribution of $0.05 per Unit related to this assignment was declared in February 1997 and is expected to be paid to Unitholders in May 1997. In late February 1997, the acquired insured mortgage on Security Apartments was prepaid. The partnership received net proceeds of approximately $304,000, and anticipates it will recognize a gain of approximately $66,000 in 1997. A distribution of approximately $0.02 per Unit related to this prepayment was declared in March 1997 and is expected to be paid to Unitholders in May 1997. In the case of fully insured Originated Insured Mortgages and Acquired Insured Mortgages, the Partnership's maximum exposure for purposes of determining loan losses would generally be approximately 1% of the unpaid principal balance of the Originated Insured mortgage or Acquired Insured Mortgage (an assignment fee charged by FHA) at the date of default, plus the unamortized balance of acquisition of the Insured Mortgage and the loss of approximately 30 days accrued interest. Coinsured FHA-Insured Certificates - ---------------------------------- Coinsured by affiliate - ---------------------- As of December 31, 1996 and 1995, the Partnership had invested in zero and two FHA-Insured Certificates secured by coinsured mortgages where the coinsurance lender was Integrated Funding, Inc. (IFI). On April 30, 1996, Waterford Green Apartments, with an unpaid principal balance of approximately $6.5 million, was converted from a coinsured mortgage to a fully insured originated insured mortgage, as discussed above. During December 1996, the Partnership received net proceeds of approximately $6.5 million for the prepayment of the mortgage on Westlake Village. The Partnership recognized a gain of approximately $7,000 on this prepayment as of December 31, 1996. A distribution of $0.51 per Unit related to this prepayment was declared in December 1996 and distributed to Unitholders in February 1997. Fully Insured FHA-Insured Loans - ------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans: 13 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
December 31, 1996 1995 ------------ ------------ Fully Insured Acquired Insured: Number of Loans 12 12 Amortized Cost $ 14,556,595 $ 14,684,828 Face Value 17,405,640 17,627,453 Fair Value 17,706,486 18,388,369 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 13,030,131 $ 13,123,855 Face Value 12,681,532 12,766,486 Fair Value 12,969,589 13,160,443
As of March 1, 1997, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the years ended December 31, 1996, 1995 and 1994, the Partnership received $42,417, $64,676 and $35,314, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of operations. 14 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations - --------------------- 1996 versus 1995 - ---------------- Net earnings decreased slightly for 1996 as compared to 1995 primarily due to a decrease in mortgage investment income. Partially offsetting this decrease was a decrease in asset management fees and an increase in net gains on mortgage dispositions and modifications, as discussed below. Mortgage investment income decreased for 1996 as compared to 1995 primarily due to the reduction in mortgage base due to the disposition of mortgages, as discussed above. Interest and other income increased for 1996 as compared to 1995 primarily due to the temporary investment of mortgage disposition proceeds prior to distribution to Unitholders. Asset management fees to related parties decreased for 1996 as compared to 1995 as a result of the reduction in the mortgage base. Gains from dispositions and modifications increased as a result of a modification agreement on the mortgage on Oakforest Apartments II and the prepayment of mortgages on Cambridge Arms Apartments, Bear Creek Apartments II and Westlake Village Apartments, as discussed previously. Losses from dispositions and modifications increased primarily due to a modification agreement on the mortgage of Waterford Green Apartments and the assignment of the mortgage on Woodland Village Apartments, as previously discussed. 1995 versus 1994 - ---------------- Net earnings decreased for 1995 as compared to 1994 primarily due to a decrease in mortgage investment income and interest and other income, as discussed below. Mortgage investment income decreased for 1995 as compared to 1994 primarily due to the assignment to HUD of the mortgage on El Lago Apartments in June 1995. Also contributing to the decrease was the conversion of construction loans to permanent loans at lower effective interest rates during 1995. Interest and other income decreased for 1995 as compared to 1994 primarily due to a reduction in funds available for short- term investment during 1995. During the first quarter of 1994, the Partnership had a greater amount of short- term investments, resulting from the temporary investment of disposition proceeds received in late 1993, prior to the distribution of these funds to partners during the first quarter of 1994. Additionally, during the second quarter of 1994, the notes receivable from affiliates were paid off as a result of the prepayment of the mortgage on Richardson Road Apartments and the proceeds were invested in the short-term money market prior to the distribution of these proceeds to partners during the third quarter of 1994. Asset management fee to related parties decreased for 1995 as compared to 1994 as a result of the reduction in the mortgage base during 1995 and 1994. General and administrative expenses decreased for 1995 as compared to 1994 primarily due to a decrease in investor services expenses and annual and quarterly reporting expenses resulting from a reduction in the number of registered holders. Also contributing to the decrease in general and 15 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued administrative expenses was a reduction in payroll and payroll-related expenses as a result of the stabilization of the Partnership's mortgage portfolio as well as a reduction in the mortgage base. In addition mortgage servicing fees decreased primarily due to a reduction in annual servicing fee rates upon the completion of the construction periods for several mortgage investments during 1994. Net gains on mortgage dispositions increased for 1995 as compared to 1994. Gains or losses on mortgage dispositions are based on the number, carrying amounts and the proceeds of mortgage investments disposed of during the period. During 1995, the Partnership recognized a gain of $52,730 as a result of the final settlement of the disposition of the mortgage on Dearborne Place Apartments, and recognized a loss of $16,665 as a result of the assignment to HUD of the mortgage on El Lago Apartments. Liquidity and Capital Resources - ------------------------------- The Partnership's operating cash receipts, derived from payments of principal and interest on Insured Mortgages, plus cash receipts from interest on short-term investments, were sufficient during 1996 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 regular interest income and principal from Insured Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from monthly mortgage payment receipts or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. Since the Partnership is obligated to distribute the Proceeds of Mortgage Prepayments, Sales and Insurance on Insured Mortgages (as defined in the Partnership Agreement) to its Unitholders, the size of the Partnership's portfolio will continue to decrease. The magnitude of the decrease will depend upon the size of the Insured Mortgages which are prepaid, sold or assigned for insurance proceeds as reflected in the preceding table. Cash flow - 1996 versus 1995 - ---------------------------- Net cash provided by operating activities decreased slightly for 1996 as compared to 1995. This decrease was primarily due to a decrease in mortgage investment income, as discussed above. This decrease was offset by a reduction in note payable and due to affiliate during 1995 resulting from the prepayment of the mortgage on Richardson Road Apartments underlying the GNMA Mortgage- Backed Security which had been transferred to IFI to meet IFI's minimum net worth requirement which resulted in lower net cash provided by operations for 1995. In addition, offsetting the decrease in net cash provided by operating activities was an increase in Due from HUD as a result of the assignment of the Woodland Village mortgage. The balance represents the remaining proceeds, plus interest due from HUD. 16 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Net cash provided by investing activities increased in 1996 as compared to 1995 due to the increase in proceeds from mortgage dispositions, as discussed previously. In addition, receipt of mortgage principal from scheduled payments increased for 1996 as compared to 1995 due to partial prepayment of the mortgage on Cambridge Arms Apartments prior to disposition. Net cash used in financing activities increased for 1996 as compared to 1995, as a result of an increase in distributions paid to partners. Distributions paid to partners in 1996 included special distributions resulting from the disposition of the mortgages on Harbor View Estates, Cambridge Arms Apartments, Bear Creek Apartments II and Woodland Village Apartments. Cash flow - 1995 versus 1994 - ---------------------------- Net cash provided by operating activities decreased for 1995 as compared to 1994. This decrease was primarily due to a decrease in receivables and other assets during 1994 resulting from the receipt in January 1994 of accrued, but previously undistributed, interest related to Victoria Pointe Apartments - Phase I. Also contributing to this decrease were decreases in mortgage investment income and other investment income, as previously discussed. Net cash provided by investing activities increased for 1995 as compared to 1994, principally due to a decrease in mortgage acquisitions and advances on construction loans as a result of the expiration of the Partnership's reinvestment period. Also contributing to the increase was the receipt in 1995 of proceeds from the assignment to HUD of the mortgage on El Lago Apartments. Partially offsetting the increase in net cash provided by investing activities was the non-recurring payment of notes receivable from affiliates and dividends from IFI, as a result of the prepayment of the mortgage on Richardson Road Apartments during 1994. Net cash used in financing activities decreased for 1995 as compared to 1994, as a result of a decrease in distributions paid to partners. Distributions paid to partners during 1994 included special distributions resulting from the prepayment of the mortgage on Richardson Road Apartments, the receipt of previously undistributed accrued interest and gain received in late 1993 from the disposition of the defaulted mortgages on Chapelgate Apartments, Sugar Creek Trace, Cumberland Village, Diamond Ridge, and Victoria Pointe Apartments-Phase I. This compares to the distribution paid to partners during 1995 which included special distributions of net proceeds from the assignment of the mortgage on El Lago Apartments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is on pages 23 through 54. 17 PART II 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),(e) The Partnership has no officers or directors. CRIIMI, Inc. (the General Partner) holds a partnership interest of 3.9%. The affairs of the Partnership are 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. 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 is the general partner of the Advisor and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P, Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991, and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. The General Partner is also the general partner of AIM 84, AIM 86 and 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 3,4 and 5 and amendments thereto furnished to the Partnership, and written representations from certain reporting 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, 1996. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to Note 3 of the notes to the financial statements of the Partnership. 18 PART III ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1996, 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, 1996, 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 3 of the notes to the financial statements of the Partnership contains a discussion of the amounts, fees and other compensation paid or accrued by the Partnership to the directors and executive officers of the General Partner and their affiliates, and is 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 relationship with entities of which the current General Partner of the Partnership are officers, directors or equity owners. (c) Indebtedness of management. None. (d) Transactions with promoters. Not applicable. 19 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, 1996 and 1995 25 Statements of Operations for the years ended December 31, 1996, 1995, and 1994 26 Statements of Changes in Partners' Equity for the years ended December 31, 1996, 1995 and 1994 27 Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 28 Notes to Financial Statements 29 (a)(2) Financial Statement Schedules: IV - Mortgage Loans on Real Estate 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. Amended and Restated Certificates of Limited Partnership are incorporated by reference to Exhibit 4(a) to the Registration Statement on Form S-11 (No. 2-93294) dated January 28, 1985 (such Registration Statement, as amended, is referred to herein as the "Registration Statement"). 4. Second Amended and Restated Partnership Agreement is incorporated by reference to Exhibit 3 to the Registration Statement. 4.(a) Amendment No. 1 to the Second Amended and Restated Partnership Agreement is incorporated by reference to Exhibit 4(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 4.(b) Amendment No. 2 to the Second Amended and Restated Partnership Agreement is incorporated by reference to exhibit 4(b) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 4.(c) Amendment to the Second 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. 10.(a) Escrow Agreement, dated January 14, 1985, among the Partnership, the Managing General Partner and Integrated Resources Marketing, Inc., incorporated by reference to Exhibit 10(a) to the Registration Statement. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 10.(b) Amended and Restated Origination and Acquisition Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(b) to the Registration Statement. 10.(c) Amended and Restated Management Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(c) to the Registration Statement. 10.(d) Amended and Restated Disposition Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(d) to the Registration Statement. 10.(e) Agreement, dated as of January 8, 1985, among the former managing general partner, the former associate general partner and Integrated Resources, Inc., incorporated by reference to Exhibit 10(e) to the Registration Statement. 10.(f) Reinvestment Plan, incorporated by reference to the Prospectus contained in the Registration Statement. 10.(h) Declaration of Trust and Pooling Servicing Agreement dated as of July 1, 1982 as to Pass-Through Certificates, is incorporated by reference to Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. 10.(i) 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.(j) Purchase Agreement among AIM Acquisition, the former managing general partner, the former corporate general partner, IFI and Integrated dated as of December 13, 1990, as amended January 9, 1991, incorporated by reference Exhibit 28(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 10.(k) 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.(l) Amendment to Partnership Agreement dated September 4, 1991. incorporated by reference to Exhibit 28(c), to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. 10.(m) Non-negotiable promissory note from American Insured Mortgage Investors L.P. - Series 86 in the amount of $1,737,722 dated December 31, 1991, incorporated by reference to Exhibit 28(d), to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. 10.(n) Non-negotiable promissory note from American Insured Mortgage Investors L.P. - Series 88 in the amount of $1,784,688 dated December 31, 1991, incorporated by reference to Exhibit 28(e), to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 10.(o) Sub-Management Agreement by and between AIM Acquisition and CRI/AIM Management, Inc., dated as of March 1, 1991, incorporated by reference to Exhibit 28(f) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992. 10.(p) Expense Reimbursement Agreement by and among Integrated Funding Inc. and the Partnership, American Insured Mortgage Investors L.P. - Series 86, and American Insured Mortgage Investors L.P. - Series 88, effective December 31, 1992, incorporated by reference to Exhibit 28(g) to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991. 10.(q) Non-negotiable promissory note to American Insured Mortgage Investors L.P. - Series 88 in the amount of $319,074.67 dated April 1, 1994, incorporated by reference to Exhibit 10(q) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994. 10.(r) Amendment to Reimbursement Agreement by and among Integrated Funding Inc. and the Partnership, American Insured Mortgage Investors L.P. - Series 86, and American Insured Mortgage Investors L.P. - Series 88, effective April 1, 1994, incorporated by reference to Exhibit 10(r) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994. 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. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. (Registrant) By:CRIIMI, Inc. General Partner March 26, 1997 /s/ William B. Dockser - --------------------------- ------------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer March 26, 1997 /s/ H. William Willoughby - --------------------------- ------------------------- DATE H. William Willoughby President and Director March 26, 1997 /S/ Cynthia O. Azzara - --------------------------- ------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer March 26, 1996 /s/ Garrett G. Carlson, Sr. - --------------------------- -------------------------- DATE Garrett G. Carlson, Sr. Director March 26, 1997 /s/ Larry H. Dale - --------------------------- ------------------------- DATE Larry H. Dale Director March 26, 1997 G. Richard Dunnells - --------------------------- ------------------------- DATE G. Richard Dunnells Director March 26, 1997 /s/ Robert F. Tardio - --------------------------- ------------------------- DATE Robert F. Tardio Director 23 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. Financial Statements as of December 31, 1996 and 1995 and for the Years Ended December 31, 1996, 1995 and 1994 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of American Insured Mortgage Investors - Series 85, L.P.: We have audited the accompanying balance sheets of American Insured Mortgage Investors - Series 85, L.P. (the Partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. 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, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles. As explained in Note 2 of the Notes to the Financial Statements, effective January 1, 1994, the Partnership changed its method of accounting for its investments in insured mortgages. 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, 1996 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 26, 1997 25 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. BALANCE SHEETS ASSETS
December 31, December 31, 1996 1995 ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities, at fair value: Acquired insured mortgages $159,959,297 $169,460,375 Originated insured mortgages 16,646,943 22,960,468 ------------ ------------ 176,606,240 192,420,843 ------------ ------------ Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Acquired insured mortgages 14,556,595 14,684,828 Originated insured mortgages 13,030,131 13,123,855 ------------ ------------ 27,586,726 27,808,683 Cash and cash equivalents 9,716,786 3,368,700 Receivables and other assets 1,727,662 1,775,746 Investment in affiliate 314,072 317,151 ------------ ------------ Total assets $215,951,486 $225,691,123 ============ ============ LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 10,684,274 $ 4,525,104 Accounts payable and accrued expenses 198,964 163,737 Note payable and due to affiliate 380,877 320,920 ------------ ------------ Total liabilities 11,264,115 5,009,761 ------------ ------------ Partners' equity: Limited partners' equity 198,836,652 210,842,615 General partner's deficit (1,762,017) (1,274,782) Unrealized gain on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 8,715,942 12,159,559 Unrealized loss on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities (1,103,206) (1,046,030) ------------ ------------ Total partners' equity 204,687,371 220,681,362 ------------ ------------ Total liabilities and partners' equity $215,951,486 $225,691,123 ============ ============ The accompanying notes are an integral part of these financial statements.
26 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF OPERATIONS
For the years ended December 31, 1996 1995 1994 ------------ ------------ ------------ Income: Mortgage investment income $ 17,731,547 $ 18,404,737 $ 18,640,699 Interest and other income 211,779 183,846 526,002 ------------ ------------ ------------ 17,943,326 18,588,583 19,166,701 ------------ ------------ ------------ Expenses: Asset management fee to related parties 1,997,649 2,042,886 2,064,713 General and administrative 655,426 655,831 778,666 Interest expense to affiliate 23,132 23,133 17,350 ------------ ------------ ------------ 2,676,207 2,721,850 2,860,729 ------------ ------------ ------------ Earnings before gains (losses) on mortgage dispositions/ modifications 15,267,119 15,866,733 16,305,972 Mortgage dispositions/modifications: Gains 666,179 52,730 -- Losses (144,595) (16,665) (151,354) ------------ ------------ ------------ Net earnings $ 15,788,703 $ 15,902,798 $ 16,154,618 ============ ============ ============ Net earnings allocated to: Limited partners -96.1% $ 15,172,944 $ 15,282,589 $ 15,524,588 General partner - 3.9% 615,759 620,209 630,030 ------------ ------------ ------------ $ 15,788,703 $ 15,902,798 $ 16,154,618 ============ ============ ============ Net earnings per Limited Partnership Unit $ 1.26 $ 1.27 $ 1.29 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
27 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the years ended December 31, 1996, 1995 and 1994
Unrealized Unrealized Gains Losses on Investment on Investment Total General Limited in Insured in Insured Partners' Partner Partners Mortgages Mortgages Equity ------------- ------------ ---------------- --------------- ------------ Balance, January 1, 1994 $ (809,253) $222,313,737 $ -- $ -- $221,504,484 Net earnings 630,030 15,524,588 -- -- 16,154,618 Distributions paid or accrued of of $1.96 per Unit, including return of capital of $0.67 per Unit (960,830) (23,675,847) -- -- (24,636,677) Unrealized gains (losses) on investments in insured mortgages -- -- 5,177,224 (8,642,268) (3,465,044) ------------- ------------ ---------------- --------------- ------------ Balance, December 31, 1994 (1,140,053) 214,162,478 5,177,224 (8,642,268) 209,557,381 Net earnings 620,209 15,282,589 -- -- 15,902,798 Distributions paid or accrued of of $1.54 per Unit, including return of capital of $0.27 per Unit (754,938) (18,602,452) -- -- (19,357,390) Adjustment to unrealized gains (losses) on investment in insured mortgages -- -- 6,982,335 7,596,238 14,578,573 ------------- ------------ ---------------- --------------- ------------ Balance, December 31, 1995 (1,274,782) 210,842,615 12,159,559 (1,046,030) 220,681,362 Net earnings 615,759 15,172,944 -- -- 15,788,703 Distributions paid or accrued of $2.25 per Unit, including return of capital of $0.99 per Unit (1,102,994) (27,178,907) -- -- (28,281,901) Adjustment to unrealized gains (losses) on investment in insured mortgages -- -- (3,443,617) (57,176) (3,500,793) ------------- ------------ ---------------- --------------- ------------ Balance, December 31, 1996 $ (1,762,017) $198,836,652 $ 8,715,942 $ (1,103,206) $204,687,371 ============= ============ ================ =============== ============ Limited Partnership Units outstanding - December 31, 1996, 1995 and 1994 12,079,514 ============ The accompanying notes are an integral part of these financial statements.
28 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 1995 1994 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 15,788,703 $ 15,902,798 $ 16,154,618 Adjustments to reconcile net earnings to net cash provided by operating activities: Losses on mortgage dispositions/modification 144,595 16,665 151,354 Gains on mortgage dispositions/modification (666,179) (52,730) -- Changes in assets and liabilities: Decrease in receivables and other assets 186,942 51 1,375,525 Decrease in investment in affiliate 3,079 1,924 -- Increase (decrease) in accounts payable and accrued expenses 35,227 (137,195) 27,957 Increase (decrease) in note payable and due to affiliate 59,957 (118,513) 120,358 ------------ ------------ ------------ Net cash provided by operating activities 15,552,324 15,613,000 17,829,812 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from disposition of mortgages 11,346,665 2,334,318 -- Receipt of mortgage principal from scheduled payments 1,571,828 1,315,947 1,302,622 Investment in Insured Mortgages and advances on construction loans -- -- (9,739,490) Payments made in connection with mortgage dispositions -- -- (151,354) Principal payments on notes receivable from affiliates -- -- 3,522,411 Dividends from affiliate investee -- -- 1,097,118 ------------ ------------ ------------ Net cash provided by (used in) investing activities 12,918,493 3,650,265 (3,968,693) ------------ ------------ ------------ Cash flows from financing activities: Distributions paid to partners (22,122,731) (19,357,390) (26,270,742) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 6,348,086 (94,125) (12,409,623) Cash and cash equivalents, beginning of year 3,368,700 3,462,825 15,872,448 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 9,716,786 $ 3,368,700 $ 3,462,825 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
29 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was formed under the Uniform Limited Partnership Act of the state of California on June 26, 1984. CRIIMI, Inc. (the General Partner) holds a partnership interest of 3.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). From inception through June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners, L.P., (the Advisor) serves as the advisor to the Partnership. AIM Acquisition Corporation (AIM Acquisition) is the general partner of the Advisor, and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement as discussed below, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. Prior to the expiration of the Partnership's reinvestment period on December 31, 1993, and subject to 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, 1996, 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). Since the expiration of the Partnership's reinvestment period on December 31, 1993, the Partnership is required to distribute such proceeds to its Unitholders. The Partnership Agreement states that the Partnership will terminate on December 31, 2009, 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. 30 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - 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 the Government National Mortgage Association (GNMA) (GNMA Mortgage- Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes. Payments of principal and interest on FHA-Insured Certificates and FHA-Insured Loans are insured by the United States Department of Housing and Urban Development (HUD) pursuant to Title 2 of the National Housing Act. Payments of principal and interest on GNMA Mortgage-Backed Securities are guaranteed by GNMA pursuant to Title 3 of the National Housing Act. Prior to January 1, 1994, the Partnership accounted for its investment in mortgages at amortized cost in accordance with Statement of Financial Accounting Standards No. 65 "Accounting for Certain Mortgage Banking Activities" (SFAS 65) since it had the ability and intent to hold these assets for the foreseeable future. The difference between the cost and the unpaid principal balance, at the time of purchase, is carried as a discount or premium and amortized over the remaining contractual life of the mortgage using the effective interest method. The effective interest method provides a constant yield of income over the term of the mortgage. Mortgage investment income is comprised of amortization of the discount plus the stated mortgage interest payments received or accrued, less amortization of the premium. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), effective for fiscal years beginning after December 15, 1993. The Partnership adopted this statement as of January 1, 1994. This statement requires that investments in debt and equity securities be classified into one of the following investment categories based upon the circumstances under which such securities might be sold: Held to Maturity, Available for Sale, and Trading. Generally, certain debt securities for which an enterprise has both the ability and intent to hold to maturity should be accounted for using the amortized cost method and all other securities must be recorded at their fair values. As of December 31, 1996, the weighted average remaining term of the Partnership's investments in GNMA Mortgage-Backed Securities and FHA- Insured Certificates is approximately 31 years. However, the Partnership Agreement states that the Partnership will terminate in approximately 13 years, on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. As the Partnership is anticipated to terminate prior to the weighted average remaining term of its investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates, the Partnership does not have the ability, at this time, to hold these investments to maturity. Consequently, the General Partner believes that the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates should be included in the Available for Sale category. Although the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates are classified as 31 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued 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, 1996 and 1995, all of the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates are recorded at fair value, with the net unrealized gains or losses on these assets reported as a separate component of partners' equity. Subsequent increases or decreases in the fair value of GNMA Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available for Sale, will be included as a separate component of partners' equity. Realized gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available for Sale, will continue to be reported in earnings. The amortized cost of the investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates in this category is adjusted for amortization of discounts and premiums to maturity. Such amortization is included in mortgage investment income. Gains from dispositions of mortgage investments are recognized upon the receipt of cash or HUD debentures. Losses on dispositions of mortgage investments are recognized when it becomes probable that a mortgage will be disposed of and that the disposition will result in a loss. In the case of Insured Mortgages fully insured by HUD, the Partnership's maximum exposure for purposes of determining the loan losses would generally be an assignment fee charged by HUD representing approximately 1% of the unpaid principal balance of the Insured Mortgage at the date of default, plus the unamortized balance of acquisition fees and closing costs paid in connection with the acquisition of the Insured Mortgage and the loss of approximately 30 days accrued interest. Cash and Cash Equivalents ------------------------- Cash and cash equivalents consist of money market funds, time and demand deposits, commercial paper and repurchase agreements with original maturities of three months or less. Reclassification ---------------- Certain amounts in the financial statements for the year ended December 31, 1994 have been reclassified to conform with the 1996 and 1995 presentation. Income Taxes ------------ No provision has been made for Federal, state or local income taxes in the accompanying statements of operations since they are the personal responsibility of the Unitholders. Statements of Cash Flows ------------------------ No cash payments were made for interest expense during the years ended December 31, 1996, 1995 and 1994. Since the statements of cash flows are intended to reflect only cash receipt and cash payment activity, the statements of cash flows do not reflect operating activities that affect 32 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued recognized assets and liabilities while not resulting in cash receipts or cash payments. The following non-cash operating activities were recorded during the year ended December 31, 1996: Investment in mortgages $(138,858) ========= Receivables and other assets $ 138,858 ========= 3. TRANSACTIONS WITH RELATED PARTIES In addition to the related party transactions described in Note 8, the General Partner and certain affiliated entities, during the years ended December 31, 1996, 1995 and 1994, earned or received compensation or payments for services from the Partnership as follows: 33 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 3. TRANSACTIONS WITH RELATED PARTIES - Continued
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES ----------------------------------------------- Capacity in Which For the years ended December 31, Name of Recipient Served/Item 1996 1995 1994 ---------------------------- ---------- ---------- ---------- CRIIMI, Inc.(1) General Partner/Distribution $1,102,994 $ 754,938 $ 960,830 AIM Acquisition Advisor/Asset Management Fee 1,997,649 2,042,886 2,064,713 Partners, L.P.(2) CRI(3) Affiliate of General Partner/ -- 71,129 140,960 Expense Reimbursement CRIIMI MAE Affiliate of General Partner/ 68,328 28,087 -- Management, Inc.(3) Expense Reimbursement (1) The General Partner, pursuant to amendments to the Partnership Agreement, effective September 6, 1991, is entitled to receive 3.9% of the Partnership's income, loss, capital and distributions including, without limitation, the Partnership's Adjusted Cash from Operations and Proceeds of Mortgage Prepayments, Sales or Insurance (both as defined in the Partnership Agreement). (2) The Advisor, 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. CRI/AIM Management, Inc., which through June 30, 1995 acted as the Sub-advisor, earned a fee equal to $302,682 and $608,580, for the six months ended June 30, 1995 and for the year ended December 31, 1994, respectively. 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 $590,353 and $299,460 for the year ended December 31, 1996, and the six months ended December 31, 1995, respectively. No fees were earned by CRIIMI MAE Services Limited Partnership for the year ended December 31, 1994. (3) 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.
34 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 4. FAIR VALUE OF FINANCIAL INSTRUMENTS The following estimated fair values of the Partnership's financial instruments are presented in accordance with generally accepted accounting principles which define fair value as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. These estimated fair values, however, do not represent the liquidation value or the market value of the Partnership. 35 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 4. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
As of December 31, 1996 As of December 31, 1995 Amortized Fair Amortized Fair Cost Value Cost Value ------------ ------------ ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities: Acquired insured mortgages $151,866,819 $159,959,297 $157,656,694 $169,460,375 Originated insured mortgages 17,126,685 16,646,943 23,650,620 22,960,468 ------------ ------------ ------------ ------------ $168,993,504 $176,606,240 $181,307,314 $192,420,843 ============ ============ ============ ============ Investment in FHA-Insured Loans: Acquired insured mortgages $ 14,556,595 $ 17,706,486 $ 14,684,828 $ 18,388,369 Originated insured mortgages 13,030,131 12,969,589 13,123,855 13,160,443 ------------ ------------ ------------ ------------ $ 27,586,726 $ 30,676,075 $ 27,808,683 $ 31,548,812 ============ ============ ============ ============ Cash and cash equivalents $ 9,716,786 $ 9,716,786 $ 3,368,700 $ 3,368,700 ============ ============ ============ ============ Accrued interest receivable $ 1,426,113 $ 1,426,113 $ 1,567,816 $ 1,567,816 ============ ============ ============ ============
36 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 4. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued 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 FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market prices. In order to determine the fair value of the coinsured FHA-Insured Certificates, the Partnership valued the coinsured FHA-Insured Certificates as though they were fully insured (in the same manner fully insured FHA- Insured Certificates were valued). From this amount, the Partnership deducted a discount factor from the face value of the mortgage. 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. 5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES Fully Insured FHA-Insured Certificates and GNMA Mortgage- Backed Securities --------------------------------------------------------- Listed below is the Partnership's aggregate investment in Fully Insured Acquired Insured Mortgages:
December 31, 1996 1995 ------------ ------------ Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities 9 9 FHA-Insured Certificates 62 66 Amortized Cost $151,866,819 $157,656,694 Face Value 157,889,594 164,397,459 Fair Value 159,959,297 169,460,375 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 -- Amortized Cost $ 17,126,685 $ 10,666,346 Face Value 16,770,069 10,760,496 Fair Value 16,646,943 10,925,754
37 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued In December 1992, the Partnership entered into a modification agreement with the mortgagor of Waterford Green Apartments. This agreement effectively lowered the interest rate on the mortgage from 8.5% to 6.5% for a period continuing through November 1995. The mortgagor assumed an additional note for the difference between the interest due under the principal mortgage and the modified interest paid under the agreement. On April 30, 1996, the mortgage on Waterford Green was restated under the HUD 223(a)(7) program converting this originated mortgage from a coinsured to fully insured status at a fixed rate of 7.25%. As a result of converting a coinsured mortgage to a fully insured mortgage, the Partnership recognized a loss of approximately $103,000 on the modification. Payments due under the new mortgage began June 1, 1996. Prior to this restatement, as part of the prior workout arrangements with the borrower, a portion of the interest due under the original note had been deferred temporarily. Concurrent with this HUD modification, the deferred interest is now evidenced in the form of a cash surplus note in the amount of $356,600. To the extent available, surplus cash, as defined by HUD, will be split 50/50 in repayment of this deferred interest and another note due the property manager for deferred management fees. Once deferred management fees have been repaid, 100% of surplus cash, if any, will be applied against the remaining deferred interest obligation. Upon repayment of both of these obligations, any surplus cash will be distributed based upon the terms of the participation agreement. As of December 31, 1996, the balance of this note is $356,600. In April 1996, the Partnership entered into a modification agreement with the mortgagor of Oak Forest Apartments II. This agreement lowered the interest rate on the mortgage from 8.5% to 7.5% effective May 1, 1996, through the maturity of the note. The agreement also modified the restrictions on prepayment of the note. The modification agreement, on this originated insured mortgage, resulted in a gain of approximately $148,000. In late March 1996, a retained yield holder in the Harbor View Estates loan, exercised its right to purchase the participation interests with respect to this acquired insured mortgage after a Notice of Default was filed with HUD. The Partnership received net proceeds of approximately $693,000 from this prepayment in late March 1996, resulting in a loss of approximately $1,100. A distribution of $0.08 per Unit related to this prepayment was declared in April 1996 and distributed to Unitholders in August 1996. In late May 1996, the mortgages on Cambridge Arms Apartments and Bear Creek Apartments II were prepaid, resulting in net proceeds of approximately $2.9 million. The Partnership recognized a gain of approximately $235,000 from the prepayment of the mortgage on Cambridge Arms Apartments and a gain of approximately $276,500 from the prepayment of the mortgage on Bear Creek Apartments II. A distribution of $0.23 per Unit related to the prepayment, on these acquired insured mortgages, was declared in June 1996 and was distributed to Unitholders in August 1996. In October 1995, the Partnership filed a Notice of Default and an Election to Assign with the United States Department of Housing and Urban Development (HUD) related to the acquired insured mortgage on Woodland Village Apartments. On August 30, 1996, the Partnership received approximately $1.4 million, representing approximately 90% of the assignment proceeds. The remaining proceeds of approximately $139,000 are included in receivables and other assets on the accompanying balance sheet as of December 31, 1996. The Partnership recognized a loss of approximately $41,000 during year end 1996. A distribution of $0.10 per Unit related to this assignment was declared in September 1996 and was paid to Unitholders in November 1996. 38 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued As of March 1, 1997, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest, except for the mortgage on Meadow Park Apartments I, which was assigned in October 1996, as discussed below, and Country Club Terrace Apartments and Pleasant View Nursing Home which are delinquent with respect to the January 1997 payment of principal and interest. The Partnership expects to receive the payments on Country Club Terrace Apartments and Pleasant View Nursing Home. On October 11, 1996, the servicer of the acquired insured mortgage on Meadow Park Apartments I filed a Notice of Default and Election to Assign the mortgage with HUD. On January 24, 1997, the Partnership received approximately $628,000 representing approximately 90% of the assignment proceeds. The Partnership anticipates it will recognize a gain of approximately $139,000 in 1997. A distribution of $0.05 per Unit related to this assignment was declared in February 1997 and is expected to be paid to Unitholders in May 1997. In late February 1997, the acquired insured mortgage on Security Apartments was prepaid. The partnership received net proceeds of approximately $304,000, and anticipates it will recognize a gain of approximately $66,000 in 1997. A distribution of approximately $0.02 per Unit related to this prepayment was declared in March 1997 and is expected to be paid to Unitholders in May 1997. In the case of fully insured Originated Insured Mortgages and Acquired Insured Mortgages, the Partnership's maximum exposure for purposes of determining loan losses would generally be approximately 1% of the unpaid principal balance of the Originated Insured mortgage or Acquired Insured Mortgage (an assignment fee charged by FHA) at the date of default, plus the unamortized balance of acquisition of the Insured Mortgage and the loss of approximately 30 days accrued interest. Coinsured FHA-Insured Certificates - ---------------------------------- Coinsured by affiliate - ---------------------- As of December 31, 1996 and 1995, the Partnership had invested in zero and two FHA-Insured Certificates, respectively, secured by coinsured mortgages where the coinsurance lender was Integrated Funding, Inc. (IFI). On April 30, 1996, Waterford Green Apartments, with an unpaid principal balance of approximately $6.5 million, was converted from a coinsured mortgage to a fully insured originated insured mortgage, as discussed above. During December 1996, the Partnership received net proceeds of approximately $6.5 million for the prepayment of the mortgage on Westlake Village. The Partnership recognized a gain of approximately $7,000 on this prepayment as of December 31, 1996. A distribution of $0.51 per Unit related to this prepayment was declared in December 1996 and distributed to Unitholders in February 1997. 39 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 6. INVESTMENT IN FHA-INSURED LOANS Fully Insured FHA-Insured Loans ------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans:
December 31, 1996 1995 ------------ ------------ Fully Insured Acquired Insured: Number of Loans 12 12 Amortized Cost $ 14,556,595 $ 14,684,828 Face Value 17,405,640 17,627,453 Fair Value 17,706,486 18,388,369 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 13,030,131 $ 13,123,855 Face Value 12,681,532 12,766,486 Fair Value 12,969,589 13,160,443
As of March 1, 1997, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the years ended December 31, 1996, 1995 and 1994, the Partnership received $42,417, $64,676 and $35,314, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of operations. 7. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the years ended December 31, 1996, 1995 and 1994 are as follows: 1996 1995 1994 ------ ------ ------ Quarter ended March 31, $0.33 $0.36 $0.39 (6) Quarter ended June 30, 0.64 (1) 0.33 0.73 (7) Quarter ended September 30, 0.43 (2) 0.49(4) 0.48 (8) Quarter ended December 31, 0.85 (3) 0.36(5) 0.36 ----- ----- ----- $2.25 $1.54 $1.96 ===== ===== ===== (1) This amount includes approximately $0.31 per Unit representing net proceeds from the prepayment of the mortgages on Harbor View Estates, Bear Creek Apartments II, and Cambridge Arms Apartments. (2) This amount includes approximately $0.10 per Unit representing net proceeds from the assignment of the mortgage on Woodland Village Apartments. (3) This amount includes approximately $0.51 per Unit representing net proceeds from the prepayment of the mortgage on Westlake Village. In addition, 40 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 7. DISTRIBUTIONS TO UNITHOLDERS - Continued includes approximately $0.01 per Unit representing net proceeds from the modification of the mortgage on Oak Forest Apartments II and the partial prepayment of the mortgage on Cambridge Arms Apartments. (4) This amount includes approximately $0.16 per Unit representing net proceeds from the assignment of the mortgage on El Lago Apartments. (5) This amount includes approximately $0.02 per Unit representing additional net proceeds from the assignment of the mortgage on El Lago Apartments. (6) This amount includes approximately $0.05 per Unit representing previously undistributed accrued interest and gain from the disposition of the mortgage on Victoria Pointe Apartments-Phase I. (7) This amount includes approximately $0.37 per Unit representing net principal proceeds from the prepayment of the mortgage on Richardson Road Apartments. (8) This amount includes approximately $0.11 per Unit representing a one-time distribution of funds that had previously been set aside, pending resolution of the Partnership's troubled loans. Also included is approximately $0.01 per Unit representing a return of capital from a partial prepayment of the mortgage on Garden Court Apartments. The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes regular interest income and principal from Insured Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. 41 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 8. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES, NOTE PAYABLE TO AFFILIATE AND DUE TO AFFILIATES Effective December 31, 1991, the Partnership transferred a GNMA Mortgage- Backed Security underlying its investment in Richardson Road Apartments with a carrying value of approximately $4.7 million to IFI in order to capitalize IFI with sufficient net worth under HUD regulations. American Insured Mortgage Investors L.P. - Series 86 (AIM 86) and American Insured Mortgage Investors L.P. - - Series 88 (AIM 88), affiliates of the Partnership, each issued a demand note payable to the Partnership and recorded an investment in IFI through an affiliate (AIM Mortgage, Inc.) at an amount proportionate to each entity's coinsured mortgages for which IFI was the mortgagee of record as of December 31, 1991. AIM Mortgage, Inc. is jointly owned by AIM 86, AIM 88 and the Partnership. The Partnership accounts for its investment in IFI under the equity method of accounting. In 1992, IFI entered into an expense reimbursement agreement with the Partnership, AIM 86 and AIM 88 (collectively, the AIM Funds) whereby IFI reimburses the AIM Funds for general and administrative expenses incurred on behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on an amount proportionate to each entity's IFI coinsured mortgages. The expense reimbursement, interest from the two notes and the Partnership's equity interest in IFI's net income or loss, substantially equalled the mortgage principal and interest on the GNMA Mortgage-Backed Security transferred to IFI. In April 1994, IFI received net proceeds of approximately $4.7 million from the prepayment of the GNMA Mortgage-Backed Security, which IFI distributed to the AIM Funds, in proportion to each entity's coinsured mortgage investments for which IFI was the mortgagee of record as of December 31, 1991. On June 30, 1994, AIM 86 and AIM 88 repaid the Partnership for the outstanding balance on the notes receivable. Interest income on the notes receivable, based on an interest rate of 8% per annum, which represented the interest rate on the GNMA Mortgage- Backed Security, was $70,449 for the year ended December 31, 1994. As a result of the prepayment, in April 1994, AIM 88 transferred a GNMA Mortgage-Backed Security in the amount of approximately $2.0 million to IFI in order to recapitalize IFI with sufficient net worth under HUD regulations. The Partnership and AIM 86 each issued a demand note payable to AIM 88 and recorded an investment in IFI through AIM Mortgage, Inc. in proportion to each entity's coinsured mortgages for which IFI was the mortgagee of record as of April 1, 1994. Interest expense on the note payable is based on an annual interest rate of 7.25%. The note payable was executed in the amount of $319,075, which represents the outstanding balance as of December 31, 1996 and 1995. Additionally, as of December 31, 1996 and 1995, the Partnership owed a total of $61,802 and $1,845, respectively, to AIM 84. In connection with these transactions, the expense reimbursement agreement was amended, as of April 1, 1994, to adjust the allocation of the expense reimbursement agreement 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, 1994. The expense reimbursement, as amended, along with the Partnership's equity interest in IFI's net income or loss, substantially equals the Partnership's interest expense on the note payable. 9. PARTNERS' EQUITY Depositary Units representing economic rights in limited partnership interests (Units) were issued at a stated value of $20. A total of 12,079,389 42 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS Units were issued for an aggregate capital contribution of $241,587,780. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 Units in exchange therefore. 43 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 10. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Unit Data) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1996, 1995 and 1994.
1996 Quarter ended March 31 June 30 September 30 December 31 ----------- --------- -------------- ------------- Income $ 4,612 $ 4,529 $ 4,447 $ 4,355 Net gains (losses) from mortgage dispositions (1) 556 (40) 7 Net earnings 3,928 4,417 3,790 3,654 Net earnings per Limited Partnership Unit 0.31 0.35 0.30 0.30
1995 Quarter ended March 31 June 30 September 30 December 31 ----------- --------- -------------- ------------- Income $ 4,640 $ 4,717 $ 4,626 $ 4,606 Net gains (losses) from mortgage dispositions 53 (36) -- 19 Net earnings 3,980 4,017 3,944 3,962 Net earnings per Limited Partnership Unit 0.32 0.32 0.31 0.32
1994 Quarter ended March 31 June 30 September 30 December 31 ---------- --------- -------------- ------------- Income $ 4,825 $ 4,806 $ 4,899 $ 4,637 Net losses from mortgage dispositions -- -- -- (151) Net earnings 4,061 4,086 4,202 3,806 Net earnings per Limited Partnership Unit 0.32 0.33 0.33 0.31
44 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996
Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) The Executive House Dayton, Ohio 8/21 12/01 7.5% $ 884,090 $ 898,848 $ 78,855(4) Walnut Apartments La Puente, California 3/20 11/01 7.5% 2,716,299 2,762,199 248,862(4) Woodland Hills Apartments Auburn, Alabama 10/19 6/99 7.5% 736,406 748,898 68,044(4) Fairlawn II Waterbury, Connecticut 6/20 5/00 7.5% 808,327 821,927 73,364(4) Willow Dayton Chicago, Illinois 8/19 12/00 7.5% 1,081,371 1,099,678 99,489(4) Cedar Ridge Apartments Richton Park, Illinois 4/20 2/01 7.5% 2,886,818 2,935,448 262,699(4) Park Hill Apartments Lexington, Kentucky 3/19 3/00 7.5% 1,876,007 1,907,873 173,845(4) Fairfax House Buffalo, New York 11/19 5/00 7.5% 2,287,854 2,326,513 209,608(4) Country Club Terrace Apt. Holidaysburg, Pennsylvania 8/19 6/00 7.5% 1,549,273 1,575,502 142,537(4) Silverwood Village Apts. Gallatin, Tennessee 9/20 2/00 7.5% 1,376,214 1,399,329 124,420(4) Fleetwood Village Apts. Cookeville, Tennessee 6/20 2/00 7.5% 1,541,191 1,567,123 139,879(4) Summit Square Manor Rochester, Minnesota 8/19 5/99 7.5% 2,037,623 2,072,121 187,467(4) Park Place Rochester, Minnesota 3/20 10/99 7.5% 806,366 820,000 73,980(4) 45 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Nevada Hills Apartments Reno, Nevada 2/21 8/00 7.5% 1,228,223 1,248,794 110,345(4) Bentgrass Hills Apartments Milwaukee, Wisconsin 7/21 5/01 7.5% 244,027 248,105 21,817(6) Colony West Apartments Chico, California 7/20 12/00 7.5% 688,050 699,620 62,365(6) Dunhaven Apartments Section I Baltimore County, Maryland 1/20 12/99 7.5% 956,908 973,057 87,429(6) Emerald Green Apartments Indianapolis, Indiana 1/20 12/99 7.5% 1,098,584 1,117,124 100,374(6) Isle of Pines Village Apartments Baltimore County, Maryland 12/20 4/00 7.5% 1,299,404 1,321,191 117,030(6) Kings Villa/Discovery Commons Sacramento, California 7/19 11/99 7.5% 1,155,012 1,174,579 106,414(6) Meadow Park Apartments I Anniston, Alabama 9/20 8/00 7.5% 673,876 667,989 60,923(6) Stoney Brook Apartments North Providence Rhode Island 9/20 10/00 7.5% 1,529,503 1,555,192 138,278(6) Security Apartments Mankato, Minnesota 7/19 6/99 7.5% 303,694 308,839 27,980(6) Steeplechase Apartments Aiken, South Carolina 9/18 8/98 7.5% 542,899 552,172 50,921(6) Walnut Hills Apartments Plainfield, Indiana 9/19 3/00 7.5% 519,114 527,898 47,692(6) Woodland Villas Jasper, Alabama 8/19 3/00 7.5% 331,168 336,774 30,468(6) Ashley Oaks Apartments Carrollton, Georgia 3/22 4/02 7.5% 591,008 600,839 52,292(7) Highland Oaks Apartments, Phase III Wichita Falls, Texas 2/21 4/02 7.5% 998,882 1,015,611 89,741(7) 46 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Holden Court Apartments Seattle, Washington 12/21 4/02 7.5% 230,442 234,279 20,435(7) Magnolia Place Apartments Franklin, Tennessee 5/20 4/02 7.5% 338,956 344,662 30,804(7) Quail Creek Apartments Howell, Michigan 5/20 4/02 7.5% 567,474 577,027 51,572(7) Rainbow Terrace Apartments Milwaukee, Wisconsin 7/22 4/02 7.5% 335,801 341,376 29,581(7) Rock Glen Apartments Baltimore, Maryland 1/22 4/02 7.5% 1,120,614 1,139,273 99,375(7) Stonebridge Apartments, Phase I Montgomery, Alabama 4/20 4/02 7.5% 1,089,293 1,107,642 99,125(7) Village Knoll Apartments Harrisburg, Pennsylvania 4/20 4/02 7.5% 1,130,942 1,149,993 102,914(7) Bowling Brook, Section 1 Towson, Maryland 5/30 N/A 8.50% 12,058,813 12,331,086 1,090,128 Cedar Bluff Eagan, Minnesota 3/27 N/A 8.50% 4,463,701 4,565,149 411,371 Executive Tower Toledo, Ohio 3/27 N/A 8.75% 2,917,672 2,983,906 275,283 New Castle Apartments Austin, Texas 3/18 N/A 8.75% 2,108,859 2,158,439 219,143 Lincoln Green Burrillville, Rhode Island 6/33 N/A 10.25% 3,141,821 3,236,752 330,066 Turtle Creek Apartments San Antonio, Texas 4/16 N/A 8.95% 1,725,732 1,766,795 188,596 Sangnok Villa Los Angeles, California 1/30 N/A 10.25% 912,084 939,729 96,825 The Meadows of Livonia Livonia, Michigan 9/34 N/A 10.00% 6,482,766 6,661,573 627,836 47 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Gamel & Gamel Apartments Benton, Kentucky 4/27 N/A 8.75% $ 685,584 $ 701,141 $ 64,612 Wayland Health Center Providence, Rhode Island 10/33 N/A 9.75% 6,928,064 7,119,266 696,610 Peachtree Place North Doraville, Georgia 4/22 N/A 9.00% 6,490,533 6,639,797 651,339 Eaglewood Villa Apartments Springfield, Ohio 2/27 N/A 8.875% 2,773,999 2,836,931 264,707 Gold Key Village Apartments Englewood, Ohio 6/27 N/A 9.00% 2,928,742 2,995,090 282,030 Stafford Towers Baltimore, Maryland 8/16 N/A 9.50% 375,990 386,855 42,613 Garden Court Apartments Lexington, Kentucky 8/27 N/A 8.60% 1,192,871 1,219,936 110,583 Northdale Commons Coon Rapids, Minnesota 9/27 N/A 9.00% 698,276 714,089 67,173 Northwood Place Meridian, Mississippi 6/34 N/A 8.75% 4,535,169 4,636,832 412,635 Amador Residential Jackson, California 1/34 N/A 9.00% 1,351,117 1,381,393 126,173 Cheswick Apartments Indianapolis, Indiana 9/27 N/A 8.75% 3,146,623 3,217,958 295,736 Nassau Apartments New Orleans, Louisiana 11/27 N/A 8.63% 885,046 905,116 82,139 The Gate House Apartments Lexington, Kentucky 2/28 N/A 8.55% 2,870,172 2,935,247 264,092 Bradley Road Nursing Bay Village, Ohio 5/34 N/A 8.875% 2,536,318 2,593,154 233,708 48 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Franklin Plaza Cleveland, Ohio 5/23 N/A 8.175% 5,439,777 5,439,243 503,183 Ashford Place Apartments Mobile, Alabama 10/24 N/A 7.125% 3,418,654 3,418,533 282,875 Heritage Heights Apartments Harrison, Arizona 4/32 N/A 9.50% 419,396 430,988 41,313 Pleasant View Nursing Home Union, New Jersey 6/29 N/A 7.75% 7,622,278 7,619,105 643,312 Pine Tree Lodge Pasadena, Texas 12/33 N/A 9.50% 2,145,244 2,209,601 222,323(9) ------------- -------------- Total FHA-Insured Certificates - Acquired Insured Mortgages, carried at fair value 127,817,014 130,221,199 ------------- -------------- GNMA Mortgage-Backed Securities (carried at fair value) Maryland Meadows Glendale, Arizona 10/27 N/A 8.35% 5,023,655 4,967,475 436,957 Spanish Trace Apartments Md. Heights, Missouri 9/28 N/A 7.35% 9,757,159 9,648,849 771,094 Stone Hedge Village Apts. Farmington, New York 11/27 N/A 7.00% 1,843,227 1,822,912 143,222 Afton Square Apartments Portsmouth, Virginia 12/28 N/A 7.25% 1,078,281 1,066,312 81,383 Carlisle Apartments Houston, Texas 12/28 N/A 7.125% 2,155,307 2,131,422 165,877 Independence Park Largo, Florida 9/29 N/A 7.75% 4,046,782 4,001,445 330,715 Ridgecrest Timbers Portland, Oregon 12/28 N/A 7.25% 1,569,726 1,552,302 120,849 49 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Huntington Apartments Concord, North Carolina 12/29 N/A 7.25% 2,990,667 2,957,458 233,099 Northwood Apartments Mockville, North Carolina 12/29 N/A 7.25% 1,607,776 1,589,923 125,313 ------------ -------------- Total GNMA Mortgage-Backed Securities 30,072,580 29,738,098 ------------ -------------- Total investment in Acquired Insured Mortgages, carried at fair value 157,889,594 159,959,297 ------------ -------------- ORIGINATED INSURED MORTGAGES - ---------------------------- GNMA Mortgage-Backed Security (carried at fair value) Oak Forest Apartments II Ocoee, Florida 12/31 11/09 8.25% 10,703,555 10,582,963 898,012 FHA-Insured Certificate (carried at fair value) Waterford Green Apartments South St. Paul, Minnesota (11) 11/30 12/04 8.50% 6,066,514 6,063,980 610,218 ------------ -------------- Total investment in Originated Insured Mortgages, carried at fair value 16,770,069 16,646,943 ------------ -------------- Total investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 174,659,663 176,606,240 ------------ -------------- 50 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(13) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Loans (carried at amortized cost)(2) Bay Pointe Apartments Lafayette, Indiana 2/23 11/00 7.5% 2,098,622 1,720,728 185,268(8) Baypoint Shoreline Apartments Duluth, Minnesota 1/22 8/00 7.5% 991,971 811,102 87,967(8) Berryhill Apartments Grass Valley, California 1/21 8/99 7.5% 1,288,451 1,055,933 115,899(8) Brougham Estates II Kansas City, Kansas 11/22 8/00 7.5% 2,632,011 2,147,084 230,860(8) College Green Apartments Wilmington, North Carolina 3/23 6/01 7.5% 1,413,373 1,152,372 123,455(8) Fox Run Apartments Dothan, Alabama 10/19 12/97 7.5% 1,265,562 1,040,891 116,242(8) Kaynorth Apartments Lansing, Michigan 4/23 3/01 7.5% 1,917,493 1,562,914 167,318(8) Lakeside Apartments Bennettsville, South Carolina 1/22 3/01 7.5% 398,098 325,836 35,303(8) Portervillage I Apartments Portervillage, California 8/21 5/00 7.5% 1,161,634 951,052 103,733(8) Town Park Apartments Rockingham, North Carolina 10/22 6/01 7.5% 646,046 527,648 56,755(8) Westbrook Apartments Kokomo, Indiana 11/22 12/00 7.5% 1,837,983 1,504,863 163,177(8) Continental Village New Hope, Minnesota 1/22 N/A 8.95% 1,754,396 1,756,172 175,954 ------------ -------------- Total investment in Acquired Insured Mortgages, carried at amortized cost 17,405,640 14,556,595 ------------ -------------- 51 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(10) Mortgage (3)(12)(14) Interest)(10)(11) - ------------------------- -------- -------- ----------- ------------ -------------- ----------------- ORIGINATED INSURED MORTGAGES - ---------------------------- Fully Insured Mortgages - ----------------------- FHA-Insured Loans (carried at amortized cost)(2) Cobblestone Apartments Fayetteville, North Carolina 3/28 12/02 8.50 5,055,033 5,212,122 462,703 Longleaf Lodge Hoover, Alabama 7/26 -- 8.25% 3,126,455 3,166,895 282,958 The Plantation Greenville, North Carolina 4/28 4/03 8.25% 4,500,044 4,651,114 402,046 ------------ ------------ Total investment in Originated Insured Mortgages, carried at amortized cost 12,681,532 13,030,131 ------------ ------------ Total investment in FHA-Insured Loans 30,087,172 27,586,726 ------------ ------------ TOTAL INVESTMENT IN INSURED MORTGAGES $ 204,746,835 $ 204,192,966 ============ ============
52 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 (1) Under the Section 221 program of the National Housing Act of 1937, as amended, a mortgagee has the right to assign an Insured Mortgage (put) to FHA at the expiration of 20 years from the date of final endorsement, if the Insured Mortgage is not in default at such time. Any mortgagee electing to assign a FHA-insured mortgage to FHA will receive, in exchange 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 to November 30, 1983 and, in the case of mortgages sold in a GNMA auction, was sold in an auction prior to February 1984. Certain of the Partnership's Insured Mortgages may have the right of assignment under this program. Certain mortgages that do not qualify under this program possess a special assignment option, in certain Insured Mortgage documents, which allow the Partnership, anytime after this date, the option to require payment by the borrower of the unpaid principal balance of the Insured Mortgages. At such time, the borrowers must make payment to the Partnership, or the Partnership, at its option, may cancel the FHA insurance and institute foreclosure proceedings. (2) Inclusive of closing costs and acquisition fees. (3) The mortgages underlying the Partnership's investments in FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments and retirement homes. Prepayment of these Insured Mortgages would be based upon the unpaid principal balance at the time of prepayment. (4) In April and July 1985, and February 1986, the Partnership purchased pass- through certificates representing undivided fractional interests of 157/537, 69/537 and 259/537, respectively, in a pool of 19 FHA-insured mortgages. In July 1986 and October 1987, the Partnership sold undivided fractional interests of 67/537 and 40/537, respectively, in this pool. Accordingly, the Partnership now owns an undivided fractional interest aggregating 378/537, or approximately 70.4%, in this pool. For purposes of illustration only, the amounts shown in this table represent the Partnership's current share of these items as if an undivided interest in each mortgage was acquired. (5) In addition, the servicer or the sub-servicer of the Insured Mortgage, primarily unaffiliated third parties, is entitled to receive compensation for certain services rendered. (6) In June 1985 and February 1986, the Partnership purchased pass-through certificates representing undivided fractional interests of 317/392 and 11/392, respectively, in a pool of 13 FHA-insured mortgages. In January and February 1988, the Partnership sold undivided fractional interests of 100/392 and 104/392, respectively, in this pool. Accordingly, the Partnership now owns an undivided fractional interest aggregating 124/392, or approximately 31.6%, in this pool. For purposes of illustration only, the amounts shown in this table represent the Partnership's share of these items as if an undivided interest in each mortgage was acquired. (7) In June 1985 and February 1986, the Partnership purchased pass-through certificates representing undivided fractional interests of 200/341 and 53 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 101/341, respectively, in a pool of 12 FHA-insured mortgages. In October 1987, the Partnership sold undivided fractional interests of 200/341 in this pool. Accordingly, the Partnership now owns an undivided fractional interest aggregating 101/341, or approximately 29.6%, in this pool. For purposes of illustration only, the amounts shown in this table represent the Partnership's share of these items as if an undivided interest in each mortgage was acquired. (8) These amounts represent the Partnership's 50% interest in these mortgages. The remaining 50% interest was acquired by American Insured Mortgage Investors, an affiliate of the Partnership. (9) This information is based upon the estimated amount of the Insured Mortgage upon completion of construction. (10) This represents the base interest rate during the permanent phase of these Insured Mortgages. Additional interest (referred to as Participations) measured as a percentage of the net cash flow from the development and the net proceeds from the sale, refinancing or other disposition of the underlying development (as defined in the Participation Agreements), will also be due. During the years ended December 31, 1996, 1995 and 1994, the Partnership received additional interest of $42,417, $64,676 and $35,314, respectively, from the Participations. (11) Principal and interest are payable at level amounts over the life of the mortgages. (12) A reconciliation of the carrying value of Insured Mortgages for the years ended December 31, 1996 and 1995, is as follows: 1996 1995 ------------ ------------ Beginning balance $220,229,526 $209,265,153 Principal receipts on mortgages (1,571,828) (1,315,947) Due from HUD (138,858) -- Proceeds from disposition of Mortgages (11,346,665) (2,334,318) Net gains on mortgage dispositions/modifications 521,584 36,065 (Increase) decrease in unrealized losses on investment in Insured Mortgages (57,176) 7,596,238 (Decrease) increase in unrealized gains on investment in Insured Mortgages (3,443,617) 6,982,335 ------------ ------------ Ending balance $204,192,966 $220,229,526 ============ ============ 54 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996 (13) As of December 31, 1996 and 1995, the tax basis of the Insured Mortgages was approximately $194.1 million and $207.5 million, 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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 9,717 176,606 29,628 0 0 0 0 0 215,951 11,264 0 0 0 0 204,687 215,951 0 18,610 0 0 2,676 145 0 15,789 0 15,789 0 0 0 15,789 1.26 0
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