-----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, CEc74npkyLdnrfGocuFB8u7wqZfp/3+5x8fCQrHdYWKHTJXhqeZvRAHPiznDtVa+ PBKXFqbOBNrxqhFRCLausQ== 0000753281-98-000001.txt : 19980326 0000753281-98-000001.hdr.sgml : 19980326 ACCESSION NUMBER: 0000753281-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 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: SEC FILE NUMBER: 001-11059 FILM NUMBER: 98572791 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, 1997 ------------------ 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 March 6, 1998, 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 $170,566,635. 3 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. 1997 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I ------ Page ---- Item 1. Business . . . . . . . . . . . . . . . . . . 4 Item 2. Properties . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings . . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . 6 PART II ------- Item 5. Market for Registrant's Securities and Related Security Holder Matters . . . . . . 7 Item 6. Selected Financial Data . . . . . . . . . . . 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 10 Item 8. Financial Statements and Supplementary Data . 17 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 . . . . . . . . . . . 18 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 . . . . . . . . . . . . 20 Signatures . . . . . . . . . . . . . . . . . . . . . . 23 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, 1997. Employees - --------- The Partnership has no employees. The business of the Partnership is managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an advisory agreement (the Advisory Agreement). CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). 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, and/or other entities sponsored or managed by CRIIMI MAE, are attempting to dispose of mortgages. As a result of market conditions that could limit dispositions, CRIIMI MAE Services Limited Partnership and its affiliates could be faced with conflicts of interest in determining which mortgages would be disposed of. Both CRIIMI MAE Services Limited Partnership and CRIIMI, Inc., however, are subject to their fiduciary duties in evaluating the appropriate action to be taken when faced with such conflicts. Forward-Looking Statements - -------------------------- In accordance with the Private Securities Litigation Reform Act of 1995, the Partnership can obtain a "Safe Harbor" for forward-looking statements by identifying those statements and by accompanying those statements with cautionary statements which identify factors that could cause actual results to 5 PART I ITEM 1. BUSINESS - Continued differ from those in the forward-looking statements. Accordingly, the following information contains or may contain forward-looking statements: (1) information included or incorporated by reference in this Annual Report on Form 10-K, including, without limitation, statements made under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, (2) information included or incorporated by reference in future filings by the Partnership with the Securities and Exchange Commission including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans and (3) information contained in written material, releases and oral statements issued by or on behalf of, the Partnership, including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans. The Partnership's actual results may differ materially from those contained in the forward-looking statements identifed above. Factors which may cause such a difference to occur include, but are not limited to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. ITEM 2. PROPERTIES Although the Partnership does not own the underlying real estate, the mortgages underlying the Partnership's mortgage investments are non-recourse first liens on the respective multifamily residential developments or retirement homes. 6 PART I ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which the Partnership is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the security holders to be voted on during the fourth quarter of 1997. 7 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS Principal Market and Market Price for Units and Distributions - ------------------------------------------------------------- Since April 8, 1992, the Limited Partnership Units (Units) have traded on the American Stock Exchange (AMEX) with a trading symbol of "AII." The high and low bid prices for the Units as reported on AMEX and the distributions, as applicable, for each quarterly period in 1997 and 1996 were as follows:
Amount of 1997 Distribution Quarter Ended High Low Per Unit --------------------- ------- ------- ------------ March 31 $15 1/4 $14 3/8 $ 0.39(1) June 30 15 1/8 14 1/4 0.30 September 30 15 13 13/16 0.84(2) December 31 14 7/8 13 7/8 1.23(3) -------- $ 2.76 ======== 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(4) September 30 14 1/2 13 7/8 0.43(5) December 31 14 7/8 14 1/8 0.85(6) ------ $ 2.25 ======
(1) This amount includes approximately $0.07 per Unit from the disposition of the following mortgages: net proceeds from the assignment of the mortgage on Meadow Park Apartments I of $0.05 per Unit and net proceeds from the prepayment of the mortgage on Security Apartments of $0.02 per Unit. (2) This amount includes approximately $0.54 per Unit from the following mortgages: final settlement of the mortgage on Pine Tree Lodge of $0.02 per Unit and net proceeds from the prepayment of the mortgage on Peachtree Place North of $0.52 per Unit. (3) This amount includes approximately $0.92 per Unit representing net proceeds from the prepayment of the mortgages on Ashford Place Apartments, Fleetwood Village Apartments, Silverwood Village Apartments and Maryland Meadows. (4) 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. (5) This amount includes approximately $0.10 per Unit representing net proceeds from the assignment of the mortgage on Woodland Village Apartments. (6) 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 8 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS - Continued the partial prepayment of the mortgage on Cambridge Arms 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. Approximate Number of Unitholders Title of Class as of December 31, 1997 - -------------------- --------------------------------- Depositary Units of Limited Partnership Interest 12,000 PAGE>9 PART II ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per Unit amounts)
For the Years Ended December 31, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Income $ 16,761 $ 17,943 $ 18,589 $ 19,167 $ 19,202 Net gains (losses) on mortgage dispositions/modifications 908 522 36 (151) 2,636 Net earnings 15,137 15,789 15,903 16,155 19,058 Net earnings per Limited Partnership Unit - Basic (1) 1.20 1.26 1.27 1.29 1.52 Distributions per Limited Partnership Unit (1)(2) 2.76 2.25 1.54 1.96 1.775 As of December 31, 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Total assets $203,450 $215,951 $225,691 $214,823 $227,937 Partners' equity 187,682 204,687 220,681 209,557 221,504 (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, 1997, 1996, 1995, 1994 and 1993, 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, 1997, 1996 and 1995, and the balance sheet data as of December 31, 1997 and 1996, are derived from and are qualified by reference to the Partnership's financial statements which have been included elsewhere in this Form 10-K. The statements of operations data for the years ended December 31, 1994 and 1993 and the balance sheet data as of December 31, 1995, 1994 and 1993 are derived from audited financial statements not included in this Form 10- K. This data should be read in conjunction with the financial statements and the notes thereto. 10 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. The Partnership is currently in the process of evaluating its information technology infrastructure for Year 2000 compliance. The Partnership does not expect that the cost to modify its information technology infrastructure to be Year 2000 compliant will be material to its financial condition or results of operations. The Partnership does not anticipate any material disruption in its operations as a result of any failure by the Partnership to be in compliance. The Partnership is currently evaluating the Year 2000 compliance status of its service providers. The Partnership does not expect any non Year 2000 compliance by its service providers to cause disruption in its operations. Prior to the expiration of the Partnership's reinvestment period in December 1993, the Partnership was engaged in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages and, together with Originated Insured Mortgages, referred to herein as Insured Mortgages). In accordance with the terms of the Partnership Agreement, the Partnership is no longer authorized to originate or acquire Insured Mortgages and, consequently, its primary objective is to manage its portfolio of mortgage investments, all of which are insured under Section 221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement states that the Partnership will terminate on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. 11 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued As of December 31, 1997, the Partnership had invested in 81 Insured Mortgages, with an aggregate amortized cost of approximately $176.9 million, a face value of approximately $184.1 million and a fair value of approximately $190.6 million, as discussed below. Investment in Insured Mortgages - ------------------------------- The Partnership's investment in Insured Mortgages is comprised of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to FHA programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by GNMA (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes. The following is a discussion of the types of the Partnership's mortgage investments, along with the risks related to each type of investment: 12 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Fully Insured GNMA Mortgage-Backed Securities and FHA-Insured Certificates - ------------------------------------------------------------- Listed below is the Partnership's aggregate investment in Fully Insured Mortgages:
December 31, 1997 1996 ------------ ------------ Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities(4)(7)(8) 9 9 FHA-Insured Certificates(1)(2)(3)(4) (5)(6) 55 62 Amortized Cost $132,530,176 $151,866,819 Face Value 137,674,964 157,889,594 Fair Value 142,822,793 159,959,297 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $17,017,276 $ 17,126,685 Face Value 16,660,658 16,770,069 Fair Value 16,887,282 16,646,943
(1) On October 11, 1996, the servicer of the 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 recognized a gain of approximately $139,000 for the year ended December 31, 1997. A distribution of $0.05 per Unit related to this assignment, was declared in February 1997 and was paid to Unitholders in May 1997. The remaining 9% of proceeds due from HUD were received in May 1997, and since the distribution was less than $0.01 per Unit, these proceeds were distributed with regular cash flow in August 1997. (2) In late February 1997, the mortgage on Security Apartments was prepaid. The Partnership received net proceeds of approximately $304,000, and recognized a gain of approximately $66,000 for the year ended December 31, 1997. A distribution of approximately $0.02 per Unit related to this prepayment was declared in March 1997 and was paid to Unitholders in May 1997. (3) On July 1, 1997, the mortgage on Peachtree Apartments was prepaid. The Partnership received net proceeds of approximately $6.5 million, and recognized a gain of less than $1,000 for the year ended December 31, 1997. A distribution of approximately $0.52 per Unit related to this prepayment was declared in July 1997, and was paid to Unitholders in November 1997. (4) In September 1997, the mortgage on Pine Tree Lodge was converted to a GNMA Mortgage-Backed Security from an FHA-Insured certificate. A distribution 13 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued of approximately $0.02 per Unit related to the final settlement of this mortgage was declared in September 1997 and paid in November 1997. (5) On October 1, 1997, the mortgage on Ashford Place Apartments was prepaid. The Partnership received net proceeds of approximately $3.4 million and recognized a gain of approximately $34,000 for the year ended December 31, 1997. A distribution of approximately $0.27 was declared in October 1997 and paid in February 1998. (6) On October 22, 1997, the mortgages on Silverwood Village Apartments and Fleetwood Village Apartments were prepaid. The Partnership received net proceeds of approximately $1.4 million and $1.5 million, respectively, and recognized gains of approximately $214,000 and $237,000 for the mortgages on Silverwood Village Apartments and Fleetwood Village Apartments, respectively, for the year ended December 31, 1997. A distribution of approximately $0.23 per Unit was declared in November 1997 and paid in February 1998. (7) In November 1997, the mortgage on Maryland Meadows was prepaid. The Partnership received net proceeds of approximately $5.2 million, and recognized a gain of approximately $217,000 for the year ended December 31, 1997. A distribution of approximately $0.42 per Unit was declared in December 1997 and paid in February 1998. (8) In February 1998, the mortgage on Spanish Trace Apartments was prepaid. The Partnership received net proceeds of approximately $9.7 million, and anticipates it will recognize a loss of approximately $96,000 in 1998. A distribution of approximately $0.77 per Unit related to this prepayment was declared in March 1998 and is expected to be paid in May 1998. As of March 3, 1998, all of the fully insured GNMA Mortgage-Backed Securities and FHA-Insured Certificates are current with respect to the payment of principal and interest, except for the mortgages on Country Club Terrace Apartments and Isle of Pines Village with respect to the January 1998 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, 1997, 1996 and 1995, the Partnership received $51,457, $0 and $0, respectively, from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying statements of operations. In the case of fully insured Originated Insured Mortgages and Acquired Insured Mortgages, the Partnership's maximum exposure for purposes of determining loan losses would generally be approximately 1% of the unpaid principal balance of the Originated Insured mortgage or Acquired Insured Mortgage (an assignment fee charged by FHA) at the date of default, plus the unamortized balance of acquisition fees and closing costs of the Insured Mortgage and the loss of approximately 30 days accrued interest. 14 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Fully Insured FHA-Insured Loans - ------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans:
December 31, 1997 1996 ------------ ------------ Fully Insured Acquired Insured: Number of Loans 12 12 Amortized Cost $ 14,416,917 $ 14,556,595 Face Value 17,165,551 17,405,640 Fair Value 17,432,816 17,706,486 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 12,928,572 $ 13,030,131 Face Value 12,589,214 12,681,532 Fair Value 13,431,769 12,969,589
As of March 3, 1998, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest, except for the mortgage on Portervillage I Apartments, which has been delinquent since January 1997. In May 1997, the servicer of the mortgage on Portervillage I Apartments filed a Notice of Default and an Election to Assign the mortgage with HUD. The face value of this mortgage was approximately $1.2 million at December 31, 1996. The Partnership expects to receive 99% of this amount plus accrued interest. In addition to base interest payments 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, 1997, 1996 and 1995, the Partnership received $37,766, $42,417 and $64,676, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of operations. Results of Operations - --------------------- 1997 versus 1996 - ---------------- Net earnings decreased for 1997 as compared to 1996 primarily due to a decrease in mortgage investment income. Partially offsetting this decrease was an increase in net gains on mortgage dispositions and modifications, as discussed below. Mortgage investment income decreased for 1997 as compared to 1996 primarily due to the reduction in mortgage base, as previously discussed. Interest and other income increased for 1997 as compared to 1996 primarily due to the temporary investment of mortgage disposition proceeds prior to distribution to Unitholders. 15 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Asset management fees to related parties decreased for 1997 as compared to 1996 as a result of the reduction in the mortgage base. Interest expense to affiliate decreased for 1997 as compared to 1996 due to the cancellation of the note payable to American Insured Mortgage Investors L.P. - - Series 88 (AIM 88), as discussed in Note 8 of the Notes to the Financial Statements. Gains from dispositions and modifications increased as a result of seven mortgage dispositions in 1997, as discussed above, versus 1996 activity as follows: a modification agreement on the mortgage on Oakforest Apartments II and the prepayment of mortgages on Cambridge Arms Apartments, Bear Creek Apartments II and Westlake Village Apartments. Losses from dispositions and modifications decreased due to no losses in 1997 versus 1996 activity as follows: a modification agreement on the mortgage of Waterford Green Apartments and the 1996 assignment of the mortgage on Woodland Village Apartments. 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. 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 the years ended December 31, 1997, 1996 and 1995 to meet operating requirements. The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes 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 16 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 - 1997 versus 1996 - ---------------------------- Net cash provided by operating activities decreased for 1997 as compared to 1996. This decrease was primarily due to a decrease in mortgage investment income, as discussed above. In addition, receivables and other assets decreased due to the receipt of the remaining proceeds from the mortgage on Woodland Village. Net cash provided by investing activities increased in 1997 as compared to 1996 due to the increase in proceeds from mortgage dispositions, as discussed previously. In addition, receipt of mortgage principal from scheduled payments increased slightly for 1997 as compared to 1996 due to the normal amortization of mortgages. Net cash used in financing activities increased for 1997 as compared to 1996, as a result of an increase in distributions paid to partners. Distributions paid to partners in 1997 included special distributions resulting from the disposition of the mortgages on Meadow Park Apartments I, Security Apartments, Peachtree Apartments, Ashford Place Apartments, Silverwood Village Apartments, Fleetwood Village Apartments and Maryland Meadows. 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 an 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. 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 17 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued from the disposition of the mortgages on Harbor View Estates, Cambridge Arms Apartments, Bear Creek Apartments II and Woodland Village Apartments. New Accounting Standards - ------------------------ In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS 128"). FAS 128 changes the requirements for the calculation and disclosure of earnings per share. The Partnership is required to present basic net earnings per limited partnership unit as opposed to net earnings per limited partnership unit. However, the computational differences between FAS 128 and the prior accounting standard do not impact the Partnership. FAS 128 has been applied to the year ended December 31, 1997, and all prior periods. During 1997 FASB issued SFAS No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 continues the existing requirements to disclose the pertinent rights and privileges of all securities other than ordinary common stock but expands the number of companies subject to portions of its requirements. The Partnership's disclosures comply with the requirements of this statement. During 1997 FASB issued SFAS No. 130 "Reporting Comprehensive Income" ("FAS 130"). FAS 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income are to be reported in a separate statement of income. This would include net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as "available for sale". FAS 130 is effective for years beginning on or after December 15, 1997. During 1997, FASB issued SFAS 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographical areas and major customers. FAS 131 is effective for years beginning on or after December 15, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is on pages 24 through 51. 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. 18 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued 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 American Insured Mortgage Investors (AIM 84), American Insured Mortgage Investors L.P.-Series 86 (AIM 86) and American Insured Mortgage Investors L.P.-Series 88 (AIM 88), limited partnerships with investment objectives similar to those of the Partnership. (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 that no Form 5s were required for those persons, the Partnership believes that all reporting persons have filed on a timely basis Forms 3, 4 and 5 as required in the fiscal year ended December 31, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to Note 3 of the notes to the financial statements of the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1997, no person was known by the Partnership to be the beneficial owner of more than five percent (5%) of the outstanding Units of the Partnership. As of December 31, 1997, neither the officers and directors, as a group, of the General Partner nor any individual director of the General Partner, are known to own more than 1% of the outstanding Units of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with management and others. 19 PART III ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued 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. 20 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements: Page Description Number ---------------- -------------- Balance Sheets as of December 31, 1997 and 1996 26 Statements of Operations for the years ended December 31, 1997, 1996, and 1995 27 Statements of Changes in Partners' Equity for the years ended December 31, 1997, 1996 and 1995 28 Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 29 Notes to Financial Statements 30 (a)(2) Financial Statement Schedules: IV - Mortgage Loans on Real Estate 42 All other schedules have been omitted because they are inapplicable, not required, or the information is included in the Financial Statements or Notes thereto. (a)(3) Exhibits: 4.0 Amended and Restated Certificates of Limited Partnership are incorporated by reference to Exhibit 4(a) to the Registration Statement on Form S-11 (No. 2-93294) dated January 28, 1985 (such Registration Statement, as amended, is referred to herein as the "Registration Statement"). 4.1 Second Amended and Restated Partnership Agreement is incorporated by reference to Exhibit 3 to the Registration Statement. 4.2 Amendment No. 1 to the Second Amended and Restated Partnership Agreement is incorporated by reference to Exhibit 4(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 4.3 Amendment No. 2 to the Second Amended and Restated Partnership Agreement is incorporated by reference to exhibit 4(b) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1986. 4.4 Amendment No. 3 dated February 12, 1990, to the Second Amended and Restated Agreement of Limited Partnership of the Partnership incorporated by reference to Exhibit 4(c) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1989. 10.0 Escrow Agreement, dated January 14, 1985, among the Partnership, the Managing General Partner and Integrated Resources Marketing, Inc., incorporated by reference to Exhibit 10(a) to the Registration Statement. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 10.1 Amended and Restated Origination and Acquisition Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(b) to the Registration Statement. 10.2 Amended and Restated Management Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(c) to the Registration Statement. 10.3 Amended and Restated Disposition Services Agreement, dated as of January 8, 1985, between the Partnership and IFI, incorporated by reference to Exhibit 10(d) to the Registration Statement. 10.4 Agreement, dated as of January 8, 1985, among the former managing general partner, the former associate general partner and Integrated Resources, Inc., incorporated by reference to Exhibit 10(e) to the Registration Statement. 10.5 Reinvestment Plan, incorporated by reference to the Prospectus contained in the Registration Statement. 10.6 Declaration of Trust and Pooling Servicing Agreement dated as of July 1, 1982 as to Pass-Through Certificates, is incorporated by reference to Exhibit 10(h) to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1986. 10.7 Pages A-1 - A-5 of the Partnership Agreement of Registrant, incorporated by reference to Exhibit 28 to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 10.8 Purchase Agreement among AIM Acquisition, the former managing general partner, the former corporate general partner, IFI and Integrated dated as of December 13, 1990, as amended January 9, 1991, incorporated by reference Exhibit 28(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 10.9 Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the former managing general partner, the former corporate general partner, IFI and Integrated dated as of December 13, 1990 and executed as of March 1, 1991, incorporated by reference to Exhibit 28(b) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990. 10.10 Amendment to Partnership Agreement dated September 4, 1991. incorporated by reference to Exhibit 28(c), to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991. 10.11 Sub-Management Agreement by and between AIM Acquisition and CRI/AIM Management, Inc., dated as of March 1, 1991, incorporated by reference to Exhibit 28(f) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992. 10.12 Expense Reimbursement Agreement by and among Integrated Funding Inc. and the Partnership, American Insured Mortgage Investors L.P. - Series 86, and American Insured Mortgage Investors L.P. - Series 88, effective December 31, 1992, incorporated by reference to Exhibit 28(g) to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991. 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 10.13 Non-negotiable promissory note to American Insured Mortgage Investors L.P. - Series 88 in the amount of $319,074.67 dated April 1, 1994, incorporated by reference to Exhibit 10(q) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994. 10.14 Amendment No. 1 to Reimbursement Agreement by and among Integrated Funding Inc. and the Partnership, American Insured Mortgage Investors L.P. - Series 86, and American Insured Mortgage Investors L.P. - Series 88, effective April 1, 1994, incorporated by reference to Exhibit 10(r) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994. 10.15 Amendment No.2 to Reimbursement Agreement by Integrated Funding, Inc., and American Insured Mortgage Investors L.P.-Series 86, and American Insured Mortgage Investors L.P.-Series 88, effective April 1, 1997, (filed herewith). 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. 23 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 20, 1998 /s/ William B. Dockser - --------------------------- ------------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer March 20, 1998 /s/ H. William Willoughby - --------------------------- ------------------------- DATE H. William Willoughby President and Director March 20, 1998 /S/ Cynthia O. Azzara - --------------------------- ------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer March 20, 1998 /s/ Garrett G. Carlson, Sr. - --------------------------- -------------------------- DATE Garrett G. Carlson, Sr. Director March 20, 1998 /s/ Larry H. Dale - --------------------------- ------------------------- DATE Larry H. Dale Director March 20, 1998 G. Richard Dunnells - --------------------------- ------------------------- DATE G. Richard Dunnells Director March 20, 1998 /s/ Robert Merrick - --------------------------- ------------------------- DATE Robert Merrick Director 24 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. Financial Statements as of December 31, 1997 and 1996 and for the Years Ended December 31, 1997, 1996 and 1995 25 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, 1997 and 1996, and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1997, 1996 and 1995. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and 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, 1997 and 1996, and the results of its operations and its cash flows for the years ended December 31, 1997, 1996 and 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate as of December 31, 1997 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 20, 1998 26 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. BALANCE SHEETS ASSETS
December 31, December 31, 1997 1996 ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities, at fair value: Acquired insured mortgages $142,822,793 $159,959,297 Originated insured mortgages 16,887,282 16,646,943 ------------ ------------ 159,710,075 176,606,240 ------------ ------------ Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Acquired insured mortgages 14,416,917 14,556,595 Originated insured mortgages 12,928,572 13,030,131 ------------ ------------ 27,345,489 27,586,726 Cash and cash equivalents 14,718,103 9,716,786 Receivables and other assets 1,676,021 1,727,662 Investment in affiliate -- 314,072 ------------ ------------ Total assets $203,449,688 $215,951,486 ============ ============ LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 15,460,772 $ 10,684,274 Accounts payable and accrued expenses 306,715 198,964 Note payable and due to affiliate -- 380,877 ------------ ------------ Total liabilities 15,767,487 11,264,115 ------------ ------------ Partners' equity: Limited partners' equity 180,044,243 198,836,652 General partner's deficit (2,524,665) (1,762,017) Unrealized gain on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 10,482,727 8,715,942 Unrealized loss on investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities (320,104) (1,103,206) ------------ ------------ Total partners' equity 187,682,201 204,687,371 ------------ ------------ Total liabilities and partners' equity $203,449,688 $215,951,486 ============ ============ The accompanying notes are an integral part of these financial statements.
27 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 1996 1995 ------------ ------------ ------------ Income: Mortgage investment income $ 16,350,497 $ 17,731,547 $ 18,404,737 Interest and other income 410,839 211,779 183,846 ------------ ------------ ------------ 16,761,336 17,943,326 18,588,583 ------------ ------------ ------------ Expenses: Asset management fee to related parties 1,873,563 1,997,649 2,042,886 General and administrative 652,511 655,426 655,831 Interest expense to affiliate 5,783 23,132 23,133 ------------ ------------ ----------- 2,531,857 2,676,207 2,721,850 ------------ ------------ ----------- Earnings before gains (losses) on mortgage dispositions/ modifications 14,229,479 15,267,119 15,866,733 Mortgage dispositions/modifications: Gains 907,923 666,179 52,730 Losses -- (144,595) (16,665) ------------ ------------ ------------ Net earnings $ 15,137,402 $ 15,788,703 $ 15,902,798 ============ ============ ============ Net earnings allocated to: Limited partners -96.1% $ 14,547,043 $ 15,172,944 $ 15,282,589 General partner - 3.9% 590,359 615,759 620,209 ------------ ------------ ------------ $ 15,137,402 $ 15,788,703 $ 15,902,798 ============ ============ ============ Net earnings per Limited Partnership Unit - Basic $ 1.20 $ 1.26 $ 1.27 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
28 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the years ended December 31, 1997, 1996 and 1995
Unrealized Unrealized Gains Losses on Investment on Investment Total General Limited in Insured in Insured Partners' Partner Partners Mortgages Mortgages Equity ------------- ------------ ---------------- --------------- ------------ Balance, January 1, 1995 $ (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 Net earnings 590,359 14,547,043 -- -- 15,137,402 Distributions paid or accrued of $2.76 per Unit, including return of capital of $1.56 per Unit (1,353,007) (33,339,452) -- -- (34,692,459) Adjustment to unrealized gains (losses) on investment in insured mortgages -- -- 1,766,785 783,102 2,549,887 ------------- ------------ ---------------= --------------- ------------ Balance, December 31, 1997 $ (2,524,665) $180,044,243 $ 10,482,727 $ (320,104) $187,682,201 ============= ============ ================ =============== ============ Limited Partnership Units outstanding - basic, as of December 31, 1997, 1996 and 1995 12,079,514 ============ The accompanying notes are an integral part of these financial statements.
29 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net earnings $ 15,137,402 $ 15,788,703 $ 15,902,798 Adjustments to reconcile net earnings to net cash provided by operating activities: Losses on mortgage dispositions/modification -- 144,595 16,665 Gains on mortgage dispositions/modification (907,923) (666,179) (52,730) Changes in assets and liabilities: Decrease in receivables and other assets 51,641 186,942 51 Increase (decrease) in accounts payable and accrued expenses 107,751 35,227 (137,195) (Decrease) increase in due to affiliate (66,805) 59,957 (118,513) Return on investment in affiliate -- 3,079 1,924 ------------ ------------ ------------ Net cash provided by operating activities 14,322,066 15,552,324 15,613,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from disposition of mortgages 18,996,279 11,346,665 2,334,318 Receipt of mortgage principal from scheduled payments 1,598,933 1,571,828 1,315,947 ------------ ------------ ------------ Net cash provided by investing activities 20,595,212 12,918,493 3,650,265 ------------ ------------ ------------ Cash flows from financing activities: Distributions paid to partners (29,915,961) (22,122,731) (19,357,390) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 5,001,317 6,348,086 (94,125) Cash and cash equivalents, beginning of year 9,716,786 3,368,700 3,462,825 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 14,718,103 $ 9,716,786 $ 3,368,700 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
30 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 in December 1993, the Partnership was engaged in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages and, together with Originated Insured Mortgages, referred to herein as Insured Mortgages). In accordance with the terms of the Partnership Agreement, the Partnership is no longer authorized to originate or acquire Insured Mortgages and, consequently, its primary objective is to manage its portfolio of mortgage investments, all of which are insured under Section 221(d)(4) or Section 231 of the National Housing Act. The Partnership Agreement states that the Partnership will terminate on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. 2. SIGNIFICANT ACCOUNTING POLICIES Method of Accounting -------------------- The Partnership's financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment in Insured Mortgages ------------------------------- The Partnership's investment in Insured Mortgages is comprised of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to FHA 31 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued 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. As of December 31, 1997, the weighted average remaining term of the Partnership's investments in GNMA Mortgage-Backed Securities and FHA- Insured Certificates is approximately 30 years. However, the Partnership Agreement states that the Partnership will terminate in approximately 12 years, on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. As the Partnership is anticipated to terminate prior to the weighted average remaining term of its investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates, the Partnership does not have the ability, at this time, to hold these investments to maturity. Consequently, the General Partner believes that the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates should be included in the Available for Sale category. Although the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates are classified as Available for Sale for financial statement purposes, the General Partner does not intend to voluntarily sell these assets other than those which may be sold as a result of a default or those which are eligible to be put to FHA at the expiration of 20 years from the date of the final endorsement. In connection with this classification, as of December 31, 1997, 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. As of December 31, 1997, 1996 and 1995, Investment in FHA-Insured Loans are recorded at amortized cost. Gains from dispositions of mortgage investments are recognized upon the receipt of cash or 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 32 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued 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. 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, 1997, 1996 and 1995. Since the statements of cash flows are intended to reflect only cash receipt and cash payment activity, the statements of cash flows do not reflect operating activities that affect recognized assets and liabilities while not resulting in cash receipts or cash payments. New Accounting Standards ------------------------ In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS 128"). FAS 128 changes the requirements for the calculation and disclosure of earnings per share. The Partnership is required to present basic net earnings per limited partnership unit as opposed to net earnings per limited partnership unit. However, the computational differences between FAS 128 and the prior accounting standard do not impact the Partnership. FAS 128 has been applied to the year ended December 31, 1997, and all prior periods. During 1997 FASB issued SFAS No. 129 "Disclosure of Information about Capital Structure" ("FAS 129"). FAS 129 continues the existing requirements to disclose the pertinent rights and privileges of all securities other than ordinary common stock but expands the number of companies subject to portions of its requirements. The Partnership's disclosures comply with the requirements of this statement. During 1997 FASB issued SFAS No. 130 "Reporting Comprehensive Income" ("FAS 130"). FAS 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income are to be reported in a separate statement of income. This would include net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as "available for sale". FAS 130 is effective for years beginning on or after December 15, 1997. During 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and 33 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued services, geographical areas and major customers. FAS 131 is effective for years beginning on or after December 15, 1997. 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, 1997, 1996 and 1995, earned or received compensation or payments for services from the Partnership as follows: 34 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 1997 1996 1995 ---------------------------- ---------- ---------- ---------- CRIIMI, Inc.(1) General Partner/Distribution $1,353,007 $1,102,994 $ 754,938 AIM Acquisition Advisor/Asset Management Fee 1,873,563 1,997,649 2,042,886 Partners, L.P.(2) CRIIMI MAE Affiliate of General Partner/ 62,274 68,328 28,087 Management, Inc.(3) Expense Reimbursement CRI(3) Affiliate of General Partner/ -- -- 71,129 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 0.95% of Total Invested Assets (as defined in the Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee equal to 0.28% of Total Invested Assets from the Advisors Asset Management Fee. 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 $552,222, $590,353 and $299,460 for the years ended December 31, 1997 and 1996, and the six months ended December 31, 1995, respectively. CRI/AIM Management, Inc., which through June 30, 1995 acted as the Sub-advisor, earned a fee equal to $302,682 for the six months ended June 30, 1995. (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. This is included with general and administrative expenses.
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, 1997 As of December 31, 1996 Amortized Fair Amortized Fair Cost Value Cost Value ------------ ------------ ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities: Acquired insured mortgages $132,530,176 $142,822,793 $151,866,819 $159,959,297 Originated insured mortgages 17,017,276 16,887,282 17,126,685 16,646,943 ------------ ------------ ------------ ------------ $149,547,452 $159,710,075 $168,993,504 $176,606,240 ============ ============ ============ ============ Investment in FHA-Insured Loans: Acquired insured mortgages $ 14,416,917 $ 17,432,816 $ 14,556,595 $ 17,706,486 Originated insured mortgages 12,928,572 13,431,769 13,030,131 12,969,589 ------------ ------------ ------------ ------------ $ 27,345,489 $ 30,864,585 $ 27,586,726 $ 30,676,075 ============ ============ ============ ============ Cash and cash equivalents $ 14,718,103 $ 14,718,103 $ 9,716,786 $ 9,716,786 ============ ============ ============ ============ Accrued interest receivable $ 1,421,935 $ 1,421,935 $ 1,426,113 $ 1,426,113 ============ ============ ============ ============
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. Cash and cash equivalents and accrued interest receivable --------------------------------------------------------- The carrying amount approximates fair value because of the short maturity of these instruments. 36 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES GNMA Mortgage-Backed Securities and Fully Insured FHA- Insured Certificates ------------------------------------------------------ Listed below is the Partnership's aggregate investment in Fully Insured Mortgages:
December 31, 1997 1996 ------------ ------------ Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities(4)(7)(8) 9 9 FHA-Insured Certificates(1)(2)(3)(4) (5)(6) 55 62 Amortized Cost $132,530,176 $151,866,819 Face Value 137,674,964 157,889,594 Fair Value 142,822,793 159,959,297 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $17,017,276 $ 17,126,685 Face Value 16,660,658 16,770,069 Fair Value 16,887,282 16,646,943
(1) On October 11, 1996, the servicer of the 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 recognized a gain of approximately $139,000 for the year ended December 31, 1997. A distribution of $0.05 per Unit related to this assignment, was declared in February 1997 and was paid to Unitholders in May 1997. The remaining 9% of proceeds due from HUD were received in May 1997, and since the distribution was less than $0.01 per Unit, these proceeds were distributed with regular cash flow in August 1997. (2) In late February 1997, the mortgage on Security Apartments was prepaid. The Partnership received net proceeds of approximately $304,000, and recognized a gain of approximately $66,000 for the year ended December 31, 1997. A distribution of approximately $0.02 per Unit related to this prepayment was declared in March 1997 and was paid to Unitholders in May 1997. (3) On July 1, 1997, the mortgage on Peachtree Apartments was prepaid. The Partnership received net proceeds of approximately $6.5 million, and recognized a gain of less than $1,000 for the year ended December 31, 1997. A distribution of approximately $0.52 per Unit related to this prepayment was declared in July 1997, and was paid to Unitholders in November 1997. (4) In September 1997, the mortgage on Pine Tree Lodge was converted to a GNMA Mortgage-Backed Security from an FHA-Insured certificate. A distribution 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 of approximately $0.02 per Unit related to the final settlement of this mortgage was declared in September 1997 and paid in November 1997. (5) On October 1, 1997, the mortgage on Ashford Place Apartments was prepaid. The Partnership received net proceeds of approximately $3.4 million and recognized a gain of approximately $34,000 for the year ended December 31, 1997. A distribution of approximately $0.27 was declared in October 1997 and paid in February 1998. (6) On October 22, 1997, the mortgages on Silverwood Village Apartments and Fleetwood Village Apartments were prepaid. The Partnership received net proceeds of approximately $1.4 million and $1.5 million, respectively, and recognized gains of approximately $214,000 and $237,000 for the mortgages on Silverwood Village Apartments and Fleetwood Village Apartments, respectively, for the year ended December 31, 1997. A distribution of approximately $0.23 per Unit was declared in November 1997 and paid in February 1998. (7) In November 1997, the mortgage on Maryland Meadows was prepaid. The Partnership received net proceeds of approximately $5.2 million, and recognized a gain of approximately $217,000 for the year ended December 31, 1997. A distribution of approximately $0.42 per Unit was declared in December 1997 and paid in February 1998. (8) In February 1998, the mortgage on Spanish Trace Apartments was prepaid. The Partnership received net proceeds of approximately $9.7 million, and anticipates it will recognize a loss of approximately $96,000 in 1998. A distribution of approximately $0.77 per Unit related to this prepayment was declared in March 1998 and is expected to be paid in May 1998. As of March 3, 1998, all of the fully insured GNMA Mortgage-Backed Securities and FHA-Insured Certificates are current with respect to the payment of principal and interest, except for the mortgages on Country Club Terrace Apartments and Isle of Pines Village with respect to the January 1998 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, 1997, 1996 and 1995, the Partnership received $51,457, $0 and $0, respectively, from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying statements of operations. In the case of fully insured Originated Insured Mortgages and Acquired Insured Mortgages, the Partnership's maximum exposure for purposes of determining loan losses would generally be approximately 1% of the unpaid principal balance of the Originated Insured mortgage or Acquired Insured Mortgage (an assignment fee charged by FHA) at the date of default, plus the unamortized balance of acquisition fees and closing costs of the Insured Mortgage and the loss of approximately 30 days accrued interest. 38 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, 1997 1996 ------------ ------------ Fully Insured Acquired Insured: Number of Loans 12 12 Amortized Cost $ 14,416,917 $ 14,556,595 Face Value 17,165,551 17,405,640 Fair Value 17,432,816 17,706,486 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 12,928,572 $ 13,030,131 Face Value 12,589,214 12,681,532 Fair Value 13,431,769 12,969,589
As of March 3, 1998, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest, except for the mortgage on Portervillage I, which has been delinquent since January 1997. In May 1997, the servicer of the mortgage on Portervillage I Apartments filed a Notice of Default and an Election to Assign the mortgage with HUD. The face value of this mortgage was approximately $1.2 million at December 31, 1996. The Partnership expects to receive 99% of this amount plus accrued interest. In addition to base interest payments 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, 1997, 1996 and 1995, the Partnership received $37,766, $42,417 and $64,676, 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, 1997, 1996 and 1995 are as follows: 1997 1996 1995 ------ ------ ------ Quarter ended March 31, $0.39(1) $0.33 $0.36 Quarter ended June 30, 0.30 0.64 (4) 0.33 Quarter ended September 30, 0.84(2) 0.43 (5) 0.49(7) Quarter ended December 31, 1.23(3) 0.85 (6) 0.36 (8) ----- ----- ----- $2.76 $2.25 $1.54 ===== ===== ===== 39 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 7. DISTRIBUTIONS TO UNITHOLDERS - Continued (1) This amount includes approximately $0.07 per Unit from the disposition of the following mortgages: net proceeds from the assignment of the mortgage on Meadow Park Apartments I of $0.05 per Unit and net proceeds from the prepayment of the mortgage on Security Apartments of $0.02 per Unit. (2) This amount includes approximately $0.54 per Unit from the following mortgages: final settlement of the mortgage on Pine Tree Lodge of $0.02 per Unit and net proceeds from the prepayment of the mortgage on Peachtree Place North of $0.52 per Unit. (3) This amount includes approximately $0.92 per Unit representing net proceeds from the prepayment of the mortgages on Ashford Place Apartments, Fleetwood Village Apartments, Silverwood Village Apartments and Maryland Meadows. (4) 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. (5) This amount includes approximately $0.10 per Unit representing net proceeds from the assignment of the mortgage on Woodland Village Apartments. (6) 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. (7) This amount includes approximately $0.16 per Unit representing net proceeds from the assignment of the mortgage on El Lago Apartments. (8) This amount includes approximately $0.02 per Unit representing additional net proceeds from the assignment of the mortgage on El Lago 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. 8. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE Integrated Funding, Inc. (IFI), an affiliate of the Partnership, was the coinsurance lender for coinsured mortgages previously held by the Partnership. In order to capitalize IFI with sufficient net worth under HUD regulations, in April 1994, American Insured Mortgage Investors L.P. - Series 88 (AIM 88), an affiliate of the Partnership, transferred a GNMA mortgage-backed security in the amount of $2.0 million to IFI. The Partnership and American Insured Mortgage Investors L.P. - Series 86 (AIM 86), an affiliate of the Partnership, each issued a demand note payable to AIM 88 and recorded an investment in IFI through an affiliate (AIM Mortgage, Inc.) in proportion to each entity's coinsured mortgages for which IFI was mortgagee of record as of April 15, 1994. Interest expense on the note payable was based on an interest rate of 7.25% per annum. IFI had entered into an expense reimbursement agreement with the Partnership, AIM 86 and AIM 88 (collectively the AIM Funds) whereby IFI reimburses the AIM Funds for general and administrative expenses incurred on behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on an amount proportionate to each entity's IFI coinsured mortgages. The expense 40 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 8. INVESTMENT IN AFFILIATE, NOTE PAYABLE AND DUE TO AFFILIATE - Continued reimbursement, interest from the two notes and the Partnership's equity interest in IFI's net income or loss, substantially equals the mortgage principal and interest on the GNMA mortgage-backed security transferred to IFI. The final coinsured mortgages held by the Partnership were prepaid in late 1996. As a result, the aforementioned demand note payable to AIM 88 and the expense reimbursement agreement from IFI were cancelled as of April 1, 1997. 9. PARTNERS' EQUITY Depositary Units representing economic rights in limited partnership interests (Units) were issued at a stated value of $20. A total of 12,079,389 Units were issued for an aggregate capital contribution of $241,587,780. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 Units in exchange therefore. 41 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, 1997, 1996 and 1995.
1997 Quarter ended March 31 June 30 September 30 December 31 ----------- --------- -------------- ------------- Income $ 4,274 $ 4,318 $ 4,123 $ 4,046 Net gains from mortgage dispositions 205 -- -- 703 Net earnings 3,848 3,675 3,480 4,134 Net earnings per Limited Partnership Unit - Basic 0.31 0.29 0.28 0.32
1996 Quarter ended March 31 June 30 September 30 December 31 ----------- --------- -------------- ------------- Income $ 4,612 $ 4,529 $ 4,447 $ 4,355 Net gains (losses) from mortgage dispositions (1) 556 (40) 7 Net earnings 3,928 4,417 3,790 3,654 Net earnings per Limited Partnership Unit - Basic 0.31 0.35 0.30 0.30
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 - Basic 0.32 0.32 0.31 0.32
42 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997
Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) The Executive House Dayton, Ohio 8/21 12/01 7.5% $ 871,101 $ 880,943 $ 78,855(4) Walnut Apartments La Puente, California 3/20 11/01 7.5% 2,669,575 2,700,340 248,862(4) Woodland Hills Apartments Auburn, Alabama 10/19 6/99 7.5% 723,142 731,529 68,044(4) Fairlawn II Waterbury, Connecticut 6/20 5/00 7.5% 795,141 804,241 73,364(4) Willow Dayton Chicago, Illinois 8/19 12/00 7.5% 1,062,339 1,074,620 99,489(4) Cedar Ridge Apartments Richton Park, Illinois 4/20 2/01 7.5% 2,839,009 2,871,562 262,699(4) Park Hill Apartments Lexington, Kentucky 3/19 3/00 7.5% 1,841,699 1,863,104 173,845(4) Fairfax House Buffalo, New York 11/19 5/00 7.5% 2,248,500 2,274,412 209,608(4) Country Club Terrace Apt. Holidaysburg, Pennsylvania 8/19 6/00 7.5% 1,522,007 1,539,602 142,537(4) Summit Square Manor Rochester, Minnesota 8/19 5/99 7.5% 2,001,763 2,024,903 187,467(4) Park Place Rochester, Minnesota 3/20 10/99 7.5% 792,389 801,530 73,980(4) 43 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) Nevada Hills Apartments Reno, Nevada 2/21 8/00 7.5% 1,209,355 1,223,091 110,345(4) Bentgrass Hills Apartments Milwaukee, Wisconsin 7/21 5/01 7.5% 240,388 243,109 21,817(6) Colony West Apartments Chico, California 7/20 12/00 7.5% 676,910 684,650 62,365(6) Dunhaven Apartments Section I Baltimore County, Maryland 1/20 12/99 7.5% 940,697 951,516 87,429(6) Emerald Green Apartments Indianapolis, Indiana 1/20 12/99 7.5% 1,079,973 1,092,393 100,374(6) Isle of Pines Village Apartments Baltimore County, Maryland 12/20 4/00 7.5% 1,279,142 1,293,698 117,030(6) Kings Villa/Discovery Commons Sacramento, California 7/19 11/99 7.5% 1,134,530 1,147,658 106,414(6) Stoney Brook Apartments North Providence Rhode Island 9/20 10/00 7.5% 1,505,110 1,522,285 138,278(6) Steeplechase Apartments Aiken, South Carolina 9/18 8/98 7.5% 532,336 538,579 50,921(6) Walnut Hills Apartments Plainfield, Indiana 9/19 3/00 7.5% 510,048 515,938 47,692(6) Woodland Villas Jasper, Alabama 8/19 3/00 7.5% 325,340 329,101 30,468(6) Ashley Oaks Apartments Carrollton, Georgia 3/22 4/02 7.5% 582,762 589,308 52,292(7) Highland Oaks Apartments, Phase III Wichita Falls, Texas 2/21 4/02 7.5% 983,537 994,709 89,741(7) 44 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ Holden Court Apartments Seattle, Washington 12/21 4/02 7.5% 227,179 229,735 20,435(7) Magnolia Place Apartments Franklin, Tennessee 5/20 4/02 7.5% 333,384 337,204 30,804(7) Quail Creek Apartments Howell, Michigan 5/20 4/02 7.5% 558,147 564,541 51,572(7) Rainbow Terrace Apartments Milwaukee, Wisconsin 7/22 4/02 7.5% 331,251 334,959 29,581(7) Rock Glen Apartments Baltimore, Maryland 1/22 4/02 7.5% 1,104,748 1,117,177 99,375(7) Stonebridge Apartments, Phase I Montgomery, Alabama 4/20 4/02 7.5% 1,071,253 1,083,537 99,125(7) Village Knoll Apartments Harrisburg, Pennsylvania 4/20 4/02 7.5% 1,112,213 1,124,966 102,914(7) Bowling Brook, Section 1 Towson, Maryland 5/30 N/A 8.50% 11,991,085 12,791,749 1,090,128 Cedar Bluff Eagan, Minnesota 3/27 N/A 8.50% 4,430,470 4,727,057 411,371 Executive Tower Toledo, Ohio 3/27 N/A 8.75% 2,896,863 3,090,705 275,283 New Castle Apartments Austin, Texas 3/18 N/A 8.75% 2,072,819 2,213,474 219,143 Lincoln Green Burrillville, Rhode Island 6/33 N/A 10.25% 3,133,410 3,353,534 330,066 Turtle Creek Apartments San Antonio, Texas 4/16 N/A 8.95% 1,690,153 1,805,417 188,596 Sangnok Villa Los Angeles, California 1/30 N/A 10.25% 908,587 972,514 96,825 The Meadows of Livonia Livonia, Michigan 9/34 N/A 10.00% 6,463,493 6,958,138 627,836 45 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ Gamel & Gamel Apartments Benton, Kentucky 4/27 N/A 8.75% $ 680,770 $ 726,317 $ 64,612 Wayland Health Center Providence, Rhode Island 10/33 N/A 9.75% 6,905,970 7,434,621 696,610 Eaglewood Villa Apartments Springfield, Ohio 2/27 N/A 8.875% 2,754,713 2,938,997 264,707 Gold Key Village Apartments Englewood, Ohio 6/27 N/A 9.00% 2,909,518 2,882,074 282,030 Stafford Towers Baltimore, Maryland 8/16 N/A 9.50% 368,788 397,583 42,613 Garden Court Apartments Lexington, Kentucky 8/27 N/A 8.60% 1,184,553 1,263,798 110,583 Northdale Commons Coon Rapids, Minnesota 9/27 N/A 9.00% 693,765 740,145 67,173 Northwood Place Meridian, Mississippi 6/34 N/A 8.75% 4,518,711 4,819,597 412,635 Amador Residential Jackson, California 1/34 N/A 9.00% 1,346,351 1,435,988 126,173 Cheswick Apartments Indianapolis, Indiana 9/27 N/A 8.75% 3,125,377 3,334,397 295,736 Nassau Apartments New Orleans, Louisiana 11/27 N/A 8.63% 879,007 937,799 82,139 The Gate House Apartments Lexington, Kentucky 2/28 N/A 8.55% 2,850,730 3,041,386 264,092 Bradley Road Nursing Bay Village, Ohio 5/34 N/A 8.875% 2,527,349 2,695,615 233,708 46 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ Franklin Plaza Cleveland, Ohio 5/23 N/A 8.175% 5,379,054 5,518,914 503,183 Heritage Heights Apartments Harrison, Arizona 4/32 N/A 9.50% 417,860 449,865 41,313 Pleasant View Nursing Home Union, New Jersey 6/29 N/A 7.75% 7,567,785 7,761,802 643,312 ------------- -------------- Total FHA-Insured Certificates - Acquired Insured Mortgages, carried at fair value 110,802,149 115,776,426 ------------- -------------- GNMA Mortgage-Backed Securities (carried at fair value) Pine Tree Lodge Pasadena, Texas 12/33 N/A 9.50% 2,028,264 2,028,819 196,864 Spanish Trace Apartments Md. Heights, Missouri 9/28 N/A 7.35% 9,676,350 9,743,834 770,973 Stone Hedge Village Apts. Farmington, New York 11/27 N/A 7.00% 1,826,132 1,839,027 143,285 Afton Square Apartments Portsmouth, Virginia 12/28 N/A 7.25% 1,069,345 1,076,802 81,448 Carlisle Apartments Houston, Texas 12/28 N/A 7.125% 2,136,970 2,151,914 165,943 Independence Park Largo, Florida 9/29 N/A 7.75% 4,018,453 4,046,029 330,878 Ridgecrest Timbers Portland, Oregon 12/28 N/A 7.25% 1,556,716 1,567,572 120,915 47 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ Huntington Apartments Concord, North Carolina 12/29 N/A 7.25% 2,966,045 2,986,717 233,189 Northwood Apartments Mockville, North Carolina 12/29 N/A 7.25% 1,594,540 1,605,653 125,362 ------------ -------------- Total GNMA Mortgage-Backed Securities 26,872,815 27,046,367 ------------ -------------- Total investment in Acquired Insured Mortgages, carried at fair value 137,674,964 142,822,793 ------------ -------------- ORIGINATED INSURED MORTGAGES - ---------------------------- GNMA Mortgage-Backed Security (carried at fair value) Oak Forest Apartments II Ocoee, Florida 12/31 11/09 8.25% 10,637,301 10,709,532 840,090 FHA-Insured Certificate (carried at fair value) Waterford Green Apartments South St. Paul, Minnesota (11) 11/30 12/04 8.50% 6,023,357 6,177,750 481,564 ------------ -------------- Total investment in Originated Insured Mortgages, carried at fair value 16,660,658 16,887,282 ------------ -------------- Total investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 154,335,622 159,710,075 ------------ -------------- 48 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Loans (carried at amortized cost)(2) Bay Pointe Apartments Lafayette, Indiana 2/23 11/00 7.5% 2,069,768 1,705,470 185,268(8) Baypoint Shoreline Apartments Duluth, Minnesota 1/22 8/00 7.5% 977,925 803,331 87,967(8) Berryhill Apartments Grass Valley, California 1/21 8/99 7.5% 1,268,509 1,044,711 115,899(8) Brougham Estates II Kansas City, Kansas 11/22 8/00 7.5% 2,597,377 2,128,223 230,860(8) College Green Apartments Wilmington, North Carolina 3/23 6/01 7.5% 1,395,308 1,142,583 123,455(8) Fox Run Apartments Dothan, Alabama 10/19 12/97 7.5% 1,243,489 1,028,200 116,242(8) Kaynorth Apartments Lansing, Michigan 4/23 3/01 7.5% 1,893,162 1,549,755 167,318(8) Lakeside Apartments Bennettsville, South Carolina 1/22 3/01 7.5% 392,461 322,708 35,303(8) Portervillage I Apartments Portervillage, California 8/21 5/00 7.5% 1,144,441 941,454 103,733(8) Town Park Apartments Rockingham, North Carolina 10/22 6/01 7.5% 637,453 522,941 56,755(8) Westbrook Apartments Kokomo, Indiana 11/22 12/00 7.5% 1,810,993 1,491,160 163,177(8) Continental Village New Hope, Minnesota 1/22 N/A 8.95% 1,734,665 1,736,381 175,954 ------------ -------------- Total investment in Acquired Insured Mortgages, carried at amortized cost 17,165,551 14,416,917 ------------ -------------- 49 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 Interest Rate on Face Net Annual Payment Maturity Put Mortgage Value of Carrying Value (Principal and Development Name/Location Date Date (1) (5)(9) Mortgage (3)(11)(12) Interest)(9)(10) - ------------------------- ---------- -------- ------------ ------------- -------------- ------------------ 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% 5,020,691 5,173,123 462,703 Longleaf Lodge Hoover, Alabama 7/26 -- 8.25% 3,100,462 3,139,846 282,958 The Plantation Greenville, North Carolina 4/28 4/03 8.25% 4,468,061 4,615,603 402,046 ------------ ------------ Total investment in Originated Insured Mortgages, carried at amortized cost 12,589,214 12,928,572 ------------ ------------ Total investment in FHA-Insured Loans 29,754,765 27,345,489 ------------ ------------ TOTAL INVESTMENT IN INSURED MORTGAGES $ 184,090,387 $ 187,055,564 ============ ============
50 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 (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 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 51 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997 101/341, respectively, in a pool of 12 FHA-insured mortgages. In October 1987, the Partnership sold undivided fractional interests of 200/341 in this pool. Accordingly, the Partnership now owns an undivided fractional interest aggregating 101/341, or approximately 29.6%, in this pool. For purposes of illustration only, the amounts shown in this table represent the Partnership's share of these items as if an undivided interest in each mortgage was acquired. (8) These amounts represent the Partnership's 50% interest in these mortgages. The remaining 50% interest was acquired by American Insured Mortgage Investors, an affiliate of the Partnership. (9) This represents the base interest rate during the permanent phase of these Insured Mortgages. Additional interest (referred to as Participations) measured as a percentage of the net cash flow from the development and the net proceeds from the sale, refinancing or other disposition of the underlying development (as defined in the Participation Agreements), will also be due. During the years ended December 31, 1997, 1996 and 1995, the Partnership received additional interest of $89,223, $42,417 and $64,676, respectively, from the Participations. (10) Principal and interest are payable at level amounts over the life of the mortgages. (11) A reconciliation of the carrying value of Insured Mortgages for the years ended December 31, 1997 and 1996, is as follows: 1997 1996 ------------ ------------ Beginning balance $204,192,966 $220,229,526 Principal receipts on mortgages (1,598,933) (1,571,828) Due from HUD -- (138,858) Proceeds from disposition of Mortgages (18,996,279) (11,346,665) Net gains on mortgage dispositions/modifications 907,923 521,584 Decrease (increase) in unrealized losses on investment in Insured Mortgages 783,102 (57,176) Increase (decrease) in unrealized gains on investment in Insured Mortgages 1,766,785 (3,443,617) ------------ ------------ Ending balance $187,055,564 $204,192,966 ============ ============ (12) As of December 31, 1997 and 1996, the tax basis of the Insured Mortgages was approximately $174.4 million and $194.1 million, respectively. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACCTED FROM THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 14,718 159,710 29,022 0 0 0 0 0 203,450 15,768 0 0 0 0 187,682 203,450 0 17,669 0 0 2,532 0 0 15,137 0 15,137 0 0 0 15,137 1.20 0
EX-10 3 EXHIBIT 10.15 SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT ------------------------------------------- THIS SECOND AMENDMENT TO REIMBURSEMENT AGREEMENT is made effective as of April 1, 1997 by and among Integrated Funding, Inc., a New York corporation ("IFI"), and American Insured Mortgage Investors L.P. - Series 85 ("AIM 85"), American Insured Mortgage Investors L.P. - Series 86 ("AIM 86"), and American Insured Mortgage Investors L.P. - Series 88 ("AIM 88") (AIM 85, AIM 86 and AIM 88 collectively referred to as the "AIM Funds"). RECITALS -------- A. The parties hereto entered into the Expense Reimbursement Agreement effective as of December 31, 1992 (the "Agreement") in order to allocate to IFI a portion of the expenses incurred by the AIM Funds in connection with the Subadvisor's management of the funds. B. The parties hereto entered into the amendment to Reimbursement Agreement effective as of April 1, 1994 (the "First Amendment") in order to change the allocation of expenses to each fund based on the outstanding principal balance of coinsured loans for which IFI acts as the mortgagee of record as of April 1, 1994. C. The parties seek to change the allocation of expenses to each fund based on the outstanding principal balance of coinsured loans for which IFI acts as the mortgagee of record as of April 1, 1997. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Section 1 of the Agreement is hereby deleted in its entirety and the following is substituted in lieu thereof: "1. Reimbursement. IFI will reimburse the AIM Funds a total expense amount calculated as .2893% annually of the outstanding principal balance of the coinsured loans for which IFI acts the mortgagee of record (approximately $49 million as of April 1, 1997). The total expense reimbursement shall be allocated to each AIM Fund as follows: AIM FUND % of Coinsured Loan Balance -------- --------------------------- AIM 85 0 AIM 86 34% AIM 88 66% 2. Except as modified above, all other provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. [Signatures on following page] INTEGRATED FUNDING, INC. By: /s/ Frederick J. Burchill ------------------------- Frederick J. Burchill Vice President AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. By: CRIIMI, Inc., its General Partner By: /s/ Cynthia O. Azzara ---------------------- Cynthia O. Azzara Chief Financial Officer AMERICAN INSURED MORTGAGE INVESTORS L.P. - Series 86 By: CRIIMI, Inc., its General Partner By: /s/ Cynthia O. Azzara ---------------------- Cynthia O. Azzara Chief Financial Officer AMERICAN INSURED MORTGAGE INVESTORS L.P. - Series 88 By: CRIIMI, Inc., its General Partner By: /s/ Cynthia O. Azzara ---------------------- Cynthia O. Azzara Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----