-----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, I1c+j3aElvsQrNmD0B2fUuM94+AP4gXsfu19UAcF8P/8DcJKoBLtaHj4Do6Q1Qpt 2VNZUkdulW0igWMnKgUxdA== 0000753281-01-500004.txt : 20010807 0000753281-01-500004.hdr.sgml : 20010807 ACCESSION NUMBER: 0000753281-01-500004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010806 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11059 FILM NUMBER: 1698815 BUSINESS ADDRESS: STREET 1: 11200 ROCKVILLE PIKE CITY: ROCKVILLE STATE: MD ZIP: 20852 BUSINESS PHONE: 3014689200 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 FORMER COMPANY: FORMER CONFORMED NAME: INTEGRATED RESOURCES AMERICAN INSURED MTG INVTS SERIES 85 DATE OF NAME CHANGE: 19911203 10-Q 1 aim85_10q0633001-2001.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended June 30, 2001 -------------- 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 Identification No.) incorporation or organization) 11200 Rockville Pike, Rockville, Maryland 20852 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (301) 816-2300 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of June 30, 2001, 12,079,514 depositary units of limited partnership interest were outstanding. 2 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001
Page ---- PART I. Financial Information Item 1. Financial Statements Balance Sheets - June 30, 2001 (unaudited) and December 31, 2000 3 Statements of Income and Comprehensive Income - for the three and six months ended June 30, 2001 and 2000 (unaudited) 4 Statement of Changes in Partners' Equity - for the six months ended June 30, 2001 (unaudited) 5 Statements of Cash Flows - for the six months ended June 30, 2001 and 2000 (unaudited) 6 Notes to Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 2A. Qualitative and Quantitative Disclosures about Market Risk 16 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 17 Signature 18
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. BALANCE SHEETS
June 30, December 31, 2001 2000 ------------- ------------- (Unaudited) ASSETS Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities, at fair value Acquired insured mortgages $ 53,612,539 $ 70,770,317 Originated insured mortgages 15,719,532 15,927,124 ------------- ------------- 69,332,071 86,697,441 Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Acquired insured mortgages 9,973,287 10,041,697 Originated insured mortgages 12,501,425 12,570,037 ------------- ------------- 22,474,712 22,611,734 Cash and cash equivalents 9,172,305 5,631,117 Receivables and other assets 4,129,433 1,319,714 Investment in FHA debenture 2,361,381 2,361,381 ------------- ------------- Total assets $ 107,469,902 $ 118,621,387 ============= ============= LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 4,650,801 $ 6,284,867 Accounts payable and accrued expenses 105,774 112,864 Due to affiliate 1,235,104 1,242,107 ------------- ------------- Total liabilities 5,991,679 7,639,838 ------------- ------------- Partners' equity: Limited partners' equity, 15,000,000 Units authorized, 12,079,514 Units issued and outstanding 106,179,485 114,254,731 General partners' deficit (5,522,298) (5,194,582) Accumulated other comprehensive income 821,036 1,921,400 ------------- ------------- Total Partners' equity 101,478,223 110,981,549 ------------- ------------- Total liabilities and partners' equity $ 107,469,902 $ 118,621,387 ============= =============
The accompanying notes are an integral part of these financial statements. 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
For the three months ended For the six months ended June 30, June 30, --------------------------- --------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Income: Mortgage investment income $ 2,095,647 $ 2,451,412 $ 4,243,346 $ 4,971,756 Interest and other income 120,524 101,784 267,886 257,478 ----------- ----------- ----------- ----------- 2,216,171 2,553,196 4,511,232 5,229,234 ----------- ----------- ----------- ----------- Expenses: Asset management fee to related parties 246,080 288,452 506,495 581,969 General and administrative 93,496 103,770 194,597 209,823 ----------- ----------- ----------- ----------- 339,576 392,222 701,092 791,792 ----------- ----------- ----------- ----------- Net earnings before gains on mortgage dispositions 1,876,595 2,160,974 3,810,140 4,437,442 Gains on mortgage dispositions 722,832 234,936 985,118 278,959 ----------- ----------- ----------- ----------- Net earnings $ 2,599,427 $ 2,395,910 $ 4,795,258 $ 4,716,401 =========== =========== =========== =========== Other comprehensive income (loss) (1,675,913) (1,002,564) (1,100,364) (954,891) ----------- ----------- ----------- ----------- Comprehensive income $ 923,514 $ 1,393,346 $ 3,694,894 $ 3,761,510 ----------- ----------- ----------- ----------- Net earnings allocated to: Limited partners - 96.1% $ 2,498,049 $ 2,302,470 $ 4,608,243 $ 4,532,461 General Partner - 3.9% 101,378 93,440 187,015 183,940 ----------- ----------- ----------- ----------- $ 2,599,427 $ 2,395,910 $ 4,795,258 $ 4,716,401 =========== =========== =========== =========== Net earnings per Unit of limited partnership interest - basic $ 0.21 $ 0.19 $ 0.38 $ 0.38 =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 5 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENT OF CHANGES IN PARTNERS' EQUITY For the six months ended June 30, 2001 (Unaudited)
Accumulated Other General Limited Comprehensive Partner Partner Income Total -------------- -------------- -------------- -------------- Balance, December 31, 2000 $ (5,194,582) $ 114,254,731 $ 1,921,400 $ 110,981,549 Net Earnings 187,015 4,608,243 - 4,795,258 Adjustment to unrealized gains on investments in insured mortgages - - (1,100,364) (1,100,364) Distributions paid or accrued of $1.05 per Unit, including return of capital of $0.67 per Unit (514,731) (12,683,489) - (13,198,220) -------------- -------------- -------------- -------------- Balance, June 30, 2001 $ (5,522,298) $ 106,179,485 $ 821,036 $ 101,478,223 ============== ============== ============== ============== Limited Partnership Units outstanding - basic, as of June 30, 2001 12,079,514 ==========
The accompanying notes are an integral part of these financial statements. 6 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CASH FLOWS (Unaudited)
For the six months ended June 30, 2001 2000 ------------ ------------ Cash flows from operating activities: Net earnings $ 4,795,258 $ 4,716,401 Adjustments to reconcile net earnings to net cash provided by operating activities: Net gain on mortgage dispositions (985,118) (278,959) Changes in assets and liabilities: (Increase) decrease in receivables and other assets (140,586) 194,983 Decrease in accounts payable and accrued expenses (7,090) (23,352) Decrease in due to affiliate (7,003) - ------------ ----------- Net cash provided by operating activities 3,655,461 4,609,073 ------------ ----------- Cash flows from investing activities: Proceeds from disposition of mortgages 14,197,935 4,986,762 Receipt of mortgage principal from scheduled payments 520,078 596,163 ------------ ----------- Net cash provided by investing activities 14,718,013 5,582,925 ------------ ----------- Cash flows used in financing activities: Distributions paid to partners (14,832,286) (28,784,690) ------------ ----------- Net increase (decrease) in cash and cash equivalents 3,541,188 (18,592,692) Cash and cash equivalents, beginning of period 5,631,117 23,723,644 ------------ ------------ Cash and cash equivalents, end of period $ 9,172,305 $ 5,130,952 ============ ============ Non-cash investing activity: Portion of HUD debentures due from Midland in exchange for the Mortgages $ 2,669,133 $ - on Summit Square Manor and Park Place Apartments
The accompanying notes are an integral part of these financial statements. 7 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS (Unaudited) 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. The Partnership Agreement ("Partnership Agreement") states that the Partnership will terminate on December 31, 2009, unless previously terminated under the provisions of the Partnership Agreement. CRIIMI, Inc. (the "General Partner") holds a partnership interest of 3.9% and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM Acquisition Partners L.P. (the "Advisor") serves as the advisor to the Partnership. 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., Sun America Investments, Inc. (successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun America Investments, Inc. and The Goldman Sachs Group, L.P. Under the Advisory Agreement, the Advisor will render services to the Partnership, including but not limited to, the management of the Partnership's portfolio of mortgages and the disposition of the Partnership's mortgages. Such services will be subject to the review and ultimate authority of the General Partner. However, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions, including but not limited to the disposition of mortgages, any transaction or agreement with the General Partner, or its affiliates, or any material change as to policies regarding distributions or reserves of the Partnership. The Advisor is permitted to delegate the performance of services pursuant to a sub-advisory agreement (the "Sub-Advisory Agreement"). The delegation of such services will not relieve the Advisor of its obligation to perform such services. CRIIMI MAE Services Limited Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP is CMSLP Management Company, Inc., an affiliate of CRIIMI MAE. The Partnership's investment in mortgages consists of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to Federal Housing Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed Securities referred to herein as Insured Mortgages). 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. On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of personnel and administrative services to the Partnership, filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). On November 22, 2000, the United States Bankruptcy Court for the District of Maryland, in Greenbelt, Maryland (the "Bankruptcy Court") confirmed CRIIMI MAE's and CRIIMI MAE Management, Inc.'s Third Amended Joint Plan of Reorganization (as amended and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and 21, and November 22, 2000). On April 17, 2001, CRIIMI MAE and CRIIMI MAE Management, Inc. announced the completion of their confirmed joint plan of reorganization and emerged from bankruptcy. This marks the conclusion of CRIIMI MAE's and CRIIMI MAE Management, Inc.'s financial reorganization. 8 2. BASIS OF PRESENTATION In the opinion of the General Partner, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly the financial position of the Partnership as of June 30, 2001 and December 31, 2000 and the results of its operations for the three and six months ended June 30, 2001 and 2000 and its cash flows for the six months ended June 30, 2001 and 2000. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. While the General Partner believes that the disclosures presented are adequate to make the information not misleading, these financial statements should be read in conjunction with the financial statements and the notes to the financial statements included in the Partnership's Annual Report filed on Form 10-K for the year ended December 31, 2000. Comprehensive Income - -------------------- Comprehensive income is the change in Partners' equity during a period from transactions from nonowner sources. This includes net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as available for sale. Unrealized gains and losses are reported in the equity section of the Balance Sheet as Accumulated Other Comprehensive Income. 3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES Fully Insured Mortgage Investments - ---------------------------------- Listed below is the Partnership's aggregate investment in Fully Insured Mortgages:
June 30, December 31, 2001 2000 ----------- ----------- Fully Insured Acquired Mortgages: Number of GNMA Mortgage-Backed Securities (5) (7) 3 4 FHA-Insured Certificates (1) (2) (3) (4) (6) 30 35 Amortized Cost $52,247,412 $68,440,285 Face Value 54,423,755 71,404,632 Fair Value 53,612,539 70,770,317 Fully Insured Originated Mortgages: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $16,239,771 $16,311,904 Face Value 16,207,404 16,279,536 Fair Value 15,719,532 15,927,124
9 Listed below is a summary of prepayments on fully Insured Mortgages as of August 1, 2001:
Date Distribution Net Proceeds Dist./ Declaration Payment Complex name Proceeds Received Gain Unit Date Date ------------ -------- -------- -------- ------ --------- --------- (1) The Meadows of Livonia $6,653,000 Jan. 2001 $253,434 $0.53 Jan. 2001 May 2001 (2) Gold Key Village Apartments 2,827,000 Mar. 2001 8,852 0.22 Apr. 2001 Aug. 2001 (3) Summit Square Manor 1,883,000 May 2001 235,496 * (4) Park Place Apartments 746,000 May 2001 94,435 * (5) Carlisle Apartments 2,120,000 Jun. 2001 46,704 0.17 Jul. 2001 Nov. 2001 (6) Cedar Ridge Apartments 2,637,000 Jun. 2001 346,198 0.21 Jul. 2001 Nov. 2001 (7) Afton Square Apartments ** 1,061,000 Jul. 2001 29,341 0.08 Jul. 2001 Nov. 2001
* In May 2001, HUD issued assignment proceeds in the form of two 7.125% debentures for the mortgages on Summit Square Manor and Park Place Apartments. The debentures, with face values of $2,715,930 and $1,075,951, for the mortgages on Summit Square Manor and Park Place Apartments, respectively, were issued to Firstar Trust Company, with interest payable semi-annually on January 1 and July 1. Firstar Trust Company, the initial mortgagee, signed the debentures over to Midland Loan Services, Inc. ("Midland"), the third party servicer. Midland will sell the debentures and distribute the proceeds as soon as practical. A distribution will be declared at that time. The mortgages on Summit Square Manor and Park Place Apartments were owned approximately 70% by the Partnership. The Partnership expects to receive net proceeds of approximately $1.8 million and $746,000 for the mortgages on Summit Square Manor and Park Place Apartments, respectively. The net proceeds due the Partnership are included on the balance sheet in Receivables and other assets. The servicer of this mortgage filed an application for insurance benefits under the Section 221 program of the National Housing Act of 1937 in June 2000. ** Third quarter 2001 transaction. As of August 1, 2001, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest. In addition, the Partnership no longer receives monthly principal and interest from the mortgages that are in the HUD assignment process under Section 221, as discussed below. As of August 1, 2001, the Partnership has received notification from the respective servicers that HUD applications for insurance benefits have been filed for the following mortgages: Date last principal Outstanding and interest Principal Property Name payment received Balance - ------------- ------------------ ----------- Park Hill Apartments Sept. 2000 $ 1,737,000 Fairfax House Sept. 2000 2,128,000 Country Club Terrace Apts. Sept. 2000 1,439,000 Fairlawn II Sept. 2000 755,000 Nevada Hills Apts. Dec. 2000 1,146,000 Dunhaven Apartments, Section I Jan. 2001 884,000 Woodland Villas April 2001 303,000 Under the Section 221 program, a mortgagee has the right to assign a mortgage ("put") to FHA at the expiration of 20 years from the date of final endorsement if the mortgage is not in default at such time. Any mortgagee electing to assign an FHA-insured mortgage to FHA will receive, in exchange therefor, HUD debentures having a total face value equal to the then outstanding principal balance of the FHA-insured mortgage plus accrued interest to the date of assignment. These HUD debentures will mature 10 years from the date of assignment and will bear interest at a rate announced semi-annually by HUD in 10 the Federal Register ("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. Once the servicer of a mortgage has filed an application for insurance benefits under Section 221, the Partnership will no longer receive the monthly principal and interest on the applicable mortgage. The Partnership expects to receive HUD debentures, as discussed above, plus accrued interest at the "going Federal rate", from date of assignment of the mortgage to the date of issuance of the debenture. The Partnership will recognize a gain on these assignments upon receipt of HUD debentures or a loss when it becomes probable that a loss will be incurred. In general, the Partnership plans to hold the debentures until called or date of maturity, whichever comes first. At that time debenture proceeds will be distributed to Unitholders. 4. INVESTMENT IN FHA-INSURED LOANS Fully Insured FHA-Insured Loans - ------------------------------- Listed below is the Partnership's aggregate investment in FHA-Insured Loans: June 30, December 31, 2001 2000 ----------- ----------- Fully Insured Acquired Loans: Number of Loans 8 8 Amortized Cost $ 9,973,287 $10,041,697 Face Value 11,924,976 12,040,599 Fair Value 11,825,879 12,023,455 Fully Insured Originated Loans: Number of Loans 3 3 Amortized Cost $12,501,425 $12,570,037 Face Value 12,198,363 12,261,397 Fair Value 12,037,026 12,192,633 As of August 1, 2001, all of the Partnership's FHA-Insured Loans, recorded at amortized cost, were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the three and six months ended June 30, 2001, the Partnership received additional interest of $53,423 and $53,423, respectively, from the Participations. During the three and six months ended June 30, 2000, the Partnership received additional interest of $0 and $21,566, respectively, from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying Statements of Income and Comprehensive Income. 11 5. INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE In December 2000, HUD issued assignment proceeds in the form of a 7.125% debenture for the mortgage on Fox Run Apartments. The debenture, with a face value of $2,385,233 and a fair value of $2,361,381, was issued to the Partnership, with interest payable semi-annually on January 1 and July 1. The mortgage on Fox Run Apartments was owned 50% by the Partnership and 50% by an affiliate of the Partnership, American Insured Mortgage Investors ("AIM 84"). Upon disposition of the debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects to receive net proceeds of approximately $1.2 million. The net proceeds due AIM 84 are included on the balance sheet in due to affiliate. In general, the Partnership will hold the debenture until its maturity date of June 1, 2010 or when called, whichever comes first. A distribution will be declared at that time. The servicer of this mortgage filed an application for insurance benefits under the Section 221 program of the National Housing Act of 1937 in May 2000. 6. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the six months ended June 30, 2001 and 2000 are as follows: 2001 2000 ----- ---- Quarter ended March 31, $0.68(1) $0.47(3)(4) Quarter ended June 30, 0.37(2) 0.46(5)(6) ----- ----- $1.05 $0.93 ===== ===== The following disposition proceeds are included in the distributions listed above: Net Declaration Type of Proceeds Complex Name(s) Date Disposition Per Unit --------------- --------- ----------- -------- (1) The Meadows of Livonia Jan. 2001 Prepayment $0.53 (2) Gold Key Village Apartments Apr. 2001 Prepayment 0.22 (3) Northwood Apartments Jan. 2000 Prepayment 0.13 (4) Turtle Creek Apartments Jan. 2000 Prepayment 0.13 (5) Woodland Hills Apartments and New Castle Apartments May 2000 Prepayment 0.22 (6) Colony West Apartments Jun. 2000 Prepayment 0.05 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 and monthly mortgage payments 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. As the Partnership continues to liquidate its mortgage investments and investors receive distributions of return of capital and taxable gains, investors should expect a reduction in earnings and distributions due to the decreasing mortgage base. 12 7. TRANSACTIONS WITH RELATED PARTIES The General Partner and certain affiliated entities, during the three and six months ended June 30, 2001 and 2000, earned or received compensation or payments for services from the Partnership as follows: COMPENSATION PAID OR ACCRUED TO RELATED PARTIES -----------------------------------------------
For the For the three months ended six months ended June 30, June 30, --------------------- --------------------- Name of Recipient Capacity in Which Served/Item 2001 2000 2001 2000 ----------------- ----------------------------- --------- --------- --------- --------- CRIIMI, Inc. (1) General Partner/Distribution $ 181,381 $ 225,501 $ 514,731 $ 455,905 AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 246,080 288,452 506,495 581,969 CRIIMI MAE Management, Inc. Affiliate of General Partner/ Expense Reimbursement 11,706 12,750 23,675 25,716 American Insured Mortgage Affiliate of Partnership/ Share of FHA Investors (3) Debenture And interest 21,243 - 42,487 -
(1) The General Partner, pursuant to the Partnership Agreement, 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, is entitled to an Asset Management Fee equal to 0.95% of Total Invested Assets (as defined in the Partnership Agreement). CMSLP, the sub-advisor to the Partnership, is entitled to a fee of 0.28% of Total Invested Assets from the Advisor's Asset Management Fee. Of the amounts paid to the Advisor, CMSLP earned a fee equal to $72,535 and $149,294 for the three and six months ended June 30, 2001, respectively, and $85,021 and $171,459 for the three and six months ended June 30, 2000, respectively. The limited partner of CMSLP is a wholly owned subsidiary of CRIIMI MAE Inc. (3) In December 2000, HUD issued assignment proceeds in the form of a 7.125% debenture for the mortgage on Fox Run Apartments. The debenture, with a face value of $2,385,233 and a fair value of $2,361,381, was issued to the Partnership, with interest payable semi-annually on January 1 and July 1. The mortgage on Fox Run Apartments was owned 50% by the Partnership and 50% by an affiliate of the Partnership, American Insured Mortgage Investors ("AIM 84"). Upon disposition of the debenture 50% of the proceeds will be payable to AIM 84. 13 PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the words "believes," "anticipates," "expects," "contemplates," and similar expressions are intended to identify forward-looking statements. Statements looking forward in time are included in this Quarterly Report on Form 10-Q pursuant to the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially. Accordingly, the following information contains or may contain forward-looking statements: (1) information included or incorporated by reference in this Quarterly Report on Form 10-Q, including, without limitation, statements made under Item 2, 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. Factors which may cause actual results to differ materially from those contained in the forward-looking statements identified above 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. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date hereof. The Partnership undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. General - ------- As of June 30, 2001, the Partnership had invested in 46 Insured Mortgages with an aggregate amortized cost of approximately $91 million, an aggregate face value of approximately $95 million and an aggregate fair value of approximately $93 million, as discussed below. As of August 1, 2001, all of the fully insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities are current with respect to the payment of principal and interest. In addition, the Partnership no longer receives monthly principal and interest from the mortgages that are in the HUD assignment process under Section 221, as discussed below. As of August 1, 2001, the Partnership has received notification from the respective servicers that HUD applications for insurance benefits have been filed for the following mortgages: Date last principal Outstanding and interest Principal Property Name payment received Balance - ------------- ------------------ ----------- Park Hill Apartments Sept. 2000 $ 1,737,000 Fairfax House Sept. 2000 2,128,000 Country Club Terrace Apts. Sept. 2000 1,439,000 Fairlawn II Sept. 2000 755,000 Nevada Hills Apts. Dec. 2000 1,146,000 Dunhaven Apartments, Section I Jan. 2001 884,000 Woodland Villas April 2001 303,000 14 Under the Section 221 program, a mortgagee has the right to assign a mortgage ("put") to FHA at the expiration of 20 years from the date of final endorsement if the mortgage is not in default at such time. Any mortgagee electing to assign an FHA-insured mortgage to FHA will receive, in exchange therefor, HUD debentures having a total face value equal to the then outstanding principal balance of the FHA-insured mortgage plus accrued interest to the date of assignment. These HUD debentures will mature 10 years from the date of assignment and will bear interest at a rate announced semi-annually by HUD in the Federal Register ("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. Once the servicer of a mortgage has filed an application for insurance benefits under Section 221, the Partnership will no longer receive the monthly principal and interest on the applicable mortgage. The Partnership expects to receive HUD debentures, as discussed above, plus accrued interest at the "going Federal rate", from date of assignment of the mortgage to the date of issuance of the debenture. The Partnership will recognize a gain on these assignments upon receipt of HUD debentures or a loss when it becomes probable that a loss will be incurred. In general, the Partnership plans to hold the debentures until called or date of maturity, whichever comes first. At that time debenture proceeds will be distributed to Unitholders. In December 2000, HUD issued assignment proceeds in the form of a 7.125% debenture for the mortgage on Fox Run Apartments. The debenture, with a face value of $2,385,233 and a fair value of $2,361,381, was issued to the Partnership, with interest payable semi-annually on January 1 and July 1. The mortgage on Fox Run Apartments was owned 50% by the Partnership and 50% by an affiliate of the Partnership, American Insured Mortgage Investors ("AIM 84"). Upon disposition of the debenture 50% of the proceeds will be payable to AIM 84. The Partnership expects to receive net proceeds of approximately $1.2 million. The net proceeds due AIM 84 are included on the balance sheet in due to affiliate. In general, the Partnership will hold the debenture until its maturity date of June 1, 2010 or when called, whichever comes first. A distribution will be declared at that time. In May 2001, HUD issued assignment proceeds in the form of two 7.125% debentures for the mortgages on Summit Square Manor and Park Place Apartments. The debentures, with face values of $2,715,930 and $1,075,951, for the mortgages on Summit Square Manor and Park Place Apartments, respectively, were issued to Firstar Trust Company, with interest payable semi-annually on January 1 and July 1. Firstar Trust Company, the initial mortgagee, signed the debentures over to Midland Loan Services, Inc. ("Midland"), the third party servicer. Midland will sell the debentures and distribute the proceeds as soon as practical. A distribution will be declared at that time. The mortgages on Summit Square Manor and Park Place Apartments were owned approximately 70% by the Partnership. The Partnership expects to receive net proceeds of approximately $1.8 million and $746,000 for the mortgages on Summit Square Manor and Park Place Apartments, respectively. The net proceeds due the Partnership are included on the balance sheet in Receivables and other assets. Results of Operations - --------------------- Net earnings increased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000, primarily due to an increase in gains on mortgage dispositions and a decrease in asset management fee to related parties, as discussed below. This increase was partially offset by a decrease in mortgage investment income, as discussed below. Mortgage investment income decreased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000, primarily due to a reduction in the mortgage base. The mortgage base decreased as a result of nine mortgage dispositions with an aggregate principal balance of approximately $21 million, representing an approximate 17% decrease in the aggregate principal balance of the total mortgage portfolio since March 2000. 15 Interest and other income increased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000, primarily due to the timing of temporary investment of mortgage disposition proceeds prior to distribution. Asset management fee to related parties decreased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000, primarily due to the reduction in the mortgage asset base, as previously discussed. General and administrative expenses decreased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000, primarily due to decreases in mortgage service fees and administrative expenses as a result of the decreased mortgage base, as previously discussed. Gains on mortgage dispositions increased for the three and six months ended June 30, 2001, as compared to the corresponding periods in 2000. During the six months ended June 30, 2001, the Partnership recognized gains of approximately $655,000 from the prepayment of the mortgages on The Meadows of Livonia, Gold Key Village Apartments, Carlisle Apartments and Cedar Ridge Apartments. In addition, during the first six months of 2001, the Partnership recognized gains of approximately $330,000 from the assignment of the mortgages on Summit Square Manor and Park Place Apartments. During the six months ended June 30, 2000, the Partnership recognized gains of approximately $279,000 from the prepayment of the mortgages on Turtle Creek Apartments, Woodland Hills Apartments, New Castle Apartments and Colony West Apartments. Liquidity and Capital Resources - ------------------------------- The Partnership's operating cash receipts, derived from payments of principal and interest on Insured Mortgages, plus cash receipts from interest on short-term investments, were sufficient during the first six months of 2001 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 payments received are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base and monthly mortgage payments due to monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. As the Partnership continues to liquidate its mortgage investments and investors receive distributions of return of capital and taxable gains, investors should expect a reduction in earnings and distributions due to the decreasing mortgage base. Net cash provided by operating activities decreased for the six months ended June 30, 2001, as compared to the corresponding period in 2000, primarily due to the reduction in the mortgage base, as previously discussed and due to an increase in the change in receivables and other assets. The increase in receivables and other assets is primarily due to the accrual of principal and interest on the mortgages awaiting assignment proceeds from HUD under the section 221 program, as previously discussed. Net cash provided by investing activities increased for the six months ended June 30, 2001, as compared to the corresponding period in 2000. This increase is primarily due to an increase in proceeds received from the disposition of mortgages. Net cash used in financing activities decreased for the six months ended June 30, 2001, as compared to the corresponding period in 2000, due to a decrease in the amount of distributions paid to partners in the first six months of 2001 versus the same period in 2000. 16 PART I. FINANCIAL INFORMATION ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's principal market risk is exposure to changes in interest rates in the U.S. Treasury market. The Partnership will experience fluctuations in the market value of its assets related to changes in the interest rates of U.S. Treasury bonds as well as increases in the spread between U.S. Treasury bonds and the Partnership's Insured Mortgages. As of June 30, 2001, the average treasury rate used to price the Partnership's Insured Mortgages had increased by approximately 30 basis points compared to December 31, 2000. Management has determined that there has not been a material change as of June 30, 2001, in market risk from December 31, 2000 as reported in the Partnership's Annual Report on Form 10-K as of December 31, 2000. 17 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the quarter ended June 30, 2001. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85 (Registrant) By: CRIIMI, Inc. General Partner August 6, 2001 /s/ Cynthia O. Azzara - -------------- --------------------------- DATE Cynthia O. Azzara Senior Vice President, Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----