-----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, LFPZQM4d3moBJb911D876Lz8xSou9gjEXX6KcwFK5YcnWSXxbbSfYuwAhJ3Y0Biz cil2CxbJwFhUoUSp4SWCbg== 0000847322-99-000013.txt : 19990402 0000847322-99-000013.hdr.sgml : 19990402 ACCESSION NUMBER: 0000847322-99-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99582307 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 AIM 85 10-K 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, 1998 ------------------ 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 5, 1999, 12,079,514 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 $138,868,411. 3 AMERICAN INSURED MORTGAGE INVESTORS 1998 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I ------ Page ---- Item 1. Business................................................ 4 Item 2. Properties.............................................. 6 Item 3. Legal Proceedings....................................... 6 Item 4. Submission of Matters to a Vote of Security Holders...................................... 6 PART II ------- Item 5. Market for Registrant's Securities and Related Security Holder Matters....................... 6 Item 6. Selected Financial Data................................. 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 9 Item 7A. Qualitative and Quantitative Disclosures About Market Risk..................................... 19 Item 8. Financial Statements and Supplementary Data............. 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 19 PART III -------- Item 10. Directors and Executive Officers of the Registrant............................................ 20 Item 11. Executive Compensation.................................. 23 Item 12. Security Ownership of Certain Beneficial Owners and Management................................. 24 Item 13. Certain Relationships and Related Transactions.......................................... 24 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 25 Signatures ........................................................ 30 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, 1998, which is hereby incorporated by reference herein. Employees - --------- The Partnership has no employees. The business of the Partnership is managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an advisory agreement (the Advisory Agreement). CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). CRIIMI MAE was formerly managed by an affiliate of CRI, Inc. (CRI). The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered real estate investment trust (REIT), an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a result of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. Competition - ----------- In disposing of mortgage investments, the Partnership competes with private investors, mortgage banking companies, mortgage brokers, state and local government agencies, lending institutions, trust funds, pension funds, and other entities, some with similar objectives to those of the Partnership and some of which are or may be affiliates of the Partnership, its General Partner, the Advisor 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. 5 PART I ITEM 1. BUSINESS - Continued CRIIMI MAE and its affiliates also may serve as general partners, sponsors or managers of real estate limited partnerships, REITs or other entities in the future. The Partnership may attempt to dispose of mortgages at or about the same time that CRIIMI MAE, one or more of the other "AIM Funds" (defined as the Partnership, 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")), and/or other entities sponsored or managed by CRIIMI MAE, are attempting to dispose of mortgages. As a result of market conditions that could limit dispositions, CRIIMI MAE Services Limited Partnership (CMSLP) and its affiliates could be faced with conflicts of interest in determining which mortgages would be disposed of. Both CRIIMI MAE Services Limited Partnership (CMSLP) and CRIIMI, Inc., however, are subject to their fiduciary duties in evaluating the appropriate action to be taken when faced with such conflicts. Forward-Looking Statements - -------------------------- In accordance with the Private Securities Litigation Reform Act of 1995, the Partnership can obtain a "Safe Harbor" for forward-looking statements by identifying those statements and by accompanying those statements with cautionary statements which identify factors that could cause actual results to differ from those in the forward-looking statements. Accordingly, the following information contains or may contain forward-looking statements: (1) information included or incorporated by reference in this Annual Report on Form 10-K, including, without limitation, statements made under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, (2) information included or incorporated by reference in future filings by the Partnership with the Securities and Exchange Commission including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans and (3) information contained in written material, releases and oral statements issued by or on behalf of, the Partnership, including, without limitation, statements with respect to growth, projected revenues, earnings, returns and yields on its portfolio of mortgage assets, the impact of interest rates, costs and business strategies and plans. The Partnership's actual results may differ materially from those contained in the forward-looking statements identified above. Factors which may cause such a difference to occur include, but are not limited to (i) regulatory and litigation matters, (ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages and (v) defaulted mortgages. 6 ITEM 2. PROPERTIES Although the Partnership does not own the underlying real estate, the mortgages underlying the Partnership's mortgage investments are non-recourse first liens on the respective multifamily residential developments or retirement homes. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which the Partnership is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the security holders to be voted on during the fourth quarter of 1998. 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 trade prices for the Units as reported on AMEX and the distributions, as applicable, for each quarterly period in 1998 and 1997 were as follows:
Amount of 1998 Distribution Quarter Ended High Low Per Unit --------------------- --------- --------- --------------- March 31 $14 1/2 $13 9/16 $ 1.07 (1) June 30 13 3/4 12 7/8 0.58 (2) September 30 13 3/4 12 13/16 0.53 (3) December 31 13 5/8 11 5/8 1.27 (4) -------------- $ 3.45 ============== Amount of 1998 Distribution Quarter Ended High Low Per Unit --------------------- --------- --------- --------------- March 31 $ 15 1/4 14 3/8 $ 0.39 (5) June 30 15 1/8 14 1/4 0.30 September 30 15 13 13/16 0.84 (6) December 31 14 7/8 13 7/8 1.23 (7) ------------- $ 2.76 =============
7 PART II ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS - Continued (1) This amount includes approximately $0.77 per Unit representing net proceeds from the prepayment of the mortgage on Spanish Trace Apartments. (2) This amount includes approximately $0.31 per Unit representing net proceeds from the prepayment of the mortgages on Isle of Pines Village Apartments, Emerald Green Apartments, and Stoney Brook Apartments. (3) This amount includes approximately $0.27 per Unit representing net proceeds from the prepayment of the mortgages on Amador Residential, Continental Village, and Bentgrass Hills Apartments. (4) This amount includes approximately $1.00 per Unit representing net proceeds from the prepayment of the mortgages on Northdale Commons, Cedar Bluff Apartments, and Wayland Health Center. (5) 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. (6) 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. (7) 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. 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, 1998 - -------------------- --------------------------------- Depositary Units of Limited Partnership Interest 11,800 8 PART II ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per Unit amounts)
For the Years Ended December 31, 1998 1997 1996 1995 1994 ---------- ---------- ---------- ---------- ---------- Income $ 14,744 $ 16,761 $ 17,943 $ 18,589 $ 19,167 Net gains (losses) on mortgage dispositions/modifications 1,403 908 522 36 (151) Net earnings 13,893 15,137 15,789 15,903 16,155 Net earnings per Limited Partnership Unit - Basic (1) 1.11 1.20 1.26 1.27 1.29 Distributions per Limited Partnership Unit (1)(2) 3.45 2.76 2.25 1.54 1.96 As of December 31, 1998 1997 1996 1995 1994 ----------- ----------- ----------- ----------- ----------- Total assets $170,970 $203,450 $215,951 $225,691 $214,823 Partners' equity 153,543 187,682 204,687 220,681 209,557 (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, 1998, 1997, 1996, 1995 and 1994, 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 income and comprehensive income data presented above for the years ended December 31, 1998, 1997 and 1996, and the balance sheet data as of December 31, 1998 and 1997, are derived from and are qualified by reference to the Partnership's financial statements which have been included elsewhere in this Form 10-K. The statements of income and comprehensive income data for the years ended December 31, 1995 and 1994 and the balance sheet data as of December 31, 1996, 1995 and 1994 are derived from audited financial statements not included in this Form 10-K. This data should be read in conjunction with the financial statements and the notes thereto. 9 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was formed under the Uniform Limited Partnership Act of the state of California on June 26, 1984. During the period from March 8, 1985 (the initial closing date of the Partnership's public offering) through January 27, 1986 (the termination date of the offering), the Partnership, pursuant to its public offering of 12,079,389 Depository Units of limited partnership interest (Units), raised a total of $241,587,780 in gross proceeds. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 units of limited partnership interest in exchange therefor. CRIIMI, Inc. (the General Partner) holds a partnership interest of 3.9%. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of the Partnership. The general partner of the Advisor is AIM Acquisition Corporation (AIM Acquisition) and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CMSLP, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements. On October 5, 1998, CRIIMI MAE, the parent of the General Partner and the parent of AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of personnel and administrative services to the 10 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Partnership, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be permitted to provide any available capital to the General Partner without approval from the bankruptcy court. This restriction or potential loss of the availability of a potential capital resource could adversely affect the General Partner and the Partnership; however, CRIIMI MAE has not historically represented a significant source of capital for the General Partner or the Partnership. Such bankruptcy filings could also result in the potential need to replace CRIIMI MAE Management, Inc. as a provider of personnel and administrative services to the Partnership. Year 2000 - --------- The Year 2000 issue is a computer programming issue that may affect many electronic processing systems. Until relatively recently, in order to minimize the length of data fields, most date-sensitive programs eliminated the first two digits of the year. This issue could affect information technology ("IT") systems and date sensitive embedded technology that controls certain systems (such as telecommunications systems, security systems, etc.) leaving them unable to properly recognize or distinguish dates in the twentieth and twenty-first centuries. This treatment could result in significant miscalculations when processing critical date-sensitive information relating to dates after December 31, 1999. The General Partner is currently in the process of assessing and testing Year 2000 compliance of its IT systems, which include software systems to administer and manage mortgage assets and software systems used for internal accounting purposes. A majority of the IT systems used by the Partnership is licensed from third parties. These third parties have either provided upgrades to existing systems or have indicated that their systems are Year 2000 compliant. The General Partner has applied upgrades and has completed a substantial amount of compliance testing as of March 30, 1999. There can be no assurance, however, that the Partnership's IT systems will be Year 2000 compliant by December 31, 1999. The Year 2000 issue may also affect the General Partner's date-sensitive embedded technology, which controls systems such as the telecommunications systems, security systems, etc. The General Partner does not 11 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS believe that the cost to modify or replace such technology to make it Year 2000 compliant will be material. The failure of any such systems to be Year 2000 compliant could be material to the Partnership. The potential impact of the Year 2000 issue depends not only on the corrective measures the General Partner has undertaken and will undertake, but also on the ways in which the Year 2000 issue is addressed by third parties with whom the Partnership directly interfaces or whose financial condition or operations are important to the Partnership. The Partnership has initiated communications with third parties with which it directly interfaces to evaluate the risk of their failure to be Year 2000 compliant and the extent to which the Partnership may be vulnerable to such failure. There can be no assurance that the systems of these third parties will be Year 2000 compliant by December 31, 1999. The failure of these third parties to be Year 2000 compliant could have a material adverse effect on the operations of the Partnership. The Partnership believes that its greatest risk with respect to the Year 2000 issue relates to failures by third parties to be Year 2000 compliant. In addition to risks posed by third parties with which the Partnership interfaces directly, risks are created by third parties providing services to large segments of society. The failure of third parties to be Year 2000 compliant could, among other things, cause disruptions in the capital and real estate markets and borrower defaults on real estate loans and mortgage-backed securities as well as the pools of mortgage loans underlying such securities. The Partnership believes that its greatest exposure to the Year 2000 issue involves the loan servicing operations of an affiliate of the Partnership. An affiliate of the Partnership, CMSLP, currently services approximately 21% of the total mortgage investments in the AIM Funds. CMSLP has applied a vendor upgrade and has substantially completed compliance testing on the upgrade. Currently the Partnership estimates the cost of system upgrades related to Year 2000 issues to be immaterial. Although the General Partner has substantially completed its compliance testing and remediation, it is also in the process of developing contingency plans for the risks of the failure of the Partnership or third parties to be Year 2000 compliant. The General Partner intends to complete contingency plans for the Year 2000 issue by May 31, 1999. Due to the inability to predict all of the potential problems that may arise from the Year 2000 issue, there can be no assurance that all contingencies will be adequately addressed by such plans. 12 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Mortgage Investments - -------------------- 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. As of December 31, 1998, the Partnership had invested in 69 Insured Mortgages, with an aggregate amortized cost of approximately $145.9 million, a face value of approximately $151.8 million and a fair value of approximately $153.8 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: 13 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, 1998 1997 ------------ ------------ Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities(1) 8 9 FHA-Insured Certificates (2)(3)(4)(5)(6)(7)(8)(9) 46 55 Amortized Cost $104,595,386 $132,530,176 Face Value 108,690,257 137,674,964 Fair Value 110,253,225 142,822,793 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $16,899,484 $ 17,017,276 Face Value 16,542,867 16,660,658 Fair Value 16,738,030 16,887,282
(1) In February 1998, the mortgage on Spanish Trace Apartments was prepaid. The Partnership received net proceeds of approximately $9.7 million, and recognized a loss of approximately $96,000 for the year ended December 31, 1998. A distribution of $0.77 per Unit related to this prepayment was declared in March 1998 and paid to Unitholders in May 1998. (2) In April 1998, the mortgages on Isle of Pines Village Apartments and Emerald Green Apartments were prepaid. The Partnership received net proceeds of approximately $1.3 million and $1.1 million, respectively, and recognized gains of approximately $290,000 and $230,000, respectively, for the year ended December 31, 1998. A distribution of $0.19 per Unit related to these prepayments was declared in May 1998 and paid to Unitholders in August 1998. (3) In May 1998, the mortgage on Stoney Brook Apartments was prepaid. The Partnership received net proceeds of approximately $1.5 million, and recognized a gain of approximately $338,000 for the year ended December 31, 1998. A distribution of $0.12 per Unit related to this prepayment was declared in June 1998 and paid to Unitholders in August 1998. (4) In July 1998, the mortgage on Amador Residential was prepaid. The Partnership received net proceeds of approximately $1.4 million, and recognized a gain of approximately $64,000 for the year ended December 31, 1998. A distribution of $0.11 per Unit related to this prepayment was declared in July 1998 and paid to Unitholders in November 1998. (5) In August 1998, the mortgage on Bentgrass Hills Apartments was prepaid. The Partnership received net proceeds of approximately $238,000, and recognized a gain of approximately $54,000 for the year ended December 31, 1998. A distribution of $0.02 per Unit related to this prepayment was declared in September 1998 and paid to Unitholders in November 1998. (6) In October 1998, the mortgage on Northdale Commons was prepaid. The Partnership received net proceeds of approximately $718,000, and recognized a gain of approximately $24,000 for the year ended December 31, 1998. A distribution of $0.06 per Unit related to this prepayment was declared in November 1998 and paid to Unitholders in February 1999. 14 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (7) In November 1998, the mortgage on Cedar Bluff was prepaid. The Partnership received net proceeds of approximately $4.6 million, and recognized a gain of approximately $170,000 for the year ended December 31, 1998. A distribution of $0.36 per Unit related to this prepayment was declared in December 1998 and paid to Unitholders in February 1999. (8) In November 1998, the mortgage on Wayland Health Center was prepaid. The Partnership received net proceeds of approximately $7.3 million, and recognized a gain of approximately $9,000 for the year ended December 31, 1998. A distribution of $0.58 per Unit related to this prepayment was declared in December 1998 and paid to Unitholders in February 1999. (9) In December 1998, the mortgage on Gamel & Gamel Apartments (Brown Gable Apartments) was prepaid. The Partnership received net proceeds of approximately $703,000, and recognized a gain of approximately $36,000 for the year ended December 31, 1998. A distribution of $0.06 per Unit related to this prepayment was declared in February 1999 and is expected to be paid to Unitholders in May 1999. As of March 26, 1999, 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 Woodland Villas and Quail Creek Apartments. These mortgages are delinquent with respect to the January 1999 payment. The Partnership does not anticipate problems regarding the collection of these payments. 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, 1998, 1997 and 1996, the Partnership received $76,991, $51,457 and $0, respectively, from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying statements of income and comprehensive income. 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. 15 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, 1998 1997 --------------- ---------------- Fully Insured Acquired Insured: Number of Loans (1)(2) 10 12 Amortized Cost $ 11,617,321 $ 14,416,917 Face Value 14,068,282 17,165,551 Fair Value 14,087,092 17,432,816 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 12,818,519 $ 12,928,572 Face Value 12,488,890 12,589,214 Fair Value 12,747,524 13,431,769 (1) In March 1998, HUD issued assignment proceeds in the form of a 9.5% debenture for the mortgage on Portervillage I Apartments. This mortgage was owned 50% by AIM 85 and 50% by an affiliate of the Partnership, American Insured Mortgage Investors (AIM 84). The debenture, with a face value of $2,296,098, was issued to the Partnership, with interest payable semi-annually on January 1 and July 1. The Partnership recognized a gain of approximately $200,000 on the assignment of this loan for the year ended December 31, 1998. In January 1999, proceeds of approximately $2.4 million, including accrued interest of approximately $109,000, were received upon redemption of these debentures, of which approximately $1.2 million were due to the Partnership. Accordingly, a distribution of $0.10 per Unit related to this assignment was declared in January 1999 and is expected to be paid to Unitholders in May 1999. (2) In August 1998, the mortgage on Continental Village was prepaid. The Partnership received net proceeds of approximately $1.8 million, and recognized a gain of approximately $84,000 for the year ended December 31, 1998. A distribution of $0.14 per Unit related to this prepayment was declared in September 1998 and paid to Unitholders in November 1998.
As of March 26, 1999, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the years ended December 31, 1998, 1997 and 1996, the Partnership received $34,553, $37,766 and $42,417, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of income and comprehensive income. 16 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations - --------------------- 1998 versus 1997 - ---------------- Net earnings decreased for 1998 as compared to 1997 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 1998 as compared to 1997 primarily due to the reduction in mortgage base from 12 dispositions during 1998 with an aggregate cost balance of approximately $29.6 million. Interest and other income increased for 1998 as compared to 1997 primarily due to the temporary investment of mortgage disposition proceeds prior to distribution to Unitholders. During 1998, twelve mortgages were disposed of, as compared to seven dispositions in 1997. Asset management fees to related parties decreased for 1998 as compared to 1997 as a result of the reduction in the mortgage base. Interest expense to affiliate decreased for 1998 as compared to 1997 due to the cancellation of the note payable to American Insured Mortgage Investors L.P. - Series 88 (AIM 88) in April 1997, as discussed in Note 8 of the Notes to the Financial Statements. Net gains from dispositions and modifications increased as a result of twelve mortgage dispositions or assignments in 1998, as discussed above, versus eight dispositions, modifications or assignments in 1997. 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 above. Mortgage investment income decreased for 1997 as compared to 1996 primarily due to the reduction in mortgage base due to the disposition of mortgages, as discussed. 17 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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. Asset management fees to related parties decreased for 1997 as compared to 1996 as a result of the reduction in the mortgage base. Gains from dispositions and modifications increased as a result of seven mortgage dispositions in 1997, as discussed, 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. Liquidity and Capital Resources - ------------------------------- The Partnership's operating cash receipts derived from payments of principal and interest on Insured Mortgages, plus cash receipts from interest on short-term investments are the Partnership's principal sources of cash flows, and were sufficient during the years ended December 31, 1998, 1997 and 1996 to meet operating requirements. The Partnership anticipates its cash flows to be sufficient to meet operating expense requirements for 1999. The basis for paying distributions to Unitholders is net proceeds from mortgage dispositions, if any, and cash flow from operations, which includes regular interest income and principal from Insured Mortgages after paying all expenses of the Partnership. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payment receipts are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from monthly mortgage payment receipts or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses. 18 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 - 1998 versus 1997 - ---------------------------- Net cash provided by operating activities decreased for 1998 as compared to 1997, primarily due to the reduction in mortgage investment income, as discussed above. Net cash provided by investing activities increased in 1998 as compared to 1997 due to the increase in proceeds from mortgage dispositions, as discussed previously. Net cash used in financing activities increased for 1998 as compared to 1997, as a result of an increase in distributions paid to partners. Distributions paid to partners in 1998 included proceeds resulting from the disposition of eleven mortgages during the fourth quarter of 1997 and the first three quarters of 1998. This compares to distributions paid to partners in 1997 which included proceeds resulting from the disposition of five mortgages during the fourth quarter of 1996 and the first three quarters of 1997. 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. 19 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's principal market risk is exposure to changes in interest rates in the US Treasury market, which coupled with the related spread to treasury investors required for the Partnership's Insured Mortgages, will cause fluctuations in the market value of Partnership's assets. The table below provides information about the Partnership's Insured Mortgages, all of which were entered into for purposes other than trading. The table presents anticipated principal and interest cash flows based upon the assumptions used in determining the fair value of these securities and the related weighted average interest rates by expected maturity.
1999 2000 2001 2002 2003 Thereafter Total Fair Value Insured Mortgages (in millions) $26.8 $25.0 $22.2 $20.4 $18.8 $126.6 $239.8 $153.8 Average Interest Rate 7.90% 7.91% 7.91% 7.92% 7.92% 8.16% -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is on pages 31 through 62. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. 20 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a),(b),(c),(e) The Partnership has no officers or directors. CRIIMI, Inc. (the General Partner) holds a general partnership interest of 3.9%. The affairs of the Partnership are managed by the General Partner, which is wholly owned by CRIIMI MAE, a corporation whose shares are listed on the New York Stock Exchange. Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner was CRI. However, effective June 30, 1995, CRIIMI MAE became a self-administered REIT and, as a result, the advisor no longer advises CRIIMI MAE. AIM Acquisition Partners, L.P. (the Advisor) serves as the advisor of the Partnership. AIM Acquisition Corporation is the general partner of the Advisor and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P, Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership. 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. The following table sets forth information concerning the executive officers and directors of the General Partner as of March 15, 1999: 21 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
Name Age Position - ------- ----- ------------ William B. Dockser 62 Chairman of the Board H. William Willoughby 52 President and Secretary Frederick J. Burchill (a) 50 Executive Vice President Cynthia O. Azzara 39 Senior Vice President, Chief Financial Officer and Treasurer Brian L. Hanson 37 Senior Vice President David B. Iannarone 38 Senior Vice President and General Counsel Garrett G. Carlson, Sr. 61 Director G. Richard Dunnells 61 Director Robert Merrick 54 Director Robert E. Woods 51 Director
William B. Dockser has served as Chairman of the Board of the General Partner since 1991. Mr. Dockser has been Chairman of the Board of CRIIMI MAE since 1989 and Chairman of the Board of CRIIMI MAE Financial Corporation since 1995. Mr. Dockser is also the founder of CRI, serving as its Chairman of the Board since 1974. H. William Willoughby has served as President and Secretary of the General Partner since 1991. Mr. Willoughby has been President of CRIIMI MAE since 1990 and a Director and Secretary of CRIIMI MAE since 1989. He has also served as a director of CRIIMI MAE Financial Corporation since 1995. Mr. Willoughby has been a director of CRI since 1974, Secretary of CRI from 1974 to 1990 and President of CRI since 1990. (a) Mr. Burchill was Executive Vice President of the General Partner until his resignation from CRIIMI MAE and the General Partner on February 8, 1999. Cynthia O. Azzara has served as Chief Financial Officer of the General Partner since 1994. Ms. Azzara has served as Chief Financial Officer of CRIIMI MAE since 1994. She has also served as Senior Vice President of CRIIMI MAE since 1995 and Treasurer of CRIIMI MAE since 1997, Accounting and Finance Departments of CRI from 1985 to June 1995. 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued Brian L. Hanson has served as Senior Vice President of the General Partner since March 1998. Mr. Hanson has served as Senior Vice President of CRIIMI MAE since March 1998; Group Vice President of CRIIMI MAE from March 1996 to March 1998; Chief Operating Officer, Director of Asset Operations and Portfolio Director of JCF Partners, Lanham, Maryland from 1991 to March 1996. David B. Iannarone has served as Senior Vice President of the General Partner since March 1998. Mr. Iannarone has served as Senior Vice President of CRIIMI MAE since March 1998; General Counsel of CRIIMI MAE since July 1996; Counsel-Securities and Finance for Federal Deposit Insurance Corporation/Resolution Trust Corporation from 1991 to July 1996. Garrett G. Carlson, Sr. has served as Director of the General Partner since 1989. Mr. Carlson has served as Director of CRIIMI MAE since 1989; President of Can-American Realty Corp. and Canadian Financial Corp. since 1979 and 1974, respectively; President of Garrett Real Estate Development since 1982; President of the Satellite Broadcasting Corporation since 1996; Chairman of the Board of SCA Realty Holdings Inc. from 1985 to 1995; Vice Chairman of Shelter Development Corporation Ltd. from 1983 to 1995 and member of the board of Bank Windsor from 1992 to 1994. G. Richard Dunnells has served as Director of the General Partner since 1991. Mr. Dunnells has served as Director of CRIIMI MAE since 1991; Firm-wide Hiring Partner, Partner in the Washington, D.C. office and former Director of the law firm of Holland & Knight since January 1994; Chairman of the Washington, D.C. law firm of Dunnells & Duvall from 1989 to 1993; Senior Partner of such law firm from 1973 to 1993; Special Assistant to the Under-Secretary and Deputy Assistant Secretary for Housing and Urban Renewal and Deputy Assistant Secretary for Housing Management with the U.S. Department of Housing and Urban Development from 1969 to 1973; President's Commission on Housing from 1981 to 1982. Robert J. Merrick has served as Director of the General Partner since 1997. Mr. Merrick has served as Director of CRIIMI MAE since 1997; Director of MCG Credit Corporation since February 1998; Executive Vice President from 1985 and Chief Credit Officer of Signet Banking Corporation through 1997, also served as Chairman of the Credit Policy Committee and member of the Asset and Liability Committee and Management Committee; Credit Officer-Virginia Banking Corporation, an affiliate of Signet Bank/Virginia, from 1980 to 1984; Senior Vice President of Bank of Virginia from 1976 to 1980. 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued Robert E. Woods has served as Director of the General Partner since 1998. Mr. Woods has served as Director of CRIIMI MAE since 1998; Managing Director and head of loan syndications for the Americas at Societe Generale, New York since 1997; Managing Director, head of Real Estate Capital Markets and Mortgage-backed Securities division, Citicorp from 1991 to 1997, Head of Citicorp's syndications, private placements, money markets and asset-backed businesses from 1985 to 1990. (d) There is no family relationship between any of the officers and directors of the General Partner. (f) Involvement in certain legal proceedings. None. (g) Promoters and control persons. Not applicable. (h) Section 16(a) Beneficial Ownership Reporting Compliance - Based solely on its review of Forms 3, 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, 1998. ITEM 11. EXECUTIVE COMPENSATION The Partnership does not have any directors or officers. None of the directors or officers of the General Partner received compensation from the Partnership, and the General Partner does not receive reimbursement from the Partnership for any portion of their salaries. Other information required by Item 11 is hereby incorporated herein by reference herein to Note 3 of the notes to the financial statements of the Partnership. 24 PART III ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) As of December 31, 1998, no person was known by the Partnership to be the beneficial owner of more than five percent (5%) of the outstanding Units of the Partnership. (b) As of December 31, 1998, neither the officers and directors, as a group, of the General Partner nor any individual director of the General Partner, are known to own more than 1% of the outstanding Units of the Partnership. (c) There are no arrangements known to the Partnership, the operation of which may at any subsequent date result in a change in control of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) Transactions with management and others. Note 3 of the notes to the financial statements of the Partnership contains a discussion of the amounts, fees and other compensation paid or accrued by the Partnership to the directors and executive officers of the General Partner and their affiliates, and is hereby incorporated by reference herein. 25 PART III ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued (b) Certain business relationships. Other than as set forth in Item 11 of this report which is hereby incorporated by reference herein, the Partnership has no business relationship with entities of which the current General Partner of the Partnership are officers, directors or equity owners. (c) Indebtedness of management. None. (d) Transactions with promoters. Not applicable. 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, 1998 and 1997 33 Statements of Income and Comprehensive Income for the years ended December 31, 1998, 1997, and 1996 34 Statements of Changes in Partners' Equity for the years ended December 31, 1998, 1997 and 1996 35 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 36 Notes to Financial Statements 37 (a)(2) Financial Statement Schedules: IV - Mortgage Loans on Real Estate 50 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 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. 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. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 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. 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued 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. 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, incorporated by reference to Exhibit 10.15 to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997. 27. Financial Data Schedule (filed herewith). 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued (b) Reports on Form 8-K filed during the last quarter of the fiscal year: None. All other items are not applicable. 30 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 /s/ March 30, 1999 /s/ William B. Dockser - --------------------------- ------------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer /s/ March 30, 1999 /s/ H. William Willoughby - --------------------------- ------------------------- DATE H. William Willoughby President and Director /s/ March 30, 1999 /s/ Cynthia O. Azzara - --------------------------- ------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer /s/ March 30, 1999 /s/ Garrett G. Carlson, Sr. - --------------------------- --------------------------- DATE Garrett G. Carlson, Sr. Director /s/ March 30, 1999 /s/ G. Richard Dunnells - --------------------------- ------------------------- DATE G. Richard Dunnells Director /s/ March 30, 1999 /s/ Robert J. Merrick - --------------------------- ------------------------- DATE Robert J. Merrick Director /s/ March 30, 1999 /s/ Robert E. Woods - --------------------------- ------------------------- DATE Robert E. Woods Director 31 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. Financial Statements as of December 31, 1998 and 1997 and for the Years Ended December 31, 1998, 1997 and 1996 32 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, 1998 and 1997, and the related statements of income and comprehensive income, changes in partners' equity and cash flows for the years ended December 31, 1998, 1997 and 1996. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1998, 1997 and 1996 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate as of December 31, 1998 is presented for purposes of complying with the Securities and Exchange Commission's rules and regulations and is not a required part of the basic financial statements. The information in this schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Washington, D.C. March 30, 1999 33 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. BALANCE SHEETS ASSETS
December 31, December 31, 1998 1997 ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities, at fair value: Acquired insured mortgages $110,253,225 $142,822,793 Originated insured mortgages 16,738,030 16,887,282 ------------ ------------ 126,991,255 159,710,075 ------------ ------------ Investment in FHA-Insured Loans, at amortized cost, net of unamortized discount and premium: Acquired insured mortgages 11,617,321 14,416,917 Originated insured mortgages 12,818,519 12,928,572 ------------ ------------ 24,435,840 27,345,489 Cash and cash equivalents 15,793,919 14,718,103 Investment in FHA debentures 2,296,098 -- Receivables and other assets 1,453,292 1,676,021 ------------ ------------ Total assets $170,970,404 $203,449,688 ============ ============ LIABILITIES AND PARTNERS' EQUITY Distributions payable $ 15,963,562 $ 15,460,772 Accounts payable and accrued expenses 184,236 306,715 Due to affiliate 1,279,178 -- ------------ ------------ Total liabilities 17,426,976 15,767,487 ------------ ------------ Partners' equity: Limited partners' equity, 15,000,000 Units authorized, 12,079,514 Units issued and outstanding 151,721,136 180,044,243 General partner's deficit (3,674,093) (2,524,665) Accumulated other comprehensive income 5,496,385 10,162,623 ------------ ------------ Total partners' equity 153,543,428 187,682,201 ------------ ------------ Total liabilities and partners' equity $170,970,404 $203,449,688 ============ ========== The accompanying notes are an integral part of these financial statements.
34 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31, 1998 1997 1996 ------------ ------------ ------------ Income: Mortgage investment income $ 14,067,956 $ 16,350,497 $ 17,731,547 Interest and other income 675,768 410,839 211,779 ------------ ------------ ------------ 14,743,724 16,761,336 17,943,326 ------------ ------------ ------------ Expenses: Asset management fee to related parties 1,617,625 1,873,563 1,997,649 General and administrative 550,640 652,511 655,426 Interest expense to affiliate 85,565 5,783 23,132 ------------ ------------ ------------ 2,253,830 2,531,857 2,676,207 ------------ ------------ ------------ Earnings before gains (losses) on mortgage dispositions/ modifications 12,489,894 14,229,479 15,267,119 Mortgage dispositions/modifications: Gains 1,499,412 907,923 666,179 Losses (96,262) -- (144,595) ------------ ------------ ------------ Net earnings $ 13,893,044 $ 15,137,402 $ 15,788,703 ============ ============ ============ Other comprehensive income (4,666,238) 2,549,887 (3,500,793) ------------ ------------ ------------ Comprehensive income 9,226,806 17,687,289 12,287,910 ============ ============ ============ Net earnings allocated to: Limited partners - 96.1% $ 13,351,215 $ 14,547,043 $ 15,172,944 General partner - 3.9% 541,829 590,359 615,759 ------------ ------------ ------------ $ 13,893,044 $ 15,137,402 $ 15,788,703 ============ ============ ============ Net earnings per Limited Partnership Unit - Basic $ 1.11 $ 1.20 $ 1.26 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
35 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY For the years ended December 31, 1998, 1997 and 1996
Accumulated Other Total General Limited Comprehensive Partners' Partner Partners Income Equity ---------- ----------- ------------- ----------- Balance, January 1, 1996 (1,274,782) 210,842,615 11,113,529 220,681,362 Net earnings 615,759 15,172,944 -- 15,788,703 Adjustment to unrealized gains (losses) on investment in insured mortgages -- -- (3,500,793) (3,500,793) 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) ----------- ------------ ------------- ------------ Balance, December 31, 1996 (1,762,017) 198,836,652 7,612,736 204,687,371 Net earnings 590,359 14,547,043 -- 15,137,402 Adjustment to unrealized gains (losses) on investments in insured mortgages -- -- 2,549,887 2,549,887 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) ----------- ------------ ------------- ------------ Balance, December 31, 1997 (2,524,665) 180,044,243 10,162,623 187,682,201 Net earnings 541,829 13,351,215 -- 13,893,044 Adjustment to unrealized gains (losses) on investments in insured mortgages -- -- (4,666,238) (4,666,238) Distributions paid or accrued of $3.45 per Unit, including return of capital of $2.34 per Unit (1,691,257) (41,674,322) -- (43,365,579) ----------- ------------ ------------- ------------ Balance, December 31, 1998 (3,674,093) 151,721,136 5,496,385 153,543,428 =========== ============ ============= ============ Limited Partnership Units outstanding - basic, as of December 31, 1998, 1997, and 1996 12,079,514 ========== The accompanying notes are an integral part of these financial statements.
36 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 1997 1996 ------------ ------------- ------------- Cash flows from operating activities: Net earnings $ 13,893,044 $ 15,137,402 $ 15,788,703 Adjustments to reconcile net earnings to net cash provided by operating activities: Losses on mortgage dispositions/modification 96,262 -- 144,595 Gains on mortgage dispositions/modification (1,499,412) (907,923) (666,179) Changes in assets and liabilities: Decrease in receivables and other assets 222,729 51,641 186,942 (Decrease) increase in accounts payable and accrued expenses (122,476) 107,751 35,227 Increase (decrease) in due to affiliate 131,129 (66,805) 59,957 Return on investment in affiliate -- -- 3,079 ------------ ------------- ------------- Net cash provided by operating activities 12,721,276 14,322,066 15,552,324 ------------ ------------- ------------- Cash flows from investing activities: Proceeds from disposition of mortgages 29,895,275 18,996,279 11,346,665 Receipt of mortgage principal from scheduled payments 1,322,056 1,598,933 1,571,828 ------------ ------------- ------------- Net cash provided by investing activities 31,217,331 20,595,212 12,918,493 ------------ ------------- ------------- Cash flows from financing activities: Distributions paid to partners (42,862,791) (29,915,961) (22,122,731) ------------ ------------- ------------- Net increase in cash and cash equivalents 1,075,816 5,001,317 6,348,086 Cash and cash equivalents, beginning of year 14,718,103 9,716,786 3,368,700 ------------ ------------- ------------- Cash and cash equivalents, end of year $ 15,793,919 $ 14,718,103 $ 9,716,786 ============ ============= ============= Non-cash investing activity: 9.5% debenture received from HUD in exchange for the mortgage on Portervillage I Apartments $ 2,296,098 -- -- Portion of debenture due to affiliate, AIM 84 (1,148,049) -- -- ============ ============= ============= The accompanying notes are an integral part of these financial statements.
37 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, CMSLP, 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. On October 5, 1998, CRIIMI MAE, the parent of the General Partner and the parent of AIM Investment L.P., and CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of personnel and administrative services to the Partnership, filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a debtor-in-possession, CRIIMI MAE will not be permitted to provide any available capital to the General Partner without approval from the bankruptcy court. This restriction or potential loss of the availability of a potential capital resource could adversely affect the General Partner and the Partnership; however, CRIIMI MAE has not historically represented a significant source of capital for the General Partner or the Partnership. Such bankruptcy filings could also result in the potential need to replace CRIIMI MAE Management, Inc. as a provider of personnel and administrative services to the Partnership. 38 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 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. Reclassification ---------------- Certain amounts in the financial statements for the years ended December 31, 1997 and 1996 have been reclassified to conform to the 1998 presentation. Investment in Insured Mortgages ------------------------------- The Partnership's investment in Insured Mortgages is comprised of participation certificates evidencing a 100% undivided beneficial interest in government insured multifamily mortgages issued or sold pursuant to FHA programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA) (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes. Payments of principal and interest on FHA-Insured Certificates and FHA-Insured Loans are insured by the United States Department of Housing and Urban Development (HUD) pursuant to Title 2 of the National Housing Act. Payments of principal and interest on GNMA Mortgage-Backed Securities are guaranteed by GNMA pursuant to Title 3 of the National Housing Act. 39 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued As of December 31, 1998, the weighted average remaining term of the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates is approximately 29 years. However, the Partnership Agreement states that the Partnership will terminate in approximately 11 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, 1998 and 1997, 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 other comprehensive income and as a separate component of partners' equity. Subsequent increases or decreases in the fair value of GNMA Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available for Sale, will be included as a separate component of partners' equity. Realized gains and losses on GNMA Mortgage-Backed 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, 1998 and 1997, 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 40 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued balance of the Insured Mortgage at the date of default, plus the unamortized balance of acquisition fees and closing costs paid in connection with the acquisition of the Insured Mortgage and the loss of approximately 30 days accrued interest. Investment in FHA Debenture --------------------------- From time to time, the Partnership assigns defaulted loans to HUD in order to collect the amount of delinquent principal and interest. HUD determines if the claim will be settled in cash or by the issuance of debentures. Debentures are obligations of the mortgage insurance funds and are unconditionally guaranteed by the United States. The term of the debentures is 20 years and the rate is set based upon the rate in effect at the commitment date to provide insurance or at the final endorsement date, whichever ever is greater. AIM 85 classifies its Investment in FHA Debentures as Available for Sale debt securities with changes in fair value recorded as an adjustment to equity and other comprehensive income. 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 income and comprehensive income 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, 1998, 1997 and 1996. 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. 41 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 2. SIGNIFICANT ACCOUNTING POLICIES - Continued New Accounting Standards ------------------------ During 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" (FAS 130). FAS 130 states that all items that are required to be recognized under accounting standards as components of comprehensive income are to be reported in a separate statement of income. This includes net income as currently reported by the Partnership adjusted for unrealized gains and losses related to the Partnership's mortgages accounted for as "available for sale." FAS 130 was adopted by the Partnership on January 1, 1998. Unrealized gains and losses are reported in the equity section of the "Balance Sheet" as "accumulated other comprehensive income." The table below breaks out the adjustment to unrealized gains and losses that relate to mortgages which were disposed of during the period with the resulting gain or loss reflected in the "Statements of Income and Comprehensive Income" (reclassification adjustments) and the portion of the adjustment that relates to those investments that were not disposed of during the period.
1998 1997 1996 ---------- ---------- ---------- Reclassification adjustment for (gains) losses included in net income (1,944,214) (780,085) (350,328) Unrealized holding gains (losses) arising during the period (2,722,024) 3,329,972 (3,150,465) ---------- ----------- ----------- Net adjustment to unrealized gains (losses) on mortgages (4,666,238) 2,549,887 (3,500,793) ---------- ------------ -----------
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, 1998, 1997 and 1996, earned or received compensation or payments for services from the Partnership as follows: 42 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 December31, Name of Recipient Served/Item 1998 1997 1996 ---------------------------- ---------------- -------------- ------------- CRIIMI, Inc. General Partner/Distribution $1,691,257 $1,353,007 $1,102,994 AIM Acquisition Advisor/Asset Management Fee 1,617,625 1,873,563 1,997,649 Partners, L.P.(1) CRIIMI MAE Affiliate of General Partner/ 54,497 62,274 68,328 Management, Inc. Expense Reimbursement American Insured Affiliate of Partnership/ Mortgage Investors Share of FHA Debenture 1,202,581 -- -- (see Footnote 6) (1) 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. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited Partnership (CMSLP) earned a fee equal to $476,800, $552,222 and $590,353 for the years ended December 31, 1998, 1997, and 1996, respectively. The limited partner of CMSLP is a wholly-owned subsidiary of CRIIMI MAE Inc., which filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
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. 43 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1998 As of December 31, 1997 Amortized Fair Amortized Fair Cost Value Cost Value ------------- ------------ ------------ ------------ Investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities: Acquired insured mortgages $104,595,386 $110,253,225 $132,530,176 $142,822,793 Originated insured mortgages 16,899,484 16,738,030 17,017,276 16,887,282 ------------ ------------ ------------ ------------ $121,494,870 $126,991,255 $149,547,452 $159,710,075 ============ ============ ============ ============ Investment in FHA-Insured Loans: Acquired insured mortgages $ 11,617,321 $ 14,087,092 $ 14,416,917 $ 17,432,816 Originated insured mortgages 12,818,519 12,747,524 12,928,572 13,431,769 ------------ ------------ ------------ ------------ $ 24,435,840 $ 26,834,616 $ 27,345,489 $ 30,864,585 ============ ============ ============ ============ Cash and cash equivalents $ 15,793,919 $ 15,793,919 $ 14,718,103 $ 14,718,103 ============ ============ ============ ============ Accrued interest receivable $ 1,180,042 $ 1,180,042 $ 1,421,935 $ 1,421,935 ============ ============ ============ ============ Investment in FHA Debenture $ 2,296,098 $ 2,296,098 -- -- ============ ============ ============ ============
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, FHA-Insured Loans and FHA Debentures ------------------------------------------------------------ The fair value of the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market prices from an investment banking institution which trades these instruments as part of its day-to-day activities. The fair value of the FHA Debenture is based upon the prices of other comparable securities that trade in the market. Cash and cash equivalents and accrued interest receivable --------------------------------------------------------- The carrying amount approximates fair value because of the short maturity of these instruments. 44 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, 1998 1997 ---------------- ---------------- Fully Insured Acquired Insured: Number of GNMA Mortgage-Backed Securities(1) 8 9 FHA-Insured Certificates(2)(3)(4)(5) 46 55 (6)(7)(8)(9) Amortized Cost $104,595,386 $132,530,176 Face Value 108,690,257 137,674,964 Fair Value 110,253,225 142,822,793 Fully Insured Originated Insured: Number of GNMA Mortgage-Backed Securities 1 1 FHA-Insured Certificates 1 1 Amortized Cost $16,899,484 $ 17,017,276 Face Value 16,542,867 16,660,658 Fair Value 16,738,030 16,887,282
(1) In February 1998, the mortgage on Spanish Trace Apartments was prepaid. The Partnership received net proceeds of approximately $9.7 million, and recognized a loss of approximately $96,000 for the year ended December 31, 1998. A distribution of $0.77 per Unit related to this prepayment was declared in March 1998 and paid to Unitholders in May 1998. (2) In April 1998, the mortgages on Isle of Pines Village Apartments and Emerald Green Apartments were prepaid. The Partnership received net proceeds of approximately $1.3 million and $1.1 million, respectively, and recognized gains of approximately $290,000 and $230,000, respectively, for the year ended December 31, 1998. A distribution of $0.19 per Unit related to this prepayment was declared in May 1998 and paid to Unitholders in August 1998. (3) In May 1998, the mortgage on Stoney Brook Apartments was prepaid. The Partnership received net proceeds of approximately $1.5 million, and recognized a gain of approximately $338,000 for the year ended December 31, 1998. A distribution of $0.12 per Unit related to this prepayment was declared in June 1998 and paid to Unitholders in August 1998. (4) In July 1998, the mortgage on Amador Residential was prepaid. The Partnership received net proceeds of approximately $1.4 million, and recognized a gain of approximately $64,000 for the year ended December 31, 1998. A distribution of $0.11 per Unit related to this prepayment was declared in July 1998 and paid to Unitholders in November 1998. (5) In August 1998, the mortgage on Bentgrass Hills Apartments was prepaid. The Partnership received net proceeds of approximately $238,000, and recognized a gain of approximately $54,000 for the year ended December 31, 1998. A distribution of $0.02 per Unit related to this prepayment was declared in September 1998 and paid to Unitholders in November 1998. (6) In October 1998, the mortgage on Northdale Commons was prepaid. The Partnership received net proceeds of approximately $718,000, and recognized a gain of approximately $24,000 for the year ended December 31, 1998. A distribution of $0.06 per Unit related to this prepayment was declared in November 1998 and paid to Unitholders in February 1999. 45 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 5. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued (7) In November 1998, the mortgage on Cedar Bluff was prepaid. The Partnership received net proceeds of approximately $4.6 million, and recognized a gain of approximately $170,000 for the year ended December 31, 1998. A distribution of $0.36 per Unit related to this prepayment was declared in December 1998 and paid to Unitholders in February 1999. (8) In November 1998, the mortgage on Wayland Health Center was prepaid. The Partnership received net proceeds of approximately $7.3 million, and recognized a gain of approximately $9,000 for the year ended December 31, 1998. A distribution of $0.58 per Unit related to this prepayment was declared in December 1998 and paid to Unitholders in February 1999. (9) In December 1998, the mortgage on Gamel & Gamel Apartments (Brown Gable Apartments) was prepaid. The Partnership received net proceeds of approximately $703,000, and recognized a gain of approximately $36,000 for the year ended December 31, 1998. A distribution of $0.06 per Unit related to this prepayment was declared in February 1999 and is expected to be paid to Unitholders in May 1999. As of March 26, 1999, 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 Woodland Villas and Quail Creek Apartments. These mortgages are delinquent with respect to the January 1999 payment. The Partnership does not anticipate problems regarding the collection of these payments. 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, 1998, 1997 and 1996, the Partnership received $76,991, $51,457 and $0, respectively, from the Participations. These amounts, if any, are included in mortgage investment income on the accompanying statements of income and comprehensive income. 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. 46 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, 1998 1997 ---------------- ---------------- Fully Insured Acquired Insured: Number of Loans(1)(2) 10 12 Amortized Cost $ 11,617,321 $ 14,416,917 Face Value 14,068,282 17,165,551 Fair Value 14,087,092 17,432,816 Fully Insured Originated Insured: Number of Loans 3 3 Amortized Cost $ 12,818,519 $ 12,928,572 Face Value 12,488,890 12,589,214 Fair Value 12,747,524 13,431,769
(1) In March 1998, HUD issued assignment proceeds in the form of a 9.5% debenture for the mortgage on Portervillage I Apartments. This mortgage was owned 50% by AIM 85 and 50% by an affiliate of the Partnership, American Insured Mortgage Investors (AIM 84). The debenture, with a face value of $2,296,098, was issued to the Partnership, with interest payable semi-annually on January 1 and July 1. The Partnership recognized a gain of approximately $200,000 on the assignment of this loan for the year ended December 31, 1998. In January 1999, proceeds of approximately $2.4 million, including accrued interest of approximately $109,000, were received upon redemption of these debentures, of which approximately $1.2 million were due to the Partnership. Accordingly, a distribution of $0.10 per Unit related to this assignment was declared in January 1999 and is expected to be paid to Unitholders in May 1999. (2) In August 1998, the mortgage on Continental Village was prepaid. The Partnership received net proceeds of approximately $1.8 million, and recognized a gain of approximately $84,000 for the year ended December 31, 1998. A distribution of approximately $0.14 per Unit related to this prepayment was declared in September 1998 and paid to Unitholders in November 1998. As of March 26, 1999, all of the fully insured FHA-Insured Loans were current with respect to the payment of principal and interest. In addition to base interest payments under Originated Insured Mortgages, the Partnership is entitled to additional interest based on a percentage of the net cash flow from the underlying development (referred to as Participations). During the years ended December 31, 1998, 1997 and 1996, the Partnership received $34,553, $37,766 and $42,417, respectively, from the Participations. These amounts are included in mortgage investment income on the accompanying statements of income and comprehensive income. 47 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 7. DISTRIBUTIONS TO UNITHOLDERS The distributions paid or accrued to Unitholders on a per Unit basis for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ---------- ----------- ---------- Quarter ended March 31, $ 1.07(1) $ 0.39(5) 0.33 Quarter ended June 30, 0.58(2) 0.30 0.64(8) Quarter ended September 30, 0.53(3) 0.84(6) 0.43(9) Quarter ended December 31, 1.27(4) 1.23(7) 0.85(10) ------ ------ ------ $ 3.45 $ 2.76 $ 2.25 ====== ====== ======
(1) This amount includes approximately $0.77 per Unit representing net proceeds from the prepayment of the mortgage on Spanish Trace Apartments. (2) This amount includes approximately $0.31 per Unit representing net proceeds from the prepayment of the mortgages on Isle of Pines Village Apartments, Emerald Green Apartments, and Stoney Brook Apartments. (3) This amount includes approximately $0.27 per Unit representing net proceeds from the prepayment of the mortgages on Amador Residential, Continental Village, and Bentgrass Hills Apartments. (4) The amount includes approximately $1.00 per Unit representing net proceeds from the prepayment of the mortgages on Northdale Commons, Cedar Bluff, and Wayland Health Center. (5) 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. (6) 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. (7) 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. (8) 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. (9) This amount includes approximately $0.10 per Unit representing net proceeds from the assignment of the mortgage on Woodland Village Apartments. (10) 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. 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. 48 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO FINANCIAL STATEMENTS 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 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 therefor. 49 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, 1998, 1997 and 1996.
1998 Quarter ended March 31 June 30 September 30 December 31 ----------- ---------- ----------------- ---------------- Income $ 3,859 $ 3,751 $ 3,521 $ 3,613 Net gains from mortgage dispositions 104 858 202 239 Net earnings 3,400 4,055 3,236 3,202 Net earnings per Limited Partnership Unit - Basic 0.27 0.32 0.26 0.26
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
50 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(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% $ 857,103 $ 858,310 $ 78,855(4) Walnut Apartments La Puente, California 3/20 11/01 7.5% 2,619,224 2,623,565 248,862(4) Woodland Hills Apartments Auburn, Alabama 10/19 6/99 7.5% 708,850 710,082 68,044(4) Fairlawn II Waterbury, Connecticut 6/20 5/00 7.5% 780,931 782,156 73,364(4) Willow Dayton Chicago, Illinois 8/19 12/00 7.5% 1,041,829 1,043,598 99,489(4) Cedar Ridge Apartments Richton Park, Illinois 4/20 2/01 7.5% 2,787,488 2,791,930 262,699(4) Park Hill Apartments Lexington, Kentucky 3/19 3/00 7.5% 1,804,728 1,807,916 173,845(4) Fairfax House Buffalo, New York 11/19 5/00 7.5% 2,206,092 2,209,748 209,608(4) Country Club Terrace Apt. Holidaysburg, Pennsylvania 8/19 6/00 7.5% 1,492,624 1,495,157 142,537(4) Summit Square Manor Rochester, Minnesota 8/19 5/99 7.5% 1,963,118 1,966,450 187,467(4) Park Place Rochester, Minnesota 3/20 10/99 7.5% 777,327 778,626 73,980(4)
51 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Nevada Hills Apartments Reno, Nevada 2/21 8/00 7.5% 1,189,021 1,190,774 110,345(4) Colony West Apartments Chico, California 7/20 12/00 7.5% 664,906 665,941 62,365(6) Dunhaven Apartments Section I Baltimore County, Maryland 1/20 12/99 7.5% 923,228 924,734 87,429(6) Kings Villa/Discovery Commons Sacramento, California 7/19 11/99 7.5% 1,112,457 1,114,360 106,414(6) Steeplechase Apartments Aiken, South Carolina 9/18 8/98 7.5% 520,954 521,936 50,921(6) Walnut Hills Apartments Plainfield, Indiana 9/19 3/00 7.5% 500,278 501,120 47,692(6) Woodland Villas Jasper, Alabama 8/19 3/00 7.5% 319,060 319,601 30,468(6) Ashley Oaks Apartments Carrollton, Georgia 3/22 4/02 7.5% 573,876 574,642 52,292(7) Highland Oaks Apartments, Phase III Wichita Falls, Texas 2/21 4/02 7.5% 967,000 968,426 89,741(7) Holden Court Apartments Seattle, Washington 12/21 4/02 7.5% 223,663 223,966 20,435(7) Magnolia Place Apartments Franklin, Tennessee 5/20 4/02 7.5% 327,381 327,898 30,804(7)
52 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Quail Creek Apartments Howell, Michigan 5/20 4/02 7.5% 548,095 548,962 51,572(7) Rainbow Terrace Apartments Milwaukee, Wisconsin 7/22 4/02 7.5% 326,347 326,770 29,581(7) Rock Glen Apartments Baltimore, Maryland 1/22 4/02 7.5% 1,087,649 1,089,123 99,375(7) Stonebridge Apartments, Phase I Montgomery, Alabama 4/20 4/02 7.5% 1,051,813 1,053,489 99,125(7) Village Knoll Apartments Harrisburg, Pennsylvania 4/20 4/02 7.5% 1,092,031 1,093,771 102,914(7) Bowling Brook, Section 1 Towson, Maryland 5/30 N/A 8.50% 11,917,371 12,162,230 1,090,128 Executive Tower Toledo, Ohio 3/27 N/A 8.75% 2,874,160 2,933,651 275,283 New Castle Apartments Austin, Texas 3/18 N/A 8.75% 2,033,495 2,077,643 219,143 Lincoln Green Burrillville, Rhode Island 6/33 N/A 10.25% 3,124,094 3,281,152 330,066 Turtle Creek Apartments San Antonio, Texas 4/16 N/A 8.95% 1,651,255 1,687,723 188,596 Sangnok Villa Los Angeles, California 1/30 N/A 10.25% 904,714 950,305 96,825 The Meadows of Livonia Livonia, Michigan 9/34 N/A 10.00% 6,442,329 6,637,494 627,836
53 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Eaglewood Villa Apartments Springfield, Ohio 2/27 N/A 8.875% 2,733,643 2,790,180 264,707 Gold Key Village Apartments Englewood, Ohio 6/27 N/A 9.00% 2,888,491 2,948,122 282,030 Stafford Towers Baltimore, Maryland 8/16 N/A 9.50% 360,872 372,407 42,613 Garden Court Apartments Lexington, Kentucky 8/27 N/A 8.60% 1,175,490 1,199,801 110,583 Northwood Place Meridian, Mississippi 6/34 N/A 8.75% 4,500,755 4,592,358 412,635 Cheswick Apartments Indianapolis, Indiana 9/27 N/A 8.75% 3,102,197 3,166,291 295,736 Nassau Apartments New Orleans, Louisiana 11/27 N/A 8.63% 872,426 890,456 82,139 The Gate House Apartments Lexington, Kentucky 2/28 N/A 8.55% 2,829,559 2,888,021 264,092 Bradley Road Nursing Bay Village, Ohio 5/34 N/A 8.875% 2,517,551 2,568,769 233,708 Franklin Plaza Cleveland, Ohio 5/23 N/A 8.175% 5,313,176 5,318,873 503,183 Heritage Heights Apartments Harrison, Arizona 4/32 N/A 9.50% 416,171 428,808 41,313
54 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Pleasant View Nursing Home Union, New Jersey 6/29 N/A 7.75% 7,508,916 7,513,997 643,312 ----------- -------------- Total FHA-Insured Certificates - Acquired Insured Mortgages, carried at fair value 91,633,738 92,921,332 ----------- -------------- GNMA Mortgage-Backed Securities (carried at fair value) Pine Tree Lodge Pasadena, Texas 12/33 N/A 9.50% 2,021,248 2,021,858 194,348 Stone Hedge Village Apts. Farmington, New York 11/27 N/A 7.00% 1,807,780 1,841,023 143,352 Afton Square Apartments Portsmouth, Virginia 12/28 N/A 7.25% 1,059,738 1,079,125 81,520 Carlisle Apartments Houston, Texas 12/28 N/A 7.125% 2,117,283 2,156,060 166,018 Independence Park Largo, Florida 9/29 N/A 7.75% 3,987,849 4,060,323 330,993 Ridgecrest Timbers Portland, Oregon 12/28 N/A 7.25% 1,542,731 1,570,953 120,989
56 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at fair value) - Continued Huntington Apartments Concord, North Carolina 12/29 N/A 7.25% 2,939,579 2,993,339 233,288 Northwood Apartments Mockville, North Carolina 12/29 N/A 7.25% 1,580,311 1,609,212 125,415 ----------- --------------- Total GNMA Mortgage-Backed Securities 17,056,519 17,331,893 ----------- --------------- Total investment in Acquired Insured Mortgages, carried at fair value 108,690,257 110,253,225 ----------- ---------------
56 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ORIGINATED INSURED MORTGAGES - ---------------------------- GNMA Mortgage-Backed Security (carried at fair value) Oak Forest Apartments II Ocoee, Florida 12/31 11/09 8.25% 10,565,903 10,757,070 840,359 FHA-Insured Certificate (carried at fair value) Waterford Green Apartments South St. Paul, Minnesota(11) 11/30 12/04 8.50% 5,976,964 5,980,960 481,564 ----------- ------------- Total investment in Originated Insured Mortgages, carried at fair value 16,542,867 16,738,030 ----------- ------------- Total investment in FHA-Insured Certificates and GNMA Mortgage-Backed Securities 125,233,124 126,991,255 ----------- -------------
57 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(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% 2,038,674 1,688,629 185,272(8) Baypoint Shoreline Apartments Duluth, Minnesota 1/22 8/00 7.5% 962,790 794,753 87,967(8) Berryhill Apartments Grass Valley, California 1/21 8/99 7.5% 1,247,019 1,032,320 115,899(8) Brougham Estates II Kansas City, Kansas 11/22 8/00 7.5% 2,560,054 2,107,404 230,860(8) College Green Apartments Wilmington, North Carolina 3/23 6/01 7.5% 1,375,840 1,131,782 123,455(8) Fox Run Apartments Dothan, Alabama 10/19 12/97 7.5% 1,219,703 1,014,176 116,242(8) Kaynorth Apartments Lansing, Michigan 4/23 3/01 7.5% 1,866,941 1,535,231 167,318(8) Lakeside Apartments Bennettsville, South Carolina 1/22 3/01 7.5% 386,387 319,254 35,303(8) Town Park Apartments Rockingham, North Carolina 10/22 6/01 7.5% 628,194 517,746 56,755(8)
58 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- ACQUIRED INSURED MORTGAGES - -------------------------- FHA-Insured Certificates (carried at amortized cost)(2) - Continued Westbrook Apartments Kokomo, Indiana 11/22 12/00 7.5% 1,782,680 1,476,026 163,177(8) ----------- -------------- Total investment in Acquired Insured Mortgages, carried at amortized cost 14,068,282 11,617,321 ----------- -------------- ORIGINATED INSURED MORTGAGES - ---------------------------- Fully Insured Mortgages - ----------------------- FHA-Insured Loans (carried at amortized cost)(2) - Continued Cobblestone Apartments Fayetteville, North Carolina 3/28 12/02 8.50% 4,983,313 5,130,821 462,703
59 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
Interest Face Net Annual Payment Maturity Put Rate on Value of Carrying Value (Principal and Development Name/Location Date Date(1) Mortgage(5)(9) Mortgage (3)(11)(12) Interest) (9)(10) - ------------------------- --------- -------- -------------- ----------- -------------- ---------------- Longleaf Lodge Hoover, Alabama 7/26 -- 8.25% 3,072,241 3,110,518 282,958 The Plantation Greenville, North Carolina 4/28 4/03 8.25% 4,433,336 4,577,180 402,046 ------------ -------------- Total investment in Originated Insured Mortgages, carried at amortized cost 12,488,890 12,818,519 ------------ -------------- Total investment in FHA-Insured Loans 26,557,172 24,435,840 ------------ -------------- TOTAL INVESTMENT IN INSURED MORTGAGES $151,790,296 $ 151,427,095 ============ ==============
60 AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P. NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998 (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 therefore, 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 a mortgage 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 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, 1998, 1997 and 1996, the Partnership received additional interest of $111,544, $89,223 and $42,417, respectively, from the Participations. (10) Principal and interest are payable at level amounts over the life of the mortgages. 61 (11) A reconciliation of the carrying value of Insured Mortgages for the years ended December 31, 1998 and 1997, is as follows:
1998 1997 ------------ ------------ Beginning balance $187,055,564 $204,192,966 Principal receipts on mortgages (1,322,056) (1,598,933) Proceeds from disposition of Mortgages (31,043,325)(1) (18,996,279) Net gains on mortgage dispositions/modifications 1,403,150 907,923 Decrease (increase) in unrealized losses on investment in Insured Mortgages (77,109) 783,102 Increase (decrease) in unrealized gains on investment in Insured Mortgages (4,589,129) 1,766,785 ------------ ------------ Ending balance $151,427,095 $187,055,564 ============ ============ (1) This amount represents cash proceeds of $29,895,275 (as reflected in the "Statement of Cash Flows") and non-cash proceeds of $1,148,050.
(12) As of December 31, 1998 and 1997, the tax basis of the Insured Mortgages was approximately $143.5 million and $174.4 million, respectively. EX-27 2 FDS AIM 85
5 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 15,794 129,287 25,889 0 0 0 0 0 170,970 17,427 0 0 0 0 153,543 170,970 0 16,243 0 0 2,254 96 0 13,893 0 13,893 0 0 0 13,893 1.11 0
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