<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
-------------
Commission file number 1-11059
-----------------
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
California 13-3257662
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
----------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
As of August 12, 1996, 12,079,389 depositary units of limited partnership
interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1996 (unaudited)
and December 31, 1995 . . . . . . . . . . . 3
Statements of Operations - for the three and
six months ended June 30, 1996 and 1995
(unaudited) . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the six months ended June 30, 1996
(unaudited) . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the six
months ended June 30, 1996 and
1995 (unaudited) . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited) . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 15
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 17
Signature . . . . . . . . . . . . . . . . . . . . . . . 18
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Acquired insured mortgages $160,976,299 $169,460,375
Originated insured mortgages 22,420,015 22,960,468
------------ ------------
183,396,314 192,420,843
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,622,622 14,684,828
Originated insured mortgages 13,077,935 13,123,855
------------ ------------
27,700,557 27,808,683
Cash and cash equivalents 6,976,316 3,368,700
Receivables and other assets 1,836,517 1,775,746
Investment in affiliate 317,151 317,151
------------ ------------
Total assets $220,226,855 $225,691,123
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 8,044,630 $ 4,525,104
Accounts payable and accrued expenses 206,128 163,737
Note payable and due to affiliate 335,731 320,920
------------ ------------
Total liabilities 8,586,489 5,009,761
------------ ------------
Partners' equity:
Limited partners' equity 207,145,194 210,842,615
General partner's deficit (1,424,833) (1,274,782)
Unrealized gains on
investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities 8,798,461 12,159,559
Unrealized losses on investment
in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities (2,878,456) (1,046,030)
------------ ------------
Total partners' equity 211,640,366 220,681,362
------------ ------------
Total liabilities and partners'
equity $220,226,855 $225,691,123
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 4,469,099 $ 4,676,253 $ 9,037,254 $ 9,298,777
Interest and other income 60,369 40,888 104,262 58,811
------------ ------------ ------------ ------------
4,529,468 4,717,141 9,141,516 9,357,588
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 502,066 513,453 1,010,056 1,026,906
General and administrative 91,117 71,216 191,261 193,248
Mortgage servicing fees 69,748 73,094 138,395 144,700
Interest expense to affiliate 5,783 5,783 11,566 11,566
------------ ------------ ------------ ------------
668,714 663,546 1,351,278 1,376,420
------------ ------------ ------------ ------------
Net earnings before gain (loss)
on mortgage dispositions/
modifications 3,860,754 4,053,595 7,790,238 7,981,168
Net gains/(losses) on mortgage
dispositions/modifications 556,121 (36,632) 554,932 16,098
------------ ------------ ------------ ------------
Net earnings $ 4,416,875 $ 4,016,963 $ 8,345,170 $ 7,997,266
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 4,244,616 $ 3,860,302 $ 8,019,708 $ 7,685,373
General partner - 3.9% 172,259 156,661 325,462 311,893
------------ ------------ ------------ ------------
$ 4,416,875 $ 4,016,963 $ 8,345,170 $ 7,997,266
============ ============ ============ ============
Net earnings per Limited
Partnership Unit $ 0.35 $ 0.32 $ 0.66 $ 0.64
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Unrealized Unrealized
Gains on Losses on
Investment Investment
in FHA-Insured in FHA-Insured
Certificates Certificates
General Limited and GNMA Mortgage- and GNMA Mortgage-
Partner Partners Backed Securities Backed Securities Total
------------- ------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ (1,274,782) $ 210,842,615 $ 12,159,559 $ (1,046,030) $ 220,681,362
Net earnings 325,462 8,019,708 -- -- 8,345,170
Distributions paid or
accrued of $0.97 per
Unit (475,513) (11,717,129) -- -- (12,192,642)
Adjustments to unrealized
gains (losses) on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- (3,361,098) (1,832,426) (5,193,524)
------------- ------------- -------------- ------------ -------------
Balance, June 30, 1996 $ (1,424,833) $ 207,145,194 $ 8,798,461 $ (2,878,456) $ 211,640,366
============= ============= ============== ============ =============
Limited Partnership Units
outstanding - June
30, 1996 12,079,514
=============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,345,170 $ 7,997,266
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Gain on mortgage dispositions/modifications (658,974) (52,730)
Loss on mortgage dispositions/modifications 104,042 36,632
Changes in assets and liabilities:
Increase (decrease) in accounts payable
and accrued expenses 42,391 (153,128)
(Increase) decrease in receivables and
other assets (60,771) 14,200
Increase (decrease) in note payable
and due to affiliate 14,811 (105,782)
------------ ------------
Net cash provided by operating activities 7,786,669 7,736,458
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 669,306 643,002
Proceeds from mortgage dispositions 3,824,757 2,105,820
------------ ------------
Net cash provided by investing activities 4,494,063 2,748,822
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (8,673,116) (9,050,208)
------------ ------------
Net cash used in financing
activities (8,673,116) (9,050,208)
------------ ------------
Net increase in cash and cash
equivalents 3,607,616 1,435,072
Cash and cash equivalents, beginning of period 3,368,700 3,462,825
------------ ------------
Cash and cash equivalents, end of period $ 6,976,316 $ 4,897,897
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of California on
June 26, 1984. The Partnership will terminate on December 31, 2009, unless
previously terminated under the provisions of the Partnership Agreement.
Effective September 6, 1991, CRIIMI, Inc. (the General Partner) succeeded
the former general partners to become the sole general partner of the
Partnership. CRIIMI, Inc. is a wholly owned subsidiary of CRIIMI MAE Inc.
(CRIIMI MAE), formerly CRI Insured Mortgage Association, Inc.
AIM Acquisition Partners L.P. (the Advisor) serves as the advisor of the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
and the limited partners include an affiliate of CRIIMI MAE (and through June
30, 1995, an affiliate of C.R.I., Inc. (CRI)). 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) on June 30, 1995,
CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, acquired
the Sub-advisory Agreement. As a result of this transaction, CRIIMI MAE
Services Limited Partnership manages the Partnership's portfolio. These
transactions had no effect on the Partnership's financial statements.
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans). 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.
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 1996 and
December 31, 1995 and the results of its operations for the three and six months
ended June 30, 1996 and 1995 and its cash flows for the six months ended June
30, 1996 and 1995.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. While the General Partner believes that the disclosures
presented are adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the financial
statements and the notes to the financial statements included in the
Partnership's Annual Report filed on Form 10-K for the year ended December 31,
1995.
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
Fully Insured Mortgage Investments
----------------------------------
As of June 30, 1996, the Partnership's investment in fully insured
acquired insured mortgages, recorded at fair value consisted of 63 FHA-
Insured Certificates and nine GNMA Mortgage-Backed Securities with an
aggregate amortized cost of $153,841,469, an aggregate face value of
$159,992,573, and an aggregate fair value of $160,976,299. As of December
31, 1995, the Partnership's investment in fully insured acquired insured
mortgages, recorded at fair value consisted of 66 FHA-Insured Certificates
and nine GNMA Mortgage-Backed Securities with an aggregate amortized cost
of $157,656,694, an aggregate face value of $164,397,459, and an aggregate
fair value of $169,460,375.
As of June 30, 1996, the Partnership's investment in fully insured
originated insured mortgages, recorded at fair value consisted of one GNMA
Mortgage-Backed Security and one FHA-insured certificate with an aggregate
amortized cost of $16,821,820, an aggregate face value of $16,830,261, and
an aggregate fair value of $16,311,404. As of December 31, 1995, the
Partnership's investment in fully insured originated insured mortgages,
recorded at fair value consisted of one GNMA Mortgage-Backed Security with
an amortized cost of $10,666,346, a face value of $10,760,496 and a fair
value of $10,925,754.
In December 1992, the Partnership entered into a modification
agreement with the mortgagor of Waterford Green Apartments. This agreement
effectively lowered the interest rate on the mortgage from 8.5% to 6.5% for
a period continuing through November 1995. The mortgagor assumed an
additional note for the difference between the interest due under the
principal mortgage and the modified interest paid under the agreement. On
April 30, 1996, the mortgage on Waterford Green was restated under the HUD
223(a)(7) program converting this originated mortgage from a coinsured to
fully insured status at a fixed rate of 7.25%. As a result of converting a
coinsured mortgage to a fully insured mortgage, the Partnership recognized
a loss of approximately $103,000 on the modification. Payments due under
the new mortgage began June 1, 1996. Prior to this restatement, as part of
the prior workout arrangements with the borrower, a portion of the interest
due under the original note had been deferred temporarily. At the same
time the borrower had deferred a portion of its management fees.
Concurrent with this HUD modification, the deferred interest and deferred
management fees are now evidenced in the form of cash surplus notes in the
amount of $356,600 for interest and $103,573 for management fees. To the
extent available, surplus cash, as defined by HUD, will be split 50/50 in
repayment of deferred interest and management fees. Once all deferred
management fees have been repaid, 100% of surplus cash, if any, will be
applied against the remaining deferred interest obligation. Upon repayment
of both of these obligations, any surplus cash will be distributed based
upon the terms of the participation agreement.
In April 1996, the Partnership entered into a modification agreement
with the mortgagor of Oak Forest Apartments II. This agreement lowered the
interest rate on the mortgage from 8.5% to 7.5% effective May 1, 1996,
through the maturity of the note. The agreement also modified the
restrictions on prepayment of the note. The modification agreement
resulted in a gain of approximately $148,000.
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
During March 1996, a retained yield holder in the Harbor View Estates
loan, exercised its right to purchase the participation interests with
respect to this insured mortgage after a notice of default was filed with
HUD. The Partnership received net proceeds of approximately $693,000 from
this prepayment in March 1996, resulting in a loss of approximately $1,000.
A distribution of $0.08 per Unit related to this prepayment was declared in
April 1996 and was distributed to Unitholders in August 1996.
During May 1996, the mortgages on Cambridge Arms Apartments and Bear
Creek Apartments II were prepaid. The Partnership received net proceeds of
approximately $2.9 million. The partnership recognized a gain of $276,500
from the prepayment of the mortgage on Cambridge Arms Apartments and a gain
of approximately $235,000 from the prepayment of the mortgage on Bear Creek
Apartments II. A distribution of $0.23 per Unit related to these
prepayments was declared in June 1996 and was distributed to Unitholders in
August 1996.
As of July 31, 1996, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment
of principal and interest except for the mortgage on Woodland Village
Apartments, for which payments of principal and interest have been received
through August 1995 and Country Club which is delinquent with respect to
the June 1996 payment. On October 31, 1995, the General Partner instructed
the servicer of the mortgage on Woodland Village Apartments to file a
Notice of Default and Election to Assign the mortgage with HUD. The claim
was filed in October 1995, however, as of July 1996, the proceeds have not
been received.
Coinsured Mortgage Investments
------------------------------
As discussed in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1995, under the HUD coinsurance program, both HUD
and the coinsurance lender are responsible for paying a portion of the
insurance benefits if a mortgagor defaults and the sale of the development
collateralizing the mortgage produces insufficient net proceeds to repay
the mortgage obligation. In such case, the coinsurance lender will be
liable to the Partnership for the first part of such loss in an amount up
to 5% of the outstanding principal balance of the mortgage as of the date
foreclosure proceedings are instituted or the deed is acquired in lieu of
foreclosure. For any loss greater than 5% of the outstanding principal
balance, the responsibility for paying the insurance benefits will be borne
on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
Coinsured by affiliate
----------------------
As of June 30, 1996, the Partnership had invested in one FHA-Insured
Certificate secured by a coinsured mortgage where the coinsurance lender is
Integrated Funding Inc. (IFI). As of December 31, 1995, the Partnership
had invested in two FHA-Insured Certificates secured by coinsured mortgages
where the coinsurance lender is IFI. On April 30, 1996, one of the
coinsured mortgages, Waterford Green Apartments, was converted from a
coinsured mortgage to fully insured mortgage, as discussed further above.
The coinsured mortgage investments were made by the former managing general
partner on behalf of the Partnership. As structured by the former managing
general partner, with respect to the remaining coinsured mortgage, Westlake
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
Village, the Partnership bears the risk of loss upon default for IFI's
portion of the coinsurance loss. The General Partner believes there is
adequate collateral value underlying the Westlake Village mortgage.
Accordingly, no loan losses were recognized on this investment during the
six months ended June 30, 1996 and 1995.
As of July 31, 1996, the mortgage on Westlake Village shown in the
table below was current with respect to the payment of principal and
interest. As of June 30, 1996, this mortgage had a fair value of
$6,108,611. As of December 31, 1995, these two coinsured mortgages had an
aggregate fair value of $12,034,714, respectively. The following table
summarizes this information as of June 30, 1996 and December 31, 1995:
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
<TABLE>
<CAPTION>
Amortized Face Amortized Face
Cost Value Cost Value
June 30, June 30, December 31, December 31,
1996 1996 1995 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Westlake Village $ 6,456,403 $ 6,454,481 $ 6,473,072 $ 6,471,133
Waterford Green Apts.(1) $ -- $ -- $ 6,511,202 $ 6,526,094
(1) On April 30, 1996, the coinsured mortgage on Waterford Green Apartments, was converted from a coinsured mortgage to a
fully insured mortgage, as discussed above.
</TABLE>
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
As of June 30, 1996 and December 31, 1995 the Partnership's investment
in fully insured acquired insured mortgages, recorded at amortized cost,
consisted of 12 FHA-Insured Loans with an aggregate amortized cost of
$14,622,622 and $14,684,828, respectively, an aggregate face value of
$17,518,651 and $17,627,453, respectively, and an aggregate fair value of
$17,651,424 and $18,388,369, respectively.
As of June 30, 1996 and December 31, 1995, the Partnership's
investment in fully insured originated insured mortgages, recorded at
amortized cost, consisted of three FHA-Insured Loans with an aggregate
amortized cost of $13,077,935 and $13,123,855, respectively, an aggregate
face value of $12,724,893 and $12,766,486, respectively, and an aggregate
fair value of $12,999,319 and $13,160,443, respectively.
In addition to base interest payments under originated insured
mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred
to as Participations). During the three and six months ended June 30,
1996, the Partnership received additional interest of $0 and $42,417,
respectively, from the Participations. During the three and six months
ended June 30, 1995, the Partnership received additional interest of $0 and
$64,676, respectively, from the Participations. These amounts, are
included in mortgage investment income on the accompanying statements of
operations.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the three and six months ended June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Quarter ended March 31, $ 0.33 $ 0.36
Quarter ended June 30, $ 0.64(1) $ 0.33
------ ------
$ 0.97 $ 0.69
====== ======
(1) This amount includes approximately $0.31 per Unit representing proceeds
from the prepayment of the mortgages on Harbor View Estates, Bear Creek
Apartments II and 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 payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
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.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
six months ended June 30, 1996 and 1995, earned or received compensation or
payments for services from the Partnership as follows:
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. TRANSACTIONS WITH RELATED PARTIES - Continued
</TABLE>
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the For the
Three months ended Six months ended
Capacity in Which June 30, June 30,
Name of Recipient Served/Item 1996 1995 1996 1995
- ----------------- ---------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 313,741 $ 161,774 $ 475,513 $ 338,252
AIM Acquisition Advisor/Asset Management Fee 502,066 513,453 1,010,056 1,026,906
Partners, L.P.(1)
CRI(2) Affiliate of General Partner/ -- 30,318 -- 61,905
Expense Reimbursement
CRIIMI MAE Affiliate of General Partner/ 50,431 -- 65,673 --
Management, Inc.(2) Expense Reimbursement
<FN>
(1) The General Partner, pursuant to amendments to the Partnership Agreement, effective September 6, 1991, is entitled to receive
4.9% of the Partnership's income, loss, capital and distribution, including, without limitation, the Partnership's Adjusted
Cash from Operations and Proceeds of Mortgage Prepayments, Sales or Insurance (both as defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement is entitled to an Asset Management Fee equal to 0.95% of Total Invested
Assets (as defined in the Partnership Agreement). The sub-advisor to the Partnership (the Sub-advisor) is entitled to a fee of
0.28% of Total Invested Assets. CRI/AIM Management, Inc., which through June 30, 1995 acted as the Sub-advisor, earned a fee
equal to $151,341 and $302,682 for the three and six months ended June 30, 1995, respectively. Effective June 30, 1995, CRIIMI
MAE Services Limited Partnership serves as the Sub-advisor. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited
Partnership earned a fee equal to $147,977 and $297,707 for the three and six months ended June 30, 1996, respectively.
(3) Prior to June 30, 1995, these amounts were paid to CRI as reimbursement for expenses incurred prior to June 30, 1995 on behalf
of the General Partner and the Partnership. As discussed in Note 1, the transaction in which CRIIMI MAE became a self-
administered REIT has no impact on the payments required to be made by the Partnership, other than that the expense
reimbursements previously paid by the Partnership to CRI in connection with the provision of services by the Sub-advisor are,
effective June 30, 1995, paid to a wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.
</FN>
</TABLE>
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
- -------
As of June 30, 1996, the Partnership had invested in 90 insured mortgages
with an aggregate amortized cost of approximately $205 million, an aggregate
face value of approximately $214 million and an aggregate fair value of
approximately $214 million.
As of July 31, 1996, all of the Partnership's mortgage investments were
current with respect to the payment of principal and interest except for the
fully insured mortgage on Woodland Village Apartments, which was delinquent with
respect to payments of principal and interest as of September 1995 and Country
Club Apartments, which is delinquent with respect to the June 1996 payment. On
October 31, 1995, the General Partner instructed the servicer of Woodland
Village Apartments to file a Notice of Default and an Election to Assign the
mortgage with HUD. The claim was filed in October 1995, however, as of July
1996, the proceeds have not been received. The General Partner does not
anticipate a material adverse impact on the Partnership's financial statements
as a result of these delinquencies.
Results of Operations
- ---------------------
Net earnings for the three and six months ended June 30, 1996 increased as
compared to the corresponding periods in 1995 primarily due to the increase in
net gains on mortgage dispositions and modifications, as discussed below.
Mortgage investment income decreased for the three and six months ended
June 30, 1996, as compared to the corresponding periods in 1995 primarily due to
the reduction in the mortgage base during 1995 and 1996.
Interest and other income increased for the three and six months ended June
30, 1996, as compared to the corresponding periods in 1995 primarily due to
short term investment of net disposition proceeds prior to distribution to
Unitholders.
Asset management fees to related parties decreased for the three and six
months ended June 30, 1996, as compared to the corresponding periods in 1995 as
a result of mortgage dispositions, as discussed below.
General and administrative expenses increased for the three months ended
June 30, 1996, as compared to the corresponding period in 1995, due primarily to
the timing of certain expenses. General and administrative expenses for the six
months ended June 30, 1996 did not change significantly from the corresponding
period in 1995.
Mortgage servicing fees decreased for the three and six months ended June
30, 1996, as compared to the corresponding periods in 1995 due to the reduction
in the mortgage base.
Net gains on mortgage dispositions increased for the three and six months
ended June 30, 1996, as compared to the corresponding periods in 1995. Gains or
losses on mortgage dispositions are based on the number, carrying amounts and
proceeds for mortgage investments disposed of during the period. During the
second quarter of 1996, the Partnership recognized a gain of approximately
$659,000 as a result of prepayments of the mortgages on the Cambridge Arms
Apartments and Bear Creek Apartments II and the modification of the Oak Forest
loan. During the first six months of 1996, the Partnership recognized a loss of
approximately $1,100 as a result of the prepayment on the Harbor View Estates
loan in March 1996, and the Partnership recognized a loss of approximately
$103,000 as a result of the modification of the mortgage on Waterford Green
Apartments. During the first quarter of 1995, the Partnership recognized a gain
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
of approximately $53,000 as a result of the final settlement of the disposition
of the mortgage on Dearborne Place Apartments. During the second quarter of
1995, the Partnership recognized a loss of approximately $37,000 as a result of
the assignment to HUD of the mortgage on El Lago Apartments.
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on insured mortgages, plus cash receipts from interest on
short-term investments, were sufficient during the first six months of 1996 to
meet operating requirements.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from insured mortgages. Although the
insured mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of insured mortgages and professional fees and foreclosure costs
incurred in connection with those insured mortgages and (4) variations in the
Partnership's operating expenses.
Net cash provided by operating activities increased slightly for the six
months ended June 30, 1996, as compared to the corresponding period in 1995.
This increase was primarily due to the reduction in note payable and due to
affiliate during 1995 resulting from the prepayment of the mortgage on
Richardson Road Apartments underlying the GNMA Mortgage-Backed Security which
had been transferred to IFI to meet IFI's minimum net worth requirement which
resulted in lower net cash provided by operations for the six months ended June
30, 1995. Also contributing to the increase in net cash provided by operating
activities was an increase in accounts payable which was primarily attributable
to the timing of payments.
Net cash provided by investing activities increased for the six months
ended June 30, 1996, as compared to the corresponding period in 1995 due to the
increase in proceeds from dispositions due to the prepayment of the mortgages on
Harbor View Estates, Cambridge Arms Apartments and Bear Creek Apartments II. In
addition, receipt of mortgage principal from scheduled payments increased for
the six months ending June 30, 1996, as compared to the corresponding period in
1995 due to the partial prepayment on the Cambridge mortgage prior to
disposition.
Net cash used in financing activities decreased for the six months ending
June 30, 1996, as compared to the corresponding period in 1995, as a result of a
decrease in distributions paid of $.36 per Unit to $.33 per Unit from the first
quarter of 1995 to the corresponding period in 1996.
<PAGE>17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended June 30, 1996.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule
<PAGE>18
SIGNATURE
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS L.P. - SERIES 85
(Registrant)
By: CRIIMI, Inc.
General Partner
August 14, 1996 /s/ Cynthia O. Azzara
- --------------- -------------------------
DATE Cynthia O. Azzara
Principal Financial and
Accounting Officer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,976
<SECURITIES> 183,396
<RECEIVABLES> 29,855
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 220,227
<CURRENT-LIABILITIES> 8,587
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 211,640
<TOTAL-LIABILITY-AND-EQUITY> 220,227
<SALES> 0
<TOTAL-REVENUES> 9,696
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,345
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,345
<EPS-PRIMARY> .66
<EPS-DILUTED> 0
</TABLE>
