<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 September 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 September 30, 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 SEPTEMBER 30, 1996
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited)
and December 31, 1995 . . . . . . . . . . . 3
Statements of Operations - for the three and
nine months ended September 30, 1996 and 1995
(unaudited) . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30, 1996
(unaudited) . . . . . . . . . . . . . . . . 5
Statements of Cash Flows - for the nine
months ended September 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 . . . . . . . . . . . . . . . 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
<TABLE><CAPTION>
September 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 $159,962,605 $169,460,375
Originated insured mortgages 22,516,685 22,960,468
------------ ------------
182,479,290 192,420,843
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,590,366 14,684,828
Originated insured mortgages 13,054,271 13,123,855
------------ ------------
27,644,637 27,808,683
Cash and cash equivalents 4,557,028 3,368,700
Receivables and other assets 1,776,328 1,775,746
Investment in affiliate 314,073 317,151
------------ ------------
Total assets $216,771,356 $225,691,123
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 5,404,986 $ 4,525,104
Accounts payable and accrued expenses 156,718 163,737
Note payable and due to affiliate 386,659 320,920
------------ ------------
Total liabilities 5,948,363 5,009,761
------------ ------------
Partners' equity:
Limited partners' equity 205,593,554 210,842,615
General partner's deficit (1,487,803) (1,274,782)
Unrealized gains on
investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities 9,074,913 12,159,559
Unrealized losses on investment
in FHA-Insured Certificates and
GNMA Mortgage-Backed Securities (2,357,671) (1,046,030)
------------ ------------
Total partners' equity 210,822,993 220,681,362
------------ ------------
Total liabilities and partners'
equity $216,771,356 $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 nine months ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 4,397,124 $ 4,555,595 $ 13,434,378 $ 13,854,372
Interest and other income 49,868 70,890 154,130 129,701
------------ ------------ ------------ ------------
4,446,992 4,626,485 13,588,508 13,984,073
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 493,214 507,990 1,503,270 1,534,896
General and administrative 53,085 96,676 244,346 289,924
Mortgage servicing fees 63,980 71,961 202,375 216,661
Interest expense to affiliate 5,783 5,784 17,349 17,350
------------ ------------ ------------ ------------
616,062 682,411 1,967,340 2,058,831
------------ ------------ ------------ ------------
Net earnings before gain (loss)
on mortgage dispositions/
modifications 3,830,930 3,944,074 11,621,168 11,925,242
Gains on mortgage dispositions/
modifications -- -- 658,973 52,730
Losses on mortgage dispositions/
modifications (40,554) -- (144,595) (36,632)
------------ ------------ ------------ ------------
Net earnings $ 3,790,376 $ 3,944,074 $ 12,135,546 $ 11,941,340
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 3,642,552 $ 3,790,255 $ 11,662,260 $ 11,475,628
General partner - 3.9% 147,824 153,819 473,286 465,712
------------ ------------ ------------ ------------
$ 3,790,376 $ 3,944,074 $ 12,135,546 $ 11,941,340
============ ============ ============ ============
Net earnings per Limited
Partnership Unit $ 0.30 $ 0.31 $ 0.96 $ 0.95
============ ============ ============ ============
</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 nine months ended September 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 473,286 11,662,260 -- -- 12,135,546
Distributions paid or
accrued of $1.40 per
Unit (686,307) (16,911,321) -- -- (17,597,628)
Adjustments to unrealized
gains (losses) on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- (3,084,646) (1,311,641) (4,396,287)
------------- ------------- ---------------- ----------------- -------------
Balance, September 30, 1996 $ (1,487,803) $ 205,593,554 $ 9,074,913 $ (2,357,671) $ 210,822,993
============= ============= ================ ================= =============
Limited Partnership Units
outstanding - September
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 nine months ended September 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,135,546 $ 11,941,340
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Gains on mortgage dispositions/modifications (658,973) (52,730)
Losses on mortgage dispositions/modifications 144,595 36,632
Changes in assets and liabilities:
Decrease in accounts payable
and accrued expenses (7,019) (105,694)
Decrease in other receivables and
other assets 138,276 18,084
Decrease in investment in affiliate 3,078 --
Increase (decrease) in note payable
and due to affiliate 65,739 (101,955)
------------ ------------
Net cash provided by operating activities 11,821,242 11,735,677
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 1,190,264 975,618
Proceeds from mortgage dispositions 4,894,568 2,314,351
------------ ------------
Net cash provided by investing activities 6,084,832 3,289,969
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (16,717,746) (13,198,221)
------------ ------------
Net cash used in financing
activities (16,717,746) (13,198,221)
------------ ------------
Net increase in cash and cash
equivalents 1,188,328 1,827,425
Cash and cash equivalents, beginning of period 3,368,700 3,462,825
------------ ------------
Cash and cash equivalents, end of period $ 4,557,028 $ 5,290,250
============ ============
</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 September 30,
1996 and December 31, 1995 and the results of its operations for the three and
nine months ended September 30, 1996 and 1995 and its cash flows for the nine
months ended September 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 September 30, 1996, the Partnership's investment in fully
insured acquired insured mortgages, recorded at fair value consisted of 62
FHA-Insured Certificates and nine GNMA Mortgage-Backed Securities with an
aggregate amortized cost of $152,161,451, an aggregate face value of
$158,241,678, and an aggregate fair value of $159,962,605. 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 September 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 $17,152,798, an aggregate face value of
$16,796,183, and an aggregate fair value of $16,422,596. 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. Concurrent with
this HUD modification, the deferred interest is now evidenced in the form
of a cash surplus note in the amount of $356,600. To the extent available,
surplus cash, as defined by HUD, will be split 50/50 in repayment of this
deferred interest and another note due the property manager for deferred
management fees. Once deferred management fees have been repaid, 100% of
surplus cash, if any, will be applied against the remaining deferred
interest obligation. Upon repayment of both of these obligations, any
surplus cash will be distributed based upon the terms of the participation
agreement. As of September 30, 1996, the balance of this note is $356,600.
In April 1996, the Partnership entered into a modification agreement
with the mortgagor of Oak Forest Apartments II. This agreement lowered the
interest rate on the mortgage from 8.5% to 7.5% effective May 1, 1996,
through the maturity of the note. The agreement also modified the
restrictions on prepayment of the note. The modification agreement
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 $1,100.
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
approximately $235,000 from the prepayment of the mortgage on Cambridge
Arms Apartments and a gain of approximately $276,500 from the prepayment of
the mortgage on Bear Creek Apartments II. A distribution of $0.23 per Unit
related to these prepayments was declared in June 1996 and was distributed
to Unitholders in August 1996.
In October 1995, the Partnership filed a Notice of Default and an
Election to Assign with the United States Department of Housing and Urban
Development (HUD) related to the mortgage on Woodland Village Apartments.
On August 30, 1996, the Partnership received approximately $1.4 million,
representing approximately 90% of the assignment proceeds. The remaining
proceeds of approximately $139,000 are included in receivables and other
assets on the accompanying balance sheet as of September 30, 1996. The
Partnership recognized a loss of approximately $41,000 as of September 30,
1996. A distribution of $0.10 per unit related to this assignment was
declared in September 1996 and was paid to Unitholders on November 1, 1996.
As of October 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 Meadow
Park Apartments I, which was assigned in October 1996, as discussed below,
and Country Club Terrace Apartments and Colony West Apartments which are
delinquent with respect to the September 1996 payment of principal and
interest. The Partnership expects to receive the payments on Country Club
Terrace Apartments and Colony West Apartments. On October 11, 1996, the
servicer of the mortgage on Meadow Park Apartments I filed a Notice of
Default and Election to Assign the mortgage with HUD. The Partnership
expects to recognize a gain of approximately $130,000 on the assignment of
this mortgage.
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.
<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
Coinsured by affiliate
----------------------
As of September 30, 1996 and December 31, 1995, the Partnership had
invested in one and two, respectively, FHA-Insured Certificate secured by a
coinsured mortgage where the coinsurance lender is Integrated Funding Inc.
(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 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 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 nine months ended September 30, 1996 and 1995.
As of October 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 September 30, 1996, this mortgage had a fair value of
$6,094,089. As of December 31, 1995, two coinsured mortgages had an
aggregate fair value of $12,034,714, respectively. The following table
summarizes this information as of September 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
September 30, September 30, December 31, December 31,
1996 1996 1995 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Westlake Village $ 6,447,799 $ 6,445,886 $ 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 September 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 $14,590,366 and $14,684,828, respectively, an aggregate
face value of $17,462,682 and $17,627,453, respectively, and an aggregate
fair value of $17,750,909 and $18,388,369, respectively.
As of September 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 $13,054,271 and $13,123,855, respectively, an aggregate
face value of $12,703,439 and $12,766,486, respectively, and an aggregate
fair value of $12,964,852 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 nine months ended September
30, 1996, the Partnership received additional interest of $0 and $42,417,
respectively, from the Participations. During the three and nine months
ended September 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.
As of October 31, 1996, all of the FHA-insured loans were current with
respect to the payment of principal and interest.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 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
Quarter ended September 30, $ 0.43(2) $ 0.49
------ ------
$ 1.40 $ 1.18
====== ======
</TABLE>
(1) This amount includes approximately $0.31 per Unit representing net proceeds
from the prepayment of the mortgages on Harbor View Estates, Bear Creek
Apartments II and Cambridge Arms Apartments.
(2) This amount includes approximately $0.10 per unit representing net proceeds
from the assignment of the mortgage on Woodland Village Apartments.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
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.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
nine months ended September 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>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the For the
Three months ended Nine months ended
Capacity in Which September 30, September 30,
Name of Recipient Served/Item 1996 1995 1996 1995
- ----------------- ---------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc.(1) General Partner/Distribution $ 210,794 $ 240,209 $ 686,307 $ 578,461
AIM Acquisition Advisor/Asset Management Fee 493,214 507,990 1,503,270 1,534,896
Partners, L.P.(2)
CRI(3) Affiliate of General Partner/ -- 9,224 -- 71,129
Expense Reimbursement
CRIIMI MAE Affiliate of General Partner/ 1,687 11,519 67,360 11,519
Management, Inc.(3) Expense Reimbursement
<FN>
(1) The General Partner, pursuant to amendments to the Partnership Agreement, effective September 6, 1991, is entitled to receive
3.9% of the Partnership's income, loss, capital and 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 .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. Of the amounts paid to the Advisor, CRIIMI MAE Services Limited Partnership, the Sub-advisor,
earned a fee equal to $145,373 and $443,080, for the three and nine months ended September 30, 1996, respectively, and,
$149,730 for the three and nine months ended September 30, 1995. CRI/AIM Management, Inc., which acted as the Sub-advisor
through June 30, 1995, earned a fee equal $302,682.
(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 September 30, 1996, the Partnership had invested in 89 insured
mortgages with an aggregate amortized cost of approximately $203 million, an
aggregate face value of approximately $212 million and an aggregate fair value
of approximately $213 million.
As of October 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 mortgages on Meadow Park Apartments I, which was assigned in
October 1996, as discussed below, and Country Club Terrace Apartments and Colony
West Apartments which are delinquent with respect to the September 1996 payment
of principal and interest. The Partnership expects to receive the payments on
Country Club Terrace Apartments and Colony West Apartments. On October 11,
1996, the servicer of the mortgage on Meadow Park Apartments I filed a Notice of
Default and Election to Assign the mortgage with HUD. The Partnership expects
to recognize a gain of approximately $130,000 on the assignment of this
mortgage.
Results of Operations
- ---------------------
Net earnings for the three months ended September 30, 1996, decreased as
compared to the corresponding period in 1995 primarily as a result of the
reduction in the mortgage base due to the dispositions that occurred in the
second quarter of 1996, as discussed below. Net earnings for the nine months
ended September 30, 1996 increased as compared to the corresponding period 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 nine months ended
September 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 decreased for the three months ended September
30, 1996, as compared to the corresponding period in 1995 due to a reduction in
the mortgage base. Interest and other income increased for the nine months
ended September 30, 1996, as compared to the corresponding period in 1995
primarily due to the receipt of net disposition proceeds in the second quarter
of 1996 which were invested short-term prior to distribution to Unitholders in
August 1996.
Asset management fees to related parties decreased for the three and nine
months ended September 30, 1996, as compared to the corresponding periods in
1995 as a result of mortgage dispositions, as discussed below.
General and administrative expenses decreased for the three and nine months
ended September 30, 1996, as compared to the corresponding periods in 1995,
primarily due to decreases in certain costs related to investor services,
resulting from a reduction in the number of registered holders. In addition,
payroll related expenses have decreased as a result of a reduction in the
mortgage base.
Mortgage servicing fees decreased for the three and nine months ended
September 30, 1996, as compared to the corresponding periods in 1995 due to the
reduction in the mortgage base.
Gains or losses on mortgage dispositions are based on carrying amounts and
proceeds for mortgage investments disposed of during the period. Losses
increased for the three months ended September 30, 1996, as compared to the same
period in 1995, due to a loss recognized by the Partnership of approximately
$41,000 as a result of the assignment to HUD of the mortgage on Woodland Village
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Apartments. Net gains on mortgage dispositions increased for the nine months
ended September 30, 1996, as compared to the corresponding period in 1995.
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 quarter 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. During the second quarter of 1996, 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 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 nine 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 nine
months ended September 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 nine months ended
September 30, 1995. Also contributing to the increase in net cash provided by
operating activities was an increase in Due from HUD as a result of the
assignment of the Woodland Village mortgage. The balance represents the
remaining proceeds, plus interest due from HUD.
Net cash provided by investing activities increased for the nine months
ended September 30, 1996, as compared to the corresponding period in 1995 due to
the increase in proceeds from mortgage dispositions. In addition, receipt of
mortgage principal from scheduled payments increased for the nine months ending
September 30, 1996, as compared to the corresponding period in 1995 due to the
partial principal prepayment on the Cambridge mortgage prior to disposition.
Net cash used in financing activities increased for the nine months ending
September 30, 1996, as compared to the corresponding period in 1995, as a result
of an increase in distributions paid to partners. Distributions paid to
partners for the nine months ended September 30, 1996, included
<PAGE>17
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
special distributions resulting from the prepayment of the mortgages on
Harbor View Estates, Cambridge Arms Apartments and Bear Creek Apartments II.
<PAGE>18
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 September 30, 1996.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
----------- -----------------------
27 Financial Data Schedule
<PAGE>19
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
/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
SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,557
<SECURITIES> 182,479
<RECEIVABLES> 29,735
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 216,771
<CURRENT-LIABILITIES> 5,948
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 210,823
<TOTAL-LIABILITY-AND-EQUITY> 216,771
<SALES> 0
<TOTAL-REVENUES> 14,103
<CGS> 0
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<OTHER-EXPENSES> 1,967
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<EPS-PRIMARY> .96
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