<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, 1997
------------------
Commission file number 1-11059
-----------------
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
California 13-3257662
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
----------------------------------------------------------------
(Registrant's telephone number, including area code)
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, 1997, 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, 1997
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 1997 (unaudited)
and December 31, 1996 . . . . . . . . . . . 3
Statements of Operations - for the three and nine
months ended September 30, 1997 and 1996
(unaudited) . . . . . . . . . . . . . . . 4
Statement of Changes in Partners' Equity -
for the nine months ended September 30,
1997 (unaudited) . . . . . . . . . . . . . 5
Statements of Cash Flows - for the nine
months ended September 30, 1997 and
1996 (unaudited) . . . . . . . . . . . . . 6
Notes to Financial Statements (unaudited) . . 8
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>
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured
Certificates and GNMA Mortgage-
Backed Securities, at fair value:
Acquired insured mortgages $152,553,058 $159,959,297
Originated insured mortgages 16,738,003 16,646,943
------------ ------------
169,291,061 176,606,240
------------ ------------
Investment in FHA-Insured Loans, at
amortized cost, net of unamortized
discount and premium:
Acquired insured mortgages 14,453,124 14,556,595
Originated insured mortgages 12,954,731 13,030,131
------------ ------------
27,407,855 27,586,726
Cash and cash equivalents 9,920,642 9,716,786
Receivables and other assets 1,629,186 1,727,662
Investment in affiliate -- 314,072
------------ ------------
Total assets $208,248,744 $215,951,486
============ ============
<PAGE>4
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 10,558,576 $ 10,684,274
Accounts payable and accrued expenses 259,999 198,964
Note payable and due to affiliate -- 380,877
------------ ------------
Total liabilities 10,818,575 11,264,115
------------ ------------
Partners' equity:
Limited partners' equity 190,928,515 198,836,652
General partner's deficit (2,082,951) (1,762,017)
Unrealized gain on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities 9,100,178 8,715,942
Unrealized loss on investment
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities (515,573) (1,103,206)
------------ ------------
Total partners' equity 197,430,169 204,687,371
------------ ------------
Total liabilities and partners'
equity $208,248,744 $215,951,486
============ ============
</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.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 4,022,828 $ 4,397,124 $ 12,506,840 $ 13,434,378
Interest and other income 100,065 49,868 208,815 154,130
------------ ------------ ------------ ------------
4,122,893 4,446,992 12,715,655 13,588,508
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 466,278 493,214 1,421,123 1,503,270
General and administrative 176,708 117,065 491,669 446,721
Interest expense to affiliate -- 5,783 5,783 17,349
------------ ------------ ------------ ------------
642,986 616,062 1,918,575 1,967,340
------------ ------------ ------------ ------------
Net earnings before net gains
on mortgage dispositions/
modifications 3,479,907 3,830,930 10,797,080 11,621,168
Net gains (losses) on mortgage
dispositions/modifications 319 (40,554) 205,536 514,378
------------ ------------ ------------ ------------
Net earnings $ 3,480,226 $ 3,790,376 $ 11,002,616 $ 12,135,546
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 3,344,497 $ 3,642,552 $ 10,573,514 $ 11,662,260
General partner - 3.9% 135,729 147,824 429,102 473,286
------------ ------------ ------------ ------------
$ 3,480,226 $ 3,790,376 $ 11,002,616 $ 12,135,546
============ ============ ============ ============
Net earnings per Limited
Partnership Unit $ 0.28 $ 0.30 $ 0.88 $ 0.96
============ ============ ============ ============
</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.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Adjustment Adjustment
to to
Unrealized Unrealized
Gains on Losses on
Investment Investment
General Limited in Insured in Insured
Partner Partners Mortgages Mortgages Total
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ (1,762,017) $ 198,836,652 $ 8,715,942 $ (1,103,206) $ 204,687,371
Net earnings 429,102 10,573,514 -- -- 11,002,616
Distributions paid or
accrued of $1.53 per
Unit, including return
of capital of $0.65 (750,036) (18,481,651) -- -- (19,231,687)
Adjustments to unrealized
gains (losses) on investments
in FHA-Insured Certificates
and GNMA Mortgage-Backed
Securities -- -- 384,236 587,633 971,869
------------- ------------- -------------- ------------ -------------
Balance, September 30, 1997 $ (2,082,951) $ 190,928,515 $ 9,100,178 $ (515,573) $ 197,430,169
============= ============= ============== ============ =============
Limited Partnership Units
outstanding - September
30, 1997 12,079,514
=============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>7
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,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 11,002,616 $ 12,135,546
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Gain on mortgage dispositions/modifications (205,536) (658,973)
Loss on mortgage dispositions/modifications -- 144,595
Changes in assets and liabilities:
Increase (decrease) in accounts payable and
accrued expenses 61,035 (7,019)
Decrease in receivables and other assets 98,476 138,276
Decrease in investment in affiliate 314,072 3,078
------------ ------------
Net cash provided by operating activities 11,270,663 11,755,503
------------ ------------
Cash flows from investing activities:
Receipt of mortgage principal from
scheduled payments 1,243,345 1,190,264
Proceeds from mortgage dispositions 7,428,110 4,894,568
------------ ------------
Net cash provided by investing activities 8,671,455 6,084,832
------------ ------------
Cash flows from financing activities:
Distributions paid to partners (19,357,385) (16,717,746)
Decrease (increase) in note payable
and due to affiliate (380,877) 65,739
------------ ------------
Net cash used in financing
activities (19,738,262) (16,652,007)
------------ ------------
Net increase in cash and cash
equivalents 203,856 1,188,328
Cash and cash equivalents, beginning of period 9,716,786 3,368,700
------------ ------------
Cash and cash equivalents, end of period $ 9,920,642 $ 4,557,028
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>8
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).
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans are non-recourse first liens on multifamily residential developments or
retirement homes.
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,
1997 and December 31, 1996 and the results of its operations for the three and
nine months ended September 30, 1997 and 1996 and its cash flows for the nine
months ended September 30, 1997 and 1996.
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, these financial
statements should be read in conjunction with the financial statements and the
notes to the financial statements included in the Partnership's Annual Report
filed on Form 10-K for the year ended December 31, 1996.
New Accounting Standards
------------------------
In February 1997, FASB issued SFAS No. 128 "Earnings per Share" ("FAS
128"). FAS 128 changes the requirements for calculation and disclosure of
earnings per share. This statement eliminates the calculation of primary
earnings per share and requires the disclosure of basic earnings per share
and diluted earnings per share. There will be no impact to the earnings
per Unit of limited partnership interest.
During 1997, FASB issued SFAS No. 129 "Disclosure of Information about
Capital Structure" ("FAS 129"). FAS 129 continues the existing
requirements to disclose the pertinent rights and privileges of all
securities other than ordinary common stock but expands the number of
companies subject to portions of its requirements. The Partnership does
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION - Continued
not anticipate an impact to its current disclosures.
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 either the statement of income or another statement
of comprehensive income. This would include net income as currently
reported by the Partnership adjusted for unrealized gains and losses
related to the Partnership's mortgages accounted for as "available for
sale". FAS 130 is effective beginning January 1, 1998.
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
Fully Insured Mortgage Investments
----------------------------------
Listed below is the Partnership's aggregate investment in Fully
Insured Mortgages:
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Fully Insured Acquired:
Number of
GNMA Mortgage-Backed Securities(4) 10 9
FHA-Insured Certificates (1)(2)
(3)(4)(5) 58 62
Amortized Cost $143,661,077 $151,866,819
Face Value 149,270,956 157,889,594
Fair Value 152,553,058 159,959,297
Fully Insured Originated:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $ 17,045,388 $ 17,126,685
Face Value 16,688,771 16,770,069
Fair Value 16,738,003 16,646,943
</TABLE>
<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
(1) On October 11, 1996, the servicer of the mortgage on Meadow Park Apartments
I filed a Notice of Default and Election to Assign the mortgage with HUD.
On January 24, 1997, the Partnership received approximately $628,000
representing approximately 90% of the assignment proceeds. The Partnership
recognized a gain of approximately $139,000 for the nine months ended
September 30, 1997. A distribution of $0.05 per Unit related to this
assignment, was declared in February 1997 and was paid to Unitholders in
May 1997. The remaining 9% of proceeds due from HUD were received in May
1997, since the distribution was less than $0.01 per Unit, these proceeds
were distributed with regular cash flow in August 1997.
(2) In late February 1997, the mortgage on Security Apartments was prepaid.
The Partnership received net proceeds of approximately $304,000, and
recognized a gain of approximately $66,000 for the nine months ended
September 30, 1997. A distribution of approximately $0.02 per Unit related
to this prepayment was declared in March 1997 and was paid to Unitholders
in May 1997.
(3) On July 1, 1997, the mortgage on Peachtree Apartments was prepaid. The
Partnership received net proceeds of approximately $6.5 million, and
recognized a gain of less than $1,000 for the nine months ended September
30, 1997. A distribution of approximately $0.52 per Unit related to this
prepayment was declared in July 1997, and was paid to Unitholders in
November 1997.
(4) In September 1997, the mortgage on Pine Tree Lodge was converted to a GNMA
Mortgage-Backed Security from an FHA-Insured certificate. A distribution
of approximately $0.02 per Unit related to the final settlement of this
mortgage was declared in September 1997 and paid in November 1997.
(5) In October 1997, the mortgages on Ashford Place Apartments, Silverwood
Village Apartments and Fleetwood Village Apartments were prepaid. The
Partnership received net proceeds of approximately $3.4 million for the
mortgage on Ashford Place Apartments and declared a distribution of
approximately $0.27 in October 1997, payable in February 1998. The
Partnership received net proceeds aggregating approximately $2.9 million
for the mortgages on Silverwood Village Apartments and Fleetwood Village
Apartments and intends to declare a distribution in November 1997.
As of November 4, 1997, 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 mortgages on
Portervillage I Apartments, which has been delinquent since January 1997,
as discussed below, and Country Club Terrace Apartments and Gold Key
Village Apartments, which are delinquent with respect to the September 1997
payment of principal and interest. In May 1997, the servicer of the
mortgage on Portervillage I Apartments filed a Notice of Default and an
Election to Assign the mortgage with HUD. The face value of this mortgage
was approximately $1.2 million at December 31, 1996. The Partnership
expects to receive 99% of this amount plus accrued interest.
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Fully Insured Acquired:
Number of Loans 12 12
Amortized Cost $ 14,453,124 $ 14,556,595
Face Value 17,227,109 17,405,640
Fair Value 17,314,232 17,706,486
Fully Insured Originated:
Number of Loans 3 3
Amortized Cost $ 12,954,731 $ 13,030,131
Face Value 12,613,018 12,681,532
Fair Value 13,188,781 12,969,589
</TABLE>
As of November 4, 1997, all of the Partnership's FHA-Insured Loans,
recorded at amortized cost, were current with respect to the payment of
principal and interest.
In addition to base interest payments under Originated Insured
Mortgages, the Partnership is entitled to additional interest based on a
percentage of the net cash flow from the underlying development (referred
to as Participations). During the three and nine months ended September
30, 1997, the Partnership received additional interest of $0 and $89,222
from the Participations, as compared to $0 and $42,417 for the
corresponding periods in 1996. These amounts, if any, 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 nine months ended September 30, 1997 and 1996 are as follows:
1997 1996
------ ------
Quarter ended March 31, $ 0.39(1) $ 0.33
Quarter ended June 30, 0.30 0.64(3)
Quarter ended September 30, 0.84(2) 0.43(4)
------ ------
$ 1.53 $ 1.40
====== ======
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS - Continued
(1) This amount includes approximately $0.07 per Unit return of capital
and gain from the disposition of the following mortgages: Meadow Park
Apartments I $0.05 and Security Apartments $0.02.
(2) This amount includes approximately $0.54 per Unit return of capital
related to the following mortgages: The prepayment of the mortgage on
Peachtree Apartments ($0.52 per Unit) and the conversion of the
mortgage on Pine Tree Lodge to a GNMA-Mortgage-Backed Security from an
FHA-Insured Loan ($0.02 per Unit).
(3) 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.
(4) 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
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments resulting from monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
nine months ended September 30, 1997 and 1996, earned or received compensation
or payments for services from the Partnership as follows:
<PAGE>13
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 1997 1996 1997 1996
- ----------------- ---------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $ 411,784 $ 210,794 $ 750,036 $ 686,307
AIM Acquisition Advisor/Asset Management Fee 466,278 493,214 1,421,123 1,503,270
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 12,176 1,687 47,200 67,360
Management, Inc. Expense Reimbursement
(1) The Advisor, pursuant to the Partnership Agreement, effective June 26, 1984, is entitled to an Asset Management Fee equal to
0.95% of Total Invested Assets (as defined in the Partnership Agreement). CRIIMI MAE Services Limited Partnership, 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, the Sub-advisor earned a fee equal to $137,665 and $418,870 for the three and nine months ended September 30,
1997, respectively, and $145,373 and $443,080 for the three and nine months ended September 30, 1996, respectively. The Sub-
advisor is an affiliate of CRIIMI MAE.
</TABLE>
<PAGE>14
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 85
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
7. 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.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The Partnership's Management's Discussion and Analysis of Financial
Condition and Results of Operations contains statements that may be considered
forward looking. These statements contain a number of risks and uncertainties
as discussed herein and in the Partnership's other reports filed with the
Securities and Exchange Commission that could cause actual results to differ
materially.
General
- -------
As of September 30, 1997, the Partnership had invested in 85 Insured
Mortgages with an aggregate amortized cost of approximately $188 million, an
aggregate face value of approximately $196 million and an aggregate fair value
of approximately $200 million, as discussed below.
As of November 4, 1997, 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 mortgages on Portervillage I Apartments,
which has been delinquent since January 1997, as discussed below, and Country
Club Terrace Apartments and Gold Key Village Apartments, which are delinquent
with respect to the September 1997 payment of principal and interest. In May
1997, the servicer of the mortgage on Portervillage I Apartments filed a Notice
of Default and an Election to Assign the mortgage with HUD. The face value of
this mortgage was approximately $1.2 million at December 31, 1996. The
Partnership expects to receive 99% of this amount plus accrued interest.
Results of Operations
- ---------------------
Net earnings for the three and nine months ended September 30, 1997
decreased as compared to the corresponding periods in 1996. This decrease was
primarily the result of a reduction in mortgage investment income due to the
disposition of seven mortgages since May 1996. In addition, net gains on
mortgage dispositions/modifications decreased, as discussed below.
Interest and other income increased for the three and nine months ended
September 30, 1997, as compared to the corresponding periods in 1996, primarily
due to the investment of proceeds received from the disposition of mortgages,
prior to distribution, as discussed in Note 3 of the financial statements.
Asset management fees decreased for the three and nine months ended
September 30, 1997, as compared to the corresponding periods in 1996, resulting
from the reduction in the asset base.
General and administrative expenses increased for the three and nine months
ended September 30, 1997, as compared to the corresponding periods in 1996.
This increase is primarily due to an increase in legal expenses related to the
settlement of the mortgage on Pine Tree Lodge.
Interest expense to affiliate decreased for the three and nine months ended
September 30, 1997, as compared to the corresponding periods in 1996. This
decrease was due to the cancellation of the note payable to affiliate, as
discussed in Note 7 of the financial statements.
Net gains on mortgage dispositions decreased for the nine months ended
September 30, 1997, as compared to the corresponding period in 1996. During the
first nine months of 1997, the Partnership recognized gains of approximately
$66,000 from the prepayment of the mortgage on Security Apartments in February
1997, and approximately $139,000 from the assignment of the mortgage on Meadow
Park Apartments I in January 1997. During the first nine months of 1996, the
Partnership recognized gains on the prepayment of the mortgages on Cambridge
<PAGE>16
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
Arms Apartments and Bear Creek Apartments II and the modification of the Oak
Forest loan. In addition, the Partnership recognized a loss on the assignment
of the mortgage on Woodland Village Apartments during the three months ended
September 30, 1996.
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 1997 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 decreased for the nine months
ended September 30, 1997, as compared to the corresponding period in 1996,
primarily due to the decrease in net earnings, as discussed above. In addition,
investment in affiliate decreased due to the cancellation of an agreement with
IFI and AIM 88 as discussed in Note 7 of the financial statements.
Net cash provided by investing activities increased for the nine months
ended September 30, 1997, as compared to the corresponding period in 1996. This
increase is primarily due to more proceeds received in 1997 versus 1996, from
the disposition of mortgages, as discussed in Note 3 of the financial
statements. In addition, the receipt of mortgage principal from scheduled
payments increased due to the normal amortization of mortgages.
Net cash used in financing activities increased for the nine months ended
September 30, 1997, as compared to the corresponding period in 1996. This
increase was due to the distribution of net proceeds received from the
disposition of mortgages, as discussed in Note 3 of the financial statements.
<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 September 30, 1997.
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
November 13, 1997 /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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 9,921
<SECURITIES> 169,291
<RECEIVABLES> 29,037
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 208,249
<CURRENT-LIABILITIES> 10,819
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 197,430
<TOTAL-LIABILITY-AND-EQUITY> 208,249
<SALES> 0
<TOTAL-REVENUES> 12,921
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,003
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,003
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,003
<EPS-PRIMARY> .88
<EPS-DILUTED> 0
</TABLE>
