UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30,2000
-----------------
Commission file number 1-11059
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AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
(Exact name of registrant as specified in charter)
California 13-3257662
------------------------------ ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11200 Rockville Pike, Rockville, Maryland 20852
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 816-2300
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 30, 2000, 12,079,514 depositary units of limited
partnership interest were outstanding.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2000 (unaudited) and December 31, 1999 4
Statements of Income and Comprehensive Income - for the three and
nine months ended September 30, 2000 and 1999 (unaudited) 5
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2000 (unaudited) 6
Statements of Cash Flows - for the nine months ended September 30, 2000
and 1999 (unaudited) 7
Notes to Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
Item 2A. Qualitative and Quantitative Disclosures about Market Risk 16
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 73,614,363 $ 79,052,484
Originated insured mortgages 15,575,163 15,703,179
------------- -------------
89,189,526 94,755,663
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium:
Acquired insured mortgages 11,060,663 11,167,461
Originated insured mortgages 12,603,323 12,699,265
------------- -------------
23,663,986 23,866,726
Cash and cash equivalents 1,813,981 23,723,644
Receivables and other assets 1,032,608 1,123,472
------------- -------------
Total assets $ 115,700,101 $ 143,469,505
============= =============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 2,262,552 $ 22,876,915
Accounts payable and accrued expenses 119,027 147,473
------------- -------------
Total liabilities 2,381,579 23,024,388
------------- -------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
12,079,514 Units issued and outstanding 118,178,411 125,182,237
General partners' deficit (5,035,349) (4,751,114)
Accumulated other comprehensive income 175,460 13,994
------------- -------------
Total Partners' equity 113,318,522 120,445,117
------------- -------------
Total liabilities and partners' equity $ 115,700,101 $ 143,469,505
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 2,284,389 $ 2,987,586 $ 7,256,145 $ 9,189,820
Interest and other income 45,210 59,638 302,688 145,721
------------- ------------- ------------- -------------
2,329,599 3,047,224 7,558,833 9,335,541
------------- ------------- ------------- -------------
Expenses:
Asset management fee to related parties 283,440 349,290 865,409 1,064,865
General and administrative 98,217 117,191 308,040 383,518
------------- -------------- ------------- -------------
381,657 466,481 1,173,449 1,448,383
------------- ------------- ------------- -------------
Net earnings before gains on
mortgage dispositions 1,947,942 2,580,743 6,385,384 7,887,158
Net gains on mortgage dispositions - 134,433 278,959 785,214
------------- ------------- ------------- -------------
Net earnings $ 1,947,942 $ 2,715,176 $ 6,664,343 $ 8,672,372
============= ============= ============= =============
Other comprehensive income (loss) 1,116,357 (233,739) 161,466 (3,714,453)
------------- ------------- ------------- -------------
Comprehensive income $ 3,064,299 $ 2,481,437 $ 6,825,809 $ 4,957,919
------------- ------------- ------------- -------------
Net earnings allocated to:
Limited partners - 96.1% $ 1,871,972 $ 2,609,284 $ 6,404,434 $ 8,334,149
General Partner - 3.9% 75,970 105,892 259,909 338,223
------------- ------------- ------------- -------------
$ 1,947,942 $ 2,715,176 $ 6,664,343 $ 8,672,372
============= ============= ============= =============
Net earnings per Unit of limited
partnership interest - basic $ 0.15 $ 0.22 $ 0.53 $ 0.69
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
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, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
General Limited Comprehensive
Partner Partner Income Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 $ (4,751,114) $ 125,182,237 $ 13,994 $ 120,445,117
Net Earnings 259,909 6,404,434 - 6,664,343
Adjustment to unrealized gains on
investments in insured mortgages - - 161,466 161,466
Distributions paid or accrued of $1.11 per Unit,
including return of capital of $0.58 per Unit (544,144) (13,408,260) - (13,952,404)
------------ ------------- ------------- -------------
Balance, September 30, 2000 $ (5,035,349) $ 118,178,411 $ 175,460 $ 113,318,522
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of September 30, 2000 12,079,514
==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
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,
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 6,664,343 $ 8,672,372
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gain on mortgage dispositions (278,959) (785,214)
Changes in assets and liabilities:
Decrease in receivables and other assets 90,864 243,443
Decrease in accounts payable and accrued expenses (28,446) (126,480)
------------- -------------
Net cash provided by operating activities 6,447,802 8,004,121
------------- -------------
Cash flows from investing activities:
Receipt of mortgage principal from scheduled payments 898,307 1,008,486
Proceeds from mortgage dispositions 5,310,995 8,190,810
Proceeds from redemption of debenture - 2,296,098
Debenture proceeds due to affiliate - (1,148,049)
------------- -------------
Net cash provided by investing activities 6,209,302 10,347,345
------------- -------------
Cash flows from financing activities:
Distributions paid to partners (34,566,767) (29,161,784)
------------- -------------
Net cash used in financing activities (34,566,767) (29,161,784)
------------- -------------
Net decrease in cash and cash equivalents (21,909,663) (10,810,318)
Cash and cash equivalents, beginning of period 23,723,644 15,793,919
------------- -------------
Cash and cash equivalents, end of period $ 1,813,981 $ 4,983,601
============= =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors - Series 85, L.P. (the Partnership) was
formed under the Uniform Limited Partnership Act of the state of California on
June 26, 1984. The Partnership Agreement ("Partnership Agreement") states that
the Partnership will terminate on December 31, 2009, unless previously
terminated under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner") holds a partnership interest of 3.9%
and is a wholly owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"). AIM
Acquisition Partners L.P. (the "Advisor") serves as the advisor to the
Partnership. The general partner of the Advisor is AIM Acquisition Corporation
("AIM Acquisition") and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Sun America Investments, Inc.
(successor to Broad, Inc.) and CRI/AIM Investment, L.P., an affiliate of CRIIMI
MAE. AIM Acquisition is a Delaware corporation that is primarily owned by Sun
America Investments, Inc. and The Goldman Sachs Group, L.P.
Under the Advisory Agreement, the Advisor will render services to the
Partnership, including but not limited to, the management of the Partnership's
portfolio of mortgages and the disposition of the Partnership's mortgages. Such
services will be subject to the review and ultimate authority of the General
Partner. However, the General Partner is required to receive the consent of the
Advisor prior to taking certain significant actions, including but not limited
to the disposition of mortgages, any transaction or agreement with the General
Partner, or its affiliates, or any material change as to policies regarding
distributions or reserves of the Partnership. The Advisor is permitted to
delegate the performance of services pursuant to a sub-advisory agreement (the
"Sub-Advisory Agreement"). The delegation of such services will not relieve the
Advisor of its obligation to perform such services. CRIIMI MAE Services Limited
Partnership ("CMSLP"), an affiliate of CRIIMI MAE, manages the Partnership's
portfolio, pursuant to the Sub-Advisory Agreement. The general partner of CMSLP
is CRIIMI MAE Services, Inc., an affiliate of CRIIMI MAE.
The Partnership's investment in mortgages consists of participation
certificates evidencing a 100% undivided beneficial interest in government
insured multifamily mortgages issued or sold pursuant to Federal Housing
Administration (FHA) programs (FHA-Insured Certificates), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured
Loans and together with FHA-Insured Certificates and GNMA Mortgage-Backed
Securities referred to herein as Insured Mortgages). The mortgages underlying
the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured
Loans are non-recourse first liens on multifamily residential developments or
retirement homes.
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the Bankruptcy Court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
The United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court") held a hearing on August 23, 2000
with respect to the proposed ballots submitted to the Bankruptcy Court to be
sent to members of all classes of impaired creditors and equity security holders
in connection with the Third Amended Joint Plan of Reorganization (as amended
and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and
21, 2000, the "Plan"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 21, and
August 18, 2000, the "Disclosure Statement") and other proposed solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November 15, 2000 and set September 5, 2000 as the voting record date for
determining the holders of common stock, preferred stock, 9-1/8 percent senior
notes and general unsecured creditors entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed Disclosure Statement and other solicitation materials including
ballots during the week of September 10, 2000 to members of all classes of
impaired creditors and all equity security holders for acceptance or rejection.
The votes by impaired classes of creditors and shareholders on the Plan have
been tabulated. All impaired classes, which voted on the Plan, voted
overwhelmingly to accept the Plan. An affidavit certifying the voting results
was filed with the Bankruptcy Court on November 3, 2000. On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan. Discussions are continuing in an effort to resolve those objections
before the November 15, 2000 confirmation hearing date. There can be no
assurance that CRIIMI MAE will reach a mutually acceptable agreement with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.
The Plan and Disclosure Statement has the support of the Official Committee
of Equity Security Holders in the CRIIMI MAE Chapter 11 case, which is a
co-proponent of the Plan. Subject to the completion of mutually acceptable
documentation, evidencing the secured financing to be provided by the unsecured
creditors, the Official Committee of Unsecured Creditors of CRIIMI MAE has
agreed to support confirmation of the Plan. The Official Committee of Unsecured
Creditors had previously filed its own plan of reorganization and proposed
disclosure statement, but has asked the Bankruptcy Court, subject to completion
of mutually acceptable debt documentation, to defer consideration of its plan
and proposed disclosure statement. CRIIMI MAE, CRIIMI MAE Management, Inc., the
Official Committee of Equity Security Holders, and the Official Committee of
Unsecured Creditors are now all proceeding jointly toward confirmation of the
Plan. There can be no assurance at this time that CRIIMI MAE's Plan will be
confirmed and consummated.
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,
2000 and December 31, 1999 and the results of its operations for the three and
nine months ended September 30, 2000 and 1999 and its cash flows for the nine
months ended September 30, 2000 and 1999.
These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While the General Partner believes that the
disclosures presented are adequate to make the information not misleading, these
financial statements should be read in conjunction with the financial statements
and the notes to the financial statements included in the Partnership's Annual
Report filed on Form 10-K for the year ended December 31, 1999.
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,
2000 1999
----------- -----------
<S> <C> <C>
Fully Insured Acquired Mortgages:
Number of
GNMA Mortgage-Backed Securities (5) 5 5
FHA-Insured Certificates (1) (2) (3) (4) 35 39
Amortized Cost $72,667,082 $77,969,011
Face Value 75,568,266 81,218,457
Fair Value 73,614,363 79,052,484
Fully Insured Originated Mortgages:
Number of
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $16,346,984 $16,772,658
Face Value 16,314,617 16,416,058
Fair Value 15,575,163 15,703,179
</TABLE>
Listed below is a summary of prepayments on Fully Insured Mortgages as of
November 1, 2000:
<TABLE>
<CAPTION>
Date Distribution
Net Proceeds Gain/ Dist./ Declaration Payment
Complex Name Proceeds Received (Loss) Unit Date Date
------------ ---------- ---------- -------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(1) Turtle Creek Apartments $ 1,660,000 Jan. 2000 $ 44,023 $ 0.13 Jan. 2000 May 2000
(2) Woodland Hills Apartments 693,000 April 2000 93,811 0.06 May 2000 Aug. 2000
(3) New Castle Apartments 1,988,000 May 2000 8,158 0.16 May 2000 Aug. 2000
(4) Colony West Apartments 646,000 May 2000 132,967 0.05 June 2000 Aug. 2000
(5) Independence Park Apartments* 3,997,000 Oct. 2000 (39,820) 0.32 Oct. 2000 Feb. 2001
* Fourth quarter 2000 transaction
</TABLE>
As of November 1, 2000, 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 Gold Key Village Apartments
and Waterford Green Apartments, which are delinquent with respect to the October
payment of principal and interest. In addition, the Partnership no longer
receives monthly principal and interest from the mortgages that are in the HUD
assignment process under Section 221, as discussed below.
As of November 1, 2000, the Partnership has received notification from the
respective servicers that HUD applications for insurance benefits have been
filed for the following mortgages:
<TABLE>
<CAPTION>
Outstanding
Principal Approval
Property Name Application Date Balance Date
------------- ---------------- ----------- --------
<S> <C> <C> <C>
Fox Run Apartments May 2000 $ 1,185,000 N/A
Park Place Apartments June 2000 754,000 N/A
Summit Square Manor June 2000 1,903,000 N/A
Park Hill Apartments Sept. 2000 1,737,000 N/A
Fairfax House Sept. 2000 2,128,000 N/A
Country Club Terrace Apts. Sept. 2000 1,439,000 N/A
Fairlawn II Sept. 2000 755,000 N/A
</TABLE>
Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in default at such time. Any mortgagee electing to assign an FHA-insured
mortgage to FHA will receive, in exchange therefor, HUD debentures having a
total face value equal to the then outstanding principal balance of the
FHA-insured mortgage plus accrued interest to the date of assignment. These HUD
debentures will mature 10 years from the date of assignment and will bear
interest at a rate announced semi-annually by HUD in the Federal Register
("going Federal rate") at such date. This assignment procedure is applicable to
an insured mortgage, which had a firm or conditional FHA commitment for
insurance on or before November 30, 1983. Once the servicer of a mortgage has
filed an application for insurance benefits under Section 221, the Partnership
will no longer receive the monthly principal and interest on the applicable
mortgage. The Partnership expects to receive 99% of the outstanding principal
balance, of the applicable mortgage, as of the insurance application date, plus
accrued interest at the "going Federal rate". The Partnership will recognize a
gain or a loss on the assignment once the servicer brings forth a notice from
HUD showing approval of the assignment. In general, the Partnership plans to
hold the debentures until called or date of maturity, whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.
<PAGE>
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,
2000 1999
----------- -----------
<S> <C> <C>
Fully Insured Acquired Loans:
Number of Loans 9 9
Amortized Cost $11,060,663 $11,167,461
Face Value 13,270,356 13,453,341
Fair Value 13,115,754 13,203,586
Fully Insured Originated Loans:
Number of Loans 3 3
Amortized Cost $12,603,323 $12,699,265
Face Value 12,291,945 12,379,870
Fair Value 11,870,655 12,017,626
</TABLE>
As of November 1, 2000, 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, 2000, the Partnership
received additional interest of $0 and $21,566, respectively, from the
Participations. During the three and nine months ended September 30, 1999, the
Partnership received additional interest of $0 and $45,164, respectively, from
the Participations. These amounts, if any, are included in mortgage investment
income on the accompanying Statements of Income and Comprehensive Income.
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2000 and 1999 are as follows:
2000 1999
------ ------
Quarter ended March 31, $ 0.47(1)(2) $ 0.40(5)(6)
Quarter ended June 30, 0.46(3)(4) 0.65(7)(8)
Quarter ended September 30, 0.18 0.22
------ ------
$ 1.11 $ 1.27
====== ======
The following disposition proceeds are included in the distributions listed
above:
<TABLE>
<CAPTION>
Date Net
Proceeds Type of Proceeds
Complex Name(s) Received Disposition Per Unit
--------------- -------- ----------- --------
<S> <C> <C> <C>
(1) Northwood Apartments December 1999 Prepayment $0.13
(2) Turtle Creek Apartments January 2000 Prepayment 0.13
(3) Woodland Hills Apartments and New
Castle Apartments May 2000 Prepayment 0.22
(4) Colony West Apartments May 2000 Prepayment 0.05
(5) Gamel & Gamel Apartments December 1998 Prepayment 0.06
(6) Debenture from Portervillage I Apartments * January 1999 Assignment 0.10
(7) Nassau Apartments, Walnut Apartments and
Kings Villa/Discovery Commons April 1999 Prepayment 0.37
(8) Quail Creek Apartments May 1999 Prepayment 0.04
* During the first quarter of 1998, the assignment proceeds of the mortgage on Portervillage
I Apartments were received in the form of a 9.5% debenture. The debenture, with a face
value of $2,296,098, was issued to the Partnership, with interest payable semi-annually on
January 1 and July 1. In January 1999, net proceeds of approximately $2.3 million were
received upon redemption of these debentures. Since the mortgage on Portervillage I Apartments
was owned 50% by the Partnership and 50% by an affiliate of the Partnership, American Insured
Mortgage Investors ("AIM 84"), approximately $1.1 million of the debenture proceeds was
paid to AIM 84.
</TABLE>
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments resulting from monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses. As the Partnership continues to liquidate its
mortgage investments and investors receive distributions of return of capital
and taxable gains, investors should expect a reduction in earnings and
distributions due to the decreasing mortgage base.
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
nine months ended September 30, 2000 and 1999, earned or received compensation
or payments for services from the Partnership as follows:
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
For the For the
three months ended nine months ended
September 30, September 30,
----------------------- -----------------------
Name of Recipient Capacity in Which Served/Item 2000 1999 2000 1999
----------------- ----------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc (1). General Partner/Distribution $ 88,240 $ 107,848 $ 544,144 $ 622,580
AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 283,440 349,290 865,409 1,064,865
CRIIMI MAE Management, Inc. Affiliate of General Partner/Expense
Reimbursement 9,424 10,141 35,140 32,629
</TABLE>
(1) The General Partner, pursuant to the Partnership Agreement, is entitled to
receive 3.9% of the Partnership's income, loss, capital and distributions,
including, without limitation, the Partnership's adjusted cash from
operations and proceeds of mortgage prepayments, sales or insurance (both
as defined in the Partnership Agreement).
(2) The Advisor, pursuant to the Partnership Agreement, is entitled to an Asset
Management Fee equal to 0.95% of Total Invested Assets (as defined in the
Partnership Agreement). CMSLP, the sub-advisor to the Partnership, is
entitled to a fee of 0.28% of Total Invested Assets from the Advisor's
Asset Management Fee. Of the amounts paid to the Advisor, CMSLP earned a
fee equal to $83,544 and $255,003 for the three and nine months ended
September 30, 2000, respectively, and $102,957 and $313,878 for the three
and nine months ended September 30, 1999, respectively. The limited partner
of CMSLP is a wholly owned subsidiary of CRIIMI MAE Inc., which filed for
protection under chapter 11 of the Bankruptcy Code.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. When used in this Quarterly Report on Form 10-Q, the
words "believes," "anticipates," "expects," "contemplates," and similar
expressions are intended to identify forward-looking statements. Statements
looking forward in time are included in this Quarterly Report on Form 10-Q
pursuant to the "safe harbor" provision of the Private Securities Litigation
Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially.
Accordingly, the following information contains or may contain forward-looking
statements: (1) information included or incorporated by reference in this
Quarterly Report on Form 10-Q, including, without limitation, statements made
under Item 2, Management's Discussion and Analysis of Financial Condition and
Results of Operations, (2) information included or incorporated by reference in
future filings by the Partnership with the Securities and Exchange Commission
including, without limitation, statements with respect to growth, projected
revenues, earnings, returns and yields on its portfolio of mortgage assets, the
impact of interest rates, costs and business strategies and plans and (3)
information contained in written material, releases and oral statements issued
by or on behalf of, the Partnership, including, without limitation, statements
with respect to growth, projected revenues, earnings, returns and yields on its
portfolio of mortgage assets, the impact of interest rates, costs and business
strategies and plans. Factors which may cause actual results to differ
materially from those contained in the forward-looking statements identified
above include, but are not limited to (i) regulatory and litigation matters,
(ii) interest rates, (iii) trends in the economy, (iv) prepayment of mortgages
and (v) defaulted mortgages. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only of the date hereof. The
Partnership undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date hereof or
to reflect the occurrence of unanticipated events.
General
-------
As of September 30, 2000, the Partnership had invested in 54 Insured
Mortgages with an aggregate amortized cost of approximately $113 million, an
aggregate face value of approximately $117 million and an aggregate fair value
of approximately $114 million, as discussed below.
In October 2000, the mortgage on Independence Park Apartments was prepaid.
The Partnership received net proceeds of approximately $4 million and expects to
recognize a loss of approximately $40,000. The Partnership expects to distribute
approximately $0.32 per Unit in February 2001, related to the prepayment of this
mortgage.
As of November 1, 2000, all of the fully insured FHA-Insured Certificates,
GNMA Mortgage-Backed Securities and FHA-Insured Loans are current with respect
to the payment of principal and interest, except for the mortgages on Gold Key
Village Apartments and Waterford Green Apartments, which are delinquent with
respect to the October payment of principal and interest. In addition, the
Partnership no longer receives monthly principal and interest from the mortgages
that are in the HUD assignment process under Section 221, as discussed below.
As of November 1, 2000, the Partnership has received notification from the
respective servicers that HUD applications for insurance benefits have been
filed for the following mortgages:
<TABLE>
<CAPTION>
Outstanding
Principal Approval
Property Name Application Date Balance Date
------------- ---------------- ----------- --------
<S> <C> <C> <C>
Fox Run Apartments May 2000 $ 1,185,000 N/A
Park Place Apartments June 2000 754,000 N/A
Summit Square Manor June 2000 1,903,000 N/A
Park Hill Apartments Sept. 2000 1,737,000 N/A
Fairfax House Sept. 2000 2,128,000 N/A
Country Club Terrace Apts. Sept. 2000 1,439,000 N/A
Fairlawn II Sept. 2000 755,000 N/A
</TABLE>
Under the Section 221 program of the National Housing Act of 1937, as
amended, a mortgagee has the right to assign a mortgage ("put") to FHA at the
expiration of 20 years from the date of final endorsement if the mortgage is not
in default at such time. Any mortgagee electing to assign an FHA-insured
mortgage to FHA will receive, in exchange therefor, HUD debentures having a
total face value equal to the then outstanding principal balance of the
FHA-insured mortgage plus accrued interest to the date of assignment. These HUD
debentures will mature 10 years from the date of assignment and will bear
interest at a rate announced semi-annually by HUD in the Federal Register
("going Federal rate") at such date. This assignment procedure is applicable to
an insured mortgage, which had a firm or conditional FHA commitment for
insurance on or before November 30, 1983. Once the servicer of a mortgage has
filed an application for insurance benefits under Section 221, the Partnership
will no longer receive the monthly principal and interest on the applicable
mortgage. The Partnership expects to receive 99% of the outstanding principal
balance, of the applicable mortgage, as of the insurance application date, plus
accrued interest at the "going Federal rate". The Partnership will recognize a
gain or a loss on the assignment once the servicer brings forth a notice from
HUD showing approval of the assignment. In general, the Partnership plans to
hold the debentures until called or date of maturity, whichever comes first. At
that time debenture proceeds will be distributed to Unitholders.
Results of Operations
---------------------
Net earnings decreased for the three and nine months ended September 30,
2000, as compared to the corresponding periods in 1999, primarily due to a
decrease in mortgage investment income, as discussed below.
Mortgage investment income decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999, primarily
due to a reduction in the mortgage base. The mortgage base decreased as a result
of 15 mortgage dispositions with an aggregate principal balance of approximately
$32 million, representing an approximate 21% decrease in the aggregate principal
balance of the total mortgage portfolio since March 1999.
Interest and other income decreased for the three months ended September
30, 2000 and increased for nine months ended September 30, 2000, as compared to
the corresponding periods in 1999, primarily due to the timing of temporary
investment of mortgage disposition proceeds prior to distribution.
Asset management fees decreased for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999, primarily
due to the reduction in the mortgage asset base.
General and administrative expenses decreased for the three and nine months
ended September 30, 2000, as compared to the corresponding periods in 1999,
primarily due to a decrease in temporary employment costs and a decrease in
mortgage service fees.
Net gains on mortgage dispositions decreased for the three and nine months
ended September 30, 2000, as compared to the corresponding periods in 1999.
During the first nine months of 2000, the Partnership recognized gains of
approximately $279,000 from the prepayment of the mortgages on Turtle Creek
Apartments, Woodland Hills Apartments, New Castle Apartments and Colony West
Apartments. During the first nine months of 1999, the Partnership recognized net
gains of approximately $785,000 from the prepayment of the mortgages on Nassau
Apartments, Walnut Apartments, Kings Villa/Discovery Commons, Quail Creek
Apartments and Huntington Apartments. There were no mortgage dispositions during
the three months ended September 30, 2000, versus approximately $134,000 in
gains recognized during the same period in 1999.
Liquidity and Capital Resources
-------------------------------
On October 5, 1998, CRIIMI MAE, the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code"). Such bankruptcy filings could result in certain adverse
effects to the Partnership. For example, as a debtor-in-possession, CRIIMI MAE
will not be permitted to provide any available capital to the General Partner or
to the general partner of CMSLP, the Partnership's sub-advisor, without approval
from the Bankruptcy Court. Even though this restriction or potential loss of the
availability of a potential capital resource could adversely affect the General
Partner and the Partnership, CRIIMI MAE has not historically represented a
significant source of capital for the General Partner or the Partnership. Such
bankruptcy filings could also result in the potential need to replace CRIIMI MAE
Management, Inc. as a provider of personnel and administrative services to the
Partnership.
The United States Bankruptcy Court for the District of Maryland, in
Greenbelt, Maryland (the "Bankruptcy Court") held a hearing on August 23, 2000
with respect to the proposed ballots submitted to the Bankruptcy Court to be
sent to members of all classes of impaired creditors and equity security holders
in connection with the Third Amended Joint Plan of Reorganization (as amended
and supplemented by praecipes filed with the Bankruptcy Court on July 13, 14 and
21, 2000, the "Plan"). On August 24, 2000, the Bankruptcy Court entered an order
approving the proposed Second Amended Joint Disclosure Statement (as amended and
supplemented by praecipes filed with the Bankruptcy Court on July 13, 21, and
August 18, 2000, the "Disclosure Statement") and other proposed solicitation
materials. The Bankruptcy Court scheduled a confirmation hearing on the Plan for
November 15, 2000 and set September 5, 2000 as the voting record date for
determining the holders of common stock, preferred stock, 9-1/8 percent senior
notes and general unsecured creditors entitled to vote to accept or reject the
Plan. CRIIMI MAE and CRIIMI MAE Management, Inc. distributed copies of the Plan,
the Proposed Disclosure Statement and other solicitation materials including
ballots during the week of September 10, 2000 to members of all classes of
impaired creditors and all equity security holders for acceptance or rejection.
The votes by impaired classes of creditors and shareholders on the Plan have
been tabulated. All impaired classes, which voted on the Plan, voted
overwhelmingly to accept the Plan. An affidavit certifying the voting results
was filed with the Bankruptcy Court on November 3, 2000. On November 3, 2000,
Merrill Lynch, German American Capital Corporation ("GACC") (two of CRIIMI MAE's
largest secured creditors) and a shareholder filed objections to confirmation of
the Plan. Discussions are continuing in an effort to resolve those objections
before the November 15, 2000 confirmation hearing date. There can be no
assurance that CRIIMI MAE will reach a mutually acceptable agreement with
Merrill Lynch, GACC and the shareholder prior to the confirmation hearing date.
The Plan and Disclosure Statement has the support of the Official Committee
of Equity Security Holders in the CRIIMI MAE Chapter 11 case, which is a
co-proponent of the Plan. Subject to the completion of mutually acceptable
documentation, evidencing the secured financing to be provided by the unsecured
creditors, the Official Committee of Unsecured Creditors of CRIIMI MAE has
agreed to support confirmation of the Plan. The Official Committee of Unsecured
Creditors had previously filed its own plan of reorganization and proposed
disclosure statement, but has asked the Bankruptcy Court, subject to completion
of mutually acceptable debt documentation, to defer consideration of its plan
and proposed disclosure statement. CRIIMI MAE, CRIIMI MAE Management, Inc., the
Official Committee of Equity Security Holders, and the Official Committee of
Unsecured Creditors are now all proceeding jointly toward confirmation of the
Plan. There can be no assurance at this time that CRIIMI MAE's Plan will be
confirmed and consummated.
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 2000 to
meet operating requirements. The basis for paying distributions to Unitholders
is net proceeds from mortgage dispositions, if any, and cash flow from
operations, which includes regular interest income and principal from Insured
Mortgages. Although the Insured Mortgages yield a fixed monthly mortgage payment
once purchased, the cash distributions paid to the Unitholders will vary during
each quarter due to (1) the fluctuating yields in the short-term money market
where the monthly mortgage payments received are temporarily invested prior to
the payment of quarterly distributions, (2) the reduction in the asset base and
monthly mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
default of Insured Mortgages and professional fees and foreclosure costs
incurred in connection with those Insured Mortgages and (4) variations in the
Partnership's operating expenses. As the Partnership continues to liquidate its
mortgage investments and investors receive distributions of return of capital
and taxable gains, investors should expect a reduction in earnings and
distributions due to the decreasing mortgage base.
Net cash provided by operating activities decreased for the nine months
ended September 30, 2000, as compared to the corresponding period in 1999,
primarily due to the reduction in the mortgage base.
Net cash provided by investing activities decreased for the nine months
ended September 30, 2000, as compared to the corresponding period in 1999. This
decrease is primarily due to a decrease in proceeds received from the
disposition of mortgages and a decrease in net debenture proceeds.
Net cash used in financing activities increased for the nine months ended
September 30, 2000, as compared to the corresponding period in 1999, due to an
increase in the amount of distributions paid to partners in the first nine
months of 2000 versus the same period in 1999.
During the first quarter of 1998, the assignment proceeds of the mortgage
on Portervillage I Apartments were received in the form of a 9.5% debenture. The
debenture, with a face value of $2,296,098, was issued to the Partnership, with
interest payable semi-annually on January 1 and July 1. In January 1999, net
proceeds of approximately $2.3 million were received upon redemption of these
debentures. Since the mortgage on Portervillage I Apartments was owned 50% by
the Partnership and 50% by an affiliate of the Partnership, American Insured
Mortgage Investors (AIM 84), approximately $1.1 million of the debenture
proceeds was paid to AIM 84.
PART I. FINANCIAL INFORMATION
ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in interest
rates in the U.S. Treasury market, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of Partnership's assets.
Management has determined that there has not been a material change as of
September 30, 2000, in market risk from December 31, 1999 as reported in the
Partnership's Annual Report on Form 10-K as of December 31, 1999.
<PAGE>
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, 2000.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
<PAGE>
PART II. OTHER INFORMATION
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 14, 2000 /s/ Cynthia O. Azzara
----------------- ---------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and
Treasurer
