<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999
------------------
Commission file number 1-12724
-----------------
AMERICAN INSURED MORTGAGE INVESTORS - L.P.- SERIES 88
-----------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 13-3398206
- ------------------------------- ------------------
(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 June 30, 1999, 8,802,091 depositary units of limited partnership
interest were outstanding.
<PAGE>2
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1999 (unaudited)
and December 31, 1998.................... 3
Statements of Income and Comprehensive Income -
for the three and six months ended June 30,
1999 and 1998 (unaudited)................ 4
Statement of Changes in Partners' Equity -
for the six months ended June 30,
1999 (unaudited)......................... 5
Statements of Cash Flows - for the six
months ended June 30, 1999 and
1998 (unaudited)......................... 6
Notes to Financial Statements (unaudited).. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................ 15
Item 2A. Qualitative and Quantitative Disclosures About
Market Risk ............................. 19
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K........... 20
Signature ........................................... 21
The accompanying notes are an integral part
of these financial statements.
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Investment in FHA-Insured Certificates
and GNMA Mortgage-Backed Securities,
at fair value:
Acquired insured mortgages $ 60,721,610 $ 67,018,830
Originated insured mortgages 12,047,791 32,531,218
----------------- ---------------
72,769,401 99,550,048
Investment in FHA-Insured Loans, at amortized cost, net of unamortized
discount and premium:
Originated insured mortgages 5,699,497 5,721,754
Acquired insured mortgages 480,972 1,055,778
----------------- ----------------
6,180,469 6,777,532
Cash and cash equivalents 29,876,462 5,524,324
Investment in affiliate 1,250,860 1,266,971
Notes receivable from affiliates and due from affiliates 658,487 705,507
Receivables and other assets 2,498,188 2,639,242
----------------- ----------------
Total assets $ 113,233,867 $ 116,463,624
================= ================
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 30,173,309 $ 1,943,679
Accounts payable and accrued expenses 111,797 77,729
----------------- -----------------
Total liabilities 30,285,106 2,021,408
----------------- -----------------
Partners' equity:
Limited partners' equity, 15,000,000 Units
Authorized, 8,802,091 Units issued and outstanding 87,940,388 118,004,167
General partner's deficit (4,606,912) (3,057,885)
Less: Repurchased Limited Partnership
Units - 50,000 Units (618,750) (618,750)
Accumulated other
comprehensive income 234,035 114,684
----------------- ------------------
Total partners' equity 82,948,761 114,442,216
------------------ ------------------
Total liabilities and partners' equity $ 113,233,867 $ 116,463,624
================== ==================
</TABLE>
<PAGE>4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 1,851,339 $ 2,497,356 $ 3,886,921 $ 5,248,774
Interest and other income 152,925 128,044 208,290 188,687
------------ ------------ ------------- ------------
Total interest income 2,004,264 2,625,400 4,095,211 5,437,461
------------ ------------ ------------- ------------
Expenses:
Asset management fee to related parties 264,949 338,004 537,820 691,422
General and administrative 66,110 159,033 227,522 233,285
------------ ------------ ------------- ------------
331,059 497,037 765,342 924,707
------------ ------------ ------------- ------------
Earnings before net gains on mortgage
dispositions 1,673,205 2,128,363 3,329,869 4,512,754
Net gains(losses) on mortgage dispositions 876,559 (350,159) 876,559 435,949
------------- ------------ ------------- ------------
Net earnings $ 2,549,764 $ 1,778,204 $ 4,206,428 $ 4,948,703
============= ============ ============= ============
Other comprehensive income 1,111,451 1,221,299 119,351 1,726,068
------------- ------------ ------------- ------------
Comprehensive income $ 3,661,215 $ 2,999,503 $ 4,325,779 $ 6,674,771
============= ============ ============= ============
Net earnings allocated to:
Limited partners - 95.1% $ 2,424,826 $ 1,691,072 $ 4,000,313 $ 4,706,217
General partner - 4.9% 124,938 87,132 206,115 242,486
------------- ------------ ------------- ------------
$ 2,549,764 $ 1,778,204 $ 4,206,428 $ 4,948,703
============= ============ ============= ============
Net earnings per Limited Partnership
Unit outstanding --Basic $ 0.27 $ 0.19 $ 0.45 $ 0.53
============= ============ ============= ============
</TABLE>
<PAGE>5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the six months ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Repurchased Accumulated
Limited Other Total
Limited Limited Partnership Comprehensive Partners'
Partner Partners Units Income Equity
------------ ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $118,004,167 $ (3,057,885) $ (618,750) $ 114,684 $ 114,442,216
Net earnings 4,000,313 206,115 -- -- 4,206,428
Adjustment net to unrealized gains on
investments in insured mortgages -- -- -- 119,351 119,351
Distributions paid or accrued of $3.87
per Unit, including return of capital of
$3.42 per Unit (34,064,092) (1,755,142) -- -- (35,819,234)
------------- -------------- ------------- ------------- --------------
Balance, June 30, 1999 $ 87,940,388 $ (4,606,912) $ (618,750) $ 234,035 $ 82,948,761
============= ============== ============= ============= ==============
Limited Partnership Units outstanding -
Basic, as of June 30, 1999 8,802,091
==============
</TABLE>
<PAGE>6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,206,428 $ 4,948,703
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net gains on mortgage dispositions (876,559) (435,949)
Changes in assets and liabilities:
Decrease in investment in affiliate and due from affiliates 63,131 160,308
Decrease (increase) in receivables and other assets 141,054 (48,482)
Increase in accounts payable and accrued expenses 34,068 70,198
------------- -------------
Net cash provided by operating activities 3,568,122 4,694,778
------------- -------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 27,903,294 19,406,190
Receipt of principal from scheduled payments 470,326 1,369,286
Decrease in Due from HUD -- 59,914
------------- -------------
Net cash provided by investing activities 28,373,620 20,835,390
------------- -------------
Cash flows from financing activities:
Distributions paid to partners (7,589,604) (14,716,430)
------------- -------------
Net cash used in financing activities (7,589,604) (14,716,430)
------------- -------------
Net increase in cash and cash equivalents 24,352,138 10,813,738
Cash and cash equivalents, beginning of period 5,524,324 2,721,306
------------- -------------
Cash and cash equivalents, end of period $ 29,876,462 $ 13,535,044
============= =============
</TABLE>
<PAGE>7
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the "Partnership")
was formed under the Uniform Limited Partnership Act of the State of Delaware on
February 13, 1987. The Partnership's reinvestment period expired on December 31,
1996 and the Partnership Agreement states that the Partnership will terminate on
December 31, 2021, 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).
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., Broad, Inc. and CRIIMI MAE. Pursuant
to the terms of certain amendments to the Partnership Agreement, the General
Partner is required to receive the consent of the Advisor prior to taking
certain significant actions which affect the management and policies of the
Partnership.
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, insured in whole or in part by the federal government, are non-recourse
first liens on multifamily residential developments or retirement homes. As
discussed in Note 3, certain of the FHA-Insured Certificates are secured by
coinsured mortgages.
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 a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
debtor-in-possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE has not historically represented a significant source of
capital for the General Partner or the Partnership. Such bankruptcy filings
could also result in the potential need to replace CRIIMI MAE Management, Inc.
as a provider of personnel and administrative services to the Partnership.
CRIIMI MAE and CRIIMI MAE Management, Inc. are working diligently toward
the preparation of a plan of reorganization. The bankruptcy court has granted
the motion to extend CRIIMI MAE's and CRIIMI MAE Management, Inc.'s exclusive
right to file a plan of reorganization through September 10, 1999 and to solicit
acceptances thereof through November 10, 1999. CRIIMI MAE and CRIIMI MAE
Management, Inc. expect to file a plan of reorganization during 1999, which
would contemplate CRIIMI MAE's and CRIIMI MAE Management, Inc.'s emergence from
bankruptcy later in 1999. There can be no assurance at this time, however, that
a plan of reorganization will be proposed by CRIIMI MAE and CRIIMI MAE
Management, Inc. during such time or that such plan will be confirmed and
consummated.
<PAGE>8
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. BASIS OF PRESENTATION
In the opinion of the General Partner, the accompanying unaudited financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position of the Partnership as of June 30, 1999 and
December 31, 1998 and the results of its operations for the three and six months
ended June 30, 1999 and 1998 and its cash flows for the six months ended June
30, 1999 and 1998.
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, 1998.
Comprehensive Income
--------------------
Comprehensive income is the change in Partners' equity during
a period from transactions from non-owner sources. This includes net
income as currently reported by the Partnership adjusted for unrealized
gains and losses related to the Partnership's mortgages accounted for
as "available for sale." Unrealized gains and losses are reported in
the equity section of the Balance Sheet as "Accumulated Other
Comprehensive Income."
<PAGE>9
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES
A. Fully Insured Mortgage Investments
----------------------------------
Listed below is the Partnership's aggregate investment in
fully insured acquired FHA-Insured Certificates and GNMA
Mortgage-Backed Securities:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Number of:
GNMA Mortgage-Backed Securities (1) 21 22
FHA-Insured Certificates 3 3
Amortized Cost $ 60,935,694 $ 65,698,059
Face Value 60,963,157 65,930,408
Fair Value 60,721,610 67,018,830
(1) In April 1999, the mortgage on Seven Springs Apartments was prepaid.
The Partnership received net proceeds of approximately $4.9 million and
recognized a gain of approximately $436,000 for the six months ended
June 30, 1999. A distribution of approximately $0.53 per Unit related
to the prepayment of this mortgage was declared in May and was paid to
Unitholders in August 1999.
</TABLE>
As of August 2, 1999, all fully insured FHA-Insured
Certificates and GNMA Mortgage-Backed Securities were current with
respect to the payment of principal and interest.
In February 1996, the General Partner instructed the servicer
for the mortgage on Water's Edge of New Jersey, a fully insured
acquired construction loan, to file a Notice of Default and an Election
to Assign the mortgage with the Department of Housing and Urban
Development (HUD). The property underlying this construction loan is a
nursing home located in Trenton, New Jersey. As of June 30, 1999, the
Partnership had received approximately $10.2 million on this assignment
including partial repayment of the outstanding principal and accrued
interest. The remainder of the proceeds, approximately $1.5 million,
is included in Receivables and Other Assets. HUD has disallowed
approximately $1.5 million of the assignment claim. The servicer,
Greystone Servicing Corporation, Inc., is currently negotiating with
HUD in regard to collection of the disallowed portion of the claim.
In addition, the General Partner has retained counsel in this matter
and is actively pursuing litigation. On July 30, 1998, the Partnership
filed a Motion for Judgment against Greystone Servicing Corporation,
Inc. in the Circuit Court of Fauquier County, Virginia. The Motion for
Judgment alleges breach of contract and negligence claims and seeks
judgment for $1,653,396 plus interest, attorneys' fees and costs. The
Partnership believes that the allowance for loan losses of $375,000 as
of June 30, 1999, is sufficient to provide for amounts that may not be
recovered from the servicer.
<PAGE>10
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
B. Coinsured FHA-Insured Certificates
----------------------------------
As of June 30, 1999 and December 31, 1998, the Partnership
held investments in two and three FHA-Insured Certificates secured by
coinsured mortgages, respectively. One of these coinsured mortgage
investments, the mortgage on St. Charles Place - Phase II, is coinsured
by The Patrician Mortgage Company (Patrician), an unaffiliated third
party coinsurance lender under the HUD coinsurance program. As of
June 30, 1999 and December 31, 1998, the remaining one and two
FHA-Insured Certificate(s), respectively, are coinsured by Integrated
Funding, Inc. (IFI), an affiliate of the Partnership.
1. Coinsured by third party
------------------------
As of June 30, 1999, the originated coinsured mortgage which
is coinsured by Patrician, St. Charles Place-Phase II, was
delinquent with respect to principal and interest. The
following is a discussion with respect to this mortgage
investment.
<TABLE><CAPTION>
June 30, 1999 December 31, 1998
----------------------------------------------- --------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------- -------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
St. Charles Place -
Phase II(1) $ 3,710,286 $ 3,677,734 $ 3,420,292 $ 3,710,287 $ 3,710,287 $ 3,422,177
(1) These amounts represent the Partnership's approximate 55% ownership
interest in the mortgage. The remaining 45% ownership interest is held
by American Insured Mortgage Investors L..P. - Series 86, an affiliate
of the Partnership. As of August 2, 1999, the mortgagor has made
payments of principal and interest due on the mortgage through November
1995 to the Partnership. As the result of bankruptcy proceedings that
have been ongoing since 1992, the property was acquired and vested with
Patrician in November 1998. Patrician is in the process of improving
the property and intends to file its initial claim with HUD by October
1999. A coinsurance claim will be filed with HUD for remaining amounts
not collected as a result of the disposition. Due to deferred
maintenance and tax deficiencies, the Partnership does not expect cash
flow to be realized from this property until the property is sold and
claims are filed with HUD for Multifamily Coinsurance benefits.
</TABLE>
<PAGE>11
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE-
BACKED SECURITIES - Continued
2. Coinsured by affiliate
-------------------------
As of June 30, 1999 and December 31, 1998, the Partnership
held investments in one and two FHA-Insured Certificate(s)
secured by coinsured mortgages, respectively, where the
coinsurance lender is Integrated Funding Inc. (IFI), an
affiliate of the Partnership.
As of August 2, 1999, the IFI coinsured mortgage, as shown in
the table below, was current with respect to the payment of
principal and interest.
<TABLE><CAPTION>
June 30, 1999 December 31, 1998
----------------------------------------------- ----------------------------------------------
Amortized Face Fair Amortized Face Fair
Cost Value Value Cost Value Value
------------- -------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Summerwind Apts.-
Phase II $ 7,889,386 $ 9,270,530 $ 8,627,499 $ 7,913,874 $ 9,307,962 $ 8,638,778
The Breakers at
Golf Mill(1) -- -- -- 22,113,145 22,113,146 20,470,263
-------------- ------------- -------------- -------------- -------------- -------------
$ 7,889,386 $ 9,270,530 $ 8,627,499 $ 30,027,019 $ 31,421,108 $ 29,109,041
============== ============= ============== ============== ============== =============
(1) In May 1999, the mortgage on The Breakers at Golf Mill was prepaid. The
Partnership received net proceeds of approximately $22.5 million and
recognized a gain of approximately $441,000 for the six months ended June
30, 1999. A distribution of approximately $2.43 per Unit related to the
prepayment of this mortgage was declared in June 1999 and was paid to
Unitholders in August 1999.
</TABLE>
<PAGE>12
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in fully insured
originated FHA-Insured Loans as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Number of Mortgages 1 1
Amortized Cost $ 5,699,497 $ 5,721,754
Face Value 5,699,497 5,721,754
Fair Value 5,482,267 5,725,377
</TABLE>
Listed below is the Partnership's aggregate investment in fully insured
acquired FHA-Insured Loans as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Number of Mortgages(1) 1 2
Amortized Cost $ 480,972 $ 1,055,778
Face Value 480,268 1,053,273
Fair Value 495,565 1,061,917
(1) In May 1999, the mortgage on Kon Tiki Apartments was prepaid. The
Partnership received net proceeds of approximately $554,000 and
recognized a loss of approximately $400 for the six months ended June
30, 1999. A distribution of approximately $0.06 per Unit related to the
prepayment of this mortgage was declared in June 1999 and was paid to
Unitholders in August 1999.
</TABLE>
As of August 2, 1999, all of the Partnership's FHA-Insured Loans were
current with respect to the payment of principal and interest.
In addition to base interest payments from fully insured FHA-Insured Loans,
the Partnership is entitled to additional interest based on a percentage of the
net cash flow from the underlying development and of the net proceeds from the
refinancing, sale or other disposition of the underlying development (referred
to as Participations). Currently, two of the originated FHA-Insured Loans
contain Participations. During the six months ended June 30, 1999 and 1998, the
Partnership received additional interest of $0 and $69,820, respectively, from
the Participations. These amounts, if any, are included in mortgage investment
income on the accompanying statements of income and comprehensive income.
<PAGE>13
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the six months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Quarter ended March 31, $ 0.61(1) $ 1.21(3)
Quarter ended June 30, $ 3.26(2) $ 1.50(4)
------- -------
$ 3.87 $ 2.71
======= =======
</TABLE>
(1) This amount includes $0.37 per Unit from proceeds received in December
1998 related to the prepayment of the mortgage on Olde Mill Apartments.
(2) This amount includes approximately $0.53 per Unit return of capital
from proceeds received in May 1999 related to the prepayment of the
mortgage on Seven Springs Apartments. In addition, this amount
includes $0.06 and $2.43 per Unit from proceeds received in June 1999
related to the prepayments of the mortgages on Kon Tiki Apartments and
The Breakers at Golf Mill, respectively.
(3) This amount includes $0.19 per Unit from proceeds received in January
1998 related to the prepayment of the mortgage on Northpoint
Apartments. In addition, this amount includes $0.73 per Unit related
to the prepayment of the mortgage on Olmstead Park Apartments in
February 1998.
(4) This amount includes approximately $1.18 per Unit from proceeds
received in June 1998 related to the prepayment of the mortgage on
Arbor Village Apartments. In addition, this amount includes $0.08 per
Unit representing a curtailment on the mortgage on Olde Mill
Apartments.
The basis for paying distributions to Unitholders is net proceeds from
mortgage dispositions, if any, and cash flow from operations, which includes
regular interest income and principal from Insured Mortgages. Although the
Insured Mortgages yield a fixed monthly mortgage payment once purchased, the
cash distributions paid to the Unitholders will vary during each quarter due to
(1) the fluctuating yields in the short-term money market where the monthly
mortgage payments received are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base and monthly
mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (3) variations in the cash flow attributable to the delinquency or
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.
<PAGE>14
6. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities, during the three and
six months ended June 30, 1999 and 1998, have earned or received compensation or
payments for services from the Partnership as follows:
<TABLE>
<CAPTION>
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
-----------------------------------------------
For the three months For the six months
Capacity in Which ended June 30, ended June 30,
Name of Recipient Served/Item 1999 1998 1999 1998
- ----------------- ---------------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CRIIMI, Inc. General Partner/Distribution $1,478,492 $ 680,288 $1,755,142 $1,229,053
AIM Acquisition Advisor/Asset Management Fee 264,949 338,004 537,820 691,422
Partners, L.P.(1)
CRIIMI MAE Affiliate of General Partner/ 5,254 15,969 14,832 34,975
Management, Inc. Expense Reimbursement
</TABLE>
(1) The Advisor, pursuant to the Partnership Agreement, effective
October 1, 1991, is entitled to an Asset Management Fee equal to 0.95%
of Total Invested Assets (as defined in the Partnership Agreement).
CRIIMI MAE Services Limited Partnership (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 $158,506 and $203,778 for the six
months ended June 30, 1999 and 1998, respectively. The limited partner
of CMSLP is a wholly-owned subsidiary of CRIIMI MAE Inc. which filed
for protection under Chapter 11 of the U.S. Bankruptcy Code.
7. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests (Units) were issued at a stated value of $20. A total of 8,851,966
Units were issued for an aggregate capital contribution of $177,039,320. In
addition, the initial limited partner contributed $2,500 to the capital of the
Partnership and received 125 Units in exchange therefor, and the former general
partners contributed a total of $1,000 to the Partnership. During 1994, the
Partnership repurchased 50,000 Units.
<PAGE>15
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued
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. See Item 1, "Forward-Looking Statements" in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 for a more detailed
discussion of such risks and uncertainties.
On October 5, 1998, CRIIMI MAE Inc., the parent of the General Partner, and
CRIIMI MAE Management, Inc., an affiliate of CRIIMI MAE Inc. and provider of
personnel and administrative services to the Partnership, filed voluntary
petitions for reorganization under Chapter 11 of the Bankruptcy Code. Such
bankruptcy filings could result in certain adverse effects to the Partnership
including without limitation, the potential loss of CRIIMI MAE Inc. as a
potential source of capital, as discussed under Liquidity and Capital Resources,
and the potential need to replace CRIIMI MAE Management, Inc. as a provider of
personnel and administrative services to the Partnership.
CRIIMI MAE and CRIIMI MAE Management, Inc. are working diligently toward
the preparation of a plan of reorganization. The Bankruptcy Court has granted
the motion to extend CRIIMI MAE's and CRIIMI MAE Management, Inc.'s exclusive
right to file a plan of reorganization through September 10, 1999 and to solicit
acceptances thereof through November 10, 1999. CRIIMI MAE and CRIIMI MAE
Management, Inc. expect to file a plan of reorganization during 1999, which
would contemplate CRIIMI MAE's and CRIIMI MAE Management, Inc.'s emergence from
bankruptcy later in 1999. There can be no assurance at this time, however, that
a plan of reorganization will be proposed by CRIIMI MAE and CRIIMI MAE
Management, Inc. during such time or that such plan will be confirmed and
consummated.
Year 2000
- ---------
The Year 2000 issue is a computer programming issue that may affect many
electronic processing systems. Until relatively recently, in order to minimize
the length of data fields, most date-sensitive programs eliminated the first two
digits of the year. This issue could affect information technology ("IT")
systems and date sensitive embedded technology that controls certain systems
(such as telecommunications systems, security systems, etc.) leaving them unable
to properly recognize or distinguish dates in the twentieth and twenty-first
centuries. This treatment could result in significant miscalculations when
processing critical date-sensitive information relating to dates after December
31, 1999.
The General Partner has substantially completed the Year 2000 testing and
remediation of its IT systems, which include software systems to administer and
manage mortgage assets and for internal accounting purposes. A majority of the
IT systems used by the Partnership is licensed from third parties. These third
parties have either provided upgrades to existing systems or have indicated that
their systems are Year 2000 compliant. The General Partner has applied upgrades
and has substantially completed compliance testing and remediation as of August
16, 1999. There can be no assurance, however, that all of the Partnership's IT
systems will be Year 2000 compliant by December 31, 1999.
The Year 2000 issue may also affect the Partnership's date-sensitive
embedded technology, which controls systems such as the telecommunications
systems, security systems, etc. The General Partner does not believe that it has
significant exposure, or that the cost to modify or replace such technology to
make it Year 2000 compliant will be material. The failure of any such systems to
be Year 2000 compliant could be material to the Partnership.
<PAGE>16
The potential impact of the Year 2000 issue depends not only on the
corrective measures the General Partner has undertaken and will undertake, but
also on the ways in which the Year 2000 issue is addressed by third parties with
whom the Partnership directly interfaces or whose financial condition or
operations are important to the Partnership. The Partnership has initiated
communications with third parties with which it directly interfaces to evaluate
the risk of their failure to be Year 2000 compliant and the extent to which the
Partnership may be vulnerable to such failure. There can be no assurance that
the systems of these third parties will be Year 2000 compliant by December 31,
1999. The failure of these third parties to be Year 2000 compliant could have a
material adverse effect on the operations of the Partnership.
The Partnership believes that its greatest risk with respect to the Year
2000 issue relates to failures by third parties to be Year 2000 compliant. In
addition to risks posed by third parties with which the Partnership interfaces
directly, risks are created by third parties providing services to large
segments of society. The failure of third parties (i.e. tenants in mortgage
collateral, borrowers, building service providers to mortgage collateral, banks
and other financial institutions, etc.) to be Year 2000 compliant could, among
other things, cause disruptions in the capital and real estate markets and
borrower defaults on real estate loans and mortgage-backed securities as well as
the pools of mortgage loans underlying such securities.
The Partnership believes that its greatest internal exposure to the Year
2000 issue involves the loan servicing operations of an affiliate of the
Partnership. CRIIMI MAE Services Limited Partnership (CMSLP) currently services
approximately 26% of the total mortgage investments in the AIM Funds. CMSLP has
applied a vendor upgrade and has completed compliance testing on the upgrade.
The General Partner believes that the results of such testing indicate that this
risk has been substantially mitigated.
Currently the General Partner estimates the cost of system upgrades related
to Year 2000 issues to be immaterial.
The General Partner has substantially completed its organizational
compliance testing and remediation, and it has also drafted contingency plans
for the risks of the failure of the Partnership or third parties to be Year 2000
compliant. The General Partner intends to complete contingency plans for the
Year 2000 issue in late 1999. Due to the inability to predict all of the
potential problems that may arise from the Year 2000 issue, there can be no
assurance that all contingencies will be adequately addressed by such plans.
General
- -------
As of June 30, 1999, the Partnership had invested in 28 Insured Mortgages
with an aggregate amortized cost of approximately $78.7 million, a face value of
approximately $80.1 million and a fair value of approximately $78.7 million.
As of August 2, 1999, all of the FHA-Insured Certificates, GNMA
Mortgage-Backed Securities and FHA-Insured Loans were current with respect to
the payment of principal and interest except for the coinsured mortgage on St.
Charles Place - Phase II which has made payments through November 1995.
In February 1996, the General Partner instructed the servicer for the
mortgage on Water's Edge of New Jersey, a fully insured acquired construction
loan, to file a Notice of Default and an Election to Assign the mortgage with
the Department of Housing and Urban Development (HUD). The property underlying
this construction loan is a nursing home located in Trenton, New Jersey. As of
June 30, 1999, the Partnership had received approximately $10.2 million on this
assignment including partial repayment of the outstanding principal and accrued
interest. The remainder of the proceeds, approximately $1.5 million, is included
in Receivables and Other Assets. HUD has disallowed approximately $1.5 million
of the assignment claim. The servicer, Greystone Servicing Corporation, Inc., is
currently negotiating with HUD in regard to collection of the disallowed portion
of the claim. In addition, the General Partner has retained counsel in this
matter and is actively pursuing litigation. On July 30, 1998, the Partnership
filed a Motion for Judgment against Greystone Servicing Corporation, Inc. in the
Circuit Court of Fauquier County, Virginia. The Motion for Judgment alleges
breach of contract and negligence claims and seeks judgment for $1,653,396 plus
interest, attorneys' fees and costs. The Partnership believes that the allowance
for loan losses of $375,000 as of June 30, 1999, is sufficient to provide for
amounts that may not be recovered from the servicer.
<PAGE>17
Results of Operations
- ---------------------
Net earnings increased for the three months ended June 30, 1999, as
compared to the corresponding period in 1998, primarily due to an increase in
net gains on mortgage dispositions. This increase was partially offset by a
decrease in the mortgage investment income. Net earnings decreased for the six
months ended June 30, 1999, as compared to the corresponding period in 1998,
primarily due to a decrease in mortgage investment income, partially offset by
an increase in net gains on mortgage dispositions.
Mortgage investment income decreased for the three and six months ended
June 30, 1999, as compared to the corresponding periods in 1998, primarily due
to a reduction in the mortgage base. For the six months ended June 30, 1999, the
mortgages on Seven Springs Apartments, Kon Tiki Apartments and The Breakers at
Golf Mill were prepaid. For the six months ended June 30, 1998, the mortgages on
Northpoint Apartments, Olmstead Park Apartments and Arbor Village were prepaid.
Interest and other income increased for the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998 due to the timing of
temporary investment of mortgage disposition proceeds from mortgage prepayments
prior to distribution to Unitholders. The Partnership received approximately $28
million in net prepayment proceeds for the six months ended June 30, 1999, as
compared to approximately $19 million in proceeds for the same period in 1998.
Asset management fees to related parties decreased for the three and six
months ended June 30, 1999, as compared to the corresponding period in 1998, due
to the decrease in the mortgage base.
General and administrative expenses decreased for the three months ended
June 30, 1999 as compared to the corresponding period in 1998. This decrease was
primarily the result of a write off of certain losses associated with the final
disposition of the co-insurance claim on the mortgage on Hazeltine Shores during
the six months ended June 30, 1998.
Net gains on mortgage dispositions increased for the three and six months
ended June 30, 1999, as compared to the corresponding periods in 1998. During
the first six months of 1999, net gains of approximately $877,000 were
recognized. During the corresponding periods in 1998, the Partnership recognized
net gains of approximately $436,000.
<PAGE>18
Liquidity and Capital Resources
- -------------------------------
The Partnership's operating cash receipts, derived from payments of
principal and interest on Insured Mortgages, plus cash receipts from interest on
short-term investments are the Partnership's principal sources of cash flows,
and were sufficient during the first six months of 1999 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 six months
ended June 30, 1999, as compared to the corresponding period in 1998, primarily
due to a decrease in mortgage investment income. This decrease was partially
offset by a decrease in receivables and other assets due to a decrease in the
mortgage base.
Net cash provided by investing activities increased for the six months
ended June 30, 1999 as compared to the corresponding period in 1998 primarily
due to an increase in disposition proceeds from the prepayment of the
aforementioned mortgages. This increase was partially offset by a decrease in
scheduled principal payments due to mortgage dispositions and the normal
amortization of the mortgage base.
Net cash used in financing activities decreased for the six months ended
June 30, 1999, as compared to the corresponding period in 1998 due to a
reduction in the amount of distributions paid to partners in the first six
months of 1999 as compared to the same period in 1998.
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 a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a
debtor-in-possession, CRIIMI MAE will not be permitted to provide any available
capital to the General Partner without approval from the bankruptcy court. This
restriction or potential loss of the availability of a potential capital
resource could adversely affect the General Partner and the Partnership;
however, CRIIMI MAE has not historically represented a significant source of
capital for the General Partner or the Partnership. Such bankruptcy filings
could also result in the potential need to replace CRIIMI MAE Management, Inc.
as a provider of personnel and administrative services to the Partnership.
CRIIMI MAE and CRIIMI MAE Management, Inc. are working diligently toward
the preparation of a plan of reorganization. The Bankruptcy Court has granted
the motion to extend CRIIMI MAE's and CRIIMI MAE Management, Inc.'s exclusive
right to file a plan of reorganization through September 10, 1999 and to solicit
acceptances thereof through November 10, 1999. CRIIMI MAE and CRIIMI MAE
Management, Inc. expect to file a plan of reorganization during 1999, which
would contemplate CRIIMI MAE's and CRIIMI MAE Management, Inc.'s emergence from
bankruptcy later in 1999. There can be no assurance at this time, however, that
a plan of reorganization will be proposed by CRIIMI MAE and CRIIMI MAE
Management, Inc. during such time or that such plan will be confirmed and
consummated.
<PAGE>19
ITEM 2A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's principal market risk is exposure to changes in interest
rates in the US Treasury market, which coupled with the related spread to
treasury investors required for the Partnership's Insured Mortgages, will cause
fluctuations in the market value of the Partnership's assets.
Management has determined that there has not been a material change as of
June 30, 1999, in market risk from December 31, 1998 as reported in the
Partnership's Annual Report Form 10-K for the year ended December 31, 1998.
<PAGE>20
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FROM 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1999.
The exhibits filed as part of this report are listed below:
Exhibit No. Description
- ------------- -----------------------
27 Financial Data Schedule
<PAGE>21
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 88
(Registrant)
By: CRIIMI, Inc.
General Partner
/s/ August 16, 1999 /s/
- -------------------- -------------------------
Date Cynthia O. Azzara
Principal Financial and
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 29,876
<SECURITIES> 72,769
<RECEIVABLES> 10,589
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 113,234
<CURRENT-LIABILITIES> 30,285
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 82,949
<TOTAL-LIABILITY-AND-EQUITY> 113,234
<SALES> 0
<TOTAL-REVENUES> 4,095
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,206
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,206
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,206
<EPS-BASIC> .27
<EPS-DILUTED> 0
</TABLE>
