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, 2002
------------------
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 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, 2002, 12,079,514 depositary units of limited
partnership interest were outstanding.
2
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
Page
----
PART I. Financial Information
Item 1. Financial Statements
Balance Sheets - September 30, 2002 (unaudited) and December 31, 2001 3
Statements of Income and Comprehensive Income - for the three and
nine months ended September 30, 2002 and 2001 (unaudited) 4
Statement of Changes in Partners' Equity - for the nine months ended
September 30, 2002 (unaudited) 5
Statements of Cash Flows - for the nine months ended September 30, 2002
and 2001 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 15
Item 3. Qualitative and Quantitative Disclosures about Market Risk 20
Item 4. Controls and Procedures 20
PART II. Other Information
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
Certifications 23
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, at fair value
Acquired insured mortgages $ 35,976,099 $ 45,845,197
Originated insured mortgages 16,029,862 15,734,485
------------ ------------
52,005,961 61,579,682
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount and premium
Acquired insured mortgages 8,813,521 8,914,573
Originated insured mortgages 9,340,553 12,430,002
------------ ------------
18,154,074 21,344,575
Cash and cash equivalents 10,042,555 4,366,085
Receivables and other assets 1,402,897 8,394,392
Investment in FHA debenture - 2,385,233
------------ ------------
Total assets $ 81,605,487 $ 98,069,967
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 5,153,591 $ 1,885,460
Accounts payable and accrued expenses 129,713 121,659
Due to affiliate - 1,235,104
------------ ------------
Total liabilities 5,283,304 3,242,223
------------ ------------
Partners' equity:
Limited partners' equity, 15,000,000 Units authorized,
12,079,514 Units issued and outstanding 81,456,062 99,801,805
General partner's deficit (6,525,641) (5,781,121)
Accumulated other comprehensive income 1,391,762 807,060
------------ ------------
Total partners' equity 76,322,183 94,827,744
------------ ------------
Total liabilities and partners' equity $ 81,605,487 $ 98,069,967
============ ============
The accompanying notes are an integral part
of these financial statements.
4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Income:
Mortgage investment income $ 1,556,263 $ 1,910,137 $ 4,756,219 $ 6,153,483
Interest and other income 34,691 133,511 228,977 401,397
------------ ------------ ------------ ------------
1,590,954 2,043,648 4,985,196 6,554,880
------------ ------------ ------------ ------------
Expenses:
Asset management fee to related parties 189,662 228,466 571,168 734,961
General and administrative 98,586 95,203 320,922 289,800
------------ ------------ ------------ ------------
288,248 323,669 892,090 1,024,761
------------ ------------ ------------ ------------
Net earnings before gains on
mortgage dispositions 1,302,706 1,719,979 4,093,106 5,530,119
Net gains on mortgage dispositions 86,839 219,547 1,264,766 1,204,665
------------ ------------ ------------ ------------
Net earnings $ 1,389,545 $ 1,939,526 $ 5,357,872 $ 6,734,784
============ ============ ============ ============
Other comprehensive (loss) income - adjustment to
unrealized gains on investments in insured mortgages (222,429) 2,255,338 584,702 1,154,974
------------ ------------ ------------ ------------
Comprehensive income $ 1,167,116 $ 4,194,864 $ 5,942,574 $ 7,889,758
============ ============ ============ ============
Net earnings allocated to:
Limited partners - 96.1% $ 1,335,353 $ 1,863,884 $ 5,148,915 $ 6,472,127
General Partner - 3.9% 54,192 75,642 208,957 262,657
------------ ------------ ------------ ------------
$ 1,389,545 $ 1,939,526 $ 5,357,872 $ 6,734,784
============ ============ ============ ============
Net earnings per Unit of limited
partnership interest - basic $ 0.11 $ 0.15 $ 0.43 $ 0.54
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
5
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the nine months ended September 30, 2002
(Unaudited)
Accumulated
Other
General Limited Comprehensive
Partner Partners Income Total
------------- ------------- ------------- -------------
Balance, December 31, 2001 $ (5,781,121) $ 99,801,805 $ 807,060 $ 94,827,744
Net earnings 208,957 5,148,915 - 5,357,872
Adjustment to unrealized gains on
investments in insured mortgages - - 584,702 584,702
Distributions paid or accrued of $1.945 per Unit,
including return of capital of $1.515 per Unit (953,477) (23,494,658) - (24,448,135)
------------- ------------- ------------- -------------
Balance, September 30, 2002 $ (6,525,641) $ 81,456,062 $ 1,391,762 $ 76,322,183
============= ============= ============= =============
Limited Partnership Units outstanding - basic, as
of September 30, 2002 12,079,514
==========
6
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INSURED MORTGAGE INVESTORS - SERIES 85, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months ended
September 30,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings $ 5,357,872 $ 6,734,784
Adjustments to reconcile net earnings to net cash provided by operating activities:
Net gains on mortgage dispositions (1,264,766) (1,204,665)
Changes in assets and liabilities:
Decrease (increase) in receivables and other assets 976,412 (311,036)
Increase in accounts payable and accrued expenses 8,054 2,691
Decrease in due to affiliate (42,487) (28,247)
------------ ------------
Net cash provided by operating activities 5,035,085 5,193,527
------------ ------------
Cash flows from investing activities:
Proceeds received from mortgage prepayments 9,863,187 16,475,868
Proceeds received from mortgage assignments 10,190,539 -
Proceeds from redemption of debenture 2,385,233 -
Debenture proceeds paid to affiliate (1,192,617) -
Receipt of mortgage principal from scheduled payments 575,047 784,599
------------ ------------
Net cash provided by investing activities 21,821,389 17,260,467
------------ ------------
Cash flows used in financing activities:
Distributions paid to partners (21,180,004) (19,483,087)
------------ ------------
Net increase in cash and cash equivalents 5,676,470 2,970,907
Cash and cash equivalents, beginning of period 4,366,085 5,631,117
------------ ------------
Cash and cash equivalents, end of period $ 10,042,555 $ 8,602,024
============ ============
Non-cash investing activity:
Portion of HUD debentures due from unrelated third party in exchange
for the mortgages on Summit Square Manor and Park Place Apartments $ - $ 2,669,133
Portion of HUD debenture due from unrelated third party in exchange
for the mortgage on Fairlawn II 744,159 -
The accompanying notes are an integral part
of these financial statements.
7
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 terminated
earlier under the provisions of the Partnership Agreement.
CRIIMI, Inc. (the "General Partner"), a wholly owned subsidiary of CRIIMI
MAE Inc. ("CRIIMI MAE"), holds a partnership interest of 3.9%. AIM Acquisition
Partners L.P. (the "Advisor") serves as the advisor to the Partnership pursuant
to certain advisory agreements (collectively, the "Advisory Agreements") between
the Advisor and the Partnership. The general partner of the Advisor is AIM
Acquisition Corporation and the limited partners include, but are not limited
to, 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 Agreements, the Advisor renders services to the
Partnership, including but not limited to, the management and disposition of the
Partnership's portfolio of mortgages. Such services are 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 submanagement agreement (the "Sub-Advisory Agreement"). The
delegation of such services does 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 CMSLP Management
Company, Inc., a wholly owned subsidiary 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.
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,
2002 and December 31, 2001, the results of its operations for the three and nine
months ended September 30, 2002 and 2001, and its cash flows for the nine months
ended September 30, 2002 and 2001.
8
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
("GAAP") 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 on Form 10-K for the year ended December 31, 2001.
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:
September 30, December 31,
2002 2001
----------- -----------
Fully Insured Acquired Mortgages:
Number of:
GNMA Mortgage-Backed Securities 2 2
FHA-Insured Certificates (1)(2)(3)(4)(5) 20 26
Amortized Cost $34,599,211 $44,640,062
Face Value 35,542,302 46,215,896
Fair Value 35,976,099 45,845,197
Fully Insured Originated Mortgages:
Number of:
GNMA Mortgage-Backed Securities 1 1
FHA-Insured Certificates 1 1
Amortized Cost $16,014,988 $16,132,560
Face Value 16,014,987 16,132,560
Fair Value 16,029,862 15,734,485
(1) In April 2002, the mortgage on Garden Court Apartments was prepaid. The
Partnership received net proceeds of approximately $1.2 million and
recognized a gain of approximately $9,000 for the nine months ended
September 30, 2002. A distribution of approximately $0.09 per Unit related
to the prepayment of this mortgage was declared in April and paid to
Unitholders in August 2002.
(2) In January 2002, three mortgages were approved for assignment to HUD under
the Section 221 Program, as discussed below.
(3) In July 2002, one mortgage was approved for assignment to HUD under the
Section 221 Program, as discussed below.
(4) In September 2002, the mortgage on Franklin Plaza was prepaid. The
Partnership received net proceeds of approximately $5.0 million and
recognized a loss of approximately $8,000 for the nine months ended
September 30, 2002. A distribution of approximately $0.40 per Unit related
to the prepayment of this mortgage was declared in October 2002 and is
expected to be paid to Unitholders in February 2003.
(5) In October 2002, the mortgage on Rock Glen Apartments was prepaid. The
Partnership received net proceeds of approximately $1.0 million and expects
to recognize a gain of approximately $117,000 during the fourth quarter
2002. The Partnership expects to declare a distribution of approximately
$0.08 per Unit in November 2002.
As of November 1, 2002, all of the fully insured FHA-Insured Certificates
and GNMA Mortgage-Backed Securities are current with respect to the payment of
principal and interest.
The Section 221 Program
-----------------------
Under the Section 221 program of the National Housing Act of 1937, as
amended (the "Section 221 Program"), a mortgagee has the right to assign a
mortgage ("put") to the United States Department of Housing and Urban
9
Development ("HUD") at the expiration of 20 years from the date of final
endorsement ("Anniversary Date") if the mortgage is not in default at such time.
The mortgagee may exercise its option to put the mortgage to HUD one year
subsequent to the Anniversary Date. This assignment procedure is applicable to
an Insured Mortgage, which had a firm or conditional commitment for HUD
insurance benefits on or before November 30, 1983. Any mortgagee electing to
assign an Insured Mortgage to HUD receives, in exchange therefor, HUD debentures
having a total face value equal to (i) the then outstanding principal balance of
the Insured Mortgage (ii) plus accrued interest on the mortgage to the date of
assignment ("Debenture Issuance Date"). These HUD debentures generally mature 10
years from the date of assignment and bear interest at a rate announced
semi-annually by HUD in the Federal Register ("going Federal rate") at such
date. Generally, the Partnership is not the named mortgagee for the FHA-Insured
Certificates. In this case, the HUD debentures are generally issued to an
unrelated third party that is the named mortgagee. The servicer of the
applicable mortgage is responsible for delivering to the Partnership all HUD
insurance claim proceeds. The debenture interest is paid to the Partnership in
the month it is received by the servicer. The debenture proceeds are paid to the
Partnership in the month the debenture is redeemed by HUD or sold by the
servicer.
Once the servicer of a mortgage has filed an application for insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly principal and interest on the applicable mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date); however, the debentures are not transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General Partner's experience, HUD's assignment process is generally six to
eighteen months. After HUD completes its assignment process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued interest on the debentures at the going Federal rate
from the Debenture Issuance Date to the most current interest payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest payment dates of January 1 and July 1. The going Federal rate for HUD
debentures issued under the Section 221 Program for the period July 1, 2002
through December 31, 2002 is 6.625%. The Partnership will recognize a gain, if
any, on these assignments at the time it receives notification that the
assignment has been approved. This is generally when HUD transfers the
debentures to the mortgagee and/or when the Partnership receives cash for the
accrued interest on the debentures. A loss is recognized when it becomes
probable that a loss will be incurred. The gain or loss recognized is generally
equal to proceeds received, less the amortized cost of the Insured Mortgage.
a. Redemption of HUD Debentures
----------------------------
The following list represents HUD debentures redeemed in July 2002. The
aggregate gain of $497,000 was recognized in the first quarter of 2002, when the
Partnership received approximately $286,000 of accrued interest, in cash, on
these HUD debentures. A distribution, related to this accrued debenture
interest, of approximately $0.02 per Unit was declared in March 2002 and paid in
May 2002. Net proceeds represent (i) the Partnership's beneficial interest in
the face value of the HUD debenture, plus (ii) interest earned on the HUD
debenture during the HUD assignment process, less (iii) net mortgage investment
income due on the applicable mortgage during the HUD assignment process.
10
(Dollars in thousands, except per unit amounts)
Debenture Face Gain Dist.
Interest Net Value of HUD put 1st Qtr. Dist/ Declaration Payment
Complex Name Rate Proceeds Debenture Date 2002 Unit Date Date
------------ ---- -------- --------- ---- ---- ---- ---- ----
Country Club Terrace Apts. 7.500% $ 1,425 $ 1,444 Sep 2000 $ 178 $0.12 Aug 2002 Nov 2002
Nevada Hills Apartments 7.500% 1,134 1,147 Dec 2000 154 0.09 Aug 2002 Nov 2002
Dunhaven Apartments 7.125% 872 890 Jan 2001 165 0.07 Aug 2002 Nov 2002
------- ------- ----- -----
$ 3,431 $ 3,481 $ 497 $0.28
======= ======= ===== =====
b. Issuance of HUD Debenture
-------------------------
In July 2002, HUD transferred assignment proceeds to an unrelated third
party in the form of a 7.5% debenture for the mortgage on Fairlawn II. The
debenture pays interest semi-annually on January 1 and July 1 and is callable on
or after January 1, 2003. In July 2002, the Partnership received approximately
$100,000 in cash of accrued interest on this HUD debenture. A distribution
related to this accrued debenture interest of $0.01 per Unit was declared in
August 2002 and paid in November 2002. The Partnership recognized a gain of
approximately $95,000 for the three and nine months ended September 30, 2002.
The original maturity date for this debenture was September 2010, however in
September 2002, HUD issued a call notice for all FHA debentures with a coupon
rate of 6.25% or above, that are outstanding as of September 30, 2002, for call
on January 1, 2003. A distribution is expected to be declared upon receipt of
the debenture proceeds. The servicer of this mortgage filed an application for
insurance benefits under the Section 221 Program in September 2000. The face
value of the Partnership's beneficial interest in this HUD debenture, of
approximately $758,000, is included in receivables and other assets on the
Partnership's balance sheet as of September 30, 2002.
c. Mortgages in the HUD assignment process
---------------------------------------
The mortgage on The Executive House was put to HUD under the Section 221
Program by the servicer in April 2002. The face value of this mortgage was
approximately $805,000 as of the HUD put date. The Partnership no longer
receives monthly principal and interest from mortgages that are put to HUD under
the Section 221 Program. HUD receives the monthly principal and interest and the
Partnership will earn semi-annual interest on debentures issued by HUD, as
discussed above. As of November 1, 2002, the Partnership has not received
notification that this assignment has been approved by HUD. The fair value of
this mortgage is included in Investment in FHA-Insured Certificates and GNMA
Mortgage-Backed Securities, acquired insured mortgages in the Partnership's
balance sheet as of September 30, 2002.
d. Remaining mortgages eligible for assignment
-------------------------------------------
The Partnership's mortgage portfolio includes six FHA-Insured Certificates
issued under the Section 221 Program with an Anniversary Date of April 2002. At
this time, the Partnership does not expect these mortgages to be put to HUD
since it owns less than 34% of these FHA-Insured Certificates and the other
certificate holders have not yet elected to put these mortgages to HUD. The
Partnership does not own any other FHA-Insured Certificates or GNMA
Mortgage-Backed Securities eligible to be put to HUD.
Please refer to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001, for more information on the Partnership's FHA-Insured
Certificates and GNMA Mortgage-Backed Securities.
11
4. INVESTMENT IN FHA-INSURED LOANS
Fully Insured FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured
Loans:
September 30, December 31,
2002 2001
------------ ------------
Fully Insured Acquired Loans:
Number of Loans 7 7
Amortized Cost $ 8,813,521 $ 8,914,573
Face Value 10,465,802 10,632,937
Fair Value 10,476,833 10,451,178
Fully Insured Originated Loans:
Number of Loans (1) 2 3
Amortized Cost $ 9,340,553 $ 12,430,002
Face Value 9,085,702 12,132,653
Fair Value 9,290,492 12,122,221
(1) In January 2002, the mortgage on Longleaf Lodge was prepaid. The
Partnership received net proceeds of approximately $3.7 million and
recognized a gain of approximately $672,000 for the nine months ended
September 30, 2002. A distribution of approximately $0.29 per Unit related
to the prepayment of this mortgage was declared in January and paid to
Unitholders in May 2002.
As of November 1, 2002, all of the Partnership's FHA-Insured Loans were
current with respect to the payment of principal and interest, except for the
mortgage on Westbrook Apartments, which is delinquent with respect to the
September and October 2002 payments of principal and interest. The General
Partner has instructed the servicer of this mortgage to file a Notice of
Election to Assign if payment is not received by mid November. The face value of
this mortgage was approximately $1.7 million as of the last payment date in
August 2002. If assigned, the Partnership expects to receive 99% of this amount
plus accrued interest at the debenture interest rate in effect at the time the
mortgage was originally insured and/or endorsed by HUD, whichever is higher.
In addition to interest payments from the FHA-Insured Loans, the
Partnership is entitled to additional interest on three of the FHA-Insured Loans
based on a percentage of the net cash flow from the operation of the underlying
property development (referred to as Participations). During the three and nine
months ended September 30, 2002, the Partnership received additional interest of
$0 and $8,396, respectively, from such Participations. During the three and nine
months ended September 30, 2001, the Partnership received additional interest of
$0 and $53,423, respectively, from the Participations. These amounts are
included in mortgage investment income on the accompanying Statements of Income
and Comprehensive Income.
The Section 221 Program
-----------------------
a. Mortgages in the HUD assignment process
---------------------------------------
The mortgage on Baypoint Shoreline Apartments was put to HUD under the
Section 221 Program by the servicer in June 2002. The face value of this
mortgage was approximately $902,000 as of the HUD put date. The Partnership no
longer receives monthly principal and interest from mortgages that are put to
HUD under the Section 221 Program. HUD receives the monthly principal and
interest and the Partnership will earn semi-annual interest on debentures issued
by HUD, as discussed above. As of November 1, 2002, the Partnership has not
received notification that this assignment has been approved by HUD. The
12
amortized cost of this mortgage is included in Investment in FHA-Insured Loans,
acquired insured mortgages in the Partnership's balance sheet as of September
30, 2002.
b. Remaining mortgages eligible for assignment
-------------------------------------------
The Partnership's mortgage portfolio includes five FHA-Insured Loans issued
under the Section 221 Program with Anniversary Dates from March 2002 through
December 2002. The Partnership expects these mortgages to be put to HUD, if not
otherwise disposed, by the respective servicers.
Please refer to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001 for more information on the Partnership's FHA-Insured
Loans.
5. INVESTMENT IN DEBENTURE AND DUE TO AFFILIATE
In December 2000, HUD issued assignment proceeds in the form of a 7.125%
HUD debenture for the mortgage on Fox Run Apartments. The HUD debenture, with a
face value of approximately $2.4 million as of December 31, 2001 was issued to
the Partnership, with interest payable semi-annually on January 1 and July 1.
The mortgage on Fox Run Apartments was beneficially owned 50% by the Partnership
and 50% by an affiliate, American Insured Mortgage Investors ("AIM 84"). In
January 2002, net proceeds of approximately $2.4 million were received upon
redemption of this HUD debenture. Since the Partnership was the record owner and
AIM 84 was the 50% beneficial owner of the mortgage on Fox Run Apartments,
approximately $1.2 million of the debenture proceeds was paid to AIM 84. A
distribution of approximately $0.09 per Unit related to the redemption of this
HUD debenture was declared in January 2002 and paid to Unitholders in May 2002.
13
6. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the nine months ended September 30, 2002 and 2001 are as follows:
2002 2001
------ ------
Quarter ended March 31 $1.325(1) $0.680(4)
Quarter ended June 30 0.210(2) 0.370(5)
Quarter ended September 30 0.410(3) 0.710(6)
------ ------
$1.945 $1.760
====== ======
The following disposition proceeds are included in the distributions listed
above:
Date Net
Proceeds Type of Proceeds
Complex Name(s) Received Disposition Per Unit
--------------- -------- ----------- --------
(1) Quarter ended March 31, 2002:
The Gate House Apartments Dec 2001 Prepayment $0.220
Longleaf Lodge Jan 2002 Prepayment 0.290
Fox Run Apartments Jan 2002 Assignment 0.090
Interest on debentures related to mortgages on Summit
Square Manor, Park Place, Park Hill Apts, Fairfax
House, Woodland Villas, Country Club Terrace Apts, Jan - Feb
Dunhaven Apts and Nevada Hills Apts 2002 Assignment 0.060
Summit Square Manor Jan 2002 Assignment 0.150
Park Place Jan 2002 Assignment 0.060
Park Hill Apartments Jan 2002 Assignment 0.140
Fairfax House Jan 2002 Assignment 0.170
Woodland Villas Jan 2002 Assignment 0.025
(2) Quarter ended June 30, 2002:
Garden Court Apartments Apr 2002 Prepayment 0.090
(3) Quarter ended September 30, 2002:
Interest on debenture related to mortgage on Fairlawn II Jul 2002 Assignment 0.010
Country Club Terrace Apartments Jul 2002 Assignment 0.120
Nevada Hills Apartments Jul 2002 Assignment 0.090
Dunhaven Apartments Jul 2002 Assignment 0.070
(4) Quarter ended March 31, 2001:
The Meadows of Livonia Jan 2001 Prepayment 0.530
(5) Quarter ended June 30, 2001:
Gold Key Village Apartments Mar 2001 Prepayment 0.220
(6) Quarter ended September 30, 2001:
Cedar Ridge Apartments Jun 2001 Prepayment 0.210
Carlisle Apartments Jun 2001 Prepayment 0.170
Afton Square Apartments Jul 2001 Prepayment 0.080
Berryhill Apartments Sep 2001 Prepayment 0.100
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 pay a fixed monthly mortgage payment, 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
14
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, the timing of receipt of HUD
debentures, the interest rate on HUD debentures, debenture redemptions and (4)
variations in the Partnership's operating expenses. As the Partnership continues
to liquidate its mortgage investments and Unitholders receive distributions of
return of capital and taxable gains, Unitholders should expect a reduction in
earnings and distributions due to the decreasing mortgage base.
7. TRANSACTIONS WITH RELATED PARTIES
The General Partner and certain affiliated entities have earned or received
compensation for services or received distributions from the Partnership during
the three and nine months ended September 30, 2002 and 2001 as follows:
For the For the
three months ended nine months ended
September 30, September 30,
Name of Recipient Capacity in Which Served/Item 2002 2001 2002 2001
----------------- ----------------------------- ---- ---- ---- ----
CRIIMI, Inc. (1) General Partner/Distribution $ 200,990 $ 348,056 $ 953,477 $ 862,787
AIM Acquisition Partners, L.P.(2) Advisor/Asset Management Fee 189,662 228,466 571,168 734,961
CRIIMI MAE Management, Inc. Affiliate of General Partner/ 9,763 10,118 39,697 33,793
Expense Reimbursement
(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 (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 $55,896 and $168,344 for the three and nine months ended
September 30, 2002, respectively, and $67,340 and $216,634 for the three
and nine months ended September 30, 2001, respectively. The general partner
and limited partner of CMSLP are wholly owned subsidiaries of CRIIMI MAE.
15
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
prior and 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) the timing of the receipt
of United States Department of Housing and Urban Development ("HUD") debentures
issued in exchange for mortgages put to HUD, (ii) the interest rate on HUD
debentures, (iii) the timing of redemption of HUD debentures, (iv) the timing of
mortgage prepayments, if any, (v) the reinvestment rate earned on mortgage
disposition proceeds and regular cash flow distributions, (vi) regulatory and
litigation matters, (vii) trends in the economy, and (viii) 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, 2002, the Partnership had invested in 33 Insured
Mortgages with an aggregate amortized cost of approximately $68.8 million, an
aggregate face value of approximately $71.1 million and an aggregate fair value
of approximately $71.8 million.
As of November 1, 2002, 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 mortgage on Westbrook
Apartments, which is delinquent with respect to the September and October 2002
payments of principal and interest. The General Partner has instructed the
servicer of this mortgage to file a Notice of Election to Assign if payment is
not received by mid November. The face value of this mortgage was approximately
$1.7 million as of the last payment date in August 2002. If assigned, the
Partnership expects to receive 99% of this amount plus accrued interest at the
debenture interest rate in effect at the time the mortgage was originally
insured and/or endorsed by HUD, whichever is higher.
In October 2002, the mortgage on Rock Glen Apartments was prepaid. The
Partnership received net proceeds of approximately $1.0 million and expects to
recognize a gain of approximately $117,000 during the fourth quarter 2002. The
Partnership expects to declare a distribution of approximately $0.08 per Unit in
November 2002.
16
The Section 221 Program
-----------------------
Under the Section 221 program of the National Housing Act of 1937, as
amended (the "Section 221 Program"), a mortgagee has the right to assign a
mortgage ("put") to HUD at the expiration of 20 years from the date of final
endorsement ("Anniversary Date") if the mortgage is not in default at such time.
The mortgagee may exercise its option to put the mortgage to HUD one year
subsequent to the Anniversary Date. This assignment procedure is applicable to
an Insured Mortgage, which had a firm or conditional commitment for HUD
insurance benefits on or before November 30, 1983. Any mortgagee electing to
assign an Insured Mortgage to HUD receives, in exchange therefor, HUD debentures
having a total face value equal to (i) the then outstanding principal balance of
the Insured Mortgage (ii) plus accrued interest on the mortgage to the date of
assignment ("Debenture Issuance Date"). These HUD debentures generally mature 10
years from the date of assignment and bear interest at a rate announced
semi-annually by HUD in the Federal Register ("going Federal rate") at such
date. Generally, the Partnership is not the named mortgagee for the FHA-Insured
Certificates. In this case, the HUD debentures are generally issued to an
unrelated third party that is the named mortgagee. The servicer of the
applicable mortgage is responsible for delivering to the Partnership all HUD
insurance claim proceeds. The debenture interest is paid to the Partnership in
the month it is received by the servicer. The debenture proceeds are paid to the
Partnership in the month the debenture is redeemed by HUD or sold by the
servicer.
Once the servicer of a mortgage has filed an application for insurance
benefits ("HUD put date") under the Section 221 program, the Partnership will no
longer receive the monthly principal and interest on the applicable mortgage,
instead, HUD will begin receiving the monthly principal and interest. HUD issues
debentures at the time the mortgage is assigned (approximately 30 days after the
HUD put date); however, the debentures are not transferred to the mortgagee
until HUD completes its assignment process of the Insured Mortgage. Based on the
General Partner's experience, HUD's assignment process is generally six to
eighteen months. After HUD completes its assignment process for the Insured
Mortgage, HUD transfers to the mortgagee (i) HUD debentures, as discussed above,
(ii) plus cash for accrued interest on the debentures at the going Federal rate
from the Debenture Issuance Date to the most current interest payment date.
Thereafter, the mortgagee receives interest on the debentures on the semi-annual
interest payment dates of January 1 and July 1. The going Federal rate for HUD
debentures issued under the Section 221 Program for the period July 1, 2002
through December 31, 2002 is 6.625%. The Partnership will recognize a gain, if
any, on these assignments at the time it receives notification that the
assignment has been approved. This is generally when HUD transfers the
debentures to the mortgagee and/or when the Partnership receives cash for the
accrued interest on the debentures. A loss is recognized when it becomes
probable that a loss will be incurred. The gain or loss recognized is generally
equal to proceeds received, less the amortized cost of the Insured Mortgage.
a. Issuance of HUD Debenture
-------------------------
In July 2002, HUD transferred assignment proceeds to an unrelated third
party in the form of a 7.5% debenture for the mortgage on Fairlawn II. The
debenture pays interest semi-annually on January 1 and July 1 and is callable on
or after January 1, 2003. In July 2002, the Partnership received approximately
$100,000 in cash of accrued interest on this HUD debenture. A distribution
related to this accrued debenture interest of $0.01 per Unit was declared in
August 2002 and paid in November 2002. The Partnership recognized a gain of
approximately $95,000 for the three and nine months ended September 30, 2002.
The original maturity date for this debenture was September 2010, however in
September 2002, HUD issued a call notice for all FHA debentures with a coupon
rate of 6.25% or above, that are outstanding as of September 30, 2002, for call
on January 1, 2003. A distribution is expected to be declared upon receipt of
17
the debenture proceeds. The servicer of this mortgage filed an application for
insurance benefits under the Section 221 Program in September 2000. The face
value of the Partnership's beneficial interest in this HUD debenture, of
approximately $758,000, is included in receivables and other assets on the
Partnership's balance sheet as of September 30, 2002.
b. Mortgages in the HUD assignment process
---------------------------------------
The mortgages on The Executive House and Baypoint Shoreline Apartments were
put to HUD under the Section 221 Program by the respective servicers in April
2002 and June 2002, respectively. The aggregate face value of these mortgages
was approximately $1.7 million as of the HUD put dates. The Partnership no
longer receives monthly principal and interest from mortgages that are put to
HUD under the Section 221 Program. HUD receives monthly principal and interest
and the Partnership will earn semi-annual interest on debentures issued by HUD,
as discussed above. As of November 1, 2002, the Partnership has not received
notification that these assignments have been approved by HUD.
c. Remaining mortgages eligible for assignment
-------------------------------------------
The Partnership's mortgage portfolio includes six FHA-Insured Certificates
issued under the Section 221 Program with an Anniversary Date of April 2002. At
this time, the Partnership does not expect these mortgages to be put to HUD
since it owns less than 34% of these FHA-Insured Certificates and the other
certificate holders have not yet elected to put these mortgages to HUD. The
Partnership does not own any other FHA-Insured Certificates or GNMA
Mortgage-Backed Securities eligible to be put to HUD. In addition, the
Partnership's mortgage portfolio includes five FHA-Insured Loans issued under
the Section 221 Program with Anniversary Dates from March 2002 through December
2002. The Partnership expects these mortgages to be put to HUD, if not otherwise
disposed, by the respective servicers.
Results of Operations
---------------------
Net earnings decreased by approximately $550,000 and $1.4 million for the
three and nine months ended September 30, 2002, respectively, as compared to the
corresponding periods in 2001. The decrease for the three month period is
primarily due to decreases in mortgage investment income, interest and other
income and net gains on mortgage dispositions, as discussed below. The nine
month period decrease is primarily due to decreases in mortgage investment
income and interest and other income, partially offset by a decrease in asset
management fee to related parties, as discussed below.
Mortgage investment income decreased by approximately $354,000 and $1.4
million for the three and nine months ended September 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to a reduction in
the mortgage base. The mortgage base decreased for the three month period as a
result of twelve mortgage dispositions with an aggregate principal balance of
approximately $17.4 million, representing an approximate 18% decrease in the
aggregate principal balance of the Partnership's total mortgage portfolio since
June 2001. The mortgage base decreased for the nine month period as a result of
seventeen mortgage dispositions with an aggregate principal balance of
approximately $27.6 million, representing an approximate 26% decrease in the
aggregate principal balance of the Partnership's total mortgage portfolio since
March 2001.
Interest and other income decreased by approximately $99,000 and $172,000
for the three and nine months ended September 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to the timing of
temporary investment of mortgage disposition proceeds prior to distribution.
18
Asset management fees decreased by approximately $39,000 and $164,000 for
the three and nine months ended September 30, 2002, respectively, as compared to
the corresponding periods in 2001, primarily due to the reduction in the
mortgage asset base.
General and administrative expenses increased by approximately $3,000 and
$31,000 for the three and nine months ended September 30, 2002, respectively, as
compared to the corresponding periods in 2001, primarily due to the cost
structure of certain expenses.
Net gains on mortgage dispositions decreased by approximately $133,000 for
the three months ended September 30, 2002, and increased by approximately
$60,000 for the nine months ended September 30, 2002, as compared to the
corresponding periods in 2001. During the three months ended September 30, 2002,
the Partnership recognized a gain of approximately $95,000 for the assignment of
one mortgage, which was partially offset by a loss of approximately $8,000
recognized on the prepayment of one mortgage. During the first six months of
2002, the Partnership recognized gains of approximately $681,000 from the
prepayment of two mortgages and gains of approximately $497,000 from the
assignment of three mortgages. During the three months ended September 30, 2001
the Partnership recognized gains of approximately $220,000 from the prepayment
of two mortgages. During the first six months of 2001, the Partnership
recognized gains of approximately $655,000 from the prepayment of four mortgages
and gains of approximately $330,000 from the assignment of two mortgages.
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 nine months ended September
30, 2002 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 received
from Insured Mortgages. Although the Insured Mortgages pay a fixed monthly
mortgage payment, 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, the
timing of receipt of HUD debentures, the interest rate on HUD debentures, and
debenture redemptions, and (4) variations in the Partnership's operating
expenses. As the Partnership continues to liquidate its mortgage investments and
Unitholders receive distributions of return of capital and taxable gains,
Unitholders should expect a reduction in earnings and distributions due to the
decreasing mortgage base.
Net cash provided by operating activities decreased by approximately
$158,000 for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, primarily due to lower mortgage investment income
resulting from a reduction in the mortgage base, partially offset by a decrease
in receivables and other assets. The decrease in receivables and other assets is
primarily due to the receipt of principal and interest previously accrued on the
mortgages awaiting assignment from HUD under the Section 221 Program during
2002, as previously discussed.
Net cash provided by investing activities increased by approximately $4.6
million for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001. This increase is primarily due to increases in
19
proceeds received from mortgage assignments and the net proceeds from the
debenture, as discussed below, partially offset by a decrease in proceeds
received from the prepayment of mortgages.
In January 2002, HUD issued assignment proceeds in the form of HUD
debentures in exchange for mortgages put to HUD under the Section 221 Program.
The debentures were transferred to the mortgagee for each of the mortgages on
Country Club Terrace Apartments, Nevada Hills Apartments and Dunhaven
Apartments. In July 2002, the Partnership received aggregate net proceeds of
approximately $3.4 million for the redemption of the HUD debentures that were
previously issued by HUD. A distribution of approximately $0.28 per Unit related
to the redemption of these debentures was declared in August and paid to
Unitholders in November 2002.
During 2001, HUD issued assignment proceeds in the form of HUD debentures
in exchange for mortgages put to HUD under the Section 221 Program. The
debentures were transferred to the mortgagee for each of the mortgages on Summit
Square Manor, Park Place, Park Hill Apartments, Fairfax House and Woodland
Villas. In January 2002, the Partnership received aggregate net proceeds of
approximately $6.8 million for the redemption of the HUD debentures that were
previously issued by HUD. A distribution of approximately $0.545 per Unit
related to the redemption of these debentures was declared in February and paid
to Unitholders in May 2002.
In December 2000, HUD issued assignment proceeds in the form of a 7.125%
HUD debenture for the mortgage on Fox Run Apartments. The HUD debenture, with a
face value of approximately $2.4 million as of December 31, 2001 was issued to
the Partnership, with interest payable semi-annually on January 1 and July 1.
The mortgage on Fox Run Apartments was beneficially owned 50% by the Partnership
and 50% by an affiliate, American Insured Mortgage Investors ("AIM 84"). In
January 2002, net proceeds of approximately $2.4 million were received upon
redemption of this HUD debenture. Since the Partnership was the record owner and
AIM 84 was the 50% beneficial owner of the mortgage on Fox Run Apartments,
approximately $1.2 million of the debenture proceeds was paid to AIM 84. A
distribution of approximately $0.09 per Unit related to the redemption of this
HUD debenture was declared in January 2002 and paid to Unitholders in May 2002.
Net cash used in financing activities increased by approximately $1.7
million for the nine months ended September 30, 2002, as compared to the
corresponding period in 2001, due to an increase in the amount of distributions
paid to partners in the first nine months of 2002 compared to the same period in
2001.
20
PART I. FINANCIAL INFORMATION
ITEM 3. 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. The Partnership will experience fluctuations
in the market value of its assets related to (i) changes in the interest rates
of U.S. Treasury securities, (ii) changes in the spread between the interest
rates on U.S. Treasury securities and the interest rates on the Partnership's
Insured Mortgages, and (iii) changes in the weighted average life of the Insured
Mortgages, determined by reviewing the attributes of the Insured Mortgages in
relation to the current market interest rates. The weighted average life of the
Insured Mortgages decreased as of September 30, 2002 compared to December 31,
2001, due to the lower market interest rates, which may imply faster prepayment
rates, and other attributes of the Partnership's Insured Mortgages.
The General Partner has determined that there has not been a material
change as of September 30, 2002, in market risk from December 31, 2001 as
reported in the Partnership's Annual Report on Form 10-K as of December 31,
2001.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Quarterly Report on form
10-Q, the General Partner carried out an evaluation, under the supervision and
with the participation of the General Partner's management, including the
General Partner's Chairman of the Board (CEO) and the Chief Financial Officer
(CFO), of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Securities Exchange Act Rule 13a-14 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on
that evaluation, the General Partner's CEO and CFO concluded that its disclosure
controls and procedures are effective and timely in alerting them to material
information relating to the Partnership required to be included in the
Partnership's periodic SEC filings. There were no significant changes in the
General Partner's internal controls or in other factors that could significantly
affect these internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
21
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Section 10(A)(i)(2) of the Securities Exchange Act of 1934, as amended,
requires issuers to disclose the approval by an audit committee of the issuer of
a non-audit service to be performed by the auditor of the issuer. On August 14,
2002, the Audit Committee of the Board of Directors of the General Partner's
parent, CRIIMI MAE Inc., subject to any rules that may be adopted by the Public
Accounting Oversight Board, approved the engagement of Ernst & Young LLP, the
Partnership's auditor, to provide tax services to the Partnership during the
fiscal year ending December 31, 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Purpose
---------- -------
99.1 Certification Pursuant to the Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to the Section 906 of
the Sarbanes-Oxley Act of 2002.
22
PART II. OTHER INFORMATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.
(Registrant)
By: CRIIMI, Inc.
General Partner
November 14, 2002 /s/ Cynthia O. Azzara
----------------- -------------------------------------------
DATE Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer
23
CERTIFICATION
I, William B. Dockser, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors - Series 85, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 14, 2002 /s/ William B. Dockser
----------------- -----------------------------------------
William B. Dockser
Chairman of the Board and Chief Executive
Officer
24
CERTIFICATION
I, Cynthia O. Azzara, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Insured
Mortgage Investors - Series 85, L.P.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
AMERICAN INSURED MORTGAGE
INVESTORS - SERIES 85, L.P.
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: November 14, 2002 /s/ Cynthia O. Azzara
----------------- -------------------------------------------
Cynthia O. Azzara
Senior Vice President, Principal Accounting
Officer and Chief Financial Officer