UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2002 Commission file number 1-11060
AMERICAN INSURED MORTGAGE INVESTORS
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(Exact name of registrant as specified in it's charter)
California 13-3180848
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
11200 Rockville Pike
Rockville, Maryland 20852
(301) 816-2300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
--------------------------- ------------------------
Depositary Units of Limited American Stock Exchange
Partnership Interest
Securities registered pursuant to Section 12(g) of the Act:
None
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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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
As of December 31, 2002, 10,000,125 depositary units of limited partnership
interest were outstanding. The aggregate market value of such units held by
non-affiliates of the Registrant, based on the last reported sale price on June
28, 2002 was $22,073,657.
Documents incorporated by Reference
None
2
AMERICAN INSURED MORTGAGE INVESTORS
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Securities and Related Security Holder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Item 7A. Qualitative and Quantitative Disclosures About Market Risk 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 15
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners, Management and Related
Unitholder Matters 19
Item 13. Certain Relationships and Related Transactions 20
Item 14. Controls and Procedures 20
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 21
Signatures 24
Certifications 25
3
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS. When used in this Annual Report on Form 10-K, the
words "believe," "anticipate," "expect," "contemplate," "may," "will," and
similar expressions are intended to identify forward-looking statements.
Statements looking forward in time are included in this Annual Report on Form
10-K 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 Annual
Report on Form 10-K, including, without limitation, statements made under Item
7, 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 (defined below) with the Securities and
Exchange Commission ("SEC") including, without limitation, statements with
respect to growth, projected revenues, earnings, returns and yields on its
portfolio of mortgage assets, the impact of interest rates, costs and business
strategies and plans and (3) information contained in written material, releases
and oral statements issued by or on behalf of, the Partnership, including,
without limitation, statements with respect to growth, projected revenues,
earnings, returns and yields on its portfolio of mortgage assets, the impact of
interest rates, costs and business strategies and plans. Factors which may cause
actual results to differ materially from those contained in the forward-looking
statements identified above include, but are not limited to (i) regulatory and
litigation matters, (ii) interest rates, (iii) trends in the economy, (iv)
prepayment of mortgages, (v) defaulted mortgages, (vi) errors in servicing
defaulted mortgages and (vii) sales of mortgage investments below fair market
value. 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.
Development and Description of Business
---------------------------------------
American Insured Mortgage Investors (the "Partnership") was formed pursuant
to a limited partnership agreement ("Partnership Agreement") under the Uniform
Limited Partnership Act of California on July 12, 1983. During the period from
March 1, 1984 (the initial closing date of the Partnership's public offering)
through December 31, 1984, the Partnership, pursuant to its public offering of
10,000,000 depositary units of limited partnership interest ("Units"), raised a
total of $200,000,000 in gross proceeds. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership in exchange for 125
Units of limited partnership interest.
CRIIMI, Inc., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 2.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (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, The
Goldman Sachs Group, L.P., Sun America Investments, Inc. (successor to Broad,
Inc.) and CRI/AIM Investment, L.P., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. AIM Acquisition is a Delaware
corporation that is primarily owned by Sun America Investments, Inc. and The
Goldman Sachs Group, L.P.
Pursuant to the terms of certain origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
services to the Partnership, including but not limited to, the management of the
Partnership's portfolio of mortgages and the disposition of the Partnership's
mortgages. Such services 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
4
regarding distributions or reserves of the Partnership (collectively the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore, the Advisor has retained its Consent Rights.
The General Partner also serves as the General Partner for American Insured
Mortgage Investors -Series 85, L.P. ("AIM 85"), American Insured Mortgage
Investors L.P. - Series 86 ("AIM 86"), and American Insured Mortgage Investors
L.P. - Series 88 ("AIM 88") and owns general partner interests therein of 3.9%,
4.9% and 4.9%, respectively. The Partnership, AIM 85, AIM 86 and AIM 88 are
collectively referred to as the "AIM Limited Partnerships".
Prior to November 1988, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured mortgage loans ("Acquired Insured Mortgages"
and, together with Originated Insured Mortgages, referred to herein as "Insured
Mortgages"). In accordance with the terms of the Partnership Agreement, the
Partnership is no longer authorized to originate or acquire Insured Mortgages
and, consequently, its primary objective is to manage its portfolio of mortgage
investments, all of which are insured under Section 221(d)(4) or Section 231 of
the National Housing Act of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2008 unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.
Additional information concerning the business of the Partnership is
contained in Part II, Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and in Notes 1, 5, 6 and 7 of the Notes to
Financial Statements (filed in response to Item 8 hereof), all of which are
incorporated by reference herein. See also Schedule IV-Mortgage Loans on Real
Estate for the table of the Insured Mortgages (as defined below) invested in by
the Partnership as of December 31, 2002, which is incorporated by reference
herein.
Employees and Management of the Partnership
-------------------------------------------
The Partnership has no employees. The business of the Partnership is
managed by its General Partner while its portfolio of mortgages is managed by
the Advisor and CMSLP pursuant to the Advisory Agreements and Sub-Advisory
Agreement, respectively, as discussed above. A wholly-owned subsidiary of CRIIMI
MAE, CRIIMI MAE Management, Inc., provides personnel and administrative services
to the Partnership on behalf of the General Partner. The Partnership reimburses
CRIIMI MAE Management, Inc. for these services on an actual cost basis pursuant
to the terms of the Partnership Agreement.
The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.95% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP, as sub-advisor, a fee of 0.28% (the "Sub-Advisory Fee")
of Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 8 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.
5
Competition
-----------
The Partnership's business consists of holding government insured mortgage
investments primarily on multifamily housing properties, and distributing the
payments of principal and interest on such mortgage investments, including
debentures issued by the United States Department of Housing and Urban
Development ("HUD") in exchange for such mortgages, to the holders of its
depository units of limited partnership interests ("Unitholders"). The
Partnership may elect to dispose of its mortgage investments through a sale to
third parties. In disposing of mortgage investments, the Partnership competes
with private investors, mortgage banking companies, mortgage brokers, state and
local government agencies, lending institutions, trust funds, pension funds, and
other entities, some with similar objectives to those of the Partnership and
some of which are or may be affiliates of the Partnership, its General Partner,
the Advisor, CMSLP or their respective affiliates. Some of these entities may
have substantially greater capital resources and experience in disposing of
mortgages investments than the Partnership.
CRIIMI MAE and its affiliates also may serve as general partners or
managers of real estate limited partnerships, real estate investment trusts or
other similar entities in the future. The Partnership may attempt to dispose of
mortgages at or about the same time that CRIIMI MAE, one or more of the other
AIM Limited Partnerships and/or other entities managed by CRIIMI MAE or its
affiliates, or the Advisor or its affiliates, are attempting to dispose of
mortgages. As a result of market conditions that could have the effect of
limiting the number of mortgage dispositions or adversely affecting the proceeds
received from such dispositions, CMSLP, the General Partner and the Advisor and
their affiliates could be faced with conflicts of interest in determining which
mortgages would be disposed of and at which price. CMSLP, the General Partner
and the Advisor, however, are required to exercise their fiduciary duties of
good faith, care and loyalty when evaluating the appropriate action to be taken
when faced with such conflicts.
ITEM 2. PROPERTIES
The Partnership does not own any properties. Generally, the mortgages
underlying the Partnership's mortgage investments are primarily non-recourse
first liens on multifamily residential developments or retirement homes.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's Unitholders during
the fourth quarter of 2002.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER
MATTERS
Principal Market and Market Price for Units and Distributions
-------------------------------------------------------------
The depository units of Limited Partnership interests ("Limited Partnership
Units") are listed for trading on the American Stock Exchange ("AMEX") under the
trading symbol of "AIA." The high and low trade prices for the Units as reported
on AMEX and the distributions, as applicable, for each quarterly period in 2002
and 2001 were as follows:
Amount of
2002 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------
March 31 $ 2.65 $ 2.30 $ 0.16
June 30 2.50 2.21 0.05
September 30 2.39 2.15 0.47
December 31 2.29 1.55 0.18
------
$ 0.86
======
Amount of
2002 Distribution
Quarter Ended High Low Per Unit
------------- ---- --- --------
March 31 $ 2.60 $ 2.25 $ 0.05
June 30 2.75 2.40 0.05
September 30 2.70 2.30 0.17
December 31 3.00 2.30 0.05
------
$ 0.32
======
Detailed information regarding quarterly distributions is contained in Note
9 of the Notes to Financial Statements (filed in response to Item 8 hereof)
incorporated by reference herein.
There are no material legal restrictions upon the Partnership's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement. However, in August 2002, the Partnership announced that
regular net cash flow distributions for the third and fourth quarters of 2002
were being temporarily retained to fund the Partnership's operating expenses
during the period of reduced cash flows while mortgages are being put to HUD.
Quarterly net cash flow distributions are expected to resume in the first
quarter of 2003. Proceeds from mortgage dispositions and debenture redemptions,
if any, are expected to be distributed to investors as usual in the quarter in
which such proceeds are received.
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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested, by the General Partner,
prior to the payment of quarterly distributions, (2) the reduction in the asset
base resulting from monthly mortgage payments received or mortgage dispositions,
(3) variations in the cash flow attributable to the delinquency or default of
Insured Mortgages, the timing of receipt of debentures, the interest rate on
debentures and debenture redemptions, and (4) changes 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
As of December 31, 2002, there were approximately 6,800 Unitholders.
The Partnership has no compensation plans or individual compensation
arrangements under which equity securities of the Partnership are authorized for
issuance.
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per Unit amounts)
For the years ended December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income $ 1,857 $ 2,215 $ 2,279 $ 2,354 $ 3,191
Net gains from
mortgage dispositions 386 190 188 67 1,290
Net earnings 1,849 1,955 2,011 1,925 3,978
Net earnings per Limited
Partnership Unit - Basic (1) $ 0.18 $ 0.19 $ 0.20 $ 0.19 $ 0.39
Distributions per Limited
Partnership Unit (1)(2) $ 0.86 $ 0.32 $ 0.20 $ 0.36 $ 1.29
As of December 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Total assets $ 18,408 $ 24,138 $ 25,857 $ 26,416 $ 28,735
Partners' equity 16,492 23,530 25,271 25,422 27,750
(1) Calculated based upon the weighted average number of Limited Partnership
Units outstanding.
(2) Includes distributions due the Unitholders for the Partnership's fiscal
years ended December 31, 2002, 2001, 2000, 1999 and 1998 which were
partially paid subsequent to each year end. See Notes 8 and 9 of the Notes
to Financial Statements.
The selected income statement data presented above for the years ended
December 31, 2002, 2001 and 2000, and the selected balance sheet data as of
December 31, 2002 and 2001, are derived from, and are qualified by, reference to
the Partnership's financial statements, which are included elsewhere in this
Form 10-K. The selected income statement data for the years ended December 31,
1999 and 1998, and the selected balance sheet data as of December 31, 2000, 1999
and 1998 are derived from audited financial statements not included as part of
this Annual Report on Form 10-K. This data should be read in conjunction with
the financial statements and the notes thereto.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
-------
The following discussion and analysis contains statements that may be
considered forward looking. These statements contain a number of risks and
uncertainties as discussed herein and in Item 1 of this Form 10-K that could
cause actual results to differ materially.
Mortgage Investments
--------------------
The Partnership's investment in Insured Mortgages is comprised 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") and
FHA-insured mortgage loans ("FHA-Insured Loans"). The mortgages underlying the
FHA-Insured Certificates and FHA-Insured Loans are primarily non-recourse first
liens on multifamily residential developments or retirement homes.
As of March 1, 2003, all of the Insured Mortgages held by the Partnership
are eligible for assignment to HUD (i) as a default assignment or (ii) pursuant
to Section 221(g)(4) of the National Housing Act (the "Section 221 Program").
Under the Section 221 Program, a mortgagee has the right to assign a mortgage
("put") to the United States Department of Housing and Urban 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 during the one year period
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. AIM 85 is the named mortgagee for the Partnership's FHA-Insured
Certificates. AIM 85 is responsible for transferring to the Partnership the
related HUD insurance claim proceeds. Debenture interest is expected be paid to
the Partnership in the month it is received by AIM 85. Debenture proceeds are
expected to be paid to the Partnership in the month the debenture is redeemed by
HUD or sold by AIM 85. Based on the recommendation of CMSLP, the sub-advisor,
and the consent of the Advisor the General Partner may elect to put Insured
Mortgages to HUD, based upon, in general, but not limited to, (i) the interest
rates on mortgages, (ii) the interest rates on debentures issued by HUD and
(iii) the costs and risks associated with continuing to hold the Insured
Mortgages.
Once the servicer of an Insured Mortgage has filed an application for
insurance benefits ("HUD put date") under the Section 221 program on behalf of
the Partnership, the Partnership will no longer receive the monthly principal
and interest on the applicable mortgage, and instead, HUD will begin receiving
the monthly principal and interest. HUD issues debentures at the time the
mortgage is assigned to HUD (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 payment dates
of January 1 and July 1. The going Federal rate for HUD debentures issued under
the Section 221 Program for the period January 1 through June 30, 2002 was
6.375%; for the period July 1 through December 31, 2002 it was 6.625%; and for
the period January 1 through June 30, 2003 it is 5.75%. The Partnership will
recognize a gain on a mortgage assignment at the time it receives notification
9
that the assignment has been approved. HUD assignment approval generally occurs
when HUD transfers the debentures to the mortgagee and/or when the Partnership
receives cash for the accrued interest on the debentures. The Partnership
recognizes a loss on a mortgage assignment when it becomes probable that a loss
will be incurred. The gain or loss recognized is generally equal to proceeds
received from HUD, as discussed above, less the amortized cost of the Insured
Mortgage.
Pursuant to the terms of the Partnership Agreement, the Partnership must
terminate and dissolve after disposition of all Insured Mortgages and HUD
debentures held in its portfolio, but no later than December 31, 2008. Most of
the Insured Mortgages held by the Partnership have been put to HUD by the
respective servicers, as discussed below. The Partnership expects to dispose of
any remaining mortgages and HUD debentures prior to the December 31, 2008
partnership termination date. Early prepayment by HUD of all HUD debentures held
by the Partnership may effect an early termination and dissolution of the
Partnership before the stated termination date of December 31, 2008. As a
result, Unitholders' yield to maturity on their respective investments in the
Partnership may be adversely affected by such early termination of the
Partnership.
As of December 31, 2002, the Partnership had invested in 8 Insured
Mortgages, with an aggregate amortized cost of approximately $14.2 million, a
face value of approximately $17.3 million and a fair value of approximately
$17.4 million, as discussed below.
The following is a discussion of the types of the Partnership's mortgage
investments, along with the risks related to each type of investment:
Investment in FHA-Insured Loans
-------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of December 31, 2002 and 2001:
December 31,
2002 2001
---- ----
Number of
Acquired Insured Mortgages 3 3
Originated Insured Mortgage (1) - 1
Amortized Cost $ 7,507,672 $ 12,427,801
Face Value 9,407,103 14,428,107
Fair Value 9,419,737 13,846,281
(1) In July 2002, the mortgage on Creekside Village Apartments was prepaid. The
Partnership received net proceeds of approximately $4.9 million and
recognized a gain of approximately $96,000 for the year ended December 31,
2002. A distribution of approximately $0.47 per Unit related to the
prepayment of this mortgage was declared in September 2002 and paid to
Unitholders in November 2002.
As of March 1, 2003, all of the FHA-Insured Loans are current with respect
to payment of principal and interest, except for the mortgage on Town Park
Apartments, which is delinquent with respect to the February 2003 payment of
principal and interest. This mortgage is eligible under the Section 221 Program
with an anniversary date in October 2002. The Partnership expects this mortgage
to be put to HUD, if not otherwise disposed, by the servicer during the second
quarter of 2003.
10
The mortgages discussed below are included in the table above.
The Section 221 Program
-----------------------
a. Issuance of debenture
---------------------
In February 2003, HUD transferred assignment proceeds to the Partnership in
the form of a 6.375% debenture in exchange for the mortgage on Eastdale
Apartments. The servicer of this mortgage filed an application for insurance
benefits under the Section 221 Program in June 2002. The debenture, with a face
value of approximately $6.1 million, pays interest semi-annually on January 1
and July 1 with a maturity date of June 26, 2012. The debenture may be called
prior to its maturity date. A distribution will be declared after the debenture
proceeds are received. In February 2003, the Partnership received approximately
$201,000 in cash of accrued interest on this debenture. The Partnership expects
to recognize a gain of approximately $1.2 million during the first quarter of
2003. The amortized cost of the mortgage on Eastdale Apartments is included in
Investment in FHA-Insured Loans on the Partnership's balance sheet as of
December 31, 2002.
b. Mortgages in the HUD assignment process
---------------------------------------
The mortgage on North River Place was put to HUD under the Section 221
Program by the servicer in June 2002. The aggregate face value of this mortgage
was approximately $2.8 million 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 earns semi-annual interest on debentures issued by HUD, as discussed
above. The Partnership has not received approval for this assignment as of March
1, 2003, and will continue to accrue interest on the mortgage until the
debenture is transferred to the mortgagee and the Partnership begins receiving
the debenture interest. The amortized cost of this mortgage is included in
Investment in FHA-Insured Loans on the Partnership's balance sheet as of
December 31, 2002.
Investment in FHA-Insured Certificates
--------------------------------------
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of December 31, 2002 and 2001:
December 31,
2002 2001
---- ----
Number of mortgages (1)(2) 5 6
Amortized Cost $ 6,685,273 $ 8,415,866
Face Value 7,936,376 10,037,064
Fair Value 7,966,438 9,727,346
(1) In December 2002, the mortgage on Bay Pointe Apartments was prepaid. The
Partnership received net proceeds of approximately $1.9 million and
recognized a gain of approximately $290,000 for the year ended December 31,
2002. A distribution of approximately $0.18 per Unit related to the
prepayment of this mortgage was declared in December 2002 and was paid to
Unitholders in February 2003.
(2) In January 2003, the Partnership received assignment proceeds from HUD for
the mortgage on Westbrook Apartments. The servicer of this mortgage filed a
Notice of Election to Assign in November 2002 due to its default status.
The Partnership received net proceeds of approximately $1.5 million, which
included 90% of the unpaid principal balance of this mortgage, plus
interest at the debenture rate of 9.875% from September 2002 through
January 2003. The remaining amount due from HUD is approximately $150,000
(representing 9% of the unpaid principal balance) and is expected to be
received during the next 12 months. The Partnership expects to recognize a
gain of approximately $228,000 for the first quarter 2003. The Partnership
expects to declare a distribution of approximately $0.14 per Unit related
to this assignment in March 2003 and expects to pay to Unitholders in May
2003.
As of March 1, 2003, all of the Partnership's FHA-Insured Certificates were
current with respect to the payment of principal and interest.
11
The mortgages discussed below are included in the table above.
The Section 221 Program
-----------------------
a. Issuance of Debenture
---------------------
In February 2003, HUD transferred assignment proceeds to AIM 85 in the form
of a 6.375% debenture in exchange for the mortgage on Baypoint Shoreline
Apartments. The mortgage on Baypoint Shoreline Apartments was beneficially owned
50% by the Partnership and 50% by AIM 85. The servicer of this mortgage filed an
application for insurance benefits under the Section 221 Program in June 2002.
The debenture, with a face value of approximately $1.8 million, pays interest
semi-annually on January 1 and July 1 with a maturity date of June 27, 2012. The
debenture may be called prior to its maturity date. A distribution will be
declared after the debenture proceeds are received. Since the mortgage on
Baypoint Shoreline Apartments was owned 50% by the Partnership and 50% by AIM
85, approximately $906,000 of the debenture face is due to the Partnership. In
February 2003, the Partnership received approximately $29,000 in cash of accrued
interest on this debenture from AIM 85. The Partnership expects to recognize a
gain of approximately $131,000 during the first quarter of 2003. The fair value
of the mortgage on Baypoint Shoreline Apartments is included in Investment in
FHA-Insured Certificates on the Partnership's balance sheet as of December 31,
2002.
b. Mortgages in the HUD assignment process
---------------------------------------
The mortgages on Brougham Estates and College Green Apartments were put to
HUD under the Section 221 Program by the respective servicers in February 2003.
The aggregate face value of these mortgages was approximately $3.7 million 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 earns
semi-annual interest on debentures issued by HUD, as discussed above. The
Partnership has not received approval for these assignments as of March 1, 2003,
and will continue to accrue interest on these mortgages until the debentures are
transferred to the mortgagee and the Partnership begins receiving the debenture
interest. The fair value of these mortgages is included in Investment in
FHA-Insured Certificates on the Partnership's balance sheet as of December 31,
2002.
c. Remaining mortgages eligible for assignment
-------------------------------------------
The Partnership's mortgage portfolio includes one FHA-Insured Certificate,
Kaynorth Apartments, eligible under the Section 221 Program with an anniversary
date in September 2002. The Partnership expects this mortgage to be put to HUD,
if not otherwise disposed, by the servicer during the second quarter of 2003.
Due from affiliate
------------------
The mortgage on Fox Run Apartments was beneficially owned 50% by the
Partnership and 50% by AIM 85. A 7.125% debenture, with a face value of
approximately $2.4 million, was issued by HUD to AIM 85 in December 2000 with
interest payable semi-annually on January 1 and July 1. In January 2002, the
debenture was liquidated at par value. The Partnership received approximately
$1.2 million for its share of the debenture proceeds, including interest of
approximately $42,000. A distribution of approximately $0.11 per Unit related to
the receipt of these proceeds was declared in March 2002 and paid to Unitholders
in May 2002.
Results of Operations
---------------------
2002 compared to 2001
---------------------
Net earnings decreased by approximately $106,000 for 2002 as compared to
2001 primarily due to a decrease in mortgage investment income, partially offset
by an increase in gains on mortgage dispositions, as discussed below.
12
Mortgage investment income decreased by approximately $292,000 for 2002 as
compared to 2001 primarily due to a reduction in the mortgage base. The mortgage
base decreased due to the prepayment of the mortgages on Creekside Village
Apartments and Bay Pointe Apartments in July 2002 and December 2002,
respectively. The aggregate principal balance of these two mortgages was
approximately $6.8 million, representing an approximate 30% decrease in the
aggregate principal balance of the total mortgage portfolio since December 2001.
Interest and other income decreased by approximately $65,000 for 2002 as
compared to 2001. This decrease is primarily due to a decrease in interest
earned on the HUD debenture due from an affiliate, as discussed above, partially
offset by an increase in interest earned on the temporary investment of mortgage
disposition proceeds prior to distribution.
Asset management fee to related parties decreased by approximately $29,000
for 2002 as compared to 2001 primarily due to a reduction in the mortgage base,
as previously discussed.
General and administrative expenses decreased by approximately $28,000 for
2002 as compared to 2001 primarily due to a decrease in overhead costs directly
related to the size of the mortgage base.
Gains on mortgage dispositions increased by approximately $196,000 for 2002
as compared to 2001. During 2002, the Partnership recognized gains of
approximately $386,000 on the prepayment of the mortgages on Creekside Village
Apartments and Bay Pointe Apartments. During 2001, the Partnership recognized a
gain of approximately $190,000 on the prepayment of the mortgage on Berryhill
Apartments.
2001 compared to 2000
---------------------
Net earnings decreased by approximately $56,000 for 2001 as compared to
2000 primarily due to a decrease in mortgage investment income, as discussed
below.
Mortgage investment income decreased by approximately $154,000 for 2001 as
compared to 2000 primarily due to a reduction in the mortgage base. The mortgage
base decreased due to the assignment of the mortgage on Fox Run Apartments in
December 2000 and the prepayment of the mortgage on Berryhill Apartments in
September 2001. The aggregate principal balance of these two mortgages was
approximately $2.4 million, representing an approximate 9% decrease in the
aggregate principal balance of the total mortgage portfolio since November 2000.
Interest and other income increased by approximately $90,000 for 2001 as
compared to 2000. This increase is primarily due to the timing of temporary
investment of mortgage disposition proceeds prior to distribution.
Asset management fee to related parties decreased by approximately $13,000
for 2001 as compared to 2000 primarily due to a reduction in the mortgage base,
as previously discussed.
Gains on mortgage dispositions increased by approximately $2,000 for 2001
as compared to 2000. In 2001, a gain of approximately $190,000 was recognized
from the prepayment of the mortgage on Berryhill Apartments, as discussed above.
In 2000, a gain of approximately $188,000 was realized on the assignment of the
mortgage on Fox Run Apartments, as previously discussed.
Liquidity and Capital Resources
-------------------------------
The Partnership's remaining Insured Mortgages may be put to HUD by October
2003, if not otherwise disposed, as previously discussed. As these mortgages are
put to HUD, the Partnership's net cash flows could be significantly reduced for
several months. As a result, net cash flow distributions for the third and
fourth quarters of 2002 were temporarily retained to fund the Partnership's
operating expenses during the period of reduced cash flows. Quarterly net cash
flow distributions are expected to resume in the first quarter of 2003. Proceeds
13
from mortgage dispositions and debenture redemptions, if any, are expected to be
distributed to investors as usual in the quarter in which such proceeds are
received.
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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from
monthly mortgage payments received or mortgage dispositions, (3) variations in
the cash flow attributable to the delinquency or default of Insured Mortgages,
the timing of receipt of debentures, the interest rate on debentures and
debenture redemptions, and (4) changes 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.
Since the Partnership is obligated to distribute the proceeds of mortgage
prepayments, sales and insurance on Insured Mortgages (as defined in the
Partnership Agreement) to its Unitholders, the size of the Partnership's
portfolio will continue to decrease. The magnitude of the decrease will depend
upon the size of the Insured Mortgages which are prepaid, sold or assigned for
insurance proceeds.
Cash Flow - 2002 compared to 2001
---------------------------------
Net cash provided by operating activities decreased by approximately
$776,000 in 2002 as compared to 2001 primarily due to lower mortgage investment
income resulting from a reduction in the mortgage base, as discussed previously,
and an increase in receivables and other assets of approximately $424,000. The
increase in receivables and other assets is due to an increase in principal and
interest accrued for the mortgages awaiting assignment to HUD under the Section
221 Program, as previously discussed.
Net cash provided by investing activities increased by approximately $6.7
million for 2002 as compared to 2001, primarily due to an increase in proceeds
received from the prepayment of mortgages and the receipt of debenture proceeds
from AIM 85 in 2002, as discussed above.
Net cash used in financing activities increased by approximately $4.2
million for 2002 as compared to 2001 due to an increase in distributions paid to
partners.
Cash Flow - 2001 compared to 2000
---------------------------------
Net cash provided by operating activities increased by approximately
$7,000 in 2001 as compared to 2000.
Net cash provided by investing activities increased by approximately $1.2
million for 2001 as compared to 2000, due to the increase in proceeds received
from the disposition of mortgages, as previously discussed.
Net cash used in financing activities increased by approximately $824,000
for 2001 as compared to 2000 due to an increase in distributions paid to
partners.
Critical Accounting Policy
--------------------------
The Partnership's significant accounting polices are described in Note 2 to
the Financial Statements. The Partnership believes its most critical accounting
policy (a critical accounting policy being one that is both very important to
the portrayal of the Partnership's financial condition and results of operations
and requires management's most difficult, subjective, or complex judgments) is
the determination of fair value of Insured Mortgages.
14
- Fair Value of Insured Mortgages - The Partnership estimates the fair value
of its Insured Mortgages internally. The Partnership uses a discounted cash
flow methodology to estimate the fair value. This requires the Partnership
to make certain estimates regarding discount rates and expected
prepayments. The cash flows were discounted using a discount rate that, in
the Partnership's view, was commensurate with the market's perception of
risk and value. The Partnership used a variety of sources to determine its
discount rate including: (i) institutionally-available research reports,
and (ii) communications with dealers and active insured mortgage security
investors regarding the valuation of comparable securities. Increases in
the discount rate used by the Partnership would generally result in a
corresponding decrease in the fair value of the Partnership's insured
mortgages. Decreases in the discount rate used by the Partnership would
generally result in a corresponding increase in the fair value of the
Partnership's insured mortgages. The Partnership also makes certain
assumptions regarding the prepayment speeds of its Insured Mortgages. In a
low interest rate environment, mortgages are more likely to prepay even if
the mortgage contains prepayment penalties. In general, if the Partnership
increases its assumed prepayment speed, the fair value of the Insured
Mortgages will decrease. If the Partnership decreases its assumed
prepayment speed, the fair value of the Insured Mortgages will increase.
Recent Accounting Pronouncements
--------------------------------
In January 2003, the FASB issued FASB Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.
15
ITEM 7A. 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 December 31, 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 Partnership has changed its method of presenting market risk
disclosures from those disclosures presented in the December 31, 2001 Annual
Report on Form 10-K. The Partnership believes that the market risk disclosures
presented below provide more meaningful information to its Unitholders in
assessing the affect of changes in interest rates on the values of its assets.
As of December 31, 2002, the weighted average life of the U.S. Treasury
securities that were used to value the insured mortgage securities were shorter
than those used at December 31, 2001 due to lower market interest rates and
other loan attributes of the underlying insured mortgage securities, which made
the likelihood of the mortgage assets prepaying greater than the previous year.
If the Partnership assumed that the discount rate used to determine the fair
values of its insured mortgage securities increased by 100 basis points and 200
basis points, the increase in the discount rate would have resulted in a
corresponding decrease in the fair values of its insured mortgage securities by
approximately $23,000 (or 0.1%) and approximately $46,000 (or 0.3%),
respectively, as of December 31, 2002. A 100 basis point and 200 basis point
increase in the discount rate would have resulted in a corresponding decrease in
the fair values of the Partnership's insured mortgage securities by
approximately $987,000 (or 4.2%) and approximately $1.9 million (or 8.1%),
respectively, as of December 31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in this Annual Report on
Form 10-K commencing on page 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On May 8, 2002, the Board of Directors of the General Partner of the
Partnership dismissed Arthur Andersen LLP ("Arthur Andersen") as the
Partnership's independent auditors. Arthur Andersen had served as the
Partnership's independent accountants since 1991.
Arthur Andersen's reports on the Partnership's financial statements for
each of the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.
During each of the Partnership's two most recent fiscal years and through
the date of Arthur Andersen's dismissal, there were: (i) no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statements disclosure, or auditing scope or procedure which, if not resolved to
Arthur Andersen's satisfaction, would have caused them to make reference to the
subject matter in connection with their report on the Partnership's financial
statements for such years; and (ii) there were no reportable events as defined
in Item 304(a)(1)(v) of Regulation S-K.
The Partnership had provided Arthur Andersen with a copy of the foregoing
disclosure. The Partnership requested Arthur Andersen to furnish it with a
16
letter addressed to the SEC stating whether it agreed with the above statements.
A copy of that letter dated May 9, 2002 was filed as Exhibit 16 to the Form 8-K
filed with the SEC by the Partnership on May 10, 2002.
On June 5, 2002, the General Partner of the Partnership appointed Ernst &
Young LLP to audit the Partnership's financial statements for the year ending
December 31, 2002. During the years ended December 31, 2001 and 2000 and the
subsequent interim period through June 5, 2002, neither the Partnership nor
anyone on its behalf consulted Ernst & Young LLP with respect to the application
of accounting principles to a specified transaction either completed or
proposed, or the type of audit opinion that might be rendered on the
Partnership's financial statements or any other matters or reportable events
listed in Items 304(a)(2)(1) and (11) of Regulation S-K.
17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OT THE REGISTRANT
The Partnership has no executive officers or directors. The Partnership
does not directly employ any persons responsible for managing or operating the
Partnership or for providing services relating to day to day business affairs.
The affairs of the Partnership are managed by its General Partner, CRIIMI, Inc.
a wholly-owned subsidiary of CRIIMI MAE, a corporation whose shares are listed
on the New York Stock Exchange. CRIIMI, Inc. holds a general partnership
interest of 2.9%.
The business of the Partnership is managed by its General Partner while its
portfolio of mortgages is managed by the Advisor and CMSLP pursuant to the
Advisory Agreements and Sub-Advisory Agreements, respectively, as discussed
above. A wholly-owned subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc.,
provides personnel and administrative services to the Partnership on behalf of
the General Partner.
The General Partner is also the general partner of AIM 85, AIM 86 and AIM
88, limited partnerships with investment objectives similar to those of the
Partnership.
The Board of Directors of the General Partner has established a committee
(the "Audit Committee") consisting of independent directors (as defined in
Section 121 of the AMEX listing standards.) The Audit Committee of the General
Partner has appointed Ernst & Young LLP as the Partnership's independent public
accountants for the fiscal year ending December 31, 2003, such appointment to
continue at the discretion of the Audit Committee.
All directors of the General Partner are elected annually by CRIIMI MAE.
All executive officers serve at the discretion of the General Partner. There are
no family relationships among any directors or executive officers of the General
Partner.
The following table sets forth information concerning the executive
officers and the directors of the General Partner as of March 5, 2003:
Name Age Position
---- --- --------
Barry S. Blattman 40 Chairman of the Board of Directors,
President and Chief Executive Officer
David B. Iannarone 42 Executive Vice President,
Chief Operating Officer and a Director
Cynthia O. Azzara 43 Senior Vice President, Chief Financial Officer and Treasurer
Craig M. Lieberman 41 Senior Vice President and
Chief Portfolio Risk Officer
Brian L. Hanson 41 Senior Vice President
John R. Cooper 55 Director
Robert J. Merrick 57 Director
Robert E. Woods 55 Director
18
Barry S. Blattman has been Chairman of the Board of Directors, Chief
Executive Officer and President of the General Partner since January 23, 2003.
Mr. Blattman is the Managing Partner of Brascan Real Estate Financial Partners.
From 1996 until the end of 2001, Mr. Blattman was a Managing Director of Real
Estate Investment Banking at Merrill Lynch.
David B. Iannarone has served as Chief Operating Officer and Director of
the General Partner since January 2003 and Executive Vice President of the
General Partner since December 2000, as Senior Vice President and General
Counsel of the General Partner from March 1998 to December 2000; and as Vice
President and General Counsel of the General Partner from July 1996 to March
1998.
Cynthia O. Azzara has served as Chief Financial Officer of the General
Partner since 1994, as Senior Vice President of the General Partner since 1995
and Treasurer of the General Partner since 1997.
Craig M. Lieberman has served as Senior Vice President and Chief Portfolio
Risk Officer of the General Partner since February 2003. From 2001 to January
2003, Mr. Lieberman was a managing partner for Quantico Partners. From 1998 to
2001, Mr. Lieberman served as the Director of Commercial Mortgage-Backed
Securitization for First Union Securities. From 1996 to 1998 Mr. Lieberman
practiced as both a partner and counsel in the law firm of Kilpatrick &
Stockton, LLP.
Brian L. Hanson has served as Senior Vice President of the General Partner
since March 1998; and as Group Vice President of the General Partner from March
1996 to March 1998.
John R. Cooper has served as Director of the General Partner since April
2001. Mr. Cooper was Senior Vice President, Finance, of PG&E National Energy
Group, Inc. until February 2003. He had been with PG&E National Energy Group,
Inc. and its predecessor, U.S. Generating Company, since its inception in 1989.
Robert J. Merrick has served as Director of the General Partner since 1997.
Mr. Merrick has served as Chief Credit Officer and Director of MCG Capital
Corporation since February 1998; Executive Vice President from 1985 and Chief
Credit Officer of Signet Banking Corporation through 1997. While at Signet, Mr.
Merrick also served as Chairman of the Credit Policy Committee and member of the
Asset and Liability Committee and the Management Committee.
Robert E. Woods has served as Director of the General Partner since 1998.
Mr. Woods has served as Managing Director and Head of Loan Syndications for the
Americas at Societe Generale, New York since 1997, and as Managing Director,
Head of Real Estate Capital Markets and Mortgage-Backed Securities division at
Citicorp from 1991 to 1997.
Section 16(a) Beneficial Ownership Reporting Compliance - Section 16 of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") requires each
director and executive officer of the General Partner and each person who owns
more than 10% of the Partnership's Units to report to the SEC by a specified
date, his, her or its beneficial ownership of, and certain transactions in the
Partnership's Units. Based solely on its review of Forms 3, 4 and 5 and
amendments thereto furnished to the Partnership, and written representations
from certain reporting persons that no Form 5's were required for those persons,
the Partnership believes that all directors, executive officers and beneficial
owners of more than 10% of the Partnership's Units have filed on a timely basis
Forms 3, 4 and 5 as required in the fiscal year ended December 31, 2002.
19
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or executive officers. The
Partnership does not directly employ any persons responsible for managing or
operating the Partnership or for providing services relating to day to day
business affairs. The General Partner provides such services for the
Partnership. None of the directors or executive officers of the General Partner,
however, received compensation from the Partnership, and the General Partner
does not receive reimbursement from the Partnership for any portion of their
salaries or other compensation. The Partnership's portfolio of mortgages is
managed by the Advisor and CMSLP pursuant to the Advisory Agreements and
Sub-Advisory Agreement, respectively, as discussed above. A wholly-owned
subsidiary of CRIIMI MAE, CRIIMI MAE Management, Inc. provides personnel and
administrative services to the Partnership on behalf of the General Partner. The
Partnership reimburses CRIIMI MAE Management, Inc. for these services on an
actual cost basis.
The fee paid by the Partnership to the Advisor for services performed under
the Advisory Agreements (the "Advisory Fee"), is equal to 0.95% of the
Partnership's Total Invested Assets (as defined in the Partnership Agreement).
The Advisor pays CMSLP as sub-advisor, a fee of 0.28% (the "Sub-Advisory Fee")
of Total Invested Assets for services performed under the Sub-Advisory Agreement
from its Advisory Fee. The Partnership is not liable for paying the Sub-Advisory
Fee to CMSLP. Additional information concerning these fees is contained in Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and in Note 8 of the Notes to Financial Statements (filed
in response to Item 8 hereof), all of which are incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND
RELATED UNITHOLDER MATTERS
The Partnership does not provide for equity compensation plans.
(a) The following table sets forth certain information regarding the beneficial
ownership of Units as of March 5, 2003, by holders of more than five
percent (5%) of the Partnership's Units.
Number of Percent of
Name Address Units Class
---- ------- ----- -----
Financial and Investment 417 St. Joseph Street
Management Group, Ltd. * P.O. Box 40
Suttins Bay, MI 49682 2,051,262 20.51%
* An Investment Advisor
(b) The following table sets forth certain information regarding the beneficial
ownership of the Partnership's Units as of March 5, 2003 by each person
known by the Partnership to be the beneficial owner of more than 5% of its
Units, each director of the General Partner, each named executive officer
of the General Partner, and by affiliates of the Partnership. Unless
otherwise indicated, each Unitholder has sole voting and investment power
with respect to the Units beneficially owned.
Amount and Nature
of Units Percentage of Units
Name Beneficially Owned Outstanding
---- ------------------ -----------
CRIIMI MAE 12,045 *
* Less than 1%
(c) There are no arrangements known to the Partnership, the operation of which
may at any subsequent date result in a change in control of the
Partnership.
20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
Note 8 of the Notes to Financial Statements of the Partnership contains a
discussion of the amounts, fees and other compensation paid or accrued by
the Partnership to the directors and executive officers of the General
Partner and their affiliates, and is hereby incorporated by reference
herein.
(b) Certain business relationships.
Other than as set forth in Item 11 of this Annual Report on Form 10-K which
is hereby incorporated by reference herein, the Partnership has no business
relationship with entities of which the current General Partner of the
Partnership are officers, directors or equity owners.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days prior to the date of filing this Annual Report on Form 10-K,
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 and Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO), of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. 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 its most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
21
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
Page
Description Number
----------- ------
Balance Sheets as of December 31, 2002 and 2001 ............................................................................ 30
Statements of Income and Comprehensive Income for the years
ended December 31, 2002, 2001 and 2000 ................................................................................ 31
Statements of Changes in Partners' Equity for the years
ended December 31, 2002, 2001 and 2000 ................................................................................ 32
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 .............................................. 33
Notes to Financial Statements .............................................................................................. 34
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate ................................................................................ 45
All other schedules have been omitted because they are not applicable,
not required, or the information is included in the Financial
Statements or Notes thereto.
(a)(3) Exhibits:
4.0 Amended and Restated Certificates of Limited Partnership are
incorporated by reference to Exhibit 4(a) to the Registration
Statement on Form S-11 (No. 33-6747) dated June 25, 1986 (such
Registration Statement, as amended, is referred to herein as the
"Registration Statement").
4.1 Agreement of Limited Partnership, incorporated by reference to Exhibit
3 to the Registration Statement.
4.2 Form of Depository Receipt, incorporated by reference to Exhibit 4(b)
to the Registration Statement.
4.3 Amendment to the Amended and Restated Agreement of Limited Partnership
of the Partnership dated February 12, 1990, incorporated by reference
to Exhibit 4(c) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1989.
4.4 Amendments to Partnership Agreement dated August 16, 1991,
incorporated by reference to Exhibit 28(c) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1991.
10.0 Origination and Acquisition Services Agreement, dated September 1,
1983, between the Partnership and IFI, incorporated by reference to
Exhibit 10(b) to the registration statement on Form S-11 (No. 2-85476)
dated November 30, 1983 (such registration statement, as amended, is
referred to herein as the "Initial Registration Statement").
10.1 Management Services Agreement, dated November 30, 1983, between the
Partnership and IFI, incorporated by reference to Exhibit 10(c) to the
Initial Registration Statement.
22
10.2 Disposition Services Agreement, dated November 30, 1983, between the
Partnership and IFI, incorporated by reference to Exhibit 10(d) to the
Initial Registration Statement.
10.3 Agreement, dated November 30, 1983, among the former managing general
partner, the former associate general partner and Integrated
Resources, Inc., incorporated by reference to Exhibit 10(e) to the
Initial Registration Statement.
10.4 Reinvestment Plan, incorporated by reference to the Prospectus
contained in the Registration Statement.
10.5 Mortgage Note dated March 26, 1986 between Mastic Associates and IFI,
incorporated by reference to Exhibit 10(l) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1986.
10.6 Mortgage dated March 26, 1986 between Mastic Associates and IFI,
incorporated by reference to Exhibit 10(m) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1986.
10.7 Mortgagor/Mortgagee Agreement dated March 26, 1986 between Mastic
Associates and IFI, incorporated by reference to Exhibit 10(n) to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1986.
10.8 Lease Agreement dated as of December 10, 1984 between NHP Land
Associates, as Landlord and Mastic Associates, as Tenant, incorporated
by reference to Exhibit 10(o) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1986.
10.9 Purchase Agreement among AIM Acquisition, the former managing general
partner, the former corporate general partner, Integrated Funding,
Inc. and Integrated Resources, Inc. dated as of December 1, 1990, as
amended January 9, 1991, incorporated by reference to Exhibit 28(a) to
the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1990.
10.10 Purchase Agreement among CRIIMI, Inc., AIM Acquisition, the former
managing general partner, the former corporate general partner, IFI
and Integrated dated as of December 13, 1990 and executed as of
September 6, 1991, incorporated by reference to Exhibit 28(b) to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 1990.
10.11 Sub-Management Agreement by and between AIM Acquisition and CRI/AIM
Management, Inc. dated as of March 1, 1991, incorporated by reference
to Exhibit 28(d) to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1992.
16.0 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 9, 2002, regarding the General Partner's decision
to change its certifying accountant, incorporated by reference to
Exhibit 16 to the Partnership's Form 8-K filed on May 10, 2002.
99.0 Letter to Securities and Exchange Commission from the Partnership
dated March 20, 2002, regarding the representation received from
Arthur Andersen LLP in performing the audit of the December 31, 2001
financial statements, incorporated by reference to Exhibit 99.0 to the
Partnership's Annual Report on Form 10-K for the year ended December
31, 2001.
23
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Barry S. Blattman, Chief Executive Officer of the General
Partner (Filed herewith).
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 from Cynthia O. Azzara, Chief Financial Officer of the General
Partner (Filed herewith).
(b) Reports on Form 8-K filed during the last quarter of the fiscal year:
None.
All other items are not applicable.
24
SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Barry S. Blattman, his attorney-in-fact,
each with the power of substitution for him in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorney-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMERICAN INSURED MORTGAGE
INVESTORS (Registrant)
By: CRIIMI, Inc.
General Partner
March 19, 2003 /s/Barry S. Blattman
-------------- --------------------------------------
DATE Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
(Principal Executive Officer)
March 20, 2003 /s/Cynthia O. Azzara
-------------- --------------------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Accounting Officer)
March 19, 2003 /s/David B. Iannarone
-------------- --------------------------------------
DATE David B. Iannarone
Executive Vice President,
Chief Operating Officer and a Director
March 19, 2003 /s/John R. Cooper
-------------- --------------------------------------
DATE John R. Cooper
Director
March 19, 2003 /s/Robert J. Merrick
-------------- --------------------------------------
DATE Robert J. Merrick
Director
March 19, 2003 /s/Robert E. Woods
-------------- --------------------------------------
DATE Robert E. Woods
Director
25
I, Barry S. Blattman, Chairman of the Board, Chief Executive Officer and
President, certify that:
1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual report whether 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
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: March 19, 2003 /s/Barry S. Blattman
-------------- -------------------------------------
Barry S. Blattman
Chairman of the Board,
Chief Executive Officer and President
26
I, Cynthia O. Azzara, Senior Vice President, Chief Financial Officer and
Treasurer, certify that:
1. I have reviewed this annual report on Form 10-K of American Insured
Mortgage Investors;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and
c) Presented in this annual 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
annual report whether 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
(Registrant)
By: CRIIMI, Inc.
General Partner
Date: March 20, 2003 /s/ Cynthia O. Azzara
-------------- -----------------------------------------------
Cynthia O. Azzara
Senior Vice President, Chief Financial Officer,
and Treasurer
27
AMERICAN INSURED MORTGAGE INVESTORS
Financial Statements
as of December 31, 2002 and 2001
and for the Years Ended
December 31, 2002, 2001 and 2000
28
REPORT OF INDEPENDENT AUDITORS
Partners
American Insured Mortgage Investors
We have audited the accompanying balance sheet of American Insured Mortgage
Investors (the Partnership) as of December 31, 2002, and the related statements
of income and comprehensive income, changes in partners' equity, and cash flows
for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 15(a)(2). These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit. The financial statements of the Partnership as of
December 31, 2001, and for the years ended December 31, 2001 and 2000, were
audited by other auditors who have ceased operations and whose report dated
March 4, 2002, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership at December
31, 2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/Ernst & Young LLP
McLean, Virginia
March 14, 2003
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of American Insured Mortgage Investors:
We have audited the accompanying balance sheets of American Insured
Mortgage Investors (the "Partnership") as of December 31, 2001 and 2000, and the
related statements of income and comprehensive income, changes in partners'
equity and cash flows for the years ended December 31, 2001, 2000 and 1999.
These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 2001 and 2000, and the results of its operations and its cash flows
for the years ended December 31, 2001, 2000 and 1999, in conformity with
accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule IV-Mortgage Loans on Real Estate
as of December 31, 2001 is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not a required
part of the basic financial statements. The information in this schedule has
been subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Vienna, Virginia
March 4, 2002
--------------------------------------------------------------------------------
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with the Partnership's filing of its Annual Report on Form 10-K for
the year ended December 31, 2001. This audit report has not been reissued by
Arthur Andersen LLP in connection with this Annual Report on Form 10-K. See
exhibit 16.0 for further discussion.
30
AMERICAN INSURED MORTGAGE INVESTORS
BALANCE SHEETS
December 31, December 31,
2002 2001
------------ ------------
ASSETS
Investment in FHA-Insured Loans, at amortized cost,
net of unamortized discount:
Originated insured mortgages $ - $ 4,806,675
Acquired insured mortgages 7,507,672 7,621,126
------------ ------------
7,507,672 12,427,801
Investment in FHA-Insured Certificates,
at fair value 7,966,438 9,727,346
Cash and cash equivalents 2,252,969 534,890
Receivables and other assets 680,850 212,451
Due from affiliate - 1,235,104
------------ ------------
Total assets $ 18,407,929 $ 24,137,592
============ ============
LIABILITIES AND PARTNERS' EQUITY
Distributions payable $ 1,853,782 $ 514,940
Accounts payable and accrued expenses 62,286 92,319
------------ ------------
Total liabilities 1,916,068 607,259
------------ ------------
Partners' equity:
Limited partners' equity, 10,000,125 Units authorized,
issued and outstanding 20,710,971 27,515,891
General partner's deficit (5,500,275) (5,297,038)
Accumulated other comprehensive income 1,281,165 1,311,480
------------ ------------
Total partners' equity 16,491,861 23,530,333
------------ ------------
Total liabilities and partners' equity $ 18,407,929 $ 24,137,592
============ ============
The accompanying notes are an integral part
of these financial statements.
31
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the years ended December 31,
2002 2001 2000
------------ ------------ ------------
Income:
Mortgage investment income $ 1,818,290 $ 2,110,712 $ 2,264,907
Interest and other income 38,755 104,224 13,933
------------ ------------ ------------
1,857,045 2,214,936 2,278,840
------------ ------------ ------------
Expenses:
Asset management fee to related parties 195,466 224,202 237,264
General and administrative 198,606 226,255 219,282
------------ ------------ ------------
394,072 450,457 456,546
------------ ------------ ------------
Earnings before gains on mortgage dispositions 1,462,973 1,764,479 1,822,294
Gains on mortgage dispositions 385,829 190,206 188,455
------------ ------------ ------------
Net earnings $ 1,848,802 $ 1,954,685 $ 2,010,749
============ ============ ============
Other comprehensive loss - adjustment to unrealized
gains on investments in insured mortgages (30,315) (399,261) (102,162)
------------ ------------ ------------
Comprehensive income $ 1,818,487 $ 1,555,424 $ 1,908,587
============ ============ ============
Net earnings allocated to:
Limited partners - 97.1% $ 1,795,187 $ 1,897,999 $ 1,952,437
General partner - 2.9% 53,615 56,686 58,312
------------ ------------ ------------
$ 1,848,802 $ 1,954,685 $ 2,010,749
============ ============ ============
Net earnings per Limited Partnership Unit - Basic $ 0.18 $ 0.19 $ 0.20
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
32
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 2002, 2001 and 2000
Accumulated
Other Total
General Limited Comprehensive Partners'
Partner Partners Income Equity
------------- ------------- ------------- -------------
Balance, January 1, 2000 $ (5,256,730) $ 28,865,520 $ 1,812,903 $ 25,421,693
Net earnings 58,312 1,952,437 - 2,010,749
Adjustment to unrealized gains on
investments in insured mortgages - - (102,162) (102,162)
Distributions paid or accrued of $0.20 per Unit,
including return of capital of $0 per Unit (59,733) (2,000,025) - (2,059,758)
------------- ------------- ------------ -------------
Balance, December 31, 2000 (5,258,151) 28,817,932 1,710,741 25,270,522
Net earnings 56,686 1,897,999 - 1,954,685
Adjustment to unrealized gains on
investments in insured mortgages - - (399,261) (399,261)
Distributions paid or accrued of $0.32 per Unit,
including return of capital of $0.13 per Unit (95,573) (3,200,040) - (3,295,613)
------------- ------------- ------------- -------------
Balance, December 31, 2001 (5,297,038) 27,515,891 1,311,480 23,530,333
Net earnings 53,615 1,795,187 - 1,848,802
Adjustment to unrealized gains on
investments in insured mortgages - - (30,315) (30,315)
Distributions paid or accrued of $0.86 per Unit,
including return of capital of $0.68 per Unit (256,852) (8,600,107) - (8,856,959)
------------- ------------- ------------- -------------
Balance, December 31, 2002 $ (5,500,275) $ 20,710,971 $ 1,281,165 $ 16,491,861
============= ============= ============= =============
Limited Partnership Units outstanding - Basic, as of
December 31, 2002, 2001 and 2000 10,000,125
==========
The accompanying notes are an integral part
of these financial statements.
33
AMERICAN INSURED MORTGAGE INVESTORS
STATEMENTS OF CASH FLOWS
For the years ended December 31,
2002 2001 2000
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 1,848,802 $ 1,954,685 $ 2,010,749
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Gains on mortgage dispositions (385,829) (190,206) (188,455)
Changes in assets and liabilities:
Increase in due from affiliate, receivables and other assets (425,912) (1,667) (50,797)
(Decrease) increase in accounts payable and accrued expenses (30,033) 20,556 4,573
------------ ------------ ------------
Net cash provided by operating activities 1,007,028 1,783,368 1,776,070
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from disposition of mortgages 6,769,063 1,184,199 -
Debenture proceeds received from affiliate 1,192,617 - -
Receipt of mortgage principal from scheduled payments 267,488 295,445 280,200
------------ ------------ ------------
Net cash provided by investing activities 8,229,168 1,479,644 280,200
------------ ------------ ------------
Cash flows from financing activities:
Distributions paid to partners (7,518,117) (3,295,613) (2,471,709)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,718,079 (32,601) (415,439)
Cash and cash equivalents, beginning of year 534,890 567,491 982,930
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,252,969 $ 534,890 $ 567,491
============ ============ ============
Non cash investing activity:
50% share of debenture received from HUD in exchange for the
mortgage on Fox Run Apartments (Debenture was held by
an affiliate, AIM 85) - - 1,192,617
The accompanying notes are an integral part
of these financial statements.
34
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors (the "Partnership") was formed pursuant
to a limited partnership agreement ("Partnership Agreement") under the Uniform
Limited Partnership Act of California on July 12, 1983. During the period from
March 1, 1984 (the initial closing date of the Partnership's public offering)
through December 31, 1984, the Partnership, pursuant to its public offering of
10,000,000 depositary units of limited partnership interest ("Units"), raised a
total of $200,000,000 in gross proceeds. In addition, the initial limited
partner contributed $2,500 to the capital of the Partnership in exchange for 125
Units of limited partnership interest.
CRIIMI, Inc., a wholly-owned subsidiary of CRIIMI MAE Inc. ("CRIIMI MAE"),
acts as the General Partner (the "General Partner") for the Partnership and
holds a partnership interest of 2.9%. The General Partner provides management
and administrative services on behalf of the Partnership. AIM Acquisition
Partners L.P. serves as the advisor (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, The
Goldman Sachs Group, L.P., Sun America Investments, Inc. (successor to Broad,
Inc.) and CRI/AIM Investment, L.P., a subsidiary of CRIIMI MAE, over which
CRIIMI MAE exercises 100% voting control. AIM Acquisition is a Delaware
corporation that is primarily owned by Sun America Investments, Inc. and The
Goldman Sachs Group, L.P.
Pursuant to the terms of certain origination and acquisition services,
management services and disposition services agreements between the Advisor and
the Partnership (collectively the "Advisory Agreements"), the Advisor renders
services to the Partnership, including but not limited to, the management of the
Partnership's portfolio of mortgages and the disposition of the Partnership's
mortgages. Such services 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 (collectively the
"Consent Rights"). The Advisor is permitted and has delegated the performance of
services to CRIIMI MAE Services Limited Partnership ("CMSLP"), a subsidiary of
CRIIMI MAE, pursuant to a sub-management agreement (the "Sub-Advisory
Agreement"). The general partner and limited partner of CMSLP are wholly-owned
subsidiaries of CRIIMI MAE. The delegation of such services by the Advisor to
CMSLP does not relieve the Advisor of its obligation to perform such services.
Furthermore the Advisor has retained its Consent Rights.
The General Partner also serves as the General Partner for American Insured
Mortgage Investors -Series 85, L.P. ("AIM 85"), American Insured Mortgage
Investors L.P. - Series 86 ("AIM 86") and American Insured Mortgage Investors
L.P. - Series 88 ("AIM 88") and owns general partner interests of 3.9%, 4.9% and
4.9%, respectively. The Partnership, AIM 85, AIM 86 and AIM 88 are collectively
referred to as the "AIM Limited Partnerships".
Prior to November 1988, the Partnership was engaged in the business of
originating government insured mortgage loans ("Originated Insured Mortgages")
and acquiring government insured mortgage loans ("Acquired Insured Mortgages"
and, together with Originated Insured Mortgages, referred to herein as "Insured
Mortgages"). In accordance with the terms of the Partnership Agreement, the
Partnership is no longer authorized to originate or acquire Insured Mortgages
and, consequently, its primary objective is to manage its portfolio of mortgage
investments, all of which are insured under Section 221(d)(4) or Section 231 of
the National Housing Act of 1937, as amended (the "National Housing Act"). The
Partnership Agreement states that the Partnership will terminate on December 31,
2008 unless terminated earlier under the provisions thereof. The Partnership is
required, pursuant to the Partnership Agreement, to dispose of its assets prior
to this date.
35
2. SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting
--------------------
The Partnership's financial statements are prepared on the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States ("GAAP"). The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment in Insured Mortgages
-------------------------------
The Partnership's investment in Insured Mortgages is comprised 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") and
FHA-insured mortgage loans ("FHA-Insured Loans"). The mortgages underlying the
FHA-Insured Certificates and FHA-Insured Loans are primarily non-recourse first
liens on multifamily residential developments or retirement homes.
Payment of principal and interest on FHA-Insured Certificates and
FHA-Insured Loans is insured by the United States Department of Housing and
Urban Development ("HUD") pursuant to Title 2 of the National Housing Act.
As of December 31, 2002, the weighted average remaining term of the
Partnership's investments in FHA-Insured Certificates is approximately 20 years.
However, the partnership agreement states that the Partnership will terminate in
approximately 6 years, on December 31, 2008, unless terminated earlier under the
provisions of the partnership agreement. As the Partnership is anticipated to
terminate prior to the weighted average remaining term of its FHA-Insured
Certificates, the Partnership does not have the ability or intent, at this time,
to hold these investments to maturity. Consequently, the General Partner
believes that the Partnership's FHA-Insured Certificates should be included in
the available for sale category.
In connection with this classification, all of the Partnership's
investments in FHA-Insured Certificates are recorded at fair value as of
December 31, 2002 and 2001, with the net unrealized gains and losses on these
investments reported as other comprehensive income and as a separate component
of partners' equity. Subsequent increases or decreases in the fair value of
FHA-Insured Certificates classified as available for sale will be included as a
separate component of partners' equity. Realized gains and losses on FHA-Insured
Certificates classified as available for sale will continue to be reported in
earnings.
As of March 1, 2003, all of the Insured Mortgages held by the Partnership
are eligible for assignment to HUD (i) as a Default Assignment (defined below)
or (ii) pursuant to Section 221(g)(4) of the National Housing Act (the "Section
221 Program"). Under the Section 221 Program, a mortgagee has the right to
assign a mortgage ("put") to the United States Department of Housing and Urban
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 during the one
year period 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. AIM 85 is the named mortgagee for
36
the Partnership's FHA-Insured Certificates. AIM 85 is responsible for
transferring the related HUD insurance claim proceeds to the Partnership.
Debenture interest is expected be paid to the Partnership in the month it is
received by AIM 85. Debenture proceeds are expected to be paid to the
Partnership in the month the debenture is redeemed by HUD or sold by AIM 85.
Based on the recommendation of CMSLP, the sub-advisor, and the consent of the
Advisor the General Partner may elect to put Insured Mortgages to HUD, based
upon, in general, but not limited to, (i) the interest rates on mortgages, (ii)
the interest rates on debentures issued by HUD and (iii) the costs and risks
associated with continuing to hold the Insured Mortgages.
Once the servicer of an Insured Mortgage has filed an application for
insurance benefits ("HUD put date") under the Section 221 program on behalf of
the Partnership, the Partnership will no longer receive the monthly principal
and interest on the applicable mortgage, and instead, HUD will begin receiving
the monthly principal and interest. HUD issues debentures at the time the
mortgage is assigned to HUD (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 payment dates
of January 1 and July 1. The going Federal rate for HUD debentures issued under
the Section 221 Program for the period January 1 through June 30, 2002 was
6.375%; for the period July 1 through December 31, 2002 it was 6.625%; and for
the period January 1 through June 30, 2003 it is 5.75%. The Partnership will
recognize a gain on a mortgage assignment at the time it receives notification
that the assignment has been approved. HUD assignment approval generally occurs
when HUD transfers the debentures to the mortgagee and/or when the Partnership
receives cash for the accrued interest on the debentures. The Partnership
recognizes a loss on a mortgage assignment when it becomes probable that a loss
will be incurred. The gain or loss recognized is generally equal to proceeds
received from HUD, as discussed above, less the amortized cost of the Insured
Mortgage.
Pursuant to the terms of the Partnership Agreement, the Partnership must
terminate and dissolve after disposition of all Insured Mortgages and HUD
debentures held in its portfolio, but no later than December 31, 2008. Most of
the Insured Mortgages held by the Partnership have been put to HUD by the
respective servicers, as discussed below. The Partnership expects to dispose of
any remaining mortgages and HUD debentures prior to the December 31, 2008
partnership termination date. Early prepayment by HUD of all HUD debentures held
by the Partnership may effect an early termination and dissolution of the
Partnership before the stated termination date of December 31, 2008. As a
result, Unitholders' yield to maturity on their respective investments in the
Partnership may be adversely affected by such early termination of the
Partnership.
As of December 31, 2002 and 2001, Investment in FHA-Insured Loans is
recorded at amortized cost.
The amortized cost of FHA-Insured Certificates and FHA-Insured Loans is
adjusted for amortization of discounts to maturity. Such amortization is
included in mortgage investment income.
Mortgage investment income consists of amortization of the discount or
premiums plus the stated mortgage interest payments received or accrued. The
difference between the cost and the unpaid principal balance at the time of
purchase is carried as a discount or premium and amortized over the remaining
contractual life of the mortgage using the effective interest method. The
effective interest method provides a constant yield of income over the term of
the mortgage.
37
Due from Affiliate
------------------
The Partnership may receive debentures by assigning current mortgages to
HUD under the Section 221 Program, as discussed above. In addition, the
Partnership may receive debentures by assigning a defaulted mortgage to HUD in
order to collect the amount of delinquent principal and interest (collectively a
"Default Assignment"). In the case of a default assignment, the mortgagee may
elect to have the claim settled in cash or by the issuance of a debenture.
Debentures are obligations of the mortgage insurance funds and are
unconditionally guaranteed by the United States. The term of these debentures
are usually more than 7 years and the interest rate is set based upon the
interest rate in effect at the commitment date to provide insurance or at the
final endorsement date, whichever is greater. The Partnership classifies its
investment in debenture as an available for sale debt security with changes
in fair value recorded as an adjustment to equity and other comprehensive
income. The Partnership's investment in debenture is included on the balance
sheet in Due from affiliate, as discussed in Note 7.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consist of time and demand deposits with original
maturities of three months or less.
Income Taxes
------------
No provision has been made for Federal, state or local income taxes in the
accompanying statements of income and comprehensive income since they are the
responsibility of the Unitholders.
Recent Accounting Pronouncements
--------------------------------
In January 2003, the FASB issued FASB Interpretation (or FIN) No. 46,
"Consolidation of Variable Interest Entities", an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interests in a variable interest entity to decide whether to
consolidate that entity. This Interpretation requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN No.
46 is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The Interpretation applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Partnership does not expect the adoption of FIN No. 46 to have a
material effect on its financial position or results of operations.
38
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial
instruments are presented in accordance with GAAP which defines fair value as
the amount at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
These estimated fair values, however, do not represent the liquidation value or
the market value of the Partnership.
As of December 31, 2002 As of December 31, 2001
Amortized Cost Fair Value Amortized Cost Fair Value
-------------- -------------- -------------- --------------
Investment in FHA-Insured
Loans:
Originated Insured Mortgage $ - $ - $ 4,806,675 $ 4,520,916
Acquired Insured Mortgages 7,507,672 9,419,737 7,621,126 9,325,365
-------------- -------------- -------------- --------------
$ 7,507,672 $ 9,419,737 $ 12,427,801 $ 13,846,281
============== ============== ============== ==============
Investment in FHA-Insured
Certificates $ 6,685,273 $ 7,966,438 $ 8,415,866 $ 9,727,346
Debenture due from affiliate $ - $ - $ 1,192,617 $ 1,192,617
Cash and cash equivalents $ 2,252,969 $ 2,252,969 $ 534,890 $ 534,890
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Investment in FHA-Insured Certificates,
FHA-Insured Loans and Debenture due from affiliate
--------------------------------------------------
The fair values of the FHA-Insured Certificates, GNMA Mortgage-Backed
Securities and FHA-Insured Loans are priced internally. The Partnership used a
discounted cash flow methodology to estimate the fair values; the cash flows
were discounted using a discount rate that, in the Partnership's view, was
commensurate with the market's perception of risk and value. The Partnership
used a variety of sources to determine its discount rate including: (i)
institutionally-available research reports, and (ii) communications with dealers
and active insured mortgage security investors regarding the valuation of
comparable securities. The fair value of a debenture is based upon the prices of
other comparable securities that trade in the market. The fair value of a
debenture with a short term call date from HUD is equal to its face value.
Cash and cash equivalents
-------------------------
The carrying amount approximates fair value because of the short maturity
of these instruments.
39
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO FINANCIAL STATEMENTS
4. COMPREHENSIVE INCOME
Comprehensive income includes net earnings as currently reported by the
Partnership adjusted for other comprehensive income. Other comprehensive income
for the Partnership consists of changes in unrealized gains and losses related
to the Partnership's mortgages and debenture accounted for as available for
sale. The table below details other comprehensive income for the periods
presented into the following two categories: (1) the change to unrealized gains
and losses that relate to mortgages which were disposed of during the period
with the resulting realized gain or loss reflected in net earnings
(reclassification adjustments) and (2) the change in the unrealized gains or
losses related to those investments that were not disposed of during the period.
2002 2001 2000
---- ---- ----
Reclassification adjustment for gains
included in net income $ (243,802) $ (177,352) $ (161,707)
Unrealized holding gains (losses) arising
during the period 213,487 (221,909) 59,545
---------- ----------- ----------
Net adjustment to unrealized gains $ (30,315) $ (399,261) $ (102,162)
========== =========== ==========
5. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in FHA-Insured Loans
as of December 31, 2002 and 2001:
December 31,
2002 2001
---- ----
Number of
Acquired Insured Mortgages 3 3
Originated Insured Mortgage (1) - 1
Amortized Cost $ 7,507,672 $ 12,427,801
Face Value 9,407,103 14,428,107
Fair Value 9,419,737 13,846,281
(1) In July 2002, the mortgage on Creekside Village Apartments was prepaid. The
Partnership received net proceeds of approximately $4.9 million and
recognized a gain of approximately $96,000 during the year ended December
31, 2002. A distribution of approximately $0.47 per Unit related to the
prepayment of this mortgage was declared in September 2002 and paid to
Unitholders in November 2002.
As of March 1, 2003, all of the FHA-Insured Loans are current with respect
to payment of principal and interest, except for the mortgage on Town Park
Apartments, which is delinquent with respect to the February 2003 payment of
principal and interest. This mortgage is eligible under the Section 221 Program
with an anniversary date in October 2002. The Partnership expects this mortgage
to be put to HUD, if not otherwise disposed, by the servicer during the second
quarter of 2003.
The mortgages discussed below are included in the table above.
The Section 221 Program
-----------------------
a. Issuance of Debenture
---------------------
In February 2003, HUD transferred assignment proceeds to the Partnership in
the form of a 6.375% debenture in exchange for the mortgage on Eastdale
39
Apartments. The servicer of this mortgage filed an application for insurance
benefits under the Section 221 Program in June 2002. The debenture, with a face
value of approximately $6.1 million, pays interest semi-annually on January 1
and July 1 with a maturity date of June 26, 2012. The debenture may be called
prior to its maturity date. A distribution will be declared after the debenture
proceeds are received. In February 2003, the Partnership received approximately
$201,000 in cash of accrued interest on this debenture. The Partnership expects
to recognize a gain of approximately $1.2 million during the first quarter of
2003. The amortized cost of the mortgage on Eastdale Apartments is included in
Investment in FHA-Insured Loans on the Partnership's balance sheet as of
December 31, 2002.
b. Mortgages in the HUD assignment process
---------------------------------------
The mortgage on North River Place was put to HUD under the Section 221
Program by the servicer in June 2002. The aggregate face value of this mortgage
was approximately $2.8 million 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 earns semi-annual interest on debentures issued by HUD, as discussed
above. The Partnership has not received approval for this assignment as of March
1, 2003, and will continue to accrue interest on the mortgage until the
debenture is transferred to the mortgagee and the Partnership begins receiving
the debenture interest. The amortized cost of this mortgage is included in
Investment in FHA-Insured Loans on the Partnership's balance sheet as of
December 31, 2002.
6. INVESTMENT IN FHA-INSURED CERTIFICATES
Listed below is the Partnership's aggregate investment in FHA-Insured
Certificates as of December 31, 2002 and 2001:
December 31,
2002 2001
---- ----
Number of mortgages (1)(2) 5 6
Amortized Cost $ 6,685,273 $ 8,415,866
Face Value 7,936,376 10,037,064
Fair Value 7,966,438 9,727,346
(1) In December 2002, the mortgage on Bay Pointe Apartments was prepaid. The
Partnership received net proceeds of approximately $1.9 million and
recognized a gain of approximately $290,000 during the year ended December
31, 2002. A distribution of approximately $0.18 per Unit related to the
prepayment of this mortgage was declared in December 2002 and was paid to
Unitholders in February 2003.
(2) In January 2003, the Partnership received assignment proceeds from HUD for
the mortgage on Westbrook Apartments. The servicer of this mortgage filed a
Notice of Election to Assign in November 2002 due to its default status.
The Partnership received net proceeds of approximately $1.5 million, which
included 90% of the unpaid principal balance of this mortgage, plus
interest at the debenture rate of 9.875% from September 2002 through
January 2003. The remaining amount due from HUD is approximately $150,000
(representing 9% of the unpaid principal balance) and is expected to be
received during the next 12 months. The Partnership expects to recognize a
gain of approximately $228,000 for the first quarter 2003. The Partnership
expects to declare a distribution of approximately $0.14 per Unit related
to this assignment in March 2003 and expects to pay to Unitholders in May
2003.
As of March 1, 2003, all of the Partnership's FHA-Insured Certificates were
current with respect to the payment of principal and interest.
The mortgages discussed below are included in the table above.
41
The Section 221 Program
-----------------------
a. Issuance of debenture
---------------------
In February 2003, HUD transferred assignment proceeds to AIM 85 in the form
of a 6.375% debenture in exchange for the mortgage on Baypoint Shoreline
Apartments. The mortgage on Baypoint Shoreline Apartments was beneficially owned
50% by the Partnership and 50% by AIM 85. The servicer of this mortgage filed an
application for insurance benefits under the Section 221 Program in June 2002.
The debenture, with a face value of approximately $1.8 million, pays interest
semi-annually on January 1 and July 1 with a maturity date of June 27, 2012. The
debenture may be called prior to its maturity date. A distribution will be
declared after the debenture proceeds are received. Since the mortgage on
Baypoint Shoreline Apartments was owned 50% by the Partnership and 50% by AIM
85, approximately $906,000 of the debenture face is due to the Partnership. In
February 2003, the Partnership received approximately $29,000 in cash of accrued
interest on this debenture from AIM 85. The Partnership expects to recognize a
gain of approximately $131,000 during the first quarter of 2003. The fair value
of the mortgage on Baypoint Shoreline Apartments is included in Investment in
FHA-Insured Certificates on the Partnership's balance sheet as of December 31,
2002.
b. Mortgages in the HUD assignment process
---------------------------------------
The mortgages on Brougham Estates and College Green Apartments were put to
HUD under the Section 221 Program by the respective servicers in February 2003.
The aggregate face value of these mortgages was approximately $3.7 million 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 earns
semi-annual interest on debentures issued by HUD, as discussed above. The
Partnership has not received approval for these assignments as of March 1, 2003,
and will continue to accrue interest on these mortgages until the debentures are
transferred to the mortgagee and the Partnership begins receiving the debenture
interest. The fair value of these mortgages is included in Investment in
FHA-Insured Certificates on the Partnership's balance sheet as of December 31,
2002.
c. Remaining mortgages eligible for assignment
-------------------------------------------
The Partnership's mortgage portfolio includes one FHA-Insured Certificate,
Kaynorth Apartments, eligible under the Section 221 Program with an anniversary
date in September 2002. The Partnership expects this mortgage to be put to HUD,
if not otherwise disposed, by the servicer during the second quarter of 2003.
7. DUE FROM AFFILIATE
The mortgage on Fox Run Apartments was beneficially owned 50% by the
Partnership and 50% by AIM 85. A 7.125% debenture, with a face value of
approximately $2.4 million, was issued by HUD to AIM 85 in December 2000 with
interest payable semi-annually on January 1 and July 1. In January 2002, the
debenture was liquidated at par value. The Partnership received approximately
$1.2 million for its share of the debenture proceeds, including interest of
approximately $42,000. A distribution of approximately $0.11 per Unit related to
the receipt of these proceeds was declared in March 2002 and paid to Unitholders
in May 2002.
42
8. TRANSACTIONS WITH RELATED PARTIES
The principal officers of the General Partner for the years ended December
31, 2002, 2001 and 2000 did not receive fees for serving as officers of the
General Partner, nor are any fees expected to be paid to the officers in the
future.
The General Partner, CMSLP and certain affiliated entities have, during the
years ended December 31, 2002, 2001 and 2000, earned or received compensation or
payments for services from the Partnership as follows:
COMPENSATION PAID OR ACCRUED TO RELATED PARTIES
For the year ended December 31,
Name of Recipient Capacity in Which Served/Item 2002 2001 2000
----------------- ----------------------------- ---- ---- ----
CRIIMI, Inc. (1) General Partner/Distribution $ 256,852 $ 95,573 $ 59,733
AIM Acquisition Partners,L.P.(2) Advisor/Asset Management Fee 195,466 224,202 237,264
CRIIMI MAE Management, Inc. (3) Affiliate of General Partner/Expense 48,979 40,866 38,782
(1) The General Partner, pursuant to amendments to the partnership agreement,
effective September 6, 1991, is entitled to receive 2.9% of the
Partnership's income, loss, capital and distributions, including, without
limitation, the Partnership's adjusted cash from operations and proceeds of
mortgage prepayments, sales or insurance (both as defined in the
partnership agreement).
(2) The Advisor, pursuant to the partnership agreement, 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). CMSLP is
entitled to a fee equal to 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 $57,606, $66,078, and $69,924 during the years ended
December 31, 2002, 2001 and 2000, respectively. The general partner and
limited partner of CMSLP are wholly owned subsidiaries of CRIIMI MAE.
(3) CRIIMI MAE Management, Inc., an affiliate of the General Partner, is
reimbursed for personnel and administrative services on an actual cost
basis.
43
9. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for
the years ended December 31, 2002, 2001 and 2000 are as follows:
Quarter Ended 2002 2001 2000
------------- ------ ------ ------
March 31 $ 0.16 (1) $ 0.05 $ 0.05
June 30 0.05 0.05 0.05
September 30 0.47 (2) 0.17 (4) 0.05
December 31 0.18 (3) 0.05 0.05
------ ------ ------
$ 0.86 $ 0.32 $ 0.20
====== ====== ======
(1) This amount includes approximately $0.11 per Unit due to the redemption of
the HUD debenture received from the assignment to HUD of the Fox Run
Apartments mortgage. This amount was received from AIM 85. The debenture
was issued to AIM 85 as the record owner of the Fox Run Apartments
mortgage. The Partnership was a 50% beneficial owner of the Fox Run
Apartments mortgage.
(2) This amount includes approximately $0.47 per unit representing net proceeds
from the prepayment of the mortgage on Creekside Village Apartments.
(3) This amount includes approximately $0.18 per Unit representing net proceeds
from the prepayment of the mortgage on Bay Pointe Apartments.
(4) This amount includes approximately $0.12 per Unit representing net proceeds
from the prepayment of the mortgage on Berryhill Apartments.
The Partnership's remaining Insured Mortgages may be put to HUD by October
2003, if not otherwise disposed, as previously discussed. As these mortgages are
put to HUD, the Partnership's net cash flows could be significantly reduced for
several months. As a result, net cash flow distributions for the third and
fourth quarters of 2002 were temporarily retained to fund the Partnership's
operating expenses during the period of reduced cash flows. Quarterly net cash
flow distributions are expected to resume in the first quarter of 2003. Proceeds
from mortgage dispositions and debenture redemptions, if any, are expected to be
distributed to investors as usual in the quarter in which such proceeds are
received.
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
Partnership's 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 in which the monthly
mortgage payment receipts are temporarily invested prior to the payment of
quarterly distributions, (2) the reduction in the asset base resulting from
monthly mortgage payments received or mortgage dispositions, (3) variations in
the cash flow attributable to the delinquency or default of Insured Mortgages,
the timing of receipt of debentures, the interest rate on debentures and
debenture redemptions, and (4) changes 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.
10. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership
interests ("Units") were issued at a stated value of $20. A total of 10,000,000
Units were issued prior to August 1983 for an aggregate capital contribution of
$200,000,000. In addition, the initial limited partner contributed $2,500 to the
capital of the Partnership in exchange for 125 Units.
44
11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 2002, 2001 and 2000:
(In Thousands, Except Per Unit Data)
2002
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 511 $ 507 $ 433 $ 406
Net earnings 396 408 429 616
Gains on mortgage dispositions -- -- 96 290
Net earnings per Limited Partnership Unit - Basic $ 0.04 $ 0.04 $ 0.04 $ 0.06
2001
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 565 $ 562 $ 554 $ 534
Net earnings 451 444 637 423
Gains on mortgage dispositions -- -- 190 --
Net earnings per Limited Partnership Unit - Basic $ 0.04 $ 0.04 $ 0.06 $ 0.05
2000
Quarter ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Income $ 574 $ 571 $ 569 $ 565
Net earnings 453 452 456 650
Gains on mortgage dispositions -- -- -- 188
Net earnings per Limited Partnership Unit - Basic $ 0.04 $ 0.04 $ 0.04 $ 0.08
45
AMERICAN INSURED MORTGAGE INVESTORS
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
Interest Face Net AnnualPayment
Maturity Put Rate on Amount of Carrying Value (Principal and
Development Name/Location Date Date(1) Mortgage(5) Mortgage(3) (3)(6)(8)(9) Interest)(5)(7)
------------------------- ---- ------- ----------- ----------- ------------ ---------------
ACQUIRED INSURED MORTGAGES
Investment in FHA-Insured Loans (carried at amortized cost)(2)
--------------------------------------------------------------
Eastdale Apts., Montgomery, AL (10) 3/23 10/01 7.5% $ 6,014,219 $ 4,778,440 $ 592,406
North River Place, Chillecothe, OH 10/21 12/01 7.5% 2,809,498 2,238,232 279,509
Town Park Apts., Rockingham, NC 10/22 10/02 7.5% 583,386(4) 491,000 56,755(4)
----------- -----------
Total Investment in FHA-Insured Loans -
Acquired Insured Mortgages 9,407,103 7,507,672
----------- -----------
ACQUIRED INSURED MORTGAGES
Investment in FHA-Insured Certificates (carried at fair value)
--------------------------------------------------------------
Baypoint Shoreline Apts, Duluth, MN (10) 1/22 10/01 7.5% 889,548(4) 891,308 87,967(4)
Brougham Estates II, Kansas City, KS 11/22 3/02 7.5% 2,379,451(4) 2,383,791 230,860(4)
College Green Apts., Wilmington, NC 3/23 2/02 7.5% 1,281,638(4) 1,283,902 123,455(4)
Kaynorth Apts., Lansing, MI 4/23 9/02 7.5% 1,740,061(4) 1,774,957 167,318(4)
Westbrook Apts., Kokomo, IN (10) 11/22 9/02 7.5% 1,645,678(4) 1,632,480 163,177(4)
----------- ----------- -----------
Total Investment in FHA-Insured Certificates 7,936,376 7,966,438
----------- -----------
TOTAL INVESTMENT IN INSURED MORTGAGES $17,343,479 $15,474,110
=========== ===========
TOTAL ANNUAL PRINCIPAL AND INTEREST $ 1,701,447
===========
See notes to Schedule IV - Mortgage Loans on Real Estate
46
AMERICAN INSURED MORTGAGE INVESTORS
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2002
(1) As of March 1, 2003, all of the Insured Mortgages held by the Partnership
are eligible for assignment to HUD pursuant to Section 221(g)(4) of the
National Housing Act (the "Section 221 Program"). Under the Section 221
Program, a mortgagee has the right to assign a mortgage ("put") to the
United States Department of Housing and Urban 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 during the one year period
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. An affiliate of the
Partnership, American Insured Mortgage Investors - Series 85, L.P. ("AIM
85") is the named mortgagee for the Partnership's FHA-Insured Certificates.
AIM 85 is responsible for transferring to the Partnership the related HUD
insurance claim proceeds. Debenture interest is expected be paid to the
Partnership in the month it is received by AIM 85. Debenture proceeds are
expected to be paid to the Partnership in the month the debenture is
redeemed by HUD or sold by AIM 85. Based on the recommendation of CMSLP,
the sub-advisor, and consent of the Advisor the General Partner may elect
to put Insured Mortgages to HUD, based upon, in general, but not limited
to, (i) the interest rates on mortgages, (ii) the interest rates on
debentures issued by HUD and (iii) the costs and risks associated with
continuing to hold the Insured Mortgages.
(2) Inclusive of closing costs and acquisition fees.
(3) Prepayment of these insured mortgages would be based upon the unpaid
principal balance at the time of prepayment.
(4) These amounts represent the Partnership's 50% interest in these insured
mortgages. The remaining 50% interest was acquired by American Insured
Mortgage Investors - Series 85, L.P. ("AIM 85").
(5) In addition, the servicer of the insured mortgages (primarily unaffiliated
third parties) is entitled to receive compensation for certain services
rendered in an amount up to ten basis points (0.10%) of the unpaid
principal balance of the insured mortgages.
(6) The mortgages underlying the Partnership's investment in FHA-Insured
Certificates and FHA-Insured Loans are non-recourse first liens on
multifamily residential developments.
(7) Principal and interest are payable at level amounts over the life of the
Insured Mortgages.
47
(8) A reconciliation of the carrying value of Insured Mortgages, for the years
ended December 31, 2002 and 2001, is as follows:
2002 2001
---- ----
Beginning balance $22,155,147 $23,855,773
Gains on mortgage dispositions 385,829 190,206
Proceeds from disposition of mortgages (6,769,063) (1,184,199)
Principal receipts on Insured Mortgages (267,488) (295,445)
Adjustment to unrealized gains on
investment in Insured Mortgages (30,315) (411,188)
----------- -----------
Ending balance $15,474,110 $22,155,147
=========== ===========
(9) The tax basis of the Insured Mortgages was approximately $13.0 million and
$19.6 million as of December 31, 2002 and 2001, respectively.
(10) The Partnership received HUD assignment proceeds for these mortgages
subsequent to December 31, 2002. Detail information is included in Notes 5
and 6 of the Notes to Financial Statements.