ITEM 1. BUSINESS
Development and Description of Business - --------------------------------------- Information concerning the business of American Insured Mortgage Investors L.P.-Series 88 (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, 4, 5 and 7 of the notes to the financial statements of the Partnership. Also see Schedule IV-Mortgage Loans on Real Estate for a summary of mortgage investments held by the Partnership as of December 31, 1996.
Employees - --------- The Partnership has no employees. The business of the Partnership is managed by CRIIMI, Inc. (the General Partner), while its portfolio of mortgages is managed by AIM Acquisition Partners, L.P. (the Advisor) pursuant to an advisory agreement (the Advisory Agreement). CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to obtain the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI (CRI, Inc.), managed the Partnership's portfolio. On June 30, 1995, in connection with a merger transaction approved by CRIIMI MAE's shareholders, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement and as a result, CRIIMI MAE Services Limited Partnership acts as the sub-advisor to the Partnership effective June 30, 1995.
Competition - ----------- In acquiring and 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 and their respective affiliates. Some of these entities may have substantially greater capital resources and experience than the Partnership in acquiring mortgage investments which are fully insured or guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association (GNMA), the Federal Housing Administration (FHA) or the Federal Home Loan Mortgage Corporation.
CRIIMI MAE and its affiliates also may serve as general partners, sponsors or managers of real estate limited partnerships, REITS or other entities in the future. The Partnership may attempt to dispose of mortgages at or about the same time that one or more of the other AIM Partnerships and/or other entities sponsored or managed by CRIIMI MAE, are attempting to dispose of mortgages. As a result of market conditions that could limit dispositions, CRIIMI MAE Services Limited Partnership and its affiliates could be faced with conflicts of interest in determining which mortgages would be disposed of. Both CRIIMI MAE Services Limited Partnership and CRIIMI, Inc., however, are subject to their fiduciary duties in evaluating the appropriate action to be taken when faced with such conflicts.
PART I
ITEM 2.

ITEM 2. PROPERTIES
Although the Partnership does not own the underlying real estate, the mortgages underlying the Partnership's mortgage investments are primarily non- recourse first liens on the respective multifamily residential developments or retirement homes.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The information required by Item 3 is incorporated herein by reference to Note 12 of the notes to the Partnership's financial statements.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be voted on during the fourth quarter of 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
Principal Market and Market Price for Units - ------------------------------------------- The General Partner listed the Partnership's Units for trading on the American Stock Exchange (AMEX) on January 18, 1994, in order to provide investment liquidity as contemplated in the Partnership's original prospectus. The Units are traded under the symbol "AIK."
The high and low bid prices for the Units as reported on AMEX for each quarterly period in 1996 and 1995 were as follows:
---- Quarter Ended High Low ------------- ------- -------
March 31, 1996 $14 1/8 $12 3/4 June 30, 1996 13 5/8 12 5/8 September 30, 1996 13 3/8 12 3/4 December 31, 1996 13 7/8 13 1/8
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS - Continued
----
Quarter Ended High Low ------------- ------- ------- March 31, 1995 $12 3/8 $11 3/8 June 30, 1995 13 5/8 11 7/8 September 30, 1995 13 1/4 12 7/8 December 31, 1995 13 1/2 12 3/4
Prior to listing of the Partnership's Units for trading on the AMEX, the Units were only tradable through the informal market called the "secondary market."
Distribution Information - ------------------------ Distributions per Unit, payable out of the cash flow of the Partnership, during 1996 and 1995 were as follows:
Distributions for the Amount of Distribution Quarter Ended Per Unit --------------------- ---------------------- March 31, 1996 $ 0.32 (1) June 30, 1996 0.30 September 30, 1996 0.30 December 31, 1996 0.30 --------- $ 1.22 =========
March 31, 1995 $ 0.49 (2) June 30, 1995 0.53 (3) September 30, 1995 0.32 (4) December 31, 1995 0.32 (1) --------- $ 1.66 =========
(1) This amount includes approximately $0.02 per Unit representing previously undistributed accrued interest received from Water's Edge of New Jersey. (2) This amount includes approximately $0.15 per Unit representing accrued, but previously undistributed, interest related to the receipt of claim proceeds from the mortgage on Pinewood Park Apartments and approximately $0.01 per Unit representing previously undistributed accrued interest received from Water's Edge of New Jersey. (3) This amount includes approximately $0.22 per Unit representing accrued, but previously undistributed, interest and capital gain related to the receipt of claim proceeds from the mortgage on Hamlet at Cobb's Landing. (4) This amount includes approximately $0.02 per Unit representing capital gain from the disposition of the mortgage on Gilbert Greens Apartments.
Approximate Number of Unitholders Title of Class as of December 31, 1996 - ----------------- ------------------------------- Depositary Units of Limited Partnership Interest 7,200
PART II
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA (Dollars in thousands, except per Unit amounts)
The selected statements of operations data presented above for the years ended December 31, 1996, 1995 and 1994, and the balance sheet data as of December 31, 1996 and 1995, are derived from and are qualified by reference to the Partnership's financial statements which have been included elsewhere in this Form 10-K. The statements of operations data for the years ended December 31, 1993 and 1992 and the balance sheet data as of December 31, 1994, 1993 and 1992 are derived from audited financial statements not included in this Form 10- K. This data should be read in conjunction with the financial statements and the notes thereto.
PART II
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General - ------- American Insured Mortgage Investors L.P. - Series 88 (the Partnership) was formed under the Uniform Limited Partnership Act of the state of Delaware on February 13, 1987. During the period from October 2, 1987 (the initial closing date of the Partnership's public offering) through March 10, 1989 (the termination date of the offering), the Partnership, pursuant to its public offering of Units, raised a total of $177,039,320 in gross proceeds. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 units of limited partnership interest in exchange therefor.
CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9% which includes shares acquired from the former assignor limited partner. CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE).
AIM Acquisition Partners, L.P. (the Advisor), serves as the advisor to the Partnership. AIM Acquisition Corporation (AIM Acquisition) is the general partner of the Advisor and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to obtain the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered real estate investment trust (REIT) on June 30, 1995, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements.
Until the change in the Partnership's investment policy, as discussed below, the Partnership was in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages, and together with Originated Insured Mortgages, referred to herein as Insured Mortgages). As of December 31, 1996, the Partnership had invested in either Originated Insured Mortgages which are insured or guaranteed, in whole or in part, by the Federal Housing Administration (FHA) or Acquired Insured Mortgages which are fully insured (as more fully described below).
The Partnership's reinvestment period expired on December 31, 1996, and the Partnership Agreement states that the Partnership will terminate on December 31, 2021, unless previously terminated under the provisions of the Partnership Agreement. The Partnership's principal investment objectives are to invest in Insured Mortgages which (i) preserve and protect the Partnership's invested capital; (ii) provide quarterly distributions of adjusted cash from operations which may be increased over time as a result of Participations (as defined below), when obtainable, on Originated Insured Mortgages; and (iii) provide appreciation by selecting Acquired Insured Mortgages which present the possibility of early prepayment.
As of December 31, 1996, the Partnership had invested in 37 Insured Mortgages with aggregate amortized cost, face and fair values of approximately $150 million, $151 million, and $150 million, respectively.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
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 FHA programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by GNMA (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, the GNMA Mortgage-Backed Securities and the FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes.
Payments of principal and interest on FHA-Insured Certificates and FHA- Insured Loans are insured by the United States Department of Housing and Urban Development (HUD) pursuant to Title 2 of the National Housing Act. Payments of principal and interest on GNMA Mortgage-Backed Securities are guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
The following is a discussion of the Partnership's mortgage investments, along with the risks related to each type of investment.
A. Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities ----------------------------------------------- Listed below is the Partnership's aggregate investment in fully insured Acquired Insured Mortgages as of December 31, 1996 and 1995:
Listed below is the Partnership's aggregate investment in fully insured Originated Insured Mortgages as of December 31, 1996 and 1995:
As of February 28, 1997, all fully insured mortgages were current with respect to the payment of principal and interest.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
In February 1996, the General Partner instructed the servicer for the mortgage on Water's Edge of New Jersey, a fully insured acquired construction loan, to file a Notice of Default and an Election to Assign the mortgage with the Department of Housing and Urban Development (HUD). The property underlying this construction loan is a nursing home located in Trenton, New Jersey. As of December 31, 1996, the Partnership had received approximately $7.6 million from the assignment including repayment of accrued interest. The remainder of the proceeds, approximately $4.1 million, is included in Due from HUD and Receivables and other assets. In January 1997, the Partnership received additional gross proceeds of approximately $2.6 million from HUD. These proceeds of $0.27 per unit were declared as part of the January 1997 distribution and will be distributed in May 1997. HUD has disallowed approximately $1.5 million of the assignment claim. The Servicer is currently negotiating with HUD in regard to collection of the disallowed portion of the claim. The General Partner believes the full amount of the receivable will be recovered from either HUD or the Servicer. In conjunction with the assignment of the mortgage, the Partnership recognized a net loss of approximately $204,000 in the second quarter of 1996.
During March 1996, a retained yield holder in the Harbor View Estates loan exercised its right to purchase the participation certificate with respect to this insured mortgage after a Notice of Default was filed with HUD. In March 1996, the Partnership received approximately $709,100 in disposition proceeds, including approximately $17,400 of interest due to the Partnership from this prepayment. The net principal proceeds were approximately $691,000, resulting in a gain of approximately $600. The net proceeds were reinvested in fully insured mortgages. In April 1996, approximately $4,900 was remitted to the retained yield holder in the Harbor View Estates mortgage in connection with the final accounting of this disposition. This resulted in a net loss of approximately $4,300 which is included on the accompanying statement of operations for the year ended December 31, 1996.
In June 1996, the Partnership entered into a modification agreement with the mortgagor of Turn at Gresham. This agreement effectively lowered the interest rate on the mortgage from 8.375% to 8% for a period until maturity. In addition, a seven year prepayment lockout was included in the modification, followed by a 3%, 2%, and 1% penalty in years eight, nine, and ten, respectively. The Partnership incurred a loss of approximately $169,600 in connection with this modification which represents the write off of unamortized costs.
In the case of fully insured Originated Insured Mortgages and Acquired Insured Mortgages, the Partnership's maximum exposure for purposes of determining loan losses would generally be approximately 1% of the unpaid principal balance of the Insured Mortgage (an assignment fee charged by FHA) at the date of a default, plus the unamortized balance of acquisition fees and closing costs paid in connection with the acquisition of the Insured Mortgages and the loss of approximately 30 days accrued interest.
B. Coinsured FHA-Insured Certificates ---------------------------------- Under the HUD coinsurance program, both HUD and the coinsurance lender are responsible for paying a portion of the insurance benefits if a mortgagor defaults and the sale of the development collateralizing the mortgage produces insufficient net proceeds to repay the mortgage obligation. In such cases, the coinsurance lender will be liable to the Partnership for the first part of such loss in an amount up to 5% of the
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
outstanding principal balance of the mortgage as of the date foreclosure proceedings are instituted or the deed is acquired in lieu of foreclosure. For any loss greater than 5% of the outstanding principal balance, the responsibility for paying the insurance benefits will be borne on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the mortgage, the coinsurance lender is responsible for the timely payment of principal and interest to the Partnership. The coinsurance lender is prohibited from entering into any workout arrangement with the borrower without the Partnership's consent and must file a claim for coinsurance benefits with HUD, upon default, if the Partnership so directs. As an ongoing HUD-approved coinsurance lender, and under the terms of the participation documents, the coinsurance lender is required to satisfy certain minimum net worth requirements as set forth by HUD. However, it is possible that the coinsurance lender's potential liability for loss on these developments, and others, could exceed its HUD-required minimum net worth. In such case, the Partnership would bear the risk of loss if the coinsurance lenders were unable to meet their coinsurance obligations. In addition, HUD's obligation for the payment of its share of the loss could be diminished under certain conditions, such as the lender not adequately pursuing regulatory violations of the borrower or the failure to comply with other terms of the mortgage. However, the General Partner is not aware of any conditions or actions that would result in HUD diminishing its insurance coverage.
As of December 31, 1996 and 1995, the Partnership held investments in three coinsured FHA-Insured Certificates secured by coinsured mortgages. One of these coinsured mortgage investments, the mortgage on St. Charles Place - Phase II, is coinsured by The Patrician Mortgage Company (Patrician), an unaffiliated third party coinsurance lender under the HUD coinsurance program. As of December 31, 1996, and 1995, the remaining two FHA-Insured Certificates are coinsured by Integrated Funding, Inc. (IFI), an affiliate of the Partnership, and are discussed below.
1. Coinsured by third party ------------------------ St. Charles Place - Phase II is a 156-unit apartment complex located in Miramar, Florida. Listed below is the Partnership's investment in the St. Charles Place - Phase II mortgage as of December 31, 1996 and 1995. These amounts represent the Partnership's approximate 55% ownership interest in the mortgage. The remaining 45% ownership interest is held by American Insured Mortgage Investors L.P. - Series 86 (AIM 86), an affiliate of the Partnership.
As of February 28, 1997, the mortgagor had made payments of principal and interest due to the Partnership on the mortgage through October
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
1995. Patrician is litigating the case in bankruptcy court while pursuing negotiations on a modification agreement with the borrower.
The General Partner intends to continue to oversee the Partnership's interest in this mortgage investment to ensure that Patrician meets its coinsurance obligations. The General Partner's assessment of the realizability of the carrying value of the St. Charles Place-Phase II mortgage is based on the most recent information available, and to the extent these conditions change or additional information becomes available, the General Partner's assessment may change. However, the General Partner does not believe that there would be a material adverse impact on the Partnership's financial condition or its results of operations should Patrician be unable to comply with its full coinsurance obligation.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
2. Coinsured by affiliate ---------------------- As of December 31, 1996 and 1995, the Partnership held investments in two FHA-Insured Certificates secured by coinsured mortgages, where the coinsurance lender is IFI. These investments were made on behalf of the Partnership by the former managing general partner. As structured by the former managing general partner, with respect to these mortgages, the Partnership bears the risk of loss upon default for IFI's portion of the coinsurance loss on these mortgage investments.
The IFI coinsured mortgages had an aggregate fair value of $30,012,592 and $30,553,317, as of December 31, 1996 and 1995, respectively, and amortized costs and face values as follows:
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
C. FHA-Insured Loans ----------------- Listed below is the Partnership's aggregate investment in fully insured Originated Insured Mortgages as of December 31, 1996 and 1995:
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Listed below is the Partnership's aggregate investment in fully insured Acquired Insured Mortgages as of December 31, 1996 and 1995:
As of February 28, 1997, all of the Partnership's FHA-Insured Loans were current with respect to the payment of principal and interest.
All of the FHA-Insured Loans contain Participations. During the years ended December 31, 1996, 1995 and 1994, the Partnership received additional interest of $63,045, $46,581 and $13,938, respectively, from the FHA- Insured Loans which contain Participations. These amounts are included in mortgage investment income on the accompanying statements of operations.
Results of Operations --------------------- 1996 versus 1995 ---------------- Net earnings decreased for 1996 as compared to 1995 primarily as a result of a reduction in net gains on mortgage dispositions and modifications, as discussed below. Also contributing to this decrease were decreases in mortgage investment income and interest and other income, as discussed below.
Mortgage investment income decreased for 1996 as compared to 1995. This decrease was primarily due to the timing of the reinvestment of net proceeds from the May 1996 assignment of the Water's Edge of New Jersey mortgage. Additionally, the participation agreement with The Breakers at Golf Mill was terminated effective March 1, 1995, therefore Participations received by the Partnership decreased from $133,120 in 1995 to $21,902 in 1996.
Interest and other income decreased for 1996 as compared to 1995. This decrease was primarily due to interest earned on claim proceeds from Hazeltine Shores and Pinewood Park Apartments during 1995. Also contributing to this decrease was a decrease in short-term investment income.
General and administrative expenses decreased for 1996 as compared to 1995. This decrease was primarily the result of non-recurring professional fees in connection with the disposition of problem mortgages in 1995, as well as a decrease in service fee expense as a result of the reduction in the mortgage base.
Net gains on mortgage dispositions and modifications decreased for 1996 as compared to 1995. Gains or losses on mortgage dispositions and modifications are based on the number, carrying amounts and proceeds of mortgage investments disposed of during the period. During 1996, the Partnership incurred net losses on mortgage dispositions and modifications
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
of approximately $378,000 related to the prepayment of the mortgage on Harbor View Estates, the partial settlement of the coinsurance claim on Water's Edge of New Jersey and the modification of the mortgage on Turn at Gresham. This compares to gains recognized in 1995 of approximately $2.3 million related to the settlement of the coinsurance claims on Pinewood Park Apartments and Hamlet at Cobb's Landing, and to a gain of approximately $140,000 in connection with the prepayment of the mortgage on Gilbert Greens Apartments.
1995 versus 1994 ---------------- Net earnings increased for 1995 as compared to 1994 primarily as a result of an increase in gains on mortgage dispositions. Also contributing to this increase were decreases in general and administrative expenses and the provision for settlement of litigation, as discussed below. Mortgage investment income remained relatively constant for 1995 as compared to 1994.
General and administrative expenses decreased for 1995 as compared to 1994. This decrease was primarily a result of non-recurring payroll expenses and professional fees incurred in connection with the disposition of Hazeltine Shores, Pinewood Park Apartments and Hamlet at Cobb's Landing during 1994. Also contributing to the decrease was a one-time payment in 1994 for the Partnership's initial listing on the American Stock Exchange.
Provision for settlement of litigation decreased for 1995 as compared to 1994 due to the recognition of a non-recurring provision for settlement of litigation, as discussed below.
Net gains on mortgage dispositions increased for 1995 as compared to 1994. During 1995, the Partnership recognized aggregate gains of approximately $2.4 million related to the settlement of the coinsurance claims on Pinewood Park Apartments and Hamlet at Cobb's Landing and the prepayment of the mortgage on Gilbert Greens Apartments. This compares to the recognition in 1994 of a gain of approximately $1.0 million related to the settlement of the coinsurance claim on Hazeltine Shores, and a loss of approximately $42,000 in connection with the disposition of the mortgage on Ashbury Meadows Apartments.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Liquidity and Capital Resources ------------------------------- The Partnership's operating cash receipts, derived from payments of principal and interest on Insured Mortgages, plus cash receipts from interest on short-term investments, were sufficient during 1996 to meet operating requirements.
The basis for paying distributions to Unitholders is cash flow from operations, which includes regular interest income and principal from Insured Mortgages, and gains, if any, from mortgage dispositions. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payments received are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base and monthly mortgage payments due to monthly mortgage payments received or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure and acquisition costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses.
Cash flow - 1996 versus 1995 ---------------------------- Net cash provided by operating activities decreased for 1996 as compared to 1995 primarily due to a decrease in net earnings in 1996 as a result of a decrease in mortgage investment income and interest and other income, as discussed above. Also contributing to the decrease was an increase in receivables and other assets during 1996 as a result of the assignment of the mortgage on Water's Edge of New Jersey.
Net cash provided by investing activities decreased for 1996 as compared to 1995 primarily due to an increase in the acquisition of Acquired Insured Mortgages from approximately $7.6 million in 1995 to approximately $9.4 million in 1996. This decrease was also due to a reduction in proceeds from mortgage dispositions and modifications from approximately $9.3 million in 1995 to approximately $8.6 million in 1996.
Net cash used in financing activities decreased for 1996 as compared to 1995 primarily due to a decrease in distributions paid to partners as a result of special distributions related to the receipt of previously undistributed accrued interest and capital gain in connection with the disposition of the mortgages on Hazeltine Shores, Pinewood Park Apartments and Hamlet at Cobb's Landing during the first three quarters of 1995.
Cash flow - 1995 versus 1994 ---------------------------- Net cash provided by operating activities increased for 1995 as compared to 1994 primarily due to an increase in receivables and other assets during 1994 as a result of the disposition of the properties underlying the coinsured mortgages on Pinewood Park Apartments, Hazeltine Shores and Hamlet at Cobb's Landing, as discussed above. Also contributing to the increase was a decrease in payments made and treated as an addition to AHFS and Due from HUD during 1995, as compared to 1994, as well as a decrease in general and administrative costs, as previously discussed.
Net cash provided by investing activities decreased for 1995 as compared to 1994 primarily due to a decrease in proceeds from mortgage dispositions from approximately $29.4 million for 1994 to approximately $9.3 million for
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
1995. Partially offsetting this decrease was a decrease in the acquisition of Acquired Insured Mortgages from approximately $25.3 million in 1994 to approximately $7.7 million in 1995.
Net cash used in financing activities increased for 1995 as compared to 1994 primarily due to an increase in distributions paid to partners as a result of special distributions related to the receipt of previously undistributed accrued interest and capital gain in connection with the disposition of the mortgages on Hazeltine Shores, Pinewood Park Apartments and Hamlet at Cobb's Landing during the fourth quarter of 1994 and the first three quarters of 1995.
Other Events ------------ On November 6, 1992, a complaint was filed on behalf of a limited partner of the Partnership in the Superior Court for the State of California for the County of Los Angeles, Southwest District against the Partnership. On March 28, 1994, the Partnership entered into an agreement to settle the lawsuit. Under the terms of the settlement, the Partnership paid $968,574 to the plaintiff on April 14, 1994, and the plaintiff returned its 50,000 Units of limited partnership interest to the Partnership. In connection with the settlement, the Partnership recorded a provision for settlement of litigation in the amount of $349,824 in the accompanying statement of operations for the year ended December 31, 1994. This provision represented the difference between the market value of the 50,000 Units, as of April 14, 1994, and the Partnership's cost to repurchase the Units.
During 1994, IFI, an affiliate of the Partnership, filed a Complaint in the United States District Court for the District of Minnesota. The case concerned the violation of the HUD regulatory agreement and breach of fiduciary duty by the mortgagor of the mortgage on Hazeltine Shores. In response to this Complaint, the mortgagor filed counterclaims against IFI and against the Partnership, the General Partner and CRI. A motion to dismiss the counterclaims was granted with prejudice on July 24, 1995.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is contained on pages 27 through 54.
PART II
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None. PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a),(b),(c),(e)
The Partnership has no officers or directors. The affairs of the Partnership are managed by the General Partner, which is wholly owned by CRIIMI MAE, a company whose shares are listed on the New York Stock Exchange. Prior to June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI. However, effective June 30, 1995, CRIIMI MAE became a self-administered REIT, and, as a result, the advisor no longer manages CRIIMI MAE.
Effective September 6, 1991, the General Partner succeeded the former general partners to become the sole general partner of the Partnership. CRIIMI, Inc. purchased the interests of the former managing general partner and the former corporate general partner pursuant to the terms of the Partnership Agreement. In addition, the General Partner acquired the shares of the company which acted as the assignor limited partner in the Partnership. The Advisor purchased the interest of the associate general partner but withdrew from the Partnership effective September 19, 1991. The Partnership succeeded to the 0.1% interest formerly held by the Advisor.
Also, on September 6, 1991, the Advisor succeeded IFI as the advisor of the Partnership. AIM Acquisition is the general partner of the Advisor and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc. and CRIIMI MAE. Pursuant to the terms of certain amendments to the Partnership Agreement, the General Partner is required to receive the consent of the Advisor prior to taking certain significant actions which affect the management and policies of the Partnership.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, on June 30, 1995, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio. These transactions had no effect on the Partnership's financial statements.
The General Partner is also the general partner of AIM 84, AIM 85 and AIM 86, limited partnerships with investment objectives similar to those of the Partnership.
(d) There is no family relationship between any of the officers and directors of the General Partner.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
(h) Based solely on its review of Forms 3 and 4 and amendments thereto furnished to the Partnership, and written representations from certain reporting persons that no Form 5s were required for those persons, the Partnership believes that all reporting persons have filed on a timely basis Forms 3, 4 and 5 as required in the fiscal year ended December 31, 1996.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to Note 9 of the notes to the Partnership's financial statements.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, no person was known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units of the Partnership.
As of December 31, 1996, neither the officers and directors, as a group, of the General Partner nor any individual director of the General Partner, are known to own more than 1% of the outstanding Units of the Partnership.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
(a) Transactions with management and others.
Note 9 of the notes to the Partnership's financial statements, which 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, is incorporated herein by reference.
(b) Certain business relationships.
Other than as set forth in Item 11 of this report which is incorporated herein by reference, the Partnership has no business relationship with entities of which the former general partners or the current General Partner of the Partnership are officers, directors or equity owners.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
Page Description Number ----------- ------ Balance Sheets as of December 31, 1996 and 1995 27
Statements of Operations for the years ended December 31, 1996, 1995 and 1994 28
Statements of Changes in Partners' Equity for the years ended December 31, 1996, 1995 and 1994 29
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 32
Notes to Financial Statements 33
(a)(2) Financial Statement Schedules:
IV - Mortgage Loans on Real Estate
All other schedules have been omitted because they are inapplicable, not required, or the information is included in the Financial Statements or Notes thereto.
(a)(3) Exhibits:
3. Certificate of Limited Partnership is incorporated by reference to Exhibit 4(a) to Amendment No. 1 to the Partnership's Registration Statement on Form S-11 (No. 33-12479) filed with the Commission on June 10, 1987.
4. Agreement of Limited Partnership, incorporated by reference to Exhibit 3 to the Post-Effective Amendment No. 1 to the Partnership's Registration Statement on Form S-11 (No. 33-12479) filed with the Commission on March 8, 1988 (such Amendment is referred to hereinbelow as Post-Effective Amendment No.1).
4.(a) Material Amendments to Agreement of Limited Partnership are incorporated by reference to Exhibit 3(a) to Post-Effective Amendment No.1.
4.(b) Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated February 12, 1990.
10.(a) Escrow Agreement is incorporated by reference to Exhibit 10(a) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1987.
10.(b) Origination and Acquisition Services Agreement is incorporated by reference to Exhibit 10(b) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1987.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued
10.(c) Management Services Agreement is incorporated by reference to Exhibit 10(c) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1987.
10.(d) Disposition Services Agreement is incorporated by reference to Exhibit 10(d) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1987.
10.(e) Agreement among the former managing general partner, the former associate general partner and Integrated Resources, Inc. is incorporated by reference to Exhibit 10(e) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1987.
10.(f) Reinvestment Plan is incorporated by reference to Exhibit 10(f) to Post-Effective Amendment No. 1.
10.(g) Mortgagor-Participant Agreement, Mortgage Assignment of Rents and Security Agreement and Mortgage Note with respect to The Breakers (sometimes also referred to as the Niles Senior Lifestyle Community) is incorporated by reference to Exhibit 10(g) to Post-Effective Amendment No. 1.
10.(h) Mortgagor-Mortgagee Agreement, Mortgage Note and Mortgage with respect to the Arlington development is incorporated by reference to Exhibit 10(h) to Post-Effective Amendment No. 1.
10.(i) Pages A-1 - A-5 of the Partnership Agreement of Registrant, incorporated by reference to Exhibit 28 to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1990.
10.(j) Purchase Agreement among AIM Acquisition, the former managing general partner, the former corporate general partner, IFI and Integrated dated as of December 13, 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.(k) 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 March 1, 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.(l) Amendments to Partnership Agreement dated August 13, 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.(m) Non-negotiable promissory note to American Insured Investors - Series 85, L.P. in the amount of $1,784,688 dated December 31, 1991, incorporated by reference to Exhibit 28(d) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1991.
10.(n) 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(e) the Partnership's Annual Report on Form 10-K for the year ended December 31, 1992.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - Continued
10.(o) Expense Reimbursement Agreement by Integrated Funding Inc. and the AIM Funds, effective December 31, 1992, incorporated by reference to Exhibit 28(f) to the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993.
10.(p) Non-negotiable promissory note from American Insured Investors L.P. - Series 85 in the amount of $319,074.67 dated April 1, 1994, incorporated by reference to Exhibit 10(p) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994.
10.(q) Non-negotiable promissory note from American Insured Investors L.P. - Series 86 in the amount of $478,612.00 dated April 1, 1994, incorporated by reference to Exhibit 10(q) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994.
10.(r) Amendment to Reimbursement Agreement by Integrated Funding Inc. and the AIM Funds, effective April 1, 1994, incorporated by reference to Exhibit 10(r) to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1994.
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K filed during the last quarter of the fiscal year: None.
All other items are not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88 (Registrant)
By:CRIIMI, Inc. General Partner
March 18, 1997 /s/ William B. Dockser - --------------------------- ------------------------- DATE William B. Dockser Chairman of the Board and Principal Executive Officer
March 18, 1997 /s/ H. William Willoughby - --------------------------- ------------------------- DATE H. William Willoughby President and Director
March 18, 1997 /s/ Cynthia O. Azzara - --------------------------- ------------------------- DATE Cynthia O. Azzara Principal Financial and Accounting Officer
March 18, 1997 /s/ Garrett G. Carlson, Sr. - --------------------------- -------------------------- DATE Garrett G. Carlson, Sr. Director
March 18, 1997 /s/ Larry H. Dale - --------------------------- ------------------------- DATE Larry H. Dale Director
March 18, 1997 /s/ G. Richard Dunnells - --------------------------- ------------------------- DATE G. Richard Dunnells Director
March 18, 1997 /s/ Robert F. Tardio - --------------------------- ------------------------- DATE Robert F. Tardio Director
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
Financial Statements as of December 31, 1996 and 1995
and for the Years Ended December 31, 1996, 1995 and 1994
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of American Insured Mortgage Investors L.P. - Series 88:
We have audited the accompanying balance sheets of American Insured Mortgage Investors L.P. - Series 88 (the Partnership) as of December 31, 1996 and 1995 and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. 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 generally accepted auditing standards. 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, 1996 and 1995, and the results of its operations and its cash flows for the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles.
As explained in Note 2 of the notes to the financial statements, effective January 1, 1994, the Partnership changed its method of accounting for its investment in insured mortgages.
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, 1996 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.
Arthur Andersen LLP Washington, D.C. March 18, 1997
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
BALANCE SHEETS ASSETS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF OPERATIONS
AMERICAN INSURED INVESTORS L.P. - SERIES 88
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
STATEMENTS OF CASH FLOWS
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
American Insured Mortgage Investors L.P. - Series 88 (the Partnership) was formed under the Uniform Limited Partnership Act of the state of Delaware on February 13, 1987.
CRIIMI, Inc. (the General Partner) holds a partnership interest of 4.9% which includes shares acquired from the former assignor limited partner. CRIIMI, Inc. is a wholly-owned subsidiary of CRIIMI MAE Inc. (CRIIMI MAE). From September 6, 1991 through June 30, 1995, CRIIMI MAE was managed by an advisor whose general partner is CRI, Inc. (CRI). However, effective June 30, 1995, CRIIMI MAE became a self-administered real estate investment trust (REIT) and, as a result, the advisor no longer advises CRIIMI MAE.
AIM Acquisition Partners, L.P. (the Advisor) serves as the advisor to the Partnership. AIM Acquisition Corporation (AIM Acquisition) is the general partner of the Advisor, and the limited partners include, but are not limited to, AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRIIMI MAE.
Effective September 6, 1991 and through June 30, 1995, a sub-advisory agreement (the Sub-advisory Agreement) existed whereby CRI/AIM Management, Inc., an affiliate of CRI, managed the Partnership's portfolio and directed the acquisition and disposition of the Partnership's mortgage investments. In connection with the transaction in which CRIIMI MAE became a self-administered REIT, an affiliate of CRIIMI MAE acquired the Sub-advisory Agreement. As a consequence of this transaction, effective June 30, 1995, CRIIMI MAE Services Limited Partnership, an affiliate of CRIIMI MAE, manages the Partnership's portfolio.
Until the change in the Partnership's investment policy, as discussed below, the Partnership was in the business of originating mortgage loans (Originated Insured Mortgages) and acquiring mortgage loans (Acquired Insured Mortgages, and together with Originated Insured Mortgages, referred to herein as Insured Mortgages). As of December 31, 1996, the Partnership had invested in either Originated Insured Mortgages which are insured or guaranteed, in whole or in part, by the Federal Housing Administration (FHA) or Acquired Insured Mortgages which are fully insured (as more fully described below).
Effective September 19, 1991, the General Partner changed, at the Advisor's recommendation, the investment policies of the Partnership to invest only in Acquired Insured Mortgages which are fully insured or guaranteed by the Federal National Mortgage Association, the Government National Mortgage Association (GNMA), FHA or the Federal Home Loan Mortgage Corporation.
The Partnership's reinvestment period expired on December 31, 1996 and the Partnership Agreement states that the Partnership will terminate on December 31, 2021, unless previously terminated under the provisions of the Partnership Agreement. After the expiration of the reinvestment period, the Partnership will be required (subject to the conditions set forth in the Partnership Agreement) to distribute such proceeds to its Unitholders. The Partnership's principal investment objectives are to invest in Insured Mortgages which (i) preserve and protect the Partnership's invested capital; (ii) provide quarterly distributions of adjusted cash from operations which may be increased over time as a result of Participations (as defined below), when obtainable, on Originated Insured Mortgages; and (iii) provide appreciation by selecting Acquired Insured Mortgages which present the possibility of early prepayment.
The General Partner listed the Partnership's Units for trading on the American Stock Exchange (AMEX) on January 18, 1994, in order to provide
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION - Continued
investment liquidity as contemplated in the Partnership's original prospectus. The Units are traded under the symbol "AIK."
2. SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting -------------------- The Partnership's financial statements are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles 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 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 FHA programs (FHA-Insured Certificates), mortgage-backed securities guaranteed by GNMA (GNMA Mortgage-Backed Securities) and FHA-insured mortgage loans (FHA-Insured Loans). The mortgages underlying the FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are non-recourse first liens on multifamily residential developments or retirement homes.
Payments of principal and interest on FHA-Insured Certificates and FHA-Insured Loans are insured by the United States Department of Housing and Urban Development (HUD) pursuant to Title 2 of the National Housing Act. Payments of principal and interest on GNMA Mortgage-Backed Securities are guaranteed by GNMA pursuant to Title 3 of the National Housing Act.
Prior to January 1, 1994 the Partnership accounted for its investment in Insured Mortgages at amortized cost in accordance with Statement of Financial Accounting Standards No. 65 "Accounting for Certain Mortgage Banking Activities" (SFAS 65) since it had the ability and intent to hold these assets for the foreseeable future. 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. Mortgage investment income is comprised of amortization of the discount plus the stated mortgage interest payments received or accrued, less amortization of the premium.
In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115), effective for fiscal years beginning after December 15, 1993. The Partnership adopted this statement as of January 1, 1994. This statement requires that investments in debt and equity securities be classified into one of the following investment categories based upon the circumstances under which such securities might be sold: Held to Maturity, Available for Sale, and Trading. Generally, certain debt securities for which an enterprise has both the ability and intent to hold to maturity should be accounted for
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
using the amortized cost method and all other securities must be recorded at their fair values.
As of December 31, 1996, the weighted average remaining term of the Partnership's investments in GNMA Mortgage-Backed Securities and FHA- Insured Certificates is approximately 32 years. However, the Partnership Agreement states that the Partnership will terminate in approximately 25 years, on December 31, 2021, unless previously terminated under the provisions of the Partnership Agreement. As the Partnership is anticipated to terminate prior to the weighted average remaining term of the GNMA Mortgage-Backed Securities and FHA-Insured Certificates in its portfolio, the Partnership does not have the ability, at this time, to hold these investments to maturity. Consequently, the General Partner believes that the Partnership's investments in GNMA Mortgage-Backed Securities and FHA- Insured Certificates should be included in the Available for Sale category. Although the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates are classified as Available for Sale for financial statement purposes, the General Partner does not intend to voluntarily sell these assets other than those which may be sold as a result of a default.
In connection with this classification, as of December 31, 1996 and 1995, the Partnership's investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates are recorded at fair value, with the net unrealized gains or losses on these investments reported as a separate component of partners' equity. Subsequent increases or decreases in the fair value of GNMA Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available for Sale, will be included as a separate component of partners' equity. Realized gains and losses on GNMA Mortgage-Backed Securities and FHA-Insured Certificates, classified as Available for Sale, will continue to be reported in earnings. The amortized cost of the investments in GNMA Mortgage-Backed Securities and FHA-Insured Certificates in this category is adjusted for amortization of discounts and premiums to maturity. Such amortization is included in mortgage investment income.
Gains from dispositions of mortgage investments are recognized upon the receipt of cash or HUD debentures.
Losses on dispositions of mortgage investments are recognized when it becomes probable that a mortgage will be disposed of and that the disposition will result in a loss. In the case of Insured Mortgages fully insured by HUD, the Partnership's maximum exposure for purposes of determining the loan losses would generally be an assignment fee charged by HUD representing approximately 1% of the unpaid principal balance of the Insured Mortgage at the date of default, plus the unamortized balance of acquisition fees and closing costs paid in connection with the acquisition of the Insured Mortgage and the loss of approximately 30 days accrued interest.
Cash and Cash Equivalents ------------------------- Cash and cash equivalents consist of money market funds, time and demand deposits, commercial paper, certificates of deposit, and repurchase agreements with original maturities of three months or less.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES - Continued
Reclassification ---------------- Certain amounts in the financial statements for the year ended December 31, 1994 have been reclassified to conform with the 1996 and 1995 presentation.
Income Taxes ------------ No provision has been made for Federal, state or local income taxes in the accompanying financial statements, since they are the personal responsibility of the Unitholders.
Net Earnings Per Limited Partnership Unit ----------------------------------------- Net earnings per Limited Partnership Unit is computed based upon the weighted average number of Units outstanding of 8,802,091, 8,802,091 and 8,816,201, for the years ended December 31, 1996, 1995 and 1994, respectively.
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of the Partnership's financial instruments are presented in accordance with generally accepted accounting principles which define 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.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS 3. FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Investment in FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans ----------------------------------------------------------- The fair value of the fully insured FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans is based on quoted market prices. In order to determine the fair value of coinsured FHA-Insured Certificates, the Partnership valued the coinsured FHA-Insured Certificates as though they were fully insured FHA-Insured Certificates (in the same manner fully insured FHA-Insured Certificates were valued). From this amount, the Partnership deducted a discount factor from the face value of the loan. This discount factor is based on the Partnership's historical analysis of the difference in fair value between coinsured FHA-Insured Certificates and fully insured FHA-Insured Certificates.
Cash and cash equivalents and accrued interest receivable --------------------------------------------------------- The carrying amount approximates fair value because of the short maturity of these instruments.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES
The following is a discussion of the Partnership's mortgage investments, along with the risks related to each type of investment.
A. Fully Insured FHA-Insured Certificates and GNMA Mortgage-Backed Securities ----------------------------------------------- Listed below is the Partnership's aggregate investment in fully insured Acquired Insured Mortgages as of December 31, 1996 and 1995:
Listed below is the Partnership's aggregate investment in fully insured Originated Insured Mortgages as of December 31, 1996 and 1995:
As of February 28, 1997, all fully insured mortgages were current with respect to the payment of principal and interest.
In February 1996, the General Partner instructed the servicer for the mortgage on Water's Edge of New Jersey, a fully insured acquired construction loan, to file a Notice of Default and an Election to Assign the mortgage with the Department of Housing and Urban Development (HUD). The property underlying this construction loan is a nursing home located in Trenton, New Jersey. As of December 31, 1996, the Partnership had received approximately $7.6 million including repayment of accrued interest. The remainder of the proceeds, approximately $4.1 million, is included in Due from HUD and Receivables and other assets. In January 1997, the Partnership received proceeds of approximately $2.6 million from HUD. These proceeds of $0.27 per unit were declared as part of the January 1997 distribution and will be distributed in May 1997. HUD has disallowed approximately $1.5 million of the assignment claim. The Servicer is
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued
currently negotiating with HUD in regard to collection of the disallowed portion of the claim. The General Partner believes the full amount of the receivable will be recovered from either HUD or the Servicer. In conjunction with the assignment of the mortgage, the Partnership recognized a net loss of approximately $204,000 in the second quarter of 1996.
During March 1996, a retained yield holder in the Harbor View Estates loan exercised its right to purchase the participation certificate with respect to this insured mortgage after a Notice of Default was filed with HUD. In March 1996, the Partnership received approximately $709,100 in disposition proceeds, including approximately $17,400 of interest due to the Partnership from this prepayment. The net principal proceeds were approximately $691,000, resulting in a gain of approximately $600. The net proceeds were reinvested in fully insured mortgages. In April 1996, approximately $4,900 was remitted to the retained yield holder in the Harbor View Estates mortgage in connection with the final accounting of this disposition. This resulted in a net loss of approximately $4,300 which is included on the accompanying statement of operations for the year ended December 31, 1996.
In June 1996, the Partnership entered into a modification agreement with the mortgagor of Turn at Gresham. This agreement effectively lowered the interest rate on the mortgage from 8.375% to 8% for a period until maturity. In addition, a seven year prepayment lockout was included in the modification, followed by a 3%, 2%, and 1% penalty in years eight, nine, and ten, respectively. The Partnership incurred a loss of approximately $169,600 in connection with this modification which represents the write off of unamortized costs.
B. Coinsured FHA-Insured Certificates ---------------------------------- Under the HUD coinsurance program, both HUD and the coinsurance lender are responsible for paying a portion of the insurance benefits if a mortgagor defaults and the sale of the development collateralizing the mortgage produces insufficient net proceeds to repay the mortgage obligation. In such cases, the coinsurance lender will be liable to the Partnership for the first part of such loss in an amount up to 5% of the outstanding principal balance of the mortgage as of the date foreclosure proceedings are instituted or the deed is acquired in lieu of foreclosure. For any loss greater than 5% of the outstanding principal balance, the responsibility for paying the insurance benefits will be borne on a pro-rata basis, 85% by HUD and 15% by the coinsurance lender.
While the Partnership is due payment of all amounts owed under the mortgage, the coinsurance lender is responsible for the timely payment of principal and interest to the Partnership. The coinsurance lender is prohibited from entering into any workout arrangement with the borrower without the Partnership's consent and must file a claim for coinsurance benefits with HUD, upon default, if the Partnership so directs. As an ongoing HUD-approved coinsurance lender, and under the terms of the participation documents, the coinsurance lender is required to satisfy certain minimum net worth requirements as set forth by HUD. However, it is possible that the coinsurance lender's potential liability for loss on these developments, and others, could exceed its HUD-required minimum net worth. In such case, the Partnership would bear the risk of loss if the coinsurance lenders were unable to meet their coinsurance obligations. In addition, HUD's obligation for the payment of its share of the loss could
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued
be diminished under certain conditions, such as the lender not adequately pursuing regulatory violations of the borrower or the failure to comply with other terms of the mortgage. However, the General Partner is not aware of any conditions or actions that would result in HUD diminishing its insurance coverage.
As of December 31, 1996 and 1995, the Partnership held investments in three coinsured FHA-Insured Certificates secured by coinsured mortgages. One of these coinsured mortgage investments, the mortgage on St. Charles Place - Phase II, is coinsured by The Patrician Mortgage Company (Patrician), an unaffiliated third party coinsurance lender under the HUD coinsurance program. As of December 31, 1996 and 1995, the remaining two FHA-Insured Certificates are coinsured by IFI, an affiliate of the Partnership. The following is a discussion of actual and potential performance problems with respect to the Partnership's coinsured mortgage investments.
Coinsured by third party ------------------------ St. Charles Place - Phase II is a 156-unit apartment complex located in Miramar, Florida. Listed below is the Partnership's investment in the St. Charles Place - Phase II mortgage as of December 31, 1996 and 1995. These amounts represent the Partnership's approximate 55% ownership interest in the mortgage. The remaining 45% ownership interest is held by American Insured Mortgage Investors L.P. - Series 86 (AIM 86), an affiliate of the Partnership.
As of February 28, 1997, the mortgagor had made payments of principal and interest due to the Partnership on the mortgage through October 1995. Patrician is litigating the case in bankruptcy court while pursuing negotiations on a modification agreement with the borrower.
The General Partner intends to continue to oversee the Partnership's interest in this mortgage investment to ensure that Patrician meets its coinsurance obligations. The General Partner's assessment of the realizability of the carrying value of the St. Charles Place - Phase II mortgage is based on the most recent information available, and to the extent these conditions change or additional information becomes available, the General Partner's assessment may change. However, the General Partner does not believe that there would be a material adverse impact on the Partnership's financial condition or its results of operations should Patrician be unable to comply with its full coinsurance obligation.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued
Coinsured by affiliate ---------------------- As of December 31, 1996 and 1995, the Partnership held investments in two FHA-Insured Certificates secured by coinsured mortgages, where the coinsurance lender is IFI. These investments were made on behalf of the Partnership by the former managing general partner. As structured by the former managing general partner, with respect to these mortgages, the Partnership bears the risk of loss upon default for IFI's portion of the coinsurance loss on these mortgage investments.
The IFI coinsured mortgages had an aggregate fair value of $30,012,592 and $30,553,317, as of December 31, 1996 and 1995, respectively, and amortized costs and face values as follows:
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENT IN FHA-INSURED CERTIFICATES AND GNMA MORTGAGE- BACKED SECURITIES - Continued
5. INVESTMENT IN FHA-INSURED LOANS
Listed below is the Partnership's aggregate investment in fully insured Originated Insured Mortgages as of December 31, 1996 and 1995:
Listed below is the Partnership's aggregate investment in fully insured Acquired Insured Mortgages as of December 31, 1996 and 1995:
As of February 28, 1997, all of the Partnership's FHA-Insured Loans were current with respect to the payment of principal and interest.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
5. INVESTMENT IN FHA-INSURED LOANS - Continued
All of the FHA-Insured Loans contain Participations. During the years ended December 31, 1996, 1995 and 1994, the Partnership received additional interest of $63,045, $46,581 and $13,938, respectively, from the FHA-Insured Loans which contain Participations. These amounts are included in mortgage investment income on the accompanying statements of operations.
6. DUE FROM HUD
Due from HUD consists of amounts due to the Partnership in connection with losses incurred on the disposition of fully insured and coinsured mortgage investments. Prior to these dispositions, the mortgage investments were accounted for as Assets Held For Sale (AHFS) under the coinsurance program.
As of December 31, 1996, Due from HUD includes approximately $3.2 million related to the assignment of Water's Edge of New Jersey, as discussed in Note 4. As of December 31, 1996 and 1995, Due from HUD includes approximately $59,000 and $285,000, respectively, related to the disposition of Hazeltine Shores.
7. DISTRIBUTIONS TO UNITHOLDERS
The distributions paid or accrued to Unitholders on a per Unit basis for the years ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994 ------- ------- ------ Quarter ended March 31, $0.32(1) $0.49(2) $0.26(5) Quarter ended June 30, 0.30 0.53(3) 0.25(6) Quarter ended September 30, 0.30 0.32(4) 0.46(7) Quarter ended December 31, 0.30 0.32(1) 0.44(8) ----- ----- ----- $1.22 $1.66 $1.41 ===== ===== =====
(1) This amount includes approximately $0.02 per Unit representing previously undistributed accrued interest received from Water's Edge of New Jersey. (2) This amount includes approximately $0.15 per Unit representing accrued, but previously undistributed, interest related to the receipt of claim proceeds from the mortgage on Pinewood Park Apartments and approximately $0.01 per Unit representing previously undistributed accrued interest received from Water's Edge of New Jersey. (3) This amount includes approximately $0.22 per Unit representing accrued, but previously undistributed, interest and capital gain related to the receipt of claim proceeds from the mortgage on Hamlet at Cobb's Landing. (4) This amount includes approximately $0.02 per Unit representing capital gain from the disposition of the mortgage on Gilbert Greens Apartments. (5) This amount includes approximately $0.05 per Unit representing previously undistributed accrued interest received from delinquent mortgages. (6) This amount includes approximately $0.02 per Unit representing previously undistributed accrued interest received from delinquent mortgages. (7) This amount includes approximately $0.22 per Unit of accrued but previously undistributed interest and gain received from HUD relating to the foreclosure and sale of the mortgage on Hazeltine Shores. (8) This amount includes $0.05 per Unit representing additional gain received from the disposition of the mortgage on Hazeltine Shores; and $0.08 per Unit representing previously undistributed accrued interest from delinquent mortgages.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS 7. DISTRIBUTIONS TO UNITHOLDERS - Continued
The basis for paying distributions to Unitholders is cash flow from operations, which includes regular interest income and principal from Insured Mortgages and gains, if any, from mortgage dispositions. Although the Insured Mortgages yield a fixed monthly mortgage payment once purchased, the cash distributions paid to the Unitholders will vary during each quarter due to (1) the fluctuating yields in the short-term money market where the monthly mortgage payments received are temporarily invested prior to the payment of quarterly distributions, (2) the reduction in the asset base resulting from the receipt of monthly mortgage payments or mortgage dispositions, (3) variations in the cash flow attributable to the delinquency or default of Insured Mortgages and professional fees and foreclosure and acquisition costs incurred in connection with those Insured Mortgages and (4) variations in the Partnership's operating expenses.
8. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES, DUE FROM AFFILIATES AND NOTE PAYABLE AND DUE TO AFFILIATE
Effective December 31, 1991, American Insured Mortgage Investors - Series 85, L.P. (AIM 85), an affiliate of the Partnership, transferred a GNMA Mortgage- Backed Security (the GNMA Security) in the amount of approximately $4.7 million to IFI in order to capitalize IFI with sufficient net worth under HUD regulations. The Partnership and AIM 86 each issued a demand note payable to AIM 85 and recorded an investment in IFI through an affiliate (AIM Mortgage, Inc.) at an amount proportionate to each entity's coinsured mortgages for which IFI was the mortgagee of record as of December 31, 1991. AIM Mortgage, Inc. is jointly owned by AIM 85, AIM 86, and the Partnership. The Partnership accounts for its investment in IFI under the equity method of accounting. Interest expense on the note was based on an interest rate of 8% per annum.
In 1992, IFI entered into an expense reimbursement agreement with the Partnership, AIM 85 and AIM 86 (collectively, the AIM Funds) whereby IFI reimburses the AIM Funds for general and administrative expenses incurred on behalf of IFI. The expense reimbursement is allocated to the AIM Funds based on an amount proportionate to each entity's coinsured mortgages. The expense reimbursement, along with the Partnership's equity interest in IFI's net income or loss, substantially equalled the Partnership's interest expense on the note payable.
In April 1994, IFI received net proceeds of approximately $4.7 million from the prepayment of the GNMA Mortgage-Backed Security, which IFI distributed to the AIM Funds, in proportion to each entity's coinsured mortgage investments for which IFI was the mortgagee of record as of December 31, 1991. On June 30, 1994, the Partnership repaid its note payable to AIM 85.
As a result of the prepayment, in April 1994, the Partnership transferred a GNMA Mortgage-Backed Security in the amount of approximately $2.0 million to IFI in order to recapitalize IFI with sufficient net worth under HUD regulations. AIM 85 and AIM 86 each issued a demand note payable to the Partnership and recorded an investment in IFI through AIM Mortgage, Inc. at an amount proportionate to each entity's coinsured mortgages for which IFI was the mortgagee of record as of April 1, 1994. Interest income on the note, which is based on an annual interest rate of 7.25% (representing the interest rate on the GNMA Mortgage-Backed Security transferred by the Partnership), was $57,832 during the years ended December 31, 1996 and 1995, respectively, and is included in interest and other income on the accompanying statements of operations.
In connection with these transfers, the expense reimbursement agreement was amended as of April 1, 1994, to adjust the allocation of the expense reimbursement to the AIM Funds to an amount proportionate to each entity's
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
8. INVESTMENT IN AFFILIATE, NOTES RECEIVABLE FROM AFFILIATES, DUE FROM AFFILIATES AND NOTE PAYABLE AND DUE TO AFFILIATE - Continued
coinsured mortgage investments for which IFI was the mortgagee of record as of April 1, 1994. The expense reimbursement, as amended, along with the Partnership's interest income from the notes receivable, and the Partnership's equity interest in IFI's net income or loss, substantially equals the mortgage principal and interest on the GNMA Mortgage-Backed Security transferred to IFI.
9. TRANSACTIONS WITH RELATED PARTIES
In addition to the related party transactions described above in Note 8, the General Partner and certain affiliated entities, during the years ended December 31, 1996, 1995 and 1994, have earned or received compensation or payments for services from the Partnership as follows:
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
9. TRANSACTIONS WITH RELATED PARTIES - Continued
10. PARTNERS' EQUITY
Depositary Units representing economic rights in limited partnership interests (Units) were issued at a stated value of $20. A total of 8,851,966 Units were issued for an aggregate capital contribution of $177,039,320. In addition, the initial limited partner contributed $2,500 to the capital of the Partnership and received 125 Units in exchange therefor, and the former general partners contributed a total of $1,000 to the Partnership. During 1994, the Partnership repurchased 50,000 Units in connection with the settlement of litigation, as discussed in Note 12.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
11. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Unit Data)
The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1996, 1995 and 1994:
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO FINANCIAL STATEMENTS
12. LITIGATION
On November 6, 1992, a complaint was filed on behalf of a limited partner of the Partnership in the Superior Court for the State of California for the County of Los Angeles, Southwest District against the Partnership. On March 28, 1994, the Partnership entered into an agreement to settle the claims in the lawsuit. Under the terms of the settlement, the Partnership paid $968,574 to the plaintiff on April 14, 1994, and the plaintiff returned its 50,000 Units to the Partnership. In connection with the settlement, the Partnership recorded a provision for settlement of litigation in the amount of $349,824 in the accompanying statement of operations for the year ended December 31, 1994. This provision represents the difference between the market value of the 50,000 Units as of April 14, 1994 of $618,750 and the Partnership's cost to repurchase the Units of $968,574.
During 1994, IFI, an affiliate of the Partnership, filed a Complaint in the United States District Court for the District of Minnesota. The case concerned the violation of the HUD regulatory agreement and breach of fiduciary duty by the mortgagor of the mortgage on Hazeltine Shores. In response to this Complaint, the mortgagor filed counterclaims against IFI and against the Partnership, the General Partner and CRI. A motion to dismiss the counterclaims was granted with prejudice on July 24, 1995.
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1996
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(1) Under the Section 221 program of the National Housing Act of 1937, as amended, a mortgagee has the right to assign an Insured Mortgage (put) to FHA at the expiration of 20 years from the date of final endorsement, if the mortgage is not in default at such time. Any mortgagee electing to assign a FHA-insured mortgage to FHA will receive, in exchange therefor, HUD debentures having a total face value equal to the then outstanding principal balance of the FHA-insured mortgage plus accrued interest to the date of assignment. These HUD debentures will mature 10 years from the date of assignment and will bear interest at the "going Federal rate" at such date. This assignment procedure is applicable to an Insured Mortgage which had a firm or conditional FHA commitment for insurance on or before November 30, 1983 and, in the case of mortgages sold in a GNMA auction, was sold in an auction prior to February 1984. Certain of the Partnership's Insured Mortgages may have the right of assignment under this program. Certain Insured Mortgages that do not qualify under this program possess a special assignment option, in certain mortgage documents, which allow the Partnership, anytime after this date, to require payment by the borrower of the unpaid principal balance of the Insured Mortgages. At such time, the borrowers must make payment to the Partnership or the Partnership may cancel the FHA insurance and institute foreclosure proceedings.
(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) This mortgage is insured under the HUD coinsurance program, as previously discussed. The Patrician Mortgage Company is the HUD-approved coinsurance lender.
(5) This represents the base interest rate during the permanent phase of this Insured Mortgage loan. Additional interest, measured as a percentage of surplus cash (as defined in the participation agreements) and a percentage of the proceeds from the sale or refinancing of the development (as defined in the participation agreements), will also be due. During the years ended 1996, 1995 and 1994, additional interest was recognized in the amount of $84,947, $179,701 and $36,550, respectively. These amounts are included in mortgage investment income on the accompanying statements of operations.
(6) In addition, the servicer or the sub-servicer of the mortgage, primarily unaffiliated third parties, is entitled to receive compensation for certain services rendered.
(7) These mortgages are insured under the HUD coinsurance program. IFI is the HUD-approved coinsurance lender and the Partnership bears the risk of any coinsurance loss, as previously discussed.
(8) These amounts represent the Partnership's 55% interest in this mortgage. The remaining 45% interest was acquired by AIM 86, an affiliate of the Partnership.
(9) Represents the principal amount subject to delinquent principal or interest. See Note 4 to the Partnership's financial statements.
(10) A reconciliation of the carrying value of the Partnership's investment in Insured Mortgages, for the years ended December 31, 1996 and 1995, is as follows:
AMERICAN INSURED MORTGAGE INVESTORS L.P. - SERIES 88
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(11) The mortgages underlying the Partnership's investments in FHA-Insured Certificates, GNMA Mortgage-Backed Securities and FHA-Insured Loans are primarily non- recourse first liens on multifamily residential developments or retirement homes.
(12) Principal and interest are payable at relatively level amounts over the life of the Insured Mortgages.
(13) As of December 31, 1996 and 1995, the tax basis of the Insured Mortgages, including AHFS, was approximately $153 million and $156 million, respectively.
(14) Annual principal and interest payments for mortgages acquired during 1996 are annualized.