<PAGE>
PROSPECTUS Rule 424(b)(4)
MARCH 8, 1994 Registration No. 33-50679
5,000,000 SHARES
LOGO
CRIIMI MAE INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being issued and sold by
CRIIMI MAE Inc. The Common Stock is listed on the New York Stock Exchange under
the symbol "CMM." On March 8, 1994, the reported last sale price of the Common
Stock on the New York Stock Exchange Composite Tape was $11.25 per share. See
"Price Range of Common Stock and Dividends."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price Underwriting Proceeds
to the Discounts and to
Public Commissions (1) CRIIMI MAE (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............. $11.25 $.67 $10.58
Total (3)............. $56,250,000 $3,350,000 $52,900,000
- -------------------------------------------------------------------------------
</TABLE>
(1) CRIIMI MAE has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting CRIIMI MAE's expenses, estimated at $700,000.
(3) CRIIMI MAE has granted to the Underwriters an option, exercisable within 30
days hereof, to purchase up to an aggregate of 750,000 additional Shares at
the price to the public less underwriting discounts and commissions for the
purpose of covering over-allotments, if any. If the Underwriters exercise
such option in full, the total price to the public, underwriting discounts
and commissions, and proceeds to CRIIMI MAE will be $64,687,500, $3,852,500
and $60,835,000, respectively. See "Underwriting."
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Weil, Gotshal & Manges, counsel for the Underwriters. It is expected that
delivery of the Shares will be made on or about March 15, 1994 at the offices
of Weil, Gotshal & Manges, New York, N.Y., against payment therefor in New York
Clearing House funds.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
CS FIRST BOSTON
OPPENHEIMER & CO., INC.
ADVEST, INC.
LEGG MASON WOOD WALKER
Incorporated
<PAGE>
AVAILABLE INFORMATION
CRIIMI MAE Inc. ("CRIIMI MAE") and its subsidiary, CRI Liquidating REIT, Inc.
("CRI Liquidating"), are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Reports, proxy statements
and other information filed by CRIIMI MAE and CRI Liquidating can be inspected
and copied at the SEC's Public Reference Room, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and the SEC's Regional Offices at 7 World Trade Center,
New York, New York 10007 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and copies of such material can be obtained from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, reports, proxy material and other information
concerning CRIIMI MAE and CRI Liquidating may be inspected at The New York
Stock Exchange ("NYSE"), 20 Broad Street, New York, New York 10005.
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by CRIIMI MAE with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information
included in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the SEC. Reference is made to the
Registration Statement for further information with respect to CRIIMI MAE and
the shares of CRIIMI MAE common stock ("Common Stock") offered hereby
("Shares").
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by CRIIMI MAE with the SEC (File No.
1-10360) are incorporated herein by reference:
1. Annual Report on Form 10-K for the year ended December 31, 1993, as
filed with the SEC on February 16, 1994.
2. Definitive Proxy Statement dated April 6, 1993.
3. Form 8-A, as filed with the SEC on October 16, 1989.
4. Form 8-B, as filed with the SEC on October 27, 1993.
All documents filed by CRIIMI MAE pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the Shares offered hereby shall be deemed to be
incorporated by reference in this Prospectus from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
CRIIMI MAE will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus has been delivered, on the
written or oral request of any such person, a copy of any or all of the
documents referred to above which have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents, unless such
exhibits are specifically incorporated by reference. Requests for such copies
should be directed to: CRIIMI MAE Inc., Investor Services, The CRI Building,
11200 Rockville Pike, Rockville, Maryland 20852, or telephone (301) 468-9200 or
toll-free (800) 678-1116.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Unless
otherwise noted, all information in this Prospectus with respect to CRIIMI
MAE's capital stock, including share and per share amounts, excludes Common
Stock that may be issued in connection with the exercise of the over-allotment
option granted to the Underwriters by CRIIMI MAE. References to CRIIMI MAE
appearing in this Prospectus shall not include CRI Liquidating, unless the
context otherwise requires.
CRIIMI MAE
CRIIMI MAE, an infinite-life, actively managed real estate investment trust
("REIT"), is the largest REIT specializing in government insured and guaranteed
mortgage investments secured by multifamily housing complexes ("Government
Insured Multifamily Mortgages") located throughout the United States. CRIIMI
MAE's principal objectives are to provide stable or growing quarterly cash
distributions to its stockholders while preserving and protecting its capital.
CRIIMI MAE seeks to achieve these objectives by investing primarily in
Government Insured Multifamily Mortgages using a combination of debt and equity
financing. CRIIMI MAE believes that the current environment for acquiring
Government Insured Multifamily Mortgages is favorable because of the
availability of Government Insured Multifamily Mortgages and financing at
attractive rates. CRIIMI MAE is attempting, through this offering, to take
advantage of this environment.
CRIIMI MAE has paid quarterly dividends of $.27 per share from its inception
through 1992 and $.28 per share for each quarter in 1993. The CRIIMI MAE Board
has declared a dividend of $.29 per share for the quarter ending March 31,
1994, payable on March 31, 1994 to stockholders of record as of March 24, 1994.
Based on a price of $11.25 per share of Common Stock and the annualized
dividend rate for the quarter ending March 31, 1994, CRIIMI MAE's annual
dividend yield is 10.31%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity."
CRIIMI MAE's portfolio and day-to-day operations are managed by an affiliate
of C.R.I., Inc. ("CRI"), an international real estate investment firm which is
currently ranked as the sixth largest real estate asset manager in the United
States. In its nearly 20 years as an investor in, and manager of, debt and
equity investments in multifamily properties, CRI has used its expertise to
assemble one of the largest multifamily portfolios in the United States with an
original cost of approximately $3.9 billion as of December 31, 1993.
CRIIMI MAE's use of leverage carries with it the risk that the cost of its
borrowings could increase relative to the return on its Government Insured
Multifamily Mortgages, which could result in reduced net income or a net loss
and thereby reduce the return to stockholders. CRIIMI MAE has entered into
interest rate hedging agreements which partially limit the adverse effects of
rising interest rates and actively reviews its asset/liability management
techniques in an effort to make optimal use of its borrowing ability based on
market conditions and opportunities. In certain adverse interest rate
environments, including a sustained period of rising interest rates, CRIIMI MAE
could be required to liquidate a portion of its assets at a loss in order to
comply with certain convenants under its financing facilities. CRIIMI MAE's
dividends are affected by numerous other factors, including the dividends which
CRIIMI MAE receives on its shares of CRI Liquidating. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity."
CRIIMI MAE invests primarily in two types of Government Insured Multifamily
Mortgages: loans insured by the Federal Housing Administration (the "FHA")
pursuant to provisions of the National Housing Act, which are first or second
liens on residential apartment, nursing home or townhouse complexes ("FHA-
Insured Loans"); and mortgage-backed securities which are guaranteed by the
Government National Mortgage Association ("GNMA") as to the monthly payment of
the outstanding principal of, and interest on, the
3
<PAGE>
underlying multifamily mortgages ("GNMA Securities"). As of December 31, 1993,
CRIIMI MAE owned directly 126 Government Insured Multifamily Mortgages with an
amortized cost of approximately $499 million, of which 46 were FHA-Insured
Loans with an amortized cost of approximately $152 million and 80 were GNMA
Securities with an amortized cost of approximately $347 million. As of December
31, 1993, the weighted average coupon rate of CRIIMI MAE's Government Insured
Multifamily Mortgages was approximately 8.4% and the weighted average maturity
thereof was approximately 34 years. See "CRIIMI MAE--Description of Assets."
In addition to its portfolio of Government Insured Multifamily Mortgages and
other assets, CRIIMI MAE also owns approximately 57% of the issued and
outstanding common stock of CRI Liquidating, a finite-life, self-liquidating
REIT which owns Government Insured Multifamily Mortgages. CRI Liquidating's
common stock is listed on the NYSE under the symbol "CFR". As of December 31,
1993, CRI Liquidating owned 63 Government Insured Multifamily Mortgages with an
amortized cost of approximately $192 million (which were accounted for at a
fair value of $243 million), 61 of which were FHA-Insured Loans with an
amortized cost of approximately $187 million (which were accounted for at a
fair value of $238 million) and two of which were GNMA Securities with an
amortized cost of approximately $5 million (which were accounted for at a fair
value of $5 million). As of December 31, 1993, the weighted average coupon rate
of CRI Liquidating's Government Insured Multifamily Mortgages was approximately
7.7% and the weighted average maturity thereof was approximately 27 years. See
"CRIIMI MAE--Description of Assets." On February 10, 1994, CRI Liquidating sold
12 Government Insured Multifamily Mortgages with an aggregate amortized cost of
approximately $37 million, constituting approximately 20% of CRI Liquidating's
portfolio as of December 31, 1993, for a financial statement gain of $11.7
million and a tax basis gain of approximately $14.7 million.
THE OFFERING
Common Stock offered by CRIIMI MAE.............. 5,000,000 Shares
Common Stock to be outstanding after the
offering....................................... 25,183,533 Shares
Use of proceeds................................. Acquisition of additional
Government Insured Multifam-
ily Mortgages, the purchase
of interest rate hedging
agreements and other general
corporate purposes. See "Use
of Proceeds."
NYSE symbol..................................... CMM
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1989(A) 1990 1991 1992 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total income............ $42,655 $55,030 $54,318 $50,702 $56,450
Interest expense........ 1,136 22,346 25,791 24,392 28,008
Income before mortgage
dispositions, gain on
sale of shares of
subsidiary and loss on
investment in limited
partnership............ 37,120 26,958 22,450 20,567 14,698
Net gains from mortgage
dispositions........... 2,958 3,794 4,048 5,733 7,358
Net income.............. 19,540 18,373 9,001(b) 16,041 15,757(c)
Net income per share.... 0.95 0.91 0.45(b) 0.79 0.78(c)
Tax basis income........ 26,987 22,276 22,037 21,626 23,015
Tax basis income per
share ................. 1.31 1.10 1.09 1.07 1.14
Dividends per share..... 1.49(d) 1.08 1.08 1.08 1.12
Weighted average shares
outstanding............ 20,567 20,184 20,184 20,184 20,184
AS OF DECEMBER 31,
--------------------------------------------------
1989(A) 1990 1991 1992 1993
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investment in mortgages
(excludes mortgages
held for disposition).. $456,692 $546,448 $446,703 $448,319 $730,265(e)
Total assets............ 502,530 602,786 546,054 526,667 808,701
Total debt.............. 139,426 264,605 245,555 247,968 479,045
Shareholders' equity.... 223,472 211,195 198,397 193,109 215,289(e)
</TABLE>
- --------
(a) All financial information of CRIIMI MAE for the periods prior to the Merger
(defined below) on November 27, 1989 has been presented in a manner similar
to a pooling of interests, which effectively combines the historical
results of the CRIIMI Funds (defined below). The dividends and net income
per share amounts for the year ended December 31, 1989 have been restated
based upon the weighted average shares outstanding as if the Merger had
been consummated on January 1, 1989.
(b) Includes recognition of an extraordinary loss of approximately $6.6 million
($0.33 per share) resulting from the refinancing of certain notes payable.
(c) Includes recognition of a $3.3 million ($0.16 per share) gain on the sale
of shares of CRI Liquidating and a $4.9 million ($0.24 per share) expense
for the termination of an interest rate swap.
(d) This amount does not include the special dividend of $2.31 per share paid
to CRIIMI MAE stockholders of record on November 27, 1989.
(e) Includes net unrealized gain on mortgage investments of CRI Liquidating of
approximately $29.0 million, due to the implementation of SFAS No. 115 (as
described below).
5
<PAGE>
CRIIMI MAE
GENERAL
CRIIMI MAE, an infinite-life, actively managed REIT, is the largest REIT
specializing in Government Insured Multifamily Mortgages. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its stockholders while preserving and protecting its capital.
CRIIMI MAE seeks to achieve these objectives by investing primarily in
Government Insured Multifamily Mortgages using a combination of debt and equity
financing. CRIIMI MAE has paid quarterly dividends of $.27 per share from its
inception through 1992 and $.28 per share for each quarter in 1993. The CRIIMI
MAE Board has declared a dividend of $.29 per share for the quarter ending
March 31, 1994, payable on March 31, 1994 to stockholders of record as of March
24, 1994. Based on a price of $11.25 per share of Common Stock and the
annualized dividend rate for the quarter ending March 31, 1994, CRIIMI MAE's
annual dividend yield is 10.31%. CRIIMI MAE and CRI Liquidating are Maryland
corporations. The principal executive offices of CRIIMI MAE and CRI Liquidating
are located at the CRI Building, 11200 Rockville Pike, Rockville, Maryland
20852, and their telephone number is (301) 468-9200.
BACKGROUND
CRIIMI MAE and its subsidiary, CRI Liquidating, were formed in 1989 to effect
the merger into CRI Liquidating (the "Merger") of three federally insured
mortgage funds sponsored by CRI: CRI Insured Mortgage Investments Limited
Partnership ("CRIIMI I"); CRI Insured Mortgage Investments II, Inc. ("CRIIMI
II"); and CRI Insured Mortgage Investments III Limited Partnership ("CRIIMI
III" and together with CRIIMI I and CRIIMI II, the "CRIIMI Funds"). The Merger
was effected to provide certain potential benefits to investors in the CRIIMI
Funds, including the elimination of unrelated business taxable income for
certain tax-exempt investors, the diversification of investments, the reduction
of general overhead and administrative costs as a percentage of assets and
total income and the simplification of tax-reporting information. In the
Merger, which was approved by investors in each of the CRIIMI Funds and
subsequently consummated on November 27, 1989, investors in the CRIIMI Funds
received, at their option, shares of CRI Liquidating common stock ("CRI
Liquidating Shares") or shares of CRIIMI MAE Common Stock.
Investors in the CRIIMI Funds that received shares of CRIIMI MAE Common Stock
became stockholders in an infinite-life, actively managed REIT having the
potential to increase the size of its portfolio and enhance the returns to its
stockholders. CRIIMI MAE stockholders retained their economic interests in the
assets of the CRIIMI Funds which were transferred to CRI Liquidating through
the issuance of one CRI Liquidating Share to CRIIMI MAE for each share of
CRIIMI MAE Common Stock issued to investors in the Merger. Upon the completion
of the Merger, CRIIMI MAE held a total of 20,361,807 CRI Liquidating Shares, or
approximately 67% of the issued and outstanding CRI Liquidating Shares. As of
the date of this Prospectus, CRIIMI MAE holds a total of 17,199,307 CRI
Liquidating Shares, or approximately 57% of the issued and outstanding CRI
Liquidating Shares. See "--Recent Developments."
Investors in the CRIIMI Funds that received CRI Liquidating Shares, as well
as CRIIMI MAE, became stockholders in a finite-life, self-liquidating REIT the
assets of which consist primarily of Government Insured Multifamily Mortgages
and other assets formerly held by the CRIIMI Funds. CRI Liquidating intends to
hold, manage and dispose of its mortgage investments in accordance with the
objectives and policies of the CRIIMI Funds, including disposing of any
remaining mortgage investments by 1997 through an orderly liquidation.
On September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary CRIIMI,
Inc., acquired from Integrated Resources, Inc. all of the general partnership
interests in four publicly held limited partnerships known as the American
Insured Mortgage Investors Funds (the "AIM Funds"). The AIM Funds own mortgage
investments which are substantially similar to those owned by CRIIMI MAE and
CRI Liquidating. CRIIMI, Inc. receives the general partner's share of income,
loss and distributions (which ranges among the AIM Funds from 2.9% to 4.9%)
from each of the AIM Funds. In addition, CRIIMI MAE owns indirectly a limited
partnership interest in the adviser to the AIM Funds, in respect of which
CRIIMI MAE receives a guaranteed return each year. See Note 14 of Notes to
Consolidated Financial Statements.
6
<PAGE>
ASSET MANAGEMENT
CRIIMI MAE is governed by a board of directors (the "CRIIMI MAE Board"), a
majority of whom are independent directors with extensive industry related
experience. The adviser to CRIIMI MAE and CRI Liquidating is CRI Insured
Mortgage Associates Adviser Limited Partnership (the "Adviser"), the general
partner of which is CRI and the operations of which are conducted by CRI's
employees. CRIIMI MAE's executive officers are senior executive officers of
CRI. The Adviser manages CRIIMI MAE's portfolio of Government Insured
Multifamily Mortgages and other assets with the goal of maximizing CRIIMI MAE's
value, and conducts CRIIMI MAE's day-to-day operations. See "Management." Under
an Advisory Agreement between CRIIMI MAE and the Adviser, the Adviser and its
affiliates receive certain fees and expense reimbursements. See Note 3 of Notes
to Consolidated Financial Statements.
CRI is an international real estate investment firm which is currently ranked
as the sixth largest real estate asset manager in the United States.
Established in 1974, CRI offers capital, management and investment expertise to
developers, builders and both institutional and individual investors. CRI's 114
employees have been active in property acquisitions and dispositions, domestic
and foreign debt and equity placements, asset and property management and
leasing, structuring and sponsorship of real estate investment funds, and
management of real estate investment portfolios and REITs.
In its 20 years as an investor in, and manager of, debt and equity
investments in multifamily properties, CRI has used its expertise to assemble
one of the largest multifamily portfolios in the United States. As of December
31, 1993, CRI's multifamily portfolio, with an original cost of approximately
$3.9 billion, consisted of investments in approximately 100,000 apartment units
in approximately 720 multifamily properties located in 45 states. CRI also
invests in and manages commercial property. As of December 31, 1993, CRI's
commercial portfolio had an original cost of approximately $1.0 billion and
included 18 hotels, with a total of over 5,000 rooms, and five commercial
office buildings. Since its inception, CRI has raised over $2.4 billion of
capital to support its real estate investment activities.
INVESTMENT POLICIES
CRIIMI MAE's investment policies, which are overseen by the CRIIMI MAE Board,
are intended to foster CRIIMI MAE's objectives of providing stable or growing
quarterly cash distributions to its stockholders while preserving and
protecting its capital. CRIIMI MAE seeks to achieve these objectives by
investing primarily in Government Insured Multifamily Mortgages issued or sold
pursuant to programs sponsored by the FHA and GNMA. CRIIMI MAE's sources of
capital include borrowings, principal distributions received on its CRI
Liquidating Shares, principal proceeds of CRIIMI MAE mortgage dispositions and
proceeds from equity offerings. Beginning in early 1990, CRIIMI MAE commenced a
special acquisition program to buy FHA-insured and GNMA-guaranteed construction
loans. Although all periodic disbursements on such loans are FHA-insured or
GNMA-guaranteed, such loans generally carry higher interest rates than
permanent project loans largely because of the special expertise required to
handle many aspects of these loans, such as the dispersal of funds to
borrowers.
CRIIMI MAE seeks to enhance the return to its stockholders through the use of
leverage. Because CRIIMI MAE's mortgage investments are federally insured or
guaranteed, CRIIMI MAE has been able to arrange secured borrowings at interest
rates which the Adviser believes are attractive. These borrowings have been
invested in Government Insured Multifamily Mortgages with effective rates which
are higher than the interest rates payable on such borrowings. The Net Positive
Spread (as defined below) created by such leverage increases the return to
CRIIMI MAE stockholders. The Adviser continuously monitors CRIIMI MAE's
outstanding borrowings in an effort to ensure that CRIIMI MAE is making optimal
use of its borrowing ability based on market conditions and opportunities. Over
the past four years, the Adviser has reduced CRIIMI MAE's effective borrowing
rate through refinancings and net new financings and the Adviser continues to
evaluate opportunities to further reduce CRIIMI MAE's borrowing costs.
7
<PAGE>
CRIIMI MAE expects to continue to use leverage only to the extent that (i)
the proceeds therefrom will be used for investments such as CRIIMI MAE's
current portfolio of Government Insured Multifamily Mortgages or other high
quality assets including Other Insured Mortgages and Other Multifamily
Mortgages (as defined below); (ii) the risk of adverse changes in interest
rates is reduced by the use of hedging techniques such as those currently
employed by CRIIMI MAE; and (iii) the Adviser believes that after investing all
funds from any specific borrowing, a "Net Positive Spread" (the difference
between the yield on a mortgage investment acquired with borrowings and all
incremental borrowing and operating expenses on a tax basis associated with the
acquisition of such mortgage investment) of at least 40 basis points will be
achievable. However, CRIIMI MAE's use of leverage carries with it the risk that
the cost of its borrowings could increase relative to the return on CRIIMI
MAE's mortgage investments (due to (i) higher borrowing costs resulting from
increased interest rates and/or the expiration or termination of hedging
agreements, and/or (ii) a decrease in the yield on its mortgage investments
because of turnover in the portfolio), which could result in reduced net income
or a net loss and thereby reduce the return to CRIIMI MAE's stockholders.
It is CRIIMI MAE's policy to borrow only when the Net Positive Spread on the
borrowing is at least 40 basis points at inception of the borrowing. Such
policy provides that if Net Positive Spreads of at least 40 basis points are
not maintained, the annual and master servicing fees payable to the Adviser,
which are calculated as a percentage of invested assets, will be reduced so
that such fees, in basis points, equal the Net Positive Spread to investors, in
basis points. As of December 31, 1992 and 1993, CRIIMI MAE had a Net Positive
Spread of approximately 60 and 177 basis points, respectively, on its
borrowings. With respect to approximately $300 million of new borrowings
invested or committed for investment during 1993, as of December 31, 1993,
CRIIMI MAE had an average Net Positive Spread of approximately 250 basis
points. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity--Corporate Borrowings--Master Repurchase
Agreements."
CRIIMI MAE's secured financings require that its debt-to-equity ratio not
exceed 2.5:1. As of December 31, 1993, CRIIMI MAE's debt-to-equity ratio,
excluding approximately $41 million of borrowings committed for investment in
mortgages, was 2.2:1 and its debt-to-equity ratio, including such borrowings,
was 2.4:1. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity--Corporate Borrowings."
CRIIMI MAE's use of leverage carries with it the risk that the cost of its
borrowings could increase relative to the return on its Government Insured
Multifamily Mortgages, which could result in reduced net income or a net loss
and thereby reduce the return to stockholders. To partially limit the adverse
effects of rising interest rates, CRIIMI MAE has entered into a series of
interest rate hedging agreements in an aggregate notional amount approximately
equal to all of its outstanding borrowings and commitments. To the extent
CRIIMI MAE has not fully hedged its portfolio, in periods of rising interest
rates CRIIMI MAE's overall borrowing costs would increase with little or no
overall increase in mortgage investment income, resulting in returns to
stockholders that would be lower than those available if interest rates had
remained unchanged.
Borrowings by CRIIMI MAE generally are hedged by swap, cap or collar
agreements. Current interest rates are substantially lower than when CRIIMI MAE
entered into $165 million of its existing interest rate hedging agreements. As
a result of minimum interest rate levels associated with certain of these
hedging agreements, CRIIMI MAE incurred additional interest expense of $8.1
million and $8.6 million for the years ended December 31, 1992 and 1993,
respectively, of which approximately $1.3 million and $1.4 million,
respectively, was attributable to the swap agreement which was terminated in
December, 1993. Such existing hedging agreements expire in 1995. While there is
no assurance that any new arrangements will be made, the Adviser is actively
exploring alternatives to replace these hedging agreements when they expire in
order to capitalize on the current low interest rate environment. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity--Asset/Liability Management."
Although CRIIMI MAE expects the overall duration of its mortgage investments
to exceed ten years, CRIIMI MAE's hedging agreements range in maturity from 3
to 10 years principally because of the limited availability and high cost of
instruments with maturities greater than 10 years. Thus, to the extent CRIIMI
8
<PAGE>
MAE has not completely matched the duration of its existing mortgages to that
of its existing hedging agreements, upon the expiration of these hedging
agreements, CRIIMI MAE would be fully exposed to the adverse effects of rising
interest rates. The Adviser continues to actively review asset/liability
hedging techniques as CRIIMI MAE's existing hedging agreements approach their
expiration dates and to monitor the duration of its hedging agreements relative
to its assets.
A reduction in long-term interest rates could increase the level of
prepayments of CRIIMI MAE's Government Insured Multifamily Mortgages. CRIIMI
MAE's yield on mortgage investments will be reduced to the extent CRIIMI MAE
reinvests the proceeds from such prepayments in new mortgage investments with
effective rates which are below the effective rates of the prepaid mortgages.
CRIIMI MAE believes that declining interest rates result in increased
prepayments of single family mortgages to a greater extent than mortgages on
multifamily properties. This is partially due to lockouts (i.e. prepayment
prohibitions), prepayment penalties or difficulties in obtaining refinancing
for multifamily dwellings. Substantially all of CRIIMI MAE's and CRI
Liquidating's mortgage investments are subject to prepayment penalties or
prohibitions. See Appendix A to this Prospectus for information concerning
lockouts and prepayment penalties applicable to CRIIMI MAE's and CRI
Liquidating's mortgage investments. However, because of current low interest
rates and HUD's current strategy of encouraging mortgagors to refinance high
interest rate loans, CRIIMI MAE may experience increased prepayment levels as
compared to prior years.
In addition, the fluctuation of long-term interest rates may affect the value
of CRIIMI MAE's Government Insured Multifamily Mortgages. Although decreases in
long-term rates could increase the value of CRIIMI MAE's existing mortgage
investments, increases in long-term rates could decrease the value of such
investments and, in certain circumstances, require CRIIMI MAE to pledge
additional collateral in connection with its borrowing facilities. This would
reduce CRIIMI MAE's borrowing capacity and, in an extreme case, may force
CRIIMI MAE to liquidate a portion of its assets at a loss in order to comply
with certain covenants under its financing facilities.
In addition to investing in FHA-Insured Loans and GNMA Securities, CRIIMI
MAE's investment policies also permit CRIIMI MAE to invest in Government
Insured Multifamily Mortgages which are not FHA-insured or GNMA-guaranteed
("Other Insured Mortgages") and in certain other mortgage investments which are
not federally insured or guaranteed ("Other Multifamily Mortgages"). Pursuant
to CRIIMI MAE's policy, at the time of their acquisition, Other Multifamily
Mortgages must have an expected yield of at least 150 basis points (1.5%)
greater than the yield on Government Insured Multifamily Mortgages which could
be acquired in the then current market and must meet certain other strict
underwriting guidelines. See Note 5 of Notes to Consolidated Financial
Statements. The CRIIMI MAE Board has adopted a policy limiting Other
Multifamily Mortgages to 20% of CRIIMI MAE's total consolidated assets. As of
December 31, 1993, CRIIMI MAE had not invested or committed to invest in any
Other Insured Mortgages or Other Multifamily Mortgages and CRIIMI MAE does not
currently intend to invest in any Other Multifamily Mortgages for at least
twelve months after the date of this Prospectus.
CRIIMI MAE is currently exploring opportunities in connection with the
sponsorship of securities offerings which involve the pooling of Other
Multifamily Mortgages to further enhance potential returns to CRIIMI MAE's
stockholders. Such sponsorship may also include the investment by CRIIMI MAE in
the non-investment grade or unrated tranches of mortgage pools having a high
current yield. As of December 31, 1993, CRIIMI MAE had not participated in the
sponsorship of any such securities offerings. The Adviser does not expect that
investments of this nature will exceed 5% of CRIIMI MAE's total consolidated
assets for at least twelve months after the date of this Prospectus.
DESCRIPTION OF ASSETS
CRIIMI MAE has invested primarily in Government Insured Multifamily Mortgages
consisting of (i) FHA-Insured Loans and (ii) GNMA Securities. As of December
31, 1993, CRIIMI MAE owned directly 126 Government Insured Multifamily
Mortgages with an amortized cost of approximately $499 million, of which 46
were FHA-Insured Loans with an amortized cost of $152 million and 80 were GNMA
Securities
9
<PAGE>
with an amortized cost of approximately $347 million. As of December 31, 1993,
the weighted average coupon rate of CRIIMI MAE's Government Insured Multifamily
Mortgages was approximately 8.4% and the weighted average maturity thereof was
approximately 34 years. See Appendix A to this Prospectus for a list of CRIIMI
MAE's mortgage investments as of December 31, 1993. In addition, approximately
$41 million of additional borrowings have been committed for investment in
Government Insured Multifamily Mortgages or advances on Government Insured
Construction Mortgages (defined below) as of December 31, 1993.
The National Housing Act authorizes the U.S. Department of Housing and Urban
Development ("HUD") to establish mortgage loan programs pursuant to which
mortgage loans on properties are insured in whole or in part by HUD. FHA is a
part of HUD and GNMA is a wholly owned corporate instrumentality of the United
States within HUD. These programs insure that the outstanding principal of, and
interest on, a loan, less certain specified deductions, will be paid by HUD if
the borrower defaults on the loan. The National Housing Act authorizes
different mortgage insurance programs based primarily upon types of real estate
for which mortgage loans may be obtained, maximum loan amounts permissible,
maturities of the mortgage loans, amortization schedules, rights of prepayment,
coinsurance and nature of the borrower.
All of the FHA-Insured Loans in which CRIIMI MAE invests are insured by HUD
for effectively 99% of their current face value. Upon default and subsequent
assignment to HUD, 90% of the face value of the mortgage is received by CRIIMI
MAE within approximately 90 days of assignment and 9% of the face value of the
mortgage is received upon final processing by HUD. In certain circumstances,
CRIIMI MAE may receive HUD debentures rather than cash in an amount equal to
99% of the face value of such mortgage upon final processing by HUD. The GNMA
Securities in which CRIIMI MAE invests are backed by FHA-Insured Loans. In the
event of a default of an FHA-Insured Loan underlying a GNMA Security, the
issuer or GNMA will make timely payments of principal and interest and pay 100%
of the GNMA Security's principal balance to CRIIMI MAE when such mortgage is
assigned to HUD and the issuer receives the insurance proceeds. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction--Dispositions."
As part of its investment strategy, CRIIMI MAE also invests in FHA-Insured
Loans relating to the construction or rehabilitation of multifamily housing
projects, including nursing homes and intermediate care facilities ("Government
Insured Construction Mortgages"). Government Insured Construction Mortgages
involve a two-tier financing process in which a short-term loan covering
construction costs is converted into a permanent loan. CRIIMI MAE also becomes
the holder of the permanent loan upon conversion. The construction loan is
funded in HUD-approved draws based upon the progress of construction. The
construction draws are GNMA-guaranteed or insured by HUD. The construction loan
generally does not amortize during the construction period. Amortization begins
upon conversion of the construction loan into a permanent loan, which generally
occurs within a 24-month period from the initial endorsement by HUD.
Generally, Government Insured Multifamily Mortgages which are purchased near,
at or above par value ("Near Par or Premium Mortgage Investments") will result
in a loss if the mortgage investment is prepaid or assigned prior to maturity
because the amortized cost of the mortgage investment, including acquisition
costs, is approximately the same as or slightly higher than the insured amount
of the mortgage investment. As of December 31, 1993, substantially all of the
mortgage investments owned directly by CRIIMI MAE consisted of Government
Insured Multifamily Mortgages that are Near Par or Premium Mortgage
Investments. Based on current interest rates, the Adviser does not believe that
the prepayment, assignment, or sale of any of CRIIMI MAE's Government Insured
Multifamily Mortgages would result in a material financial statement or tax
basis gain or loss.
CRI Liquidating's mortgage investments consist solely of Government Insured
Multifamily Mortgages acquired from the CRIIMI Funds in the Merger. The CRIIMI
Funds invested primarily in Government Insured Multifamily Mortgages comprising
FHA-Insured Loans and GNMA Securities. As of December 31, 1993, CRI Liquidating
owned 63 Government Insured Multifamily Mortgages with an amortized cost of
10
<PAGE>
approximately $192 million (which were accounted for at a fair value of $243
million), of which 61 were FHA-Insured Loans with an amortized cost of
approximately $187 million (which were accounted for at a fair value of $238
million) and two were GNMA Securities with an amortized cost of approximately
$5 million (which were accounted for at a fair value of $5 million). As of
December 31, 1993, the weighted average coupon rate of CRI Liquidating's
Government Insured Multifamily Mortgages was approximately 7.7% and the
weighted average maturity thereof was approximately 27 years. See Appendix A
to this Prospectus for a list of CRI Liquidating's mortgage investments as of
December 31, 1993.
The majority of CRI Liquidating's mortgage investments were acquired by the
CRIIMI Funds at a discount to face value ("Discount Mortgage Investments") on
the belief that based on economic, market, legal and other factors, such
Discount Mortgage Investments might be sold for cash, prepaid as a result of a
conversion to condominium housing or otherwise disposed of or refinanced in a
manner requiring prepayment or permitting other profitable disposition three
to twelve years after acquisition by the CRIIMI Funds. Based on current
interest rates, the Adviser expects that (i) the disposition of most of CRI
Liquidating's Government Insured Multifamily Mortgages will result in a gain
on a financial statement basis, and (ii) the disposition of any of CRI
Liquidating's Government Insured Multifamily Mortgages will not result in a
material loss on a financial statement basis and will result in a gain on a
tax basis.
CRI Liquidating's business plan calls for an orderly liquidation of
approximately 25% of its December 31, 1993 portfolio balance per year through
1997. On February 10, 1994, CRI Liquidating sold 12 Government Insured
Multifamily Mortgages with an amortized cost of approximately $37 million,
representing approximately 20% of its December 31, 1993 portfolio balance, for
a financial statement gain of approximately $11.7 million and a tax basis gain
of approximately $14.7 million.
RECENT DEVELOPMENTS
Pursuant to a Registration Rights Agreement dated November 28, 1989 between
CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI
Liquidating Shares in an underwritten public offering which was consummated in
November 1993. As a result of such sale, CRIIMI MAE holds a total of
17,199,307 CRI Liquidating Shares, or approximately 57% of CRI Liquidating's
issued and outstanding common stock. CRIIMI MAE used approximately $4.9
million of the approximately $26.5 million in net proceeds to terminate a
9.23% interest rate swap agreement on $25 million of CRIIMI MAE's existing
indebtedness and used the remaining net proceeds to purchase Government
Insured Multifamily Mortgages.
On March 22, 1990, a complaint was filed on behalf of a class comprised of
certain limited partners of CRIIMI III and shareholders of CRIIMI II (the
"Plaintiffs"), in the Circuit Court for Montgomery County, Maryland against
CRIIMI MAE, CRI Liquidating, CRIIMI I and its general partner, CRIIMI II,
CRIIMI III and its general partner, CRI, and Messrs. William B. Dockser, H.
William Willoughby and Martin C. Schwartzberg (the "Defendants"). On November
18, 1993, the Court entered an order granting final approval of a settlement
agreement between the Plaintiffs and the Defendants pursuant to which CRIIMI
MAE will issue to class members, including certain former limited partners of
CRIIMI I, up to 2.5 million warrants, exercisable for 18 months after
issuance, to purchase shares of CRIIMI MAE Common Stock at an exercise price
of $13.17 per share. In addition, the settlement included a payment of $1.4
million for settlement administration costs and Plaintiff's attorneys' fees
and expenses. Insurance provided $1.2 million of the $1.4 million cash
payment, with the balance paid by CRIIMI MAE. CRIIMI MAE accrued a total
provision of $1.5 million for the uninsured portion of the cash settlement
paid by CRIIMI MAE and for the estimated value of the warrants that are
expected to be issued as part of the settlement. The number of warrants to be
issued is dependent on the number of class members who submit a proof of claim
within 60 days of January 14, 1994 (the date the proof of claim was mailed by
CRIIMI MAE). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Other Events."
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Shares offered hereby are estimated to
be approximately $52.2 million (approximately $60.1 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and estimated offering expenses. Although no specific
investments have as yet been selected, CRIIMI MAE intends to use such proceeds
primarily for the acquisition of Government Insured Multifamily Mortgages, the
purchase of interest rate hedging agreements and for other general corporate
purposes, including, without limitation, working capital. Pending such use, the
net proceeds may be invested temporarily in high quality short-term
instruments, including certificates of deposit and government or investment
grade corporate securities. It is not expected that any of the proceeds will be
used to repay indebtedness of CRIIMI MAE.
CRIIMI MAE believes that the current environment for acquiring Government
Insured Multifamily Mortgages is favorable because of the availability of
Government Insured Multifamily Mortgages and financing at attractive rates.
CRIIMI MAE is attempting, through this offering, to take advantage of this
environment. In addition, CRIIMI MAE believes that the increase in its
shareholders' equity resulting from the consummation of this offering will
expand CRIIMI MAE's borrowing capacity.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the NYSE under the symbol CMM. The table below
sets forth the high and the low closing sales price per share of the Common
Stock as reported on the NYSE Composite Tape and the amount of cash dividends
paid per share of Common Stock during the periods indicated. The reported last
sale price of the Common Stock on the NYSE Composite Tape on March 8, 1994 was
$11.25 per share. As of December 31, 1993, there were approximately 23,000
holders of record of Common Stock.
<TABLE>
<CAPTION>
PRICE RANGE
OF COMMON STOCK DIVIDENDS
--------------- PAID PER
HIGH LOW SHARE
<S> <C> <C> <C>
Year Ended December 31, 1992:
1st Quarter......................................... $ 9 1/2 $ 8 7/8 $0.27
2nd Quarter......................................... 9 1/2 8 3/4 0.27
3rd Quarter......................................... 9 7/8 9 3/8 0.27
4th Quarter......................................... 10 9 1/4 0.27
Year Ended December 31, 1993:
1st Quarter......................................... $11 1/4 $ 9 7/8 $0.28
2nd Quarter......................................... 11 5/8 10 3/4 0.28
3rd Quarter......................................... 12 3/8 11 1/4 0.28
4th Quarter......................................... 12 5/8 11 0.28
Year Ending December 31, 1994:
1st Quarter (through March 8, 1994)................. 12 10 7/8 --
</TABLE>
CRIIMI MAE's policy is to pay dividends aggregating annually at least 95% of
its ordinary taxable income. Historically, CRIIMI MAE has paid out
approximately 100% of its tax basis income as dividends to stockholders. CRIIMI
MAE's policy complies with the current distribution provisions of federal
income tax laws applicable to REITs and, assuming compliance with other
requirements, income so distributed is not taxable to CRIIMI MAE under such
laws. See "Certain United States Tax Considerations."
The declaration of dividends is discretionary with the CRIIMI MAE Board and
depends upon CRIIMI MAE's distributable funds, financial requirements, tax
considerations and other factors. A portion of the
12
<PAGE>
dividends paid by CRIIMI MAE consists of distributions that CRIIMI MAE
receives on its CRI Liquidating Shares, which distributions are expected to
terminate in 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity--Dividends." The CRIIMI MAE
Board has declared a dividend of $0.29 per share for the quarter ending March
31, 1994, payable on March 31, 1994 to stockholders of record as of March 24,
1994.
The following table indicates the composition of dividends per share for
federal income tax purposes for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
Composition of dividends per share for federal
income tax purposes:
Ordinary income.............................. $ .93 $ .82 $ .67 $ .75 $ .81
Capital gains(a)............................. .02 .26 .41 .33 .31
Non-taxable dividend......................... .54 -- -- -- --
----- ----- ----- ----- -----
Total........................................ $1.49(b) $1.08 $1.08 $1.08 $1.12
===== ===== ===== ===== =====
</TABLE>
- --------
(a) Capital gains from mortgage dispositions in 1990 were considered to be
short-term because the dispositions occurred within six months of the
Merger. Therefore, for tax purposes, these capital gains were treated the
same as ordinary income. All other capital gains shown are long-term
capital gains.
(b) This amount does not include the special dividend of $2.31 per share paid
to CRIIMI MAE stockholders of record on November 27, 1989.
The difference between financial statement and tax basis income results
primarily from the difference between the amortized cost and tax basis of CRI
Liquidating's assets. In the Merger, most of CRI Liquidating's assets were
written down on a tax basis but remained at historic cost for financial
statement purposes. Therefore, the disposition of most of CRI Liquidating's
mortgage investments results in a larger gain for tax purposes than for
financial statement purposes. Other differences relate to differences in the
treatment of deferred financing costs and partnership investments on a
financial statement versus tax basis. See Note 8 of Notes to Consolidated
Financial Statements.
CAPITALIZATION
The following table sets forth CRIIMI MAE's short-term debt and
capitalization as of December 31, 1993, and as adjusted to give effect to this
offering and the application of the net proceeds therefrom (estimated to be
approximately $52.2 million based upon the public offering price of $11.25 per
share). See "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER
31, 1993
------------------
(IN THOUSANDS)
AS
ACTUAL ADJUSTED
<S> <C> <C>
Short-term debt............................................ $ 95,306 $ 95,306
-------- --------
Long-term debt............................................. $383,739 $383,739
-------- --------
Shareholders' equity:
Preferred stock, par value $.01 per share; 25,000,000
shares authorized; no shares issued or outstanding...... -- --
Common stock, par value $.01 per share; 60,000,000 shares
authorized;
actual--21,184,807 shares issued, 20,183,533 shares out-
standing;
as adjusted--26,184,807 shares issued, 25,183,533 shares
outstanding(a).......................................... 212 262
Additional paid-in-capital............................... 195,561 247,711
Net unrealized gains on mortgage investments of subsidi-
ary..................................................... 29,028 29,028
Treasury stock, at cost, 1,001,274 shares................ (9,512) (9,512)
-------- --------
Total shareholders' equity(b).......................... 215,289 267,489
-------- --------
Total capitalization....................................... $694,334 $746,534
======== ========
</TABLE>
- --------
(a) Excludes warrants to purchase up to 2,500,000 shares of Common Stock at an
exercise price of $13.17 per share, exercisable for a period of 18 months
from their issuance date, which CRIIMI MAE may issue in connection with
the settlement of certain litigation. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Other Events."
(b) If the Underwriters' over-allotment option is exercised in full, total
shareholders' equity, as adjusted, will be approximately $275.4 million.
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
CRIIMI MAE. The selected consolidated financial data as of December 31, 1992
and 1993 and for the three years ended December 31, 1993 were derived from the
audited consolidated financial statements of CRIIMI MAE contained herein. The
consolidated statements of income data for the years ended December 31, 1989
and 1990 and the consolidated balance sheet data as of December 31, 1989, 1990
and 1991 were derived from audited financial statements not included in this
Prospectus. This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1989(A) 1990 1991 1992 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
INCOME:
<S> <C> <C> <C> <C> <C>
Mortgage investment
income................ $ 40,008 $ 50,039 $ 49,323 $ 45,931 $ 50,270
Other income........... 2,647 4,991 4,995 4,771 6,180
-------- -------- -------- -------- --------
Total income.......... 42,655 55,030 54,318 50,702 56,450
EXPENSES:
Interest expense....... 1,136 22,346 25,791 24,392 28,008
Termination of interest
rate swap............. -- -- -- -- 4,890
Other operating
expenses.............. 2,560 3,182 3,752 3,505 4,639
Fees to related party.. 1,839 2,544 2,325 2,238 2,715
Provision for
settlement of
litigation............ -- -- -- -- 1,500
-------- -------- -------- -------- --------
Total expenses........ 5,535 28,072 31,868 30,135 41,752
-------- -------- -------- -------- --------
Income before mortgage
dispositions, gain on
sale of shares of
subsidiary, loss on
investment in limited
partnership,
nonrecurring merger
costs and minority
interests............. 37,120 26,958 22,450 20,567 14,698
Net gains from mortgage
dispositions.......... 2,958 3,794 4,048 5,733 7,358
Gain on sale of shares
of subsidiary......... -- -- -- -- 3,281
Loss on investment in
limited partnership... -- -- -- (732) --
Non-recurring merger
costs................. (9,561) -- -- -- --
Minority interests..... (10,977) (12,379) (10,855) (9,527) (9,580)
-------- -------- -------- -------- --------
Income before
extraordinary loss.... 19,540 18,373 15,643 16,041 15,757
Extraordinary loss from
extinguishment of
debt.................. -- -- (6,642) -- --
-------- -------- -------- -------- --------
Net income............. $ 19,540 $ 18,373 $ 9,001(b) $ 16,041 $ 15,757
======== ======== ======== ======== ========
Net income per share... $ 0.95 $ 0.91 $ 0.45(b) $ 0.79 $ 0.78
======== ======== ======== ======== ========
Weighted average shares
outstanding........... 20,567 20,184 20,184 20,184 20,184
Tax basis income....... $ 26,987 $ 22,276 $ 22,037 $ 21,626 $ 23,015
Tax basis income per
share................. 1.31 1.10 1.09 1.07 1.14
Dividends per share.... 1.49(c) 1.08 1.08 1.08 1.12
AS OF DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
(IN THOUSANDS)
BALANCE SHEET DATA:
Investment in mortgages
(excludes mortgages
held for disposition). $456,692 $546,448 $446,703 $448,319 $730,265(d)
Total assets........... 502,530 602,786 546,054 526,667 808,701
Total debt............. 139,426 264,605 245,555 247,968 479,045
Shareholders' equity... 223,472 211,195 198,397 193,109 215,289(d)
</TABLE>
- -------
(a) All financial information of CRIIMI MAE for the periods prior to the
Merger on November 27, 1989 has been presented in a manner similar to a
pooling of interests, which effectively combines the historical results of
the CRIIMI Funds. The dividends and net income per share amounts for the
year ended December 31, 1989 have been restated based upon the weighted
average shares outstanding as if the Merger had been consummated on
January 1, 1989.
(b) Includes recognition of an extraordinary loss of approximately $6.6
million ($0.33 per share) resulting from the refinancing of certain notes
payable.
(c) This amount does not include the special dividend of $2.31 per share paid
to CRIIMI MAE stockholders of record on November 27, 1989.
(d) Includes net unrealized gain on mortgage investments of CRI Liquidating of
approximately $29.0 million, due to the implementation of SFAS No. 115.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion has been derived from the Management's Discussion
and Analysis of Financial Condition and Results of Operations set forth in
CRIIMI MAE's Annual Report on Form 10-K for the year ended December 31, 1993.
The discussion should be read in conjunction with "Selected Consolidated
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. Information concerning CRIIMI MAE set
forth in this section is presented on a consolidated basis, unless the context
requires otherwise.
ACQUISITIONS
During 1993, CRIIMI MAE directly acquired 61 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $284 million at
purchase prices ranging from $0.5 million to $30.8 million, with a weighted
average effective interest rate of approximately 7.56% and a weighted average
remaining term of approximately 33.4 years. In addition, during 1993, CRIIMI
MAE funded advances of approximately $29 million on Government Insured
Construction Mortgages with a weighted average effective interest rate of
approximately 8.73%. As of December 31, 1993, CRIIMI MAE had committed to
acquire additional Government Insured Multifamily Mortgages and make
additional advances on and/or acquire Government Insured Construction
Mortgages, totalling approximately $41 million.
During 1993, CRIIMI MAE and, during each of 1992 and 1993, CRI Liquidating
entered into transactions in which mortgaged-backed and other government
agency securities were purchased. These transactions provided CRIIMI MAE with
above average returns compared to its other short-term investments while
maintaining the high quality of its assets and assisted in maintaining CRI
Liquidating's REIT status. Some of these purchases were financed with
borrowings which were nonrecourse and fully secured with the purchased
mortgaged-backed and other government agency securities. As of December 31 ,
1993, CRIIMI MAE and as of December 31, 1992 and 1993, CRI Liquidating had
disposed of the mortgaged-backed and other government agency securities
acquired in such year and repaid the related debt.
DISPOSITIONS
Dispositions result from prepayments of, defaults on and sales of Government
Insured Multifamily Mortgages. Decreases in market interest rates could result
in the prepayment of certain mortgage investments. CRIIMI MAE believes,
however, that declining interest rates result in increased prepayments of
single-family mortgages to a greater extent than mortgages on multifamily
properties. This is partially due to lockouts (i.e. prepayment prohibitions),
prepayment penalties or difficulties in obtaining refinancing for multifamily
dwellings. See Appendix A to this Prospectus for information concerning
lockouts and prepayment penalties applicable to CRIIMI MAE's and CRI
Liquidating's mortgage investments. However, because of current low interest
rates and HUD's current strategy of encouraging mortgagors to refinance high
interest rate loans, CRIIMI MAE may experience increased prepayment levels as
compared to prior years.
Decreases in occupancy levels, rental rates or value of any property
underlying a mortgage investment may result in the mortgagor being unable or
unwilling to make required payments on the mortgage and thereby defaulting.
The proceeds from the assignment (following a default) or prepayment of a
Discount Mortgage Investment are expected to exceed the amortized cost of the
investment. The proceeds from the assignment or prepayment of a Near Par or
Premium Mortgage Investment may be slightly less than, the same as, or
slightly more than, the amortized cost of the investment. The proceeds from
the sale of any mortgage investment, whether a Discount Mortgage Investment or
a Near Par or Premium Mortgage Investment, may be less than, the same as, or
more than the amortized cost of the investment depending on interest rates at
the time of sale.
On an amortized cost and tax basis, substantially all of CRIIMI MAE's
mortgages are Near Par or Premium Mortgage Investments. Therefore, the
proceeds from a default or prepayment of any of CRIIMI MAE's mortgage
investments are expected to be slightly less than, the same as, or slightly
more than the amortized cost and tax basis of such mortgages.
15
<PAGE>
On an amortized cost basis, as of December 31, 1993, approximately 91% of
CRI Liquidating's mortgages were Discount Mortgage Investments and
approximately 9% were Near Par or Premium Mortgage Investments. On a tax
basis, all of CRI Liquidating's mortgages were Discount Mortgage Investments.
Therefore, whether by default or prepayment, the proceeds from the disposition
of CRI Liquidating's mortgage investments would, for a majority of such
mortgages, be expected to exceed the tax basis of such mortgages. However, on
an amortized cost basis, the proceeds from a default on, or prepayment of, CRI
Liquidating's Near Par or Premium Mortgage Investments would be expected to be
slightly less than, the same as, or slightly more than the amortized cost.
While it is not expected that CRIIMI MAE will sell any of its mortgage
investments, CRI Liquidating's business plan calls for an orderly liquidation
of approximately 25% of its December 31, 1993 portfolio balance per year
through 1997. Therefore, to the extent mortgage investments are not otherwise
disposed of, CRI Liquidating intends to sell such portion of its portfolio as
is necessary to effect its liquidation plan.
The following table sets forth certain information concerning dispositions
of Government Insured Multifamily Mortgages by CRIIMI MAE and CRI Liquidating
for the past five years:
<TABLE>
<CAPTION>
NET GAIN/(LOSS)
RECOGNIZED FOR NET GAIN/(LOSS)
TYPE OF DISPOSITIONS FINANCIAL RECOGNIZED
----------------------------------- STATEMENT FOR TAX
YEAR ASSIGNMENT(1) SALE PREPAYMENT TOTAL PURPOSES PURPOSES(3)
<S> <C> <C> <C> <C> <C> <C>
1989--CRI Liquidating... 5 1 1 7 $ 2,957,598 $ 2,977,188
CRIIMI MAE........ -- -- -- -- -- --
1990--CRI Liquidating... 6 -- -- 6 3,853,503 8,005,092
CRIIMI MAE........ 2 -- -- 2 (59,338) (59,338)
1991--CRI Liquidating... 8 19 -- 27 4,481,534 12,706,737
CRIIMI MAE........ 5 1 -- 6 (433,648) (310,089)
1992--CRI Liquidating... 3 -- -- 3 6,097,102 11,202,237
CRIIMI MAE........ 4 -- -- 4 (363,957) (118,498)
1993--CRI Liquidating... 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE........ 2 -- 5 7 (732,095) (650,339)
--- --- --- --- ----------- -----------
37(2) 26 9 72 $23,890,539 $48,691,118
=== === === === =========== ===========
</TABLE>
- --------
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9%
of the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Eight of the 37 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI
Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the Merger, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall
net write down for tax purposes. For financial statement purposes,
carryover basis of accounting was used. Therefore, since the Merger, the
net gain for tax purposes was greater than the net gain recognized for
financial statement purposes. As a REIT, dividends to stockholders are
based on tax basis income.
RESULTS OF OPERATIONS
1993 VERSUS 1992
CRIIMI MAE earned approximately $23.0 million in tax basis income for 1993,
a 6.4% increase from approximately $21.6 million for 1992. On a per share
basis, tax basis income for 1993 increased to approximately $1.14 per share
from approximately $1.07 per share for 1992.
16
<PAGE>
Net income for financial statement purposes was approximately $15.8 million
for 1993, a 1.8% decrease from approximately $16.0 million for 1992. On a per
share basis, financial statement net income for 1993 decreased to approximately
$0.78 per share from $0.79 per share for 1992.
Mortgage investment income increased $4.4 million or 9.4% to $50.3 million
for 1993 from $45.9 million for 1992. This increase was due principally to an
increase in mortgage investments, net of dispositions, resulting from
acquisitions and advances on Government Insured Construction Mortgages during
1993 which were funded principally by proceeds from the Master Repurchase
Agreements.
Other income increased $1.4 million or 30.0% to $6.2 million for 1993 from
$4.8 million for 1992. This increase was attributable primarily to
approximately $175 million in other short-term investments acquired by CRIIMI
MAE and CRI Liquidating during 1993, all of which were disposed of by December
31, 1993 as compared to approximately $67 million in other short-term
investments acquired by CRI Liquidating during 1992, all of which were disposed
of by December 31, 1992.
Total income increased $5.8 million or 11.3% to $56.5 million for 1993 from
$50.7 million for 1992. This increase was primarily due to the growth in
mortgage investment income and other income during 1993.
Interest expense increased $3.6 million or 14.8% to $28.0 million for 1993
from $24.4 million for 1992. This increase was principally a result of greater
amounts borrowed during 1993 under the Master Repurchase Agreements entered
into in April 1993 which provided financing of $350 million, of which
approximately $331.7 million was outstanding as of December 31, 1993. This
increase was partially offset by a reduction in interest rates on CRIIMI MAE's
borrowings for 1993 as compared to 1992.
In December 1993, CRIIMI MAE paid approximately $4.9 million to Canadian
Imperial Bank of Commerce ("CIBC") to terminate an interest rate swap entered
into on February 8, 1990 with a notional amount of $25 million and a fixed rate
of 9.23%. The termination of this swap was effective December 1, 1993.
Other operating expenses increased $1.1 million or 32.4% to $4.6 million in
1993 from $3.5 million in 1992. This increase was attributable primarily to
legal fees incurred in connection with certain litigation as described below in
"--Other Events." Also contributing to the increase in other operating expenses
was an increase in general and administrative expenses due primarily to
increased mortgage acquisition and disposition activities, the increase in
costs to produce CRIIMI MAE's 1992 Annual Report to Shareholders due to its
increased size and mailing costs, and the recognition of costs incurred in
connection with CRIIMI MAE's reincorporation as a Maryland corporation which
was effective in July 1993.
Fees to related party are comprised of annual fees and incentive fees paid to
the Adviser. The Adviser receives annual fees for managing the portfolios of
CRIIMI MAE and CRI Liquidating. These fees include a base component equal to a
percentage of average invested assets. In addition, fees paid to the Adviser by
CRI Liquidating may include a performance based component that is referred to
as the deferred component. The deferred component, which is also calculated as
a percentage of average invested assets, is computed each quarter but paid (and
expensed) only upon meeting certain cumulative performance goals. If these
goals are not met, the deferred component accumulates, and may be paid in the
future if cumulative goals are met. In addition, certain incentive fees are
paid by CRIIMI MAE and CRI Liquidating on a current basis if certain
performance goals are met.
Fees to related party increased $0.5 million or 21.3% to $2.7 million for
1993 from $2.2 million for 1992. This increase was due primarily to an increase
in annual fees and incentive fees during 1993, as discussed below. Annual fees
increased $0.4 million or 20.6% to $2.5 million for 1993 from $2.1 million for
1992. This increase was primarily due to increased CRIIMI MAE mortgage assets,
including advances on
17
<PAGE>
Government Insured Construction Mortgages. Also contributing to the increase
for 1993 was the payment by CRI Liquidating in 1993, of the deferred component
of the annual fee due to specific performance goals being met, which included
the payment of the deferred component for the second half of 1992. Partially
offsetting the increase in annual fees for 1993 was a reduction in the mortgage
base, which is a component used in determining the annual fees payable by CRI
Liquidating. The mortgage base has been decreasing as CRI Liquidating effects
its business plan to liquidate by 1997.
The CRIIMI MAE incentive fee is equal to 25% of the amount by which net
income from additional mortgage investments exceeds the annual target return on
equity and is payable quarterly, subject to year-end adjustment. The incentive
fee increased approximately $50,000 or 30.6% to $0.2 million for 1993 from $0.2
million for 1992. This increase was primarily attributable to the fact that
CRIIMI MAE's net income from additional mortgage investments exceeded the
annual target return on equity during both the second and third quarters of
1993; accordingly, an incentive fee was paid during those quarters. This
compares to 1992 when CRIIMI MAE's net income from additional mortgage
investments exceeded the annual target return on equity only in the third
quarter.
During 1993, CRIIMI MAE recorded a provision of $1.5 million, including $0.25
million paid in cash, in connection with the settlement of the litigation
described below in "--Other Events."
Total expenses increased $11.7 million or 38.6% to $41.8 million for 1993
from $30.1 million for 1992. This increase was principally due to costs
incurred to terminate an interest rate swap, an increase in interest expense
and the recognition of a provision for settlement of litigation. See "--Other
Events."
Net gains on mortgage dispositions increased $1.7 million or 28.3% to $7.4
million in 1993 from $5.7 million in 1992. Gains or losses on mortgage
dispositions are based on the number, carrying amounts, and proceeds of
mortgage investments disposed of during the period. Gains on mortgage
dispositions increased $2.0 million or 32.7% to $8.1 million in 1993 from $6.1
million in 1992. This increase was primarily due to the disposition of 17
mortgages during 1993, 11 of which resulted in gains. This compares to the
disposition of seven mortgages during 1992, three of which resulted in gains.
Losses on mortgage dispositions increased $0.4 million or 98.4% to $0.8 million
in 1993 from $0.4 million in 1992 due to the financial statement loss of $0.5
million recognized in March 1993 as a result of the prepayment of the mortgage
on Owings Manor Apartments.
In November 1993, CRIIMI MAE recognized a financial statement gain of
approximately $3.3 million and a tax basis gain of approximately $4.9 million
in connection with the sale of 3,162,500 CRI Liquidating Shares held by CRIIMI
MAE. See "--Other Events."
1992 VERSUS 1991
CRIIMI MAE earned approximately $21.6 million in tax basis income for 1992, a
1.9% decrease from approximately $22.0 million for 1991. On a per share basis,
tax basis income for 1992 decreased to approximately $1.07 per share from
approximately $1.09 per share for 1991.
Net income for financial statement purposes was approximately $16.0 million
for 1992, a 78.2% increase from approximately $9.0 million for 1991. On a per
share basis, financial statement net income for 1992 increased to approximately
$0.79 per share from $0.45 per share for 1991.
Mortgage investment income decreased $3.4 million or 6.9% to $45.9 million
for 1992 from $49.3 million for 1991. This decrease was due principally to the
mortgage dispositions during 1992 and 1991.
Other income decreased $.2 million or 4.5% to $4.8 million for 1992 from $5.0
million for 1991. This decrease was primarily attributable to lower interest
rates available for short-term investments during 1992 and the elimination on
December 31, 1991, of the debt service reserve for certain notes payable, which
reserve was previously invested in short-term investments. Partially offsetting
this decrease was the interest earned
18
<PAGE>
on other short-term investments purchased by CRI Liquidating in April, July
and August 1992, net of monthly option fees. In addition, this decrease in
income was partially offset by an increase in income from investments in the
AIM Funds and the related advisory partnership which were acquired in
September 1991.
Total income decreased $3.6 million or 6.7% to $50.7 million for 1992 from
$54.3 million for 1991. This decrease was primarily due to a reduction in
mortgage investment income and partially offset by an increase in other income
during 1992.
Interest expense decreased $1.4 million or 5.4% to $24.4 million for 1992
from $25.8 million for 1991. This decrease was principally a result of a
reduction in both the amount of long-term debt outstanding and the interest
rate thereon resulting from the refinancing on December 31, 1991 of notes
payable. This decrease in interest expense on long-term debt was partially
offset by an increase in interest paid or accrued on borrowings under CRIIMI
MAE's Commercial Paper Facility (as defined below) as greater amounts were
borrowed during 1992 and an increase in interest expense attributable to the
seller financing of 99% of the purchase price of certain other short-term
investments purchased by CRI Liquidating in July and August 1992.
Other operating expenses decreased $.3 million or 6.6% to $3.5 million in
1992 from $3.8 million in 1991. This decrease was attributable primarily to a
decrease in the amortization of deferred costs resulting from the mortgage
dispositions and the related reduction in the amount of capitalized deferred
costs which occurred during 1992 and 1991.
Fees to related party decreased $87,000 or 3.7% to $2.2 million in 1992 from
$2.3 million in 1991. This decrease was due primarily to the reduction of CRI
Liquidating's portfolio as a result of mortgage dispositions. Also
contributing to this decrease was a reduction in the deferred component of the
Adviser's annual fee paid in 1992 as a result of certain performance goals
that were met for only two quarters in 1992 compared to all quarters in 1991.
Partially offsetting this decrease was an increase in the annual base
component resulting from CRIIMI MAE mortgage acquisitions.
Net gains on mortgage dispositions increased $1.7 million or 41.6% to $5.7
million in 1992 from $4.0 million in 1991. This increase was principally due
to the disposition, in 1992, of CRI Liquidating's investment in a mortgage
which resulted in the recognition of a gain in 1992 totalling approximately
$5.9 million. This compares to the disposition of 13 Government Insured
Multifamily Mortgages during 1991 which resulted in gains totalling
approximately $5.2 million.
CRI Liquidating's Government Insured Multifamily Mortgages have a different
tax basis than book basis because the Merger, while a taxable event, was
treated in a manner similar to a pooling of interests for financial accounting
purposes. Although some of the mortgage dispositions during 1992 resulted in a
loss for financial statement purposes, the combined dispositions resulted in a
net tax basis gain totalling approximately $11.1 million.
During 1992, two properties in which CRI Liquidating holds a participating
equity interest ("Participations") experienced operating results insufficient
to pay debt service and the annual return on such participations. CRI
Liquidating recognized a loss of approximately $0.7 million with respect to
the write-off of one of these Participations.
In addition to the items discussed above, net income for 1992 increased from
1991 due, in part, to the recognition of an extraordinary loss of
approximately $6.6 million in 1991 resulting from the refinancing of certain
notes payable. All other costs associated with the refinancing have been
included in deferred financing fees on the balance sheet and are being
amortized on the effective interest method over the term of the refinancing.
However, for tax purposes these deferred financing fees as well as the
extraordinary loss have been capitalized and are being amortized over the term
of the refinancing.
19
<PAGE>
LIQUIDITY
CRIIMI MAE and CRI Liquidating closely monitor their cash flow and liquidity
positions in an effort to ensure that sufficient cash is available for
operations and debt service requirements and to continue to qualify as REITs.
CRIIMI MAE and CRI Liquidating's cash receipts, which have been derived from
scheduled payments of outstanding principal of and interest on, and proceeds
from dispositions of, mortgage investments held by CRIIMI MAE and CRI
Liquidating, plus cash receipts from interest on temporary investments,
borrowings, cash received from CRIIMI MAE's interests in the AIM Funds and
advisory partnership, and cash received from CRI Liquidating's Participations,
were sufficient for the years 1991, 1992 and 1993 to meet operating, investing
and financing cash requirements. It is anticipated that cash receipts will be
sufficient in future years to meet similar cash requirements. Cash flow was
also sufficient to provide for the payment of dividends to stockholders. As of
December 31, 1993, there were no significant commitments for capital
expenditures; however, as of such date, CRIIMI MAE had committed to fund
additional Government Insured Construction Mortgages and acquire additional
Government Insured Multifamily Mortgages totaling approximately $41.0 million.
DIVIDENDS
During 1993, CRIIMI MAE increased its quarterly dividend to $0.28 per share.
Dividends totaled $1.12 per share for 1993. During the twelve consecutive
quarters before 1993, CRIIMI MAE paid dividends of $0.27 per share. CRIIMI
MAE's objective is to pay a stable quarterly dividend and to increase the tax
basis income over time, and thereby increase the quarterly dividend. Although
CRIIMI MAE's mortgage investments yield a fixed monthly mortgage payment once
purchased, the cash dividends paid by CRIIMI MAE and by CRI Liquidating will
vary during each year due to several factors. The factors which impact CRIIMI
MAE's dividend include (i) the distributions which CRIIMI MAE receives on its
CRI Liquidating Shares, (ii) the Net Positive Spreads on borrowings under
CRIIMI MAE's financing facilities, (iii) the fluctuating yields on short-term
debt and the rate at which CRIIMI MAE's commercial paper rate based and London
Interbank Offered Rate ("LIBOR") based debt is priced, (iv) the fluctuating
yields in the short-term money market where the monthly mortgage payments
received are temporarily invested prior to the payment of quarterly dividends,
(v) the yield at which principal from scheduled monthly mortgage payments,
mortgage dispositions and distributions from the AIM Funds and from CRI
Liquidating can be reinvested, (vi) variations in the cash flow received from
the AIM Funds, and (vii) changes in operating expenses. Additionally, mortgage
dispositions may increase the return to the stockholders for a period, although
neither the timing nor the amount can be predicted.
The factors which impact CRI Liquidating's dividend include (i) yields on CRI
Liquidating's mortgage investments, (ii) the reduction in the asset base and
monthly mortgage payments due to monthly mortgage payments received or mortgage
dispositions, (iii) the fluctuating yields in the short-term money market where
monthly mortgage payments received are temporarily invested prior to the
payment of quarterly dividends, (iv) changes in operating expenses and
(v) variations in the cash flow received from the Participations.
ASSET/LIABILITY MANAGEMENT
CRIIMI MAE seeks to enhance the return to its stockholders through the use of
leverage. Nevertheless, CRIIMI MAE's use of leverage carries with it the risk
that the cost of borrowings could increase relative to the return on its
mortgage investments, which could result in reduced net income or a net loss
and thereby reduce the return to stockholders. A key objective of
asset/liability management is to reduce interest rate risk. The Adviser
continuously monitors CRIIMI MAE's outstanding borrowings in an effort to
ensure that CRIIMI MAE is making optimal use of its borrowing ability based on
market conditions and opportunities. Over the past four years, the Adviser has
reduced CRIIMI MAE's effective borrowing rate through refinancings and new
financings and the Adviser continues to evaluate opportunities to further
reduce CRIIMI MAE's borrowing costs.
20
<PAGE>
CRIIMI MAE expects to continue to use leverage only to the extent that (i)
the proceeds therefrom will be used for investments such as CRIIMI MAE's
current portfolio of Government Insured Multifamily Mortgages or other high
quality assets including Other Multifamily Mortgages and Other Insured
Mortgages; (ii) the risk of adverse changes in interest rates is reduced by the
use of hedging techniques such as those currently employed by CRIIMI MAE; and
(iii) the Adviser believes that after investing all funds from any specific
borrowing, a Net Positive Spread of at least 40 basis points will be
achievable.
It is CRIIMI MAE's policy to borrow only when the Net Positive Spread on the
borrowing is at least 40 basis points at inception of the borrowing. Such
policy provides that if Net Positive Spreads of at least 40 basis points are
not maintained, the annual and master servicing fees payable to the Adviser,
which are calculated as a percentage of invested assets, will be reduced so
that such fees, in basis points, equal the Net Positive Spread, in basis
points. As of December 31, 1992 and 1993, CRIIMI MAE had an average Net
Positive Spread of approximately 60 and 177 basis points, respectively, on its
borrowings. With respect to approximately $300.0 million of new borrowings
invested or committed for investment during 1993, as of December 31, 1993,
CRIIMI MAE had an average Net Positive Spread of approximately 250 basis
points.
CRIIMI MAE's secured financings require that its debt-to-equity ratio not
exceed 2.5:1. As of December 31, 1993, CRIIMI MAE's debt-to-equity ratio,
excluding approximately $41 million of borrowings committed for investment in
mortgages, was 2.2:1, and its debt-to-equity ratio, including such borrowings,
was 2.4:1.
Corporate Borrowings. The following table summarizes CRIIMI MAE's corporate
borrowings as of December 31, 1993:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31, 1993
<S> <C>
Short-term debt:
Commercial Paper Facility............... $ 95,306,000
------------
Long-term debt:
Master Repurchase Agreements............ 331,712,648
Bank Term Loan.......................... 52,026,400
------------
383,739,048
------------
Total Corporate Borrowings................ $479,045,048
============
</TABLE>
CRIIMI MAE's long-term debt matures over the next three years as follows:
<TABLE>
<S> <C>
1994........................................... $ 15,800,000
1995........................................... 15,800,000
1996........................................... 352,139,048
------------
Total...................................... $383,739,048
============
</TABLE>
(1) Commercial Paper Facility--The following table shows commercial paper
borrowing activity as of December 31, 1992 and 1993 and for the years then
ended:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1992 1993
<S> <C> <C>
Amount borrowed.................................... $186,300,000 $95,306,000
Weighted average interest rate (including all bor-
rowing and hedging costs)......................... 8.96% 7.84%
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1992 1993
<S> <C> <C>
Maximum amount outstanding........................ $186,300,000 $186,300,000
Average amount outstanding........................ $179,174,236 $133,563,678
Weighted average interest rate (including all bor-
rowing and
hedging costs)................................... 8.79% 8.25%
</TABLE>
21
<PAGE>
The base issuance rate for commercial paper issued under CRIIMI MAE's
commercial paper facility (the "Commercial Paper Facility") ranged from 3.20%
to 4.45% during the year ended December 31, 1992 and 3.15% to 3.68% during the
year ended December 31, 1993, and was 4.02% and 3.41% as of December 31, 1992
and 1993, respectively.
CRIIMI MAE's Commercial Paper Facility provides for the issuance of
commercial paper by CRI Funding Corporation, an unaffiliated special purpose
corporation, which lends the proceeds from the issuance to CRIIMI MAE. If
commercial paper is not issued, the special purpose corporation may meet its
obligation to provide financing to CRIIMI MAE by borrowing at a rate of LIBOR
plus 0.50% under a $140.0 million revolving credit facility which was
established in connection with the Commercial Paper Facility.
Borrowings pursuant to the Commercial Paper Facility are collateralized by a
pledge of certain of CRIIMI MAE's Government Insured Multifamily Mortgages.
The loan agreements contain numerous covenants which CRIIMI MAE must satisfy,
including requirements that the fair value of collateral pledged must equal at
least 110% of the amounts borrowed and that interest on the collateral pledged
equal at least 120% of the debt service on the amounts borrowed. In addition,
60% of the Government Insured Multifamily Mortgages pledged as collateral must
be GNMA Securities. As of December 31, 1993, Government Insured Multifamily
Mortgages held directly by CRIIMI MAE with a market value and face value of
approximately $145.4 million and $139.7 million, respectively, were used as
collateral pursuant to the Commercial Paper Facility.
In February 1993, CRIIMI MAE entered into an agreement to replace a $190.0
million letter of credit which provided the credit enhancement for the
Commercial Paper Facility and related revolving credit facility, with two
letters of credit in the amount of $35.0 million and $155.0 million provided
by National Australia Bank, Limited and CIBC, respectively. In April 1993, the
letter of credit provided by CIBC was reduced to $105.0 million. Subsequent to
December 31, 1993 the special purpose corporation replaced borrowings under
the Commercial Paper Facility with revolving credit loans. These revolving
credit loans matured on February 28, 1994. CRIIMI MAE entered into an
agreement for a revolving credit facility dated February 28, 1994 which
replaced these letter of credit agreements with a 30-month non-amortizing bank
loan by lenders including the aforementioned bank group on terms substantially
similar to the April 1993 Master Repurchase Agreements.
(2) Master Repurchase Agreements--On April 30, 1993, CRIIMI MAE entered
into master repurchase agreements (the "Master Repurchase Agreements") with
Nomura Securities International, Inc. and Nomura Asset Capital Corporation
(collectively, "Nomura") which provide CRIIMI MAE with $350.0 million of
available financing for a three-year term. CRIIMI MAE intends to seek renewal
of the Master Repurchase Agreements upon expiration. Interest on such
borrowings is based on the three-month LIBOR plus 0.75% or 0.50% depending on
whether FHA-Insured Loans or GNMA Securities, respectively, are pledged as
collateral. For April through December 1993, the three-month LIBOR for these
borrowings ranged from 3.18% to 3.50%. The value of the collateral pledged
must equal at least 105% and 110% of the amounts borrowed for GNMA Securities
and FHA-Insured Loans, respectively. No more than 60% of the collateral
pledged may be FHA-Insured Loans and no less than 40% may be GNMA Securities.
As of December 31, 1993, mortgage investments directly owned by CRIIMI MAE
which approximate $349.4 million at market value and $342.2 million at face
value, were used as collateral pursuant to certain terms of the Master
Repurchase Agreements.
As of December 31, 1993, CRIIMI MAE used approximately $281.7 million of the
funds available under the Master Repurchase Agreements to acquire Government
Insured Multifamily Mortgages and $50.0 million to repay a portion of
borrowings under the Commercial Paper Facility. In addition, approximately
$18.3 million of the balance of the funds available have been committed for
investment in Government Insured Multifamily Mortgages or advances on
Government Insured Construction Mortgages.
22
<PAGE>
On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura will provide CRIIMI MAE with
an additional $150.0 million of available financing for a three-year term. The
agreements provide that the funding will be utilized to purchase FHA-Insured
Loans and GNMA Securities in the event of the successful completion of the
offering of Shares hereby. In that event, it is contemplated that CRIIMI MAE
will borrow the full $150.0 million no earlier than the consummation of this
offering but no later than July 1, 1994. The terms of the $150.0 million
financing arrangements are similar to the terms of the Master Repurchase
Agreements entered into in April 1993.
(3) Bank Term Loan--On October 23, 1991, CRIIMI MAE entered into a credit
agreement with two banks for a reducing term loan facility (the "Bank Term
Loan") in an aggregate amount not to exceed $85.0 million, subject to certain
terms and conditions. In December 1992, the credit agreement was amended to
increase the reducing term loan by $15.0 million. The Bank Term Loan had an
outstanding principal balance of approximately $61.7 million and $52.0 million
as of December 31, 1992 and 1993, respectively. As of December 31, 1992 and
1993, the Bank Term Loan was secured by the value of 17,784,000 and 13,874,000
CRI Liquidating Shares owned by CRIIMI MAE, respectively. As a result of
principal payments on the Bank Term Loan in 1993, 750,000 of the 13,874,000
CRI Liquidating Shares pledged as collateral were released in January 1994.
The Bank Term Loan requires a quarterly principal payment based on the greater
of the return of capital portion of the dividend received by CRIIMI MAE on its
CRI Liquidating Shares securing the Bank Term Loan or an amount to bring the
Bank Term Loan to its scheduled outstanding balance at the end of such
quarter. The minimum amount of annual principal payments is approximately
$15.8 million, with any remaining amounts of the original $85.0 million of
principal due in April 1996 and any remaining amounts of the $15.0 million of
increased principal due in December 1996.
The amended Bank Term Loan provides for an interest rate of 1.10% over
three-month LIBOR plus an agent fee of 0.05% per year. During 1992 and 1993,
three-month LIBOR for borrowings under the Bank Term Loan ranged from 3.44% to
4.50% and 3.19% to 3.59%, respectively.
Hedging. CRIIMI MAE is subject to the risk that changes in interest rates
could reduce Net Positive Spreads by increasing CRIIMI MAE's borrowing costs
and/or decreasing the yield on its Government Insured Multifamily Mortgages.
An increase in CRIIMI MAE borrowing costs could result from an increase in
short-term interest rates. To partially limit the adverse effects of rising
interest rates, CRIIMI MAE has entered into a series of interest rate hedging
agreements in an aggregate notional amount approximately equal to all of its
outstanding borrowings and commitments. To the extent CRIIMI MAE has not fully
hedged its portfolio, in periods of rising interest rates CRIIMI MAE's overall
borrowing costs would increase with little or no overall increase in mortgage
investment income, resulting in returns to stockholders that would be lower
than those available if interest rates had remained unchanged.
Borrowings by CRIIMI MAE generally are hedged by swap, cap or collar
agreements. As of December 31, 1993, CRIIMI MAE had in place interest rate
collars on the indices underlying borrowing rates for the Commercial Paper
Facility (the "CP Index") with an aggregate notional amount of $115 million, a
weighted average floor of 8.55% and a weighted average cap of 10.37%. An
interest rate collar limits the CP Index to a maximum interest rate and also
enables CRIIMI MAE to receive the benefit of a decline in the CP Index to the
floor of the collar for the period of the collar. To the extent that the CP
Index increases, CRIIMI MAE's overall borrowing costs would not increase until
the CP Index reaches the level of the floor of the collar. At that point,
CRIIMI MAE's borrowing costs would increase as the CP Index increases but only
until the CP Index reaches the maximum rate provided for by the collar.
As of December 31, 1993, CRIIMI MAE had in place interest rate caps on the
CP Index and LIBOR underlying borrowing rates for the Commercial Paper
Facility and Master Repurchase Agreements. The caps based on the CP Index have
an aggregate notional amount of $50 million with a weighted average cap of
8.73%. The caps based on LIBOR have an aggregate notional amount of $300
million with a weighted average cap of 6.23%. CRIIMI MAE also had an interest
rate cap with a notional amount of approximately $63 million and a cap of 6.5%
on the LIBOR underlying the Bank Term Loan. An interest rate cap effectively
limits CRIIMI MAE's interest rate risk on floating rate borrowings by limiting
the CP Index or LIBOR, as
23
<PAGE>
the case may be, to a maximum interest rate for the period of the cap. To the
extent the CP Index or LIBOR decrease, CRIIMI MAE's borrowing costs would
decrease under such caps. To the extent the CP Index or LIBOR increase, CRIIMI
MAE's borrowing costs would increase but only until the CP Index or LIBOR
reaches the maximum rate provided for by the cap. As of December 31, 1993,
certain cap agreements based on the three-month LIBOR with a notional amount
of $300 million were between approximately 2.62% and 3.13% above the current
three-month LIBOR.
On December 1, 1993, CRIIMI MAE paid approximately $4.9 million to terminate
an interest rate swap entered into on February 8, 1990 with a notional amount
of $25 million and a fixed rate of 9.23%. The termination of this swap was
effective December 1, 1993. The cost to terminate the interest rate swap was
expensed in the accompanying consolidated statements of income for the year
ended December 31, 1993 as the underlying debt under the Commercial Paper
Facility being hedged was repaid. As of December 31, 1993, CRIIMI MAE had in
place no swap agreements.
Current interest rates are substantially lower than when CRIIMI MAE entered
into $165 million of its existing interest rate hedging agreements. As of
December 31, 1993, certain collar agreements based on the CP Index with a
notional amount of $115 million carried minimum interest rates which were
between approximately 5.0% and 5.4% above the current CP Index. Such hedging
agreements expire in 1995. While there is no assurance that any new agreements
will be made, the Adviser is actively exploring alternatives to replace these
hedging agreements when they expire in order to capitalize on the current low
interest rate environment.
As a result of minimum interest rate levels associated with the swap
agreement terminated in December, 1993 and the collar agreements which expire
in 1995, CRIIMI MAE incurred additional interest expense of $4.3 million, $8.1
million and $8.6 million for the years ended December 31, 1991, 1992 and 1993,
respectively, of which approximately $0.8 million, $1.3 million and $1.4
million, respectively, was attributable to the terminated swap agreement. The
additional interest expense amounts also include amortization of approximately
$0.1 million, $0.2 million and $0.6 million, respectively, related to up-front
hedging costs.
The following table sets forth information relating to CRIIMI MAE's hedging
agreements as of December 31, 1993 with respect to borrowings under the
Commercial Paper Facility and Master Repurchase Agreements:
<TABLE>
<CAPTION>
HEDGING NOTIONAL
INSTRUMENT AMOUNT EFFECTIVE DATE MATURITY DATE FLOOR CAP INDEX(C)
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
Accreting Collar 35.0 million July 9, 1990 through July 9, 1995 8.750% 10.500% CP
December 9, 1990
Cap(a) 25.0 million May 24, 1991 May 24, 1996 N/A(at) 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap(b) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap(b) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap(b) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap(b) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap(b) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap(b) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
--------------
$465.0 million
==============
</TABLE>
- --------
(a) On May 24, 1993, CRIIMI MAE and CIBC terminated the floor on this former
collar. In consideration of such termination, CRIIMI MAE paid CIBC
approximately $2.3 million. This amount was deferred on the accompanying
consolidated balance sheet as the underlying debt being hedged is still
outstanding. This amount will be amortized for the period from May 24,
1993 through May 24, 1996. CRIIMI MAE amortized approximately $0.5 million
of this deferred amount in the accompanying consolidated statements of
income for the year ended December 31, 1993.
(b) Approximately $4.5 million of costs were incurred in 1993 in connection
with the establishment of interest rate hedges. These costs are being
amortized using the effective interest method over the term of the
interest rate hedge agreement for financial statement purposes and in
accordance with the regulations under Internal Revenue Code Section 446
with respect to notional principal contracts for tax purposes.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index
(CP) or three-month LIBOR.
24
<PAGE>
In addition, CRIIMI MAE entered into an interest rate hedge agreement on the
Bank Term Loan to cap LIBOR at 6.5% based on the expected paydown schedule and
an incremental hedge of 10.5% on the difference between the required and
expected paydown schedules. As of December 31, 1993, three-month LIBOR was
approximately 3.13% below the 6.5% cap.
Although CRIIMI MAE expects the overall average life of its mortgage
investments to exceed ten years, CRIIMI MAE's hedging agreements range in
maturity from 3 to 10 years principally because of the limited availability and
high cost of instruments with maturities greater than 10 years. Thus, to the
extent CRIIMI MAE has not completely matched the duration of its existing
mortgages to that of its existing hedges, upon the expiration of these hedges
CRIIMI MAE would be fully exposed to the adverse effects of rising interest
rates. The Adviser continues to actively review asset/liability hedging
techniques as CRIIMI MAE's existing hedges approach their expiration dates and
to monitor the duration of its hedges relative to its assets.
A reduction in long-term interest rates could increase the level of
prepayments of CRIIMI MAE's Government Insured Multifamily Mortgages. CRIIMI
MAE's yield on mortgage investments will be reduced to the extent CRIIMI MAE
reinvests the proceeds from such prepayments in new mortgage investments with
effective rates which are below the rates of the prepaid mortgages.
In addition, the fluctuation of long-term interest rates may affect the value
of CRIIMI MAE's Government Insured Multifamily Mortgages. Although decreases in
long-term rates could increase the value of CRIIMI MAE's mortgage investments,
increases in such long-term rates could decrease the value of CRIIMI MAE's
mortgage investments and, in certain circumstances, require CRIIMI MAE to
pledge additional collateral in connection with its borrowing facilities. This
would reduce CRIIMI MAE's borrowing capacity and, in an extreme case, may force
CRIIMI MAE to liquidate a portion of its assets at a loss in order to comply
with certain covenants under its financing facilities.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate hedge agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by any
of the counterparties, each of which has long-term debt ratings of A or above
by Standard and Poor's and A2 or above by Moody's.
Cash Flow--1993 versus 1992
Net cash provided by operating activities increased for 1993 as compared to
1992 principally due to an increase in mortgage investment income. Also
contributing to the increase in cash provided by operating activities was an
increase in accounts payable and accrued expenses attributable to the accrued
costs incurred by CRIIMI MAE with respect to this offering. Partially
offsetting the increase in net cash provided by operating activities for 1993
was the payment of approximately $4.9 million to terminate an interest rate
swap agreement and an increase in interest expense due primarily to mortgage
acquisition activity in 1993 funded by proceeds from financings.
Net cash used by investing activities increased for 1993 as compared to 1992.
This increase was principally due to the acquisition of Government Insured
Multifamily Mortgages and advances on Government Insured Construction Mortgages
of approximately $312.7 million in 1993 as compared to $31.8 million in 1992.
Also contributing to the increase in cash used by investing activities was the
acquisition of other short-term investments of approximately $175.3 million in
1993 as compared to approximately $66.8 million in 1992. In addition, proceeds
of approximately $6.1 million were received during 1993 related to the sale of
HUD debentures, as compared to the receipt of proceeds of approximately $2.3
million during the same period in 1992 related to the redemption of HUD
debentures. Partially offsetting the increase in net cash used by investing
activities was the receipt of approximately $167.1 million from the disposition
of other short-term investments and proceeds from mortgage dispositions of
approximately $93.4 million in 1993 as compared to approximately $65.5 million
and $50.4 million, respectively, in 1992.
25
<PAGE>
Net cash provided by financing activities increased for 1993 compared to
1992. This increase was primarily due to the receipt of net proceeds of
approximately $331.7 million from the Master Repurchase Agreements,
approximately $115.6 million from the financing of other short-term investments
and approximately $15.0 million from an expansion of CRIIMI MAE's Bank Term
Loan, partially offset by payments on short-term and long-term debt, a paydown
of borrowings of commercial paper and the payment of deferred financing costs.
Cash Flow--1992 versus 1991
Net cash provided by operating activities increased for 1992 as compared to
1991 principally due to an increase in interest payable and a decrease in
receivables and other assets compared to 1991 partially offset by a decrease in
accounts payable and accrued expenses. The increase in interest payable for
1992 compared to 1991 is due to the payment in 1991 of approximately $3.0
million in interest accrued as of December 31, 1990. The decrease in
receivables and other assets was attributable to the collection of the accrued
interest on a mortgage which defaulted in the second half of 1991. The decrease
in accounts payable and accrued expenses was due to the payment of acquisition
costs incurred and accrued with respect to the acquisition of the AIM Funds in
1991.
Net cash provided by investing activities decreased for 1992 as compared to
1991. This decrease resulted principally from the disposition in 1992 by CRIIMI
MAE and CRI Liquidating of five Government Insured Multifamily Mortgages and
the remaining 9% of two previously disposed Government Insured Multifamily
Mortgages resulting in disposition proceeds aggregating approximately $50.4
million. This compares to 33 mortgage dispositions during 1991 resulting in
disposition proceeds of approximately $119.0 million. Also during 1992, cash of
approximately $65.5 million and approximately $2.3 million was received from
the sale of other short-term investments and the redemption of HUD debentures,
respectively. However, this was offset by the purchase of other short-term
investments in 1992. During 1991, CRIIMI MAE and CRIIMI, Inc. paid a total of
approximately $24.4 million to acquire interests in the AIM Funds and the
limited partnership that serves as their adviser. In addition, CRIIMI MAE paid
approximately $3.7 million during 1991 for costs associated with this
acquisition. This acquisition was principally funded with the proceeds from the
sale of Government Insured Multifamily Mortgages.
Net cash used in financing activities decreased for 1992 as compared to 1991.
This decrease was primarily due to approximately $97.6 million paid in 1991 for
the early extinguishment of long-term debt and the purchase of approximately
$21.6 million in U.S. Treasury Securities in connection with the defeasance of
long-term debt which occurred in 1991, partially offset by $85.0 million in
proceeds received in 1991 from the refinancing. This decrease was also offset
by an increase in principal payments on long-term debt from approximately $13.3
million during 1991 to $23.3 million in 1992.
REIT STATUS
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs as defined in the Internal Revenue Code and, as such, will not
be taxed on that portion of their taxable income which is distributed to
stockholders, provided that at least 95% of such taxable income is distributed.
CRIIMI MAE and CRI Liquidating intend to distribute substantially all of their
taxable income and, accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements. CRIIMI MAE and CRI
Liquidating, however, may be subject to tax at normal corporate rates on net
income or capital gains not distributed.
OTHER EVENTS
During 1993, CRIIMI MAE sold 3,162,500 of its CRI Liquidating Shares. As a
result of such sale, CRIIMI MAE holds a total of 17,199,307 CRI Liquidating
Shares, or approximately 57% of CRI Liquidating's issued and outstanding common
stock. Net proceeds of the sale totaled approximately $26.5
26
<PAGE>
million. CRIIMI MAE used approximately $21.6 million of the net proceeds to
purchase Government Insured Multifamily Mortgages and approximately $4.9
million to terminate an interest rate swap agreement on $25 million of CRIIMI
MAE's corporate debt.
On March 22, 1990, a complaint was filed, on behalf of a class comprised of
certain limited partners of CRIIMI III and shareholders of CRIIMI II (the
"Plaintiffs"), in the Circuit Court for Montgomery County, Maryland against
CRIIMI MAE, CRI Liquidating, CRIIMI I and its general partner, CRIIMI II,
CRIIMI III and its general partner, CRI and William B. Dockser, H. William
Willoughby and Martin C. Schwartzberg (the "Defendants"). On November 18,
1993, the Court entered an order granting final approval of a settlement
agreement between the Plaintiffs and the Defendants pursuant to which CRIIMI
MAE will issue to class members, including certain former limited partners of
CRIIMI I, up to 2.5 million warrants, exercisable for 18 months after
issuance, to purchase shares of CRIIMI MAE Common Stock at an exercise price
of $13.17 per share. In addition, the settlement included a payment of $1.4
million for settlement administration costs and the Plaintiff's attorneys'
fees and expenses. Insurance provided $1.15 million of the $1.4 million cash
payment, with the balance paid by CRIIMI MAE. CRIIMI MAE accrued a total
provision of $1.5 million in the accompanying consolidated statements of
income for the uninsured portion of the cash settlement paid by CRIIMI MAE and
for the estimated value of the warrants that are expected to be issued as part
of the settlement. The number of warrants to be issued is dependent on the
number of class members who submit a proof of claim within 60 days of January
14, 1994 (the date the proof of claim was mailed by CRIIMI MAE).
The issuance of the warrants pursuant to the settlement agreement will have
no impact on CRIIMI MAE's tax basis income. Depending upon the number of
warrants issued, CRIIMI MAE will record in its financial statements a non-cash
expense ranging from $0 (if no warrants are issued) to $5 million (if all 2.5
million warrants are issued). Based on the Adviser's estimate of the number of
warrants to be issued, CRIIMI MAE has accrued a total provision of $1.5
million (which includes the uninsured portion of the cash settlement) in the
accompanying consolidated statement of income for 1993, which provision may be
increased or decreased once the actual number of warrants issued is known. The
Adviser estimates that the final charge (after adjustments to the provision)
to net income and the increase in the number of shares of Common Stock
outstanding as a result of the exercise of the warrants will not have a
material adverse effect on CRIIMI MAE's net income and net income per share.
The exercise of the warrants will not result in a charge to CRIIMI MAE's tax
basis income. Further, the Adviser believes that the exercise of the warrants
will not have a material adverse effect on CRIIMI MAE's tax basis income per
share or annualized cash dividends per share because CRIIMI MAE intends to
invest the proceeds from any exercise of the warrants in accordance with its
investment policy to purchase Government Insured Multifamily Mortgages and
other authorized investments. However, in the case of a significant decline in
the yield on mortgage investments and a significant decrease in the Net
Positive Spread which CRIIMI MAE could achieve on its borrowings, the exercise
of the warrants may have a dilutive effect on tax basis income per share and
cash dividends per share. Receipt of the proceeds from the exercise of the
warrants will increase CRIIMI MAE's shareholders' equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of CRIIMI MAE's consolidated 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
CRIIMI MAE.
In connection with CRIIMI MAE's and CRI Liquidating's implementation of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) as of December 31, 1993,
CRIIMI MAE's Investment in Mortgages continues to be recorded at amortized
cost; however, CRI Liquidating's Investment in Mortgages, and both CRIIMI
MAE's and CRI Liquidating's Mortgages Held for Disposition, are recorded at
fair value as of December 31, 1993. The
27
<PAGE>
difference between the amortized cost and the fair value of CRI Liquidating's
Government Insured Multifamily Mortgages represents the net unrealized gains on
CRI Liquidating's Government Insured Multifamily Mortgages. CRIIMI MAE's share
of the net unrealized gains on CRI Liquidating's Government Insured Multifamily
Mortgages is reported as a separate component of shareholders' equity as of
December 31, 1993.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1993
--------------------------
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
ASSETS
Investment in mortgages, accounted for at amor-
tized cost:
Near Par or Premium Mortgage Investments...... $495,846,514 $505,578,030
Discount Mortgage Investments................. 903,982 1,004,399
------------ ------------
496,750,496 506,582,429
------------ ------------
Investment in mortgages, accounted for at fair
value:(a)
Near Par or Premium Mortgage Investments...... 166,913,207 215,866,436
Discount Mortgage Investments................. 16,983,594 17,647,797
Mortgages Held for Disposition ............... 9,594,024 11,326,356
------------ ------------
193,490,825 244,840,589
------------ ------------
LIABILITIES
Commercial paper................................ $ 95,306,000 $ 95,306,000
Long-term debt.................................. 383,739,048 383,739,048
Interest rate hedge agreements.................. (4,113,713) 3,115,531
</TABLE>
- --------
(a) CRI Liquidating's mortgage investments and all Mortgages Held for
Disposition were accounted for at fair value on the accompanying
consolidated balance sheet as of December 31, 1993.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Investment in Mortgages
The fair value of the Government Insured Multifamily Mortgages is based on
the average of the quoted market prices from three investment banking
institutions which trade insured mortgage loans as part of their day-to-day
activities.
Commercial Paper
The carrying amount approximates fair value because of the short maturity of
the debt.
Long-term Debt
The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.
Interest Rate Hedge Agreements
The fair value of interest rate hedge agreements (used to hedge CRIIMI MAE's
commercial paper and long-term debt) is the estimated amount that CRIIMI MAE
would pay to terminate the agreements as of December 31, 1993, taking into
account current interest rates and the current creditworthiness of the
counterparties. The amount was determined based on the average of two quotes
received from financial institutions which enter into these types of
transactions as part of their day-to-day activities.
28
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
CRIIMI MAE's Adviser manages CRIIMI MAE's portfolio of assets. CRI is the
Adviser's general partner and CRI's employees conduct the Adviser's operations.
Set forth below are the names and positions of the directors and executive
officers of CRIIMI MAE and their positions with CRI.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
<S> <C> <C>
William B. Dockser 57 Chairman of the CRIIMI MAE Board;
Chairman of the Board of CRI
H. William Willoughby 47 Director, President and Secretary;
Director, President and Secretary of CRI
Garrett G. Carlson, Sr. 57 Director
G. Richard Dunnells 56 Director
Robert F. Tardio 64 Director
Frederick J. Burchill 45 Executive Vice President;
Senior Vice President of CRI
Jay R. Cohen 53 Executive Vice President and Treasurer;
Senior Vice President--Mortgages of CRI
Elizabeth O. Flanagan 34 Chief Financial Officer;
Vice President of CRI
</TABLE>
Set forth below is certain information concerning the directors of CRIIMI MAE
and the executive officers of CRIIMI MAE:
WILLIAM B. DOCKSER has been chairman of the CRIIMI MAE Board since 1989 and
chairman of the board of CRI and a director since 1974. Prior to forming
CRI, he served as president of Kaufman and Broad Asset Management, Inc., an
affiliate of Kaufman and Broad, Inc., which managed a number of publicly
held limited partnerships created to invest in low and moderate income
multifamily apartment complexes. For a period of 2 1/2 years prior to
joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was
responsible for all federally insured housing production programs. Before
coming to Washington, Mr. Dockser was a practicing attorney in Boston and
also was a special Assistant Attorney General for the Commonwealth of
Massachusetts. He holds a Bachelor of Laws degree from Yale University Law
School and a Bachelor of Arts, cum laude, degree from Harvard University.
Mr. Dockser is chairman of the board of directors of CRI Liquidating.
H. WILLIAM WILLOUGHBY has been a director and executive officer of CRIIMI
MAE since 1989 and has been secretary and director of CRI since 1974 and
president since 1990. He is principally responsible for the financial
management of CRI and its associated partnerships. Prior to joining CRI in
1974, he was vice president of Shelter Corporation of America and a number
of its subsidiaries, dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctorate degree, a
Master of Business Administration degree and a Bachelor of Science degree
in Business Administration from the University of South Dakota.
GARRETT G. CARLSON, SR. has been a director of CRIIMI MAE and CRI
Liquidating since 1989 and is chairman of the board of SCA Realty, Inc.,
and president of Can-American Realty Corporation and Canadian Financial
Corporation. He is vice president and secretary of Shelter Development
Corporation Ltd., and president of Garrett Real Estate Development. He is
currently a director of Shelter Corporation of Canada Limited. Prior to the
organization of Canadian Financial Corporation and Can-
29
<PAGE>
American Realty Corporation in 1974 and 1979, respectively, Mr. Carlson
served as president and chairman of the board of Shelter Corporation of
America, Inc. In these capacities, Mr. Carlson has participated in numerous
residential, commercial, office, hotel and retail real estate developments.
He is a graduate of the University of Minneapolis, Minnesota, where he
earned a Bachelor of Arts degree in economics.
G. RICHARD DUNNELLS, has been a director of CRIIMI MAE since July, 1991 and
is currently a partner in the Washington, D.C. office of the Florida law
firm of Holland and Knight. He was the chairman of Dunnells, Duvall &
Porter, a Washington, D.C. law firm from 1989 to December 1993 and has been
associated with the firm as senior partner since 1973. From 1970 to 1973,
he served with HUD, first as the special assistant to the Under-Secretary
of HUD and later as the Deputy Assistant Secretary for Housing and Urban
Renewal and the Deputy Assistant Secretary for Housing Management. From
1969 to 1970, he was with the White House staff of the President. Prior to
that time he was with Hogan & Hartson, a Washington, D.C. law firm. Mr
Dunnells previously served as a director of the National Bank of Commerce
and was associated with the President's Commission on Housing under
President Reagan. He holds a Juris Doctorate degree from the University of
Virginia Law School and a Bachelor of Arts degree from Dartmouth College.
ROBERT F. TARDIO, has been a director of CRIIMI MAE since 1989 and has been
an independent financial consultant since 1986. He has been chairman of
Tardio Corporation since 1986. He was chairman of the board and chief
executive officer of Sovran Bank/Maryland from April 1986 to June 1986. He
was chairman of the board and chief executive officer of Suburban Bancorp
and Suburban Bank, Bethesda, Maryland, from 1979 to 1986. Prior to that he
was president of, and played a major role in the formation of, Heritage
Bancorporation, Cherry Hill, New Jersey. Previously, he was chairman of the
board of First National Iron Bank of New Jersey, for which he served as
executive vice president beginning in 1967, president beginning in 1970 and
chairman of the board beginning in 1972. Mr Tardio currently serves as a
director of Bell Atlantic/Maryland, Washington Mutual Investors (Advisory
Board), Artery Organization, Com-Site International, AW Industries and vice
chairman of Washington Metropolitan Airports Authority. He is former
chairman of the board of the University of Maryland Foundation. Mr Tardio
holds a Bachelor of Science degree in economics from New York University
and an Honorary Doctor of Laws Degree from the University of Maryland.
FREDERICK J. BURCHILL has been an executive officer of CRIIMI MAE since
1991 and is a senior vice president of CRI. Prior to rejoining CRI as of
January 1990, he was a consultant to York Associates Asset Management. He
also owned and operated his own real estate company which developed
properties in Maryland and Virginia. From 1977 to 1987 he was a senior vice
president at CRI with principal responsibility for development and property
acquisition. Prior to joining CRI in 1977, he was a project manager with
the Virginia Housing Development Authority. He holds a Master's degree in
Urban and Regional Planning from Virginia Commonwealth University and a
Bachelor of Arts degree from the University of Richmond.
JAY R. COHEN has been an executive officer of CRIIMI MAE since 1989 and is
senior vice president-mortgages of CRI and president of CRICO Mortgage
Company, Inc., an affiliate of CRI. Prior to joining CRI in 1983, he was
assistant vice president of GNMA's Office of Mortgage-Finance and had
responsibility for the operation of GNMA's project mortgage auctions. He
was also special assistant to GNMA's executive vice president and a program
officer in GNMA's Office of Corporate Planning. He holds a Bachelor of Arts
degree from the University of Pennsylvania. Mr. Cohen is also the executive
vice president and treasurer of CRI Liquidating.
ELIZABETH O. FLANAGAN has been director of CRIIMI MAE Special Projects
since 1990 and has been a vice president of CRI and controller for CRI
Public Funds since 1987. Prior to joining CRI in 1985, she was a senior
accountant with Arthur Andersen & Co. Ms. Flanagan holds a Bachelor of
Science degree in Commerce from the University of Virginia.
30
<PAGE>
CERTAIN UNITED STATES TAX CONSIDERATIONS
The following general discussion is a summary of certain U.S. federal income
and estate tax consequences of the ownership and disposition of the Shares
applicable to holders of such Shares who acquire and own such Shares as capital
assets within the meaning of Section 1221 of the Internal Revenue Code of 1986,
as amended (the "Code"). For purposes of this discussion, a "Non-U.S. Holder"
is a person other than (i) a citizen or resident of the United States, (ii) a
corporation or partnership created or organized in the United States or under
the laws of the United States or of any state, or (iii) an estate or trust
whose income is includable in gross income for United States federal income tax
purposes regardless of its source. For purposes of the withholding tax on
dividends discussed below, a non-resident fiduciary of an estate or trust will
be considered a Non-U.S. Holder.
This discussion does not consider specific facts and circumstances that may
be relevant to a particular holder's tax position (including the fact that, in
the case of a Non-U.S. Holder that is a partnership, the U.S. tax consequences
of holding and disposing of Shares may be affected by certain determinations
made at the partner level), and does not consider U.S. state and local or non-
U.S. tax consequences. Furthermore, the following discussion is based on
provisions of the Code and administrative and judicial interpretations, all of
which are subject to change, possibly on a retroactive basis. Each prospective
holder of Shares is urged to consult a tax advisor with respect to the U.S.
federal tax consequences of holding and disposing of the Shares, as well as any
tax consequences that may arise under the laws of any U.S. state, local or
other U.S. or non-U.S. taxing jurisdiction.
GENERAL CONSIDERATIONS
CRIIMI MAE and CRI Liquidating have qualified, and intend to continue to
qualify, as REITs under the Code. Qualification for treatment as a REIT
requires CRIIMI MAE and CRI Liquidating each to meet certain criteria including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. A REIT generally is not subject to federal
income tax on that portion of its ordinary income or capital gains that is
distributed currently to stockholders. CRIIMI MAE and CRI Liquidating have
distributed and intend to continue to distribute substantially all of their
taxable income to stockholders and to meet distribution requirements to
continue to qualify as REITs. CRIIMI MAE and CRI Liquidating will each
generally be subject to federal income tax at normal corporate rates on its
undistributed income and to a 4% excise tax under the Code on the amount, if
any, by which 85% of its REIT taxable income (including accrued but unpaid
interest income) and 95% of any net capital gain exceed the amount actually
distributed to its stockholders during the year (or declared as a dividend
during October, November or December of a calendar year, if distributed during
the following January as ordinary income dividends). Accrued income for each
quarter is generally received within 30 days after the end of the quarter.
CRIIMI MAE and CRI Liquidating are not aware of any present circumstances that
would cause them to fail to qualify as REITs, nor do they anticipate any such
circumstances in the reasonably foreseeable future. If the U.S. Internal
Revenue Service ("IRS") successfully challenged the tax status of CRIIMI MAE or
CRI Liquidating as a REIT, CRIIMI MAE and CRI Liquidating's earnings would
become subject to federal income tax (including any applicable minimum tax) at
corporate rates.
To protect CRIIMI MAE's qualification as a REIT under the Code, CRIIMI MAE's
articles of incorporation provide that no person or persons acting as a group
(defined to include partnerships, corporations, trusts and other entities),
with the exceptions of CRI or its affiliates, shall at any time directly or
indirectly acquire ownership of more than 9.8% of the outstanding shares of
CRIIMI MAE's Common Stock.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS
As long as CRIIMI MAE qualifies as a REIT, distributions made to CRIIMI MAE's
taxable domestic stockholders out of current or accumulated earnings and
profits, as determined for federal income tax purposes, and not designated as
capital gain dividends, will be taken into account by such stockholders as
31
<PAGE>
ordinary income and will not be eligible for the dividends received deduction
for stockholders that are corporations. Distributions that are designated by
CRIIMI MAE as capital gain dividends will be taxed as long-term capital gains
(to the extent that they do not exceed CRIIMI MAE's actual net capital gain for
the taxable year) without regard to the period for which the stockholder has
held its Shares. However, corporate stockholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
CRIIMI MAE makes distributions in excess of current and accumulated earnings
and profits as determined for federal income tax purposes, these distributions
are treated first as a tax-free return of capital to the stockholder, reducing
the tax basis of a stockholder's Shares by the amount of such distribution (but
not below zero), with distributions in excess of the stockholder's tax basis
taxable as gain from the sale or exchange of Shares. In addition, any dividend
declared by CRIIMI MAE in October, November or December of any year and payable
to a stockholder of record on a specific date in any such month shall be
treated as both paid by CRIIMI MAE and received by the stockholder on December
31 of such year, provided that the dividend is actually paid by CRIIMI MAE
during January of the following calendar year. Stockholders may not include in
their individual income tax returns any net operating losses or capital losses
of CRIIMI MAE.
In general, any loss upon a sale or exchange of Shares by a stockholder who
has held such Shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions from CRIIMI MAE required to be treated by such shareholder as
long-term capital gains.
TAXATION OF NON-U.S. HOLDERS
In general, distributions to a Non-U.S. Holder of Shares which are not
attributable to gain from the sale or exchange of United States real property
interests and are not designated by CRIIMI MAE as capital gain dividends will
be treated as dividends of ordinary income (to the extent of earnings and
profits for U.S. federal income tax purposes). Such distributions ordinarily
will be subject to withholding of U.S. federal income tax at a 30% rate, unless
such rate is reduced by an applicable income tax treaty. Dividends that are
effectively connected with such holder's conduct of a trade or business in the
United States or, if a tax treaty applies, attributable to a permanent
establishment in the United States ("U.S. trade or business income") generally
are subject to U.S. federal income tax at regular rates (and, in the case of a
Non-U.S. Holder that is a corporation, under certain circumstances may be
subject to an additional "branch profits tax" at a 30% rate or such lower rate
as may be applicable under an income tax treaty), but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the appropriate form
with the payer.
Distributions by CRIIMI MAE which are not dividends out of earnings and
profits (as determined for U.S. federal income tax purposes) should not be
subject to U.S. withholding tax. Such distributions are treated first as a tax-
free return of capital to the Non-U.S. Holder, reducing the tax basis of the
Non-U.S. Holder's Shares by the amount of such distribution (but not below
zero), with distributions in excess of the Non-U.S. Holder's tax basis taxable
(to the same extent described below) as a sale or exchange of Shares. If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the entire amount of the distribution will be subject to withholding at the
rate applicable to dividends. However, the Non-U.S. Holder may seek a refund of
such amounts from the IRS if it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of CRIIMI MAE. CRIIMI MAE does not expect to pay dividends in excess of
current and accumulated earnings and profits.
Under the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), for
as long as CRIIMI MAE qualifies as a REIT, a distribution made by CRIIMI MAE to
a Non-U.S. Holder that is attributable to gains from the sale or exchange of
U.S. real property interests generally will be taxable as U.S. trade or
business income. Therefore, Non-U.S. Holders generally will be taxed at the
capital gain rates applicable to U.S. Holders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch
32
<PAGE>
profits tax in the hands of a corporate Non-U.S. Holder (unless reduced or
eliminated by treaty). In addition, CRIIMI MAE will be required to withhold
U.S. tax equal to 35% of the amount of dividends that could have been
designated as capital gain dividends, but such requirement apparently is
limited to the amount of such gain that is attributable to the sale or exchange
of U.S. real property interests. The amount so withheld is creditable against
the U.S. federal income tax liability of such Non-U.S. Holder and a refund may
be available if the amount withheld exceeds the U.S. federal income tax
liability of the Non-U.S. Holder. CRIIMI MAE does not expect to realize any
capital gains from CRI Liquidating's investments in the Participations. CRIIMI
MAE believes that any gains on its mortgage investments would not be subject to
FIRPTA because such mortgages merely secure a debt and CRIIMI MAE will not be
entitled to a direct or indirect right to share in the appreciation in the
value of, or in the gross or net proceeds or profits generated by, the
underlying real property.
If CRIIMI MAE is a "domestically controlled REIT," a sale of Shares by a Non-
U.S. Holder generally will not be subject to U.S. taxation under FIRPTA. A REIT
is a domestically controlled REIT if, at all times during a specified testing
period, less than 50% in value of its shares is held directly or indirectly by
Non-U.S. Holders. CRIIMI MAE is currently, and anticipates continuing to be, a
domestically controlled REIT. Therefore, it anticipates that a Non-U.S.
Holder's sale of Shares will not be subject to taxation under FIRPTA. Because
the Shares will be publicly traded, however, no assurance can be given that
CRIIMI MAE will continue to be a domestically controlled REIT.
If CRIIMI MAE does not constitute a domestically controlled REIT, a Non-U.S.
Holder's sale of Shares nevertheless generally will not be subject to tax under
FIRPTA provided that either (i) CRIIMI MAE is not a "United States real
property holding corporation" (which is defined in the Code generally as any
corporation if the net fair market value of its U.S. real property interests
accounts for 50% or more of the net fair market value of its assets at any time
during the 5-year period prior to such sale), or (ii) the shares are "regularly
traded" (as defined by applicable Treasury regulations) on an established
securities market (e.g., the New York Stock Exchange, on which the Shares are
listed), and the selling Non-U.S. Holder held 5% or less of CRIIMI MAE's
outstanding shares at all times during a specified testing period.
If gain on the sale of the Shares by a non-U.S. Holder is subject to taxation
under FIRPTA, the income would be taxable as U.S. trade or business income
(subject to applicable alternative minimum tax and a special alternative
minimum tax in the case of nonresident alien individuals). Even if FIRPTA does
not apply to the sale of the Shares, a Non-U.S. Holder that owns the Shares as
a capital asset nonetheless will be subject to U.S. federal income tax on any
gain realized on the sale of Shares if (i) such gain is U.S. trade or business
income, (ii) in the case of gain realized by an individual Non-U.S. Holder,
such Non-U.S. Holder is present in the United States for 183 days or more
during the year of such sale and certain other conditions are met, or (iii) the
Non-U.S. Holder is taxed under rules applicable to certain U.S. expatriates.
In general, an individual who is a Non-U.S. Holder for U.S. estate tax
purposes will incur liability for U.S. federal estate tax if the fair market
value of the property included in such individual's taxable estate for U.S.
federal estate tax purposes exceeds the statutory threshold amount. For these
purposes, Shares owned or treated as owned by an individual who is a Non-U.S.
Holder (for U.S. estate tax purposes) at the time of death will be included in
the individual's taxable estate for U.S. federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
The IRS has issued a revenue ruling in which it held that amounts distributed
by a REIT to a tax-exempt employee pension trust do not constitute unrelated
business taxable income ("UBTI"). Revenue rulings, however, are interpretive in
nature and are subject to revocation or modification by the IRS. Based upon the
ruling and the analysis therein, distributions by CRIIMI MAE to a stockholder
that is a tax-exempt entity also should not constitute UBTI, provided that the
tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of the Code, and that the Shares
are not otherwise used in an unrelated trade or business of the tax-exempt
entity.
33
<PAGE>
New legislation, effective for taxable years beginning on or after January 1,
1994, would require certain pension trust stockholders owning more than 10
percent (by value) of the outstanding shares of a REIT to treat a percentage of
dividends received from the REIT as UBTI under certain circumstances. Pension
trust stockholders should consult their own tax advisors concerning the effect
of such new legislation on their investment in the Shares.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
Payments in respect of dividends or proceeds from the sale or other
disposition of Shares may be subject to information reporting to the U.S.
Internal Revenue Service and to a 31% U.S. backup withholding tax. Backup
withholding is not an additional tax. Backup withholding generally will not
apply, however, to a holder who furnishes a correct taxpayer identification
number and makes any other required certification or who is otherwise exempt
from backup withholding. In addition, backup withholding generally will not
apply to dividends paid on Shares to a Non-U.S. Holder outside of the United
States. Rather, the amount of any backup withholding with respect to a payment
to a stockholder will be allowed as a credit against such stockholder's federal
income tax liability and may entitle such stockholder to a refund, provided
that the required information is furnished to the IRS. Accordingly,
stockholders should consult their own tax advisors with respect to any such
information reporting and backup withholding requirements, including their
potential for qualification for exemption therefrom.
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Donaldson,
Lufkin & Jenrette Securities Corporation, CS First Boston Corporation,
Oppenheimer & Co., Inc., Advest, Inc. and Legg Mason Wood Walker, Incorporated
(the "Representatives"), have severally agreed, subject to the terms and
conditions of an underwriting agreement (the "Underwriting Agreement"), to
purchase from CRIIMI MAE the respective number of Shares set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............... 588,000
CS First Boston Corporation....................................... 588,000
Oppenheimer & Co., Inc............................................ 588,000
Advest, Inc....................................................... 588,000
Legg Mason Wood Walker, Incorporated.............................. 588,000
Bear, Stearns & Co. Inc. ......................................... 80,000
Alex. Brown & Sons Incorporated................................... 80,000
A.G. Edwards & Sons, Inc. ........................................ 80,000
Goldman, Sachs & Co. ............................................. 80,000
Kidder, Peabody & Co. Incorporated................................ 80,000
Lehman Brothers Inc. ............................................. 80,000
PaineWebber Incorporated.......................................... 80,000
Prudential Securities Incorporated................................ 80,000
Smith Barney Shearson Inc. ....................................... 80,000
Arnhold and S. Bleichroeder, Inc. ................................ 40,000
Robert W. Baird & Co. Incorporated................................ 40,000
George K. Baum and Company........................................ 40,000
J. C. Bradford & Co. ............................................. 40,000
The Chicago Corporation........................................... 40,000
Crowell, Weedon & Co. ............................................ 40,000
Dain Bosworth Incorporated........................................ 40,000
Fahnestock & Co. Inc. ............................................ 40,000
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
<S> <C>
First Albany Corporation........................................ 40,000
First Manhattan Co. ............................................ 40,000
First of Michigan Corporation................................... 40,000
Interstate/Johnson Lane Corporation............................. 40,000
Janney Montgomery Scott Inc. ................................... 40,000
Johnston, Lemon & Co. Incorporated.............................. 40,000
Kemper Securities, Inc. ........................................ 40,000
Ladenburg, Thalmann & Co. Inc. ................................. 40,000
C.J. Lawrence/Deutsche Bank Securities Corporation.............. 40,000
McDonald & Company Securities, Inc.............................. 40,000
Morgan Keegan & Company, Inc. .................................. 40,000
Neuberger & Berman.............................................. 40,000
The Ohio Company................................................ 40,000
Piper Jaffray Inc. ............................................. 40,000
The Principal/Eppler Guerin & Turner, Inc. ..................... 40,000
Raymond James & Associates, Inc. ............................... 40,000
The Robinson-Humphrey Company, Inc. ............................ 40,000
Roney & Co. .................................................... 40,000
Ryan, Beck & Co. ............................................... 40,000
Stephens Inc.................................................... 40,000
Tucker Anthony Incorporated..................................... 40,000
Wheat, First Securities, Inc. .................................. 40,000
Black & Company, Inc. .......................................... 20,000
Brean Murray, Foster Securities Inc. ........................... 20,000
The Chapman Company............................................. 20,000
Ferris, Baker Watts, Incorporated............................... 20,000
Foley Mufson Howe & Company..................................... 20,000
Parker/Hunter Incorporated...................................... 20,000
Pennsylvania Merchant Group Ltd................................. 20,000
---------
Total....................................................... 5,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Shares offered hereby are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Shares offered hereby if any are taken (other than shares subject to the over-
allotment option described below).
The Representatives have advised CRIIMI MAE that the Underwriters propose to
offer the Shares directly to the public initially at a public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $.40 per share. Any Underwriter may
allow, and such dealers may reallow, a discount not in excess of $.10 per share
to any other Underwriter and to certain other dealers. After the offering, the
public offering price and other selling terms may be changed by the
Representatives.
CRIIMI MAE has granted to the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to an additional 750,000
shares of Common Stock at the public offering price less the underwriting
discounts and commission set forth on the cover page hereof. The Underwriters
may exercise such option to purchase additional shares solely for the purpose
of covering over-allotments, if any, made in connection with the sale of the
shares of Common Stock offered hereby. To the extent such over-allotment option
is exercised, each Underwriter will become obligated, subject to certain
conditions, to
35
<PAGE>
purchase the same percentage of such additional shares as the number set forth
next to such Underwriter's name in the preceding table bears to the total
number of shares set forth in such table.
CRIIMI MAE and the principal executive officers identified under "Management"
have agreed with the Underwriters not to offer, sell, contract to sell, grant
any other option to purchase or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable
for, or warrants, rights or options to acquire, Common Stock or enter into any
agreement to do any of the foregoing for a period of 180 days without the prior
written consent of the Underwriters.
CRIIMI MAE has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that they may be required to make in respect thereof.
The Underwriters have informed CRIIMI MAE that they do not expect
discretionary sales by the Underwriters to exceed 5% of the total number of
shares of Common Stock offered hereby.
LEGAL MATTERS
Certain matters relating to the validity of the Shares will be passed upon
for CRIIMI MAE by Arent Fox Kintner Plotkin & Kahn, Washington, D.C., and for
the Underwriters by Weil, Gotshal & Manges (a partnership including
professional corporations), New York, New York.
EXPERTS
The financial statements and schedules of CRIIMI MAE for the years ended
December 31, 1993, 1992 and 1991 included in this Prospectus and elsewhere in
the Registration Statement, have been audited by Arthur Andersen & Co.,
independent public accountants, to the extent and for the periods as indicated
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firms as experts in accounting and auditing in giving
such reports.
36
<PAGE>
APPENDIX A
SCHEDULE OF MORTGAGE INVESTMENTS
CRIIMI MAE
GOVERNMENT INSURED MULTIFAMILY MORTGAGES
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CARRYING
NO. OF SECTION LOAN VALUE FACE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alpine Ridge Apts. Flagstaff, AZ 194 221(D)(4) FHA $ 6,300,865.41 $ 6,396,338.49 9.680% 4/01/33 N/A 4/93 22
Americana Apts Pasco, WA 128 223(F) GNMA 1,759,243.45 1,717,147.61 7.250% 6/15/28 N/A 6/93 8
Apple Valley Apts Sherwood, AR 50 223(F) GNMA 1,936,503.65 1,895,861.63 7.250% 8/15/28 N/A 8/93 8
Arlington Townhouse Royal Oak, MI 148 223(F) FHA 4,160,640.19 4,186,606.78 7.625% 6/01/28 N/A 6/93 8
Ashwood Apartments Midwest City, OK 157 232 GNMA 1,172,697.33 1,169,935.31 10.000% 3/15/20 N/A 4/90 3
Aspen Linwood Apts Fort Lee, NJ 86 223(F) FHA 2,898,952.26 2,873,991.01 8.125% 10/01/27 N/A 9/92 4
Austin Hewitt Pulaski, TN 45 232 FHA 1,079,197.25 1,079,197.25 10.500% 1/01/31 N/A 1/91 4
Bell Avenue Elk City, OK 70 232 FHA 1,868,475.73 1,868,475.03 10.580% 9/01/31 N/A 9/91 10
Bellhaven Nursing Bellport, NY 240 232 GNMA 14,412,394.76 14,412,394.66 10.175% 12/15/31 N/A 6/93 7
Bentley Courts Columbia, SC 272 221(D)(4) GNMA 6,878,785.21 6,929,950.14 9.750% 4/15/31 N/A 4/91 8
Bradford Place Suitland, MD 214 221(D)(4) GNMA 5,576,987.23 5,544,371.28 8.000% 4/15/21 N/A 7/93 6
Briarwood Apts. Dallas, TX 75 223(F) GNMA 1,300,487.40 1,274,569.64 10.500% 12/15/22 N/A 4/90 3
Briarwood Gardens Salina, KS 52 223(F) GNMA 703,182.72 690,057.75 7.500% 11/15/23 N/A 10/93 5
Camelot Apts Hamburg, NY 174 223(F) GNMA 3,620,394.44 3,521,913.16 7.375% 7/15/28 N/A 7/93 8
Cedar Ridge--Phase 2 Charlotte, NC 96 223(F) GNMA 2,632,447.81 2,640,700.00 7.000% 01/15/29 N/A 12/93 8
Charlesgate Providence, RI 200 223(D) GNMA 498,797.42 496,465.85 10.550% 11/15/17 N/A 5/90 25
Chateau Cupertino Cupertino, CA 169 223(A)(7) FHA 10,053,887.68 9,906,554.77 7.875% 8/01/28 N/A 5/93 9
Chesapeake Apts Houston, TX 320 223(F) GNMA 5,320,858.40 5,170,784.68 7.625% 7/15/28 N/A 7/93 11
Coachlite Apts Hamburg, NY 110 223(F) GNMA 2,439,425.32 2,373,068.69 7.375% 7/15/28 N/A 7/93 8
Community Residence Orchard Park, NY 7 232 GNMA 541,480.79 537,417.62 10.050% 8/15/15 N/A 6/90 4
Country Gable Apts Glendale, AZ 139 223(F) GNMA 2,804,020.09 2,797,073.55 7.500% 7/15/28 N/A 7/93 8
Country Place Apts Houston, TX 122 223(F) GNMA 2,903,000.00 2,904,788.80 7.250% 6/15/18 N/A 6/93 5
Courtyard Plaza Portland, OR 151 221(D)(4) GNMA 6,811,175.25 6,811,175.25 9.470% 9/15/32 N/A 5/93 4
Crosscreek Apts. Columbus, OH 72 223(F) FHA 1,447,095.95 1,447,095.95 8.950% 7/01/27 N/A 7/92 8
Dogwood Manor Charlotte, NC 120 223(D) FHA 522,582.20 522,582.01 9.000% 8/01/30 N/A 5/89 10
Duck Creek Village Garland, TX 84 223(F) FHA 1,819,355.02 1,819,355.02 8.430% 2/01/28 N/A 2/93 5
El Dorado Apts Tucson, AZ 96 223(F) GNMA 1,442,119.06 1,439,432.41 7.250% 9/15/28 N/A 9/93 8
Executive House Austin, TX 98 223(F) GNMA 2,014,338.90 1,971,153.94 7.375% 6/15/28 N/A 6/93 5
Fountain Plaza Apt Tucson, AZ 196 223(F) GNMA 3,168,082.06 3,168,081.94 7.250% 8/15/28 N/A 8/93 8
Four Seasons--KS Emporia, KS 198 223(F) GNMA 3,444,160.83 3,388,424.87 7.250% 6/15/28 N/A 6/93 5
Foxhunt Apartments Kettering, OH 250 223(F) FHA 4,579,234.27 4,601,790.30 8.900% 4/01/27 N/A 4/92 11
Gardenbrook Apts Beaverton, OR 120 223(F) GNMA 2,162,853.34 2,128,792.02 7.250% 7/15/28 N/A 7/93 5
Gateway Square Temple Hills, MD 297 223(F) GNMA 5,147,136.67 5,118,556.23 9.500% 4/15/21 N/A 11/89 25
Good Acre Silver Spring, MD 156 223(F) GNMA 1,619,184.50 1,610,194.38 9.500% 4/15/21 N/A 11/89 25
Guinn Nursing Home Jay, OK 98 232 FHA 2,284,749.62 2,284,749.70 10.590% 12/01/31 N/A 12/91 4
Harborside East Chicago, IN 254 241 FHA 2,314,089.53 2,314,089.82 10.150% 2/01/19 N/A 9/91 5
Harrisburg Square Omaha, NE 288 223(F) GNMA 3,931,267.63 3,911,860.66 7.400% 6/15/28 N/A 6/93 8
Heritage Square Edinburgh, TX 100 223(F) GNMA 2,015,627.40 1,990,885.30 7.650% 8/15/27 N/A 7/93 8
Heritage Village Fremont, CA 192 221(D)(4) FHA 12,326,431.59 12,450,317.77 7.125% 7/01/27 N/A 9/93 8
Hidden Valley Apts Northfield, MN 204 223(F) FHA 4,495,218.66 4,494,101.43 7.400% 8/01/28 N/A 8/93 8
</TABLE>
A-1
<PAGE>
CRIIMI MAE
GOVERNMENT INSURED MULTIFAMILY MORTGAGES (CONTINUED)
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CARRYING
NO. OF SECTION LOAN VALUE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) FACE VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highland Apartments St. Paul, MN 46 223(F) FHA $ 862,524.11 $ 867,773.81 9.900% 10/01/21 N/A 10/91 8
Highland Park Okmulgee, OK 100 232 FHA 2,532,871.12 2,532,871.12 10.375% 1/01/31 N/A 1/91 4
Hillcrest Manor Westchester, KY 104 223(F) GNMA 1,575,113.22 1,565,405.18 7.400% 6/15/28 N/A 6/93 8
Hunting Terrace Alexandria, VA 183 223(F) GNMA 6,379,309.74 6,343,887.47 9.500% 4/15/21 N/A 11/89 3
Iverson Towers Baltimore, MD 260 223(F) GNMA 2,613,853.65 2,619,286.80 9.500% 8/15/22 N/A 1/90 25
Kenilworth Towers Riverdale, MD 217 223(F) GNMA 5,799,372.65 5,767,170.91 9.500% 4/15/21 N/A 11/89 25
Key Towers Alexandria, VA 140 223(F) GNMA 6,287,202.93 6,218,398.90 8.250% 2/15/22 N/A 2/93 25
Kirkwood Apts. W. Hyattsville, MD 662 223(F) GNMA 7,567,408.08 7,525,389.19 9.500% 4/15/21 N/A 11/89 25
Knightridge Manor Bloomington, IN 104 223(F) GNMA 2,451,768.05 2,433,536.86 7.250% 12/15/28 N/A 12/93 8
Koh Apartments Seattle, WA 30 223(F) GNMA 1,051,768.16 1,051,768.18 8.000% 2/15/28 N/A 2/93 4
Kreekview Apts Birmingham, AL 162 223(F) GNMA 4,756,488.17 4,697,972.48 7.000% 10/15/28 N/A 9/93 4
Lake Country Manor Marietta, OK 62 223(F) FHA 1,133,356.50 1,150,138.32 9.920% 7/01/25 N/A 7/90 7
Lakeside Apartments East Chicago, IL 312 241 FHA 2,633,340.83 2,633,341.12 10.150% 2/01/26 N/A 2/91 8
Lancaster House Lancaster, CA 119 223(F) GNMA 3,876,425.62 3,843,278.73 10.250% 1/15/09 N/A 3/90 25
Landsdowne Landover, MD 349 223(F) GNMA 5,145,976.51 5,117,402.47 9.500% 4/15/21 N/A 11/89 3
Le Chateau Apts Lake Charles, LA 200 221(D)(4) GNMA 3,155,761.52 3,120,877.49 7.500% 7/15/28 N/A 7/93 5
LouAnn Terrace Crystal, MN 70 223(F) GNMA 1,441,719.07 1,420,510.40 7.250% 10/15/23 N/A 8/93 8
Majestic Oaks Gainesville, FL 172 223(D) FHA 215,172.60 223,633.54 9.750% 3/01/20 N/A 10/87 1
Marion House Care Ocala, FL 120 232 GNMA 4,945,493.30 4,885,440.74 10.500% 4/15/31 N/A 4/91 8
Northwood Nursing Bedford, NH 147 232 FHA 7,457,645.48 7,457,645.58 9.930% 3/01/33 N/A 8/91 7
Oak Hills Nursing (a) Jones, OK 160 232 FHA 3,934,424.29 3,934,424.28 9.375% 3/01/31 N/A 4/92 23
Oakwood Village Gretna, LA 219 223(F) GNMA 2,744,959.82 2,713,917.99 7.700% 8/15/28 N/A 7/93 8
Orchard Lane Apts North Salt Lake, UT 54 223(F) GNMA 1,618,415.88 1,590,757.89 7.750% 7/15/28 N/A 7/93 8
Park at City West Eden Prairie, MN 288 221(D)(4) FHA 9,279,760.48 9,279,760.48 7.750% 2/01/27 N/A 3/93 12
Pecan Creek Apts. Tulsa, OK 47 221(D)(4) GNMA 1,023,420.48 1,023,420.48 10.020% 9/15/32 N/A 10/92 4
Pine Arbor Apts. Houston, TX 111 223(F) GNMA 1,234,031.24 1,220,403.20 7.625% 6/15/28 N/A 6/93 5
Plaza Apartments Salinas, CA 62 241(F) GNMA 1,302,599.42 1,309,063.17 7.750% 11/15/30 N/A 11/92 4
Plymouth Colony Plymouth, MN 126 223(F) GNMA 2,382,968.42 2,353,765.05 7.625% 8/15/23 N/A 7/93 8
Prospect Gardens Bor. of Whitehall, PA 137 223(F) FHA 1,916,130.27 1,891,288.90 10.000% 8/01/24 N/A 8/89 11
Quality Link Windsor, NC 60 232 FHA 1,792,092.19 1,792,092.19 10.100% 6/01/31 N/A 7/91 19
Queens Park Plaza Hyattsville, MD 94 223(F) GNMA 1,989,668.30 1,978,620.33 9.500% 4/15/21 N/A 11/89 25
Regent Apartments Brooklyn Park, MN 186 223(F) GNMA 4,352,715.53 4,352,715.61 8.000% 1/15/27 N/A 11/92 4
San Jose Plaza Apt Fresno, CA 176 221(D)(4) GNMA 6,329,514.06 6,268,039.99 7.125% 8/15/26 N/A 7/93 4
San Jose South San Jose, CA 583 223(F) GNMA 30,249,792.63 29,978.521.52 7.250% 10/15/23 N/A 12/93 4
Scotch Pines Apts. Coralville, IA 112 223(F) GNMA 1,524,143.19 1,518,241.18 10.000% 10/15/23 N/A 3/90 25
Security House Apt Seattle, WA 107 223(F) GNMA 6,020,280.52 6,020,280.47 7.250% 6/15/28 N/A 6/93 8
Sheridan Village Olathe, KS 82 223(F) GNMA 1,271,015.63 1,275,000.00 7.000% 11/15/24 N/A 1/94 4
Sidney Square Pittsburgh, PA 12 232 FHA 491,496.00 489,414.08 10.500% 5/01/28 N/A 7/89 13
Silver Court Cherry Hill, NJ 228 223(F) FHA 10,189,604.68 10,189,604.73 9.750% 10/01/32 N/A 8/93 5
Silver Oaks Apts New Brighton, MN 96 223(F) GNMA 2,145,008.87 2,090,871.72 7.375% 7/15/23 N/A 8/93 8
Somerset Park Apts Troy, MI 790 223(F) GNMA 30,767,678.16 30,181,584.85 7.340% 7/15/28 N/A 6/93 4
Southbend Apts. Fitchburg, MA 36 223(F) GNMA 1,271,109.69 1,265,500.00 7.250% 1/15/29 N/A 12/93 8
Southern Oaks Oklahoma City, OK 105 232 FHA 2,444,880.20 2,444,880.20 10.375% 1/01/31 N/A 1/91 4
</TABLE>
A-2
<PAGE>
CRIIMI MAE
GOVERNMENT INSURED MULTIFAMILY MORTGAGES (CONCLUDED)
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
NO. OF SECTION LOAN CARRYING VALUE FACE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Spring Glenn Apts Vacaville, CA 176 221(D) GNMA $ 8,079,806.11 $ 7,961,013.31 7.125% 11/15/26 N/A 9/93 5
Springtree Meadows Middleton, WI 128 223(F) GNMA 3,682,893.37 3,646,626.22 7.375% 8/15/28 N/A 8/93 8
Stonewood Apts. Mooresville, NC 68 223(F) GNMA 1,331,061.75 1,329,400.00 7.000% 1/15/29 N/A 12/93 8
Sun Valley Apts. Atlanta, GA 322 223(F) GNMA 5,119,767.69 5,099,924.92 10.000% 1/15/24 N/A 3/90 25
Sunset Apartments Pasco, WA 120 223(F) GNMA 2,233,251.97 2,179,816.83 7.250% 6/15/28 N/A 7/93 8
Sunset Village Apts Flint, MI 169 223(F) FHA 3,005,611.37 3,005,611.35 7.370% 10/01/23 N/A 9/93 26
Sweetwater Cove Mapleton, GA 348 221(D)(4) GNMA 7,676,487.55 7,572,842.66 7.000% 4/15/24 N/A 9/93 27
Tall Oaks Apts Wichita, KS 288 223(F) GNMA 4,171,332.33 4,088,131.21 7.250% 7/15/28 N/A 7/93 5
The Meadows Lexington, KY 174 223(F) GNMA 3,795,800.24 3,753,180.79 10.250% 1/15/23 N/A 4/90 25
The Poplars Saginaw, MI 104 223(F) GNMA 1,772,347.20 1,747,269.45 7.125% 12/15/23 N/A 11/93 8
Turtle Creek Apts Houston, TX 91 223(F) GNMA 1,057,839.85 1,040,999.96 7.150% 9/15/28 N/A 8/93 5
Twin Oaks Personal N. Charleston, SC 60 232 GNMA 2,064,959.05 2,034,985.69 10.750% 3/15/26 N/A 9/91 11
University Manor Silver Spring, MD 136 223(F) GNMA 3,014,963.58 2,983,602.41 7.375% 1/15/21 N/A 6/93 8
University Village San Bernadino, CA 197 221(D)(4) GNMA 7,253,582.35 7,177,834.80 7.375% 7/15/28 N/A 6/93 8
Valencia Retirement Albuqueque, NY 139 223(D) FHA 492,042.08 496,931.92 9.000% 7/01/27 N/A 7/92 15
Villa Sorrento Apts Upland, CA 289 223(F) GNMA 7,274,774.69 7,221,037.00 7.500% 7/15/28 N/A 6/93 16
Wagnon Place Warren, AR 133 232 GNMA 3,309,182.43 3,323,176.15 9.720% 5/15/32 N/A 6/92 17
Walden Pond Lynchburg, VA 36 223(F) GNMA 983,933.47 974,243.15 7.500% 8/01/28 N/A 7/93 8
Water Dance Apts Shelbyville, IN 169 223(F) GNMA 4,852,756.47 4,785,120.81 7.125% 6/15/28 N/A 6/93 5
Whispering Hills Lexington, KY 135 223(F) GNMA 2,716,891.05 2,716,891.05 8.600% 7/15/27 N/A 7/92 8
Williamstowne Cheektowaga, NY 528 223(F) GNMA 10,076,134.92 10,076,134.92 8.500% 4/15/21 N/A 12/92 4
Windsor South Apts New Brighton, MN 135 223(F) GNMA 1,811,300.02 1,793,500.73 7.375% 8/15/23 N/A 8/93 8
Woodcreek Apts Fremont, CA 96 221(D)(4) FHA 4,358,070.10 4,401,860.88 7.125% 10/01/26 N/A 9/93 8
Woodsdale Apts Abbington, MD 264 223(F) GNMA 5,947,145.11 5,950,834.53 7.250% 5/15/28 N/A 5/93 24
Yorkshire Apts Montgomery Co., MD 228 223(F) GNMA 15,270,752.63 15,195,002.61 7.000% 7/15/31 N/A 8/93 24
3146 Minnehaha Minneapolis, MN 17 223(F) FHA 264,084.76 269,303.86 9.000% 12/01/21 N/A 12/91 8
46th Vincennes Chicago, IL 28 221(D)(4) FHA 688,809.45 720,639.16 9.500% 4/01/31 N/A 9/90 14
--------------- ---------------
Permanent Loans 110(b) $452,871,289.87 $450,044,116.67
=============== ===============
</TABLE>
A-3
<PAGE>
CRIIMI MAE
GOVERNMENT INSURED CONSTRUCTION MORTGAGES
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
NO. OF SECTION LOAN CARRYING VALUE FACE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bostonian Nursing Dorchester, MA 119 232 FHA $ 3,273,817.64 $ 3,273,817.64 9.250% 3/01/34 N/A 4/93 20
Centralia Fireside Centralia, IL 98 232 FHA 2,886,339.40 2,886,339.40 9.750% 10/01/32 N/A 10/91 18
Centralia Friendship Centralia, IL 94 232 FHA 2,774,189.00 2,774,189.00 9.750% 11/01/32 N/A 11/91 18
Devlin Manor Cumberland, MD 82 232 FHA 5,373,008.83 5,400,008.88 10.000% 10/01/32 N/A 10/91 19
Eastgate Nursing East Providence, RI 76 232 FHA 1,763,746.30 1,763,746.30 9.250% 7/01/33 N/A 5/93 20
Elderberry Nursing Hayesville, NC 80 232 FHA 1,800,294.29 1,809,341.00 9.250% 5/01/33 N/A 3/92 20
Mentor Way Care Mentor, OH 150 232 FHA 1,568,235.02 1,568,235.02 8.400% 3/01/35 N/A 3/95 21
New Rochelle Manor New Rochelle, NY 250 232 FHA 5,430,963.10 5,451,405.88 9.720% 7/01/32 N/A 6/91 19
North Central Care Spokane, WA 99 232 GNMA 1,795,424.90 1,758,066.00 7.750% 2/15/35 N/A 3/93 19
Pleasant Bay Brewster, MA 135 232 FHA 1,375,304.02 1,361,687.15 9.250% 4/01/35 N/A 3/95 4
Regal Ridge Apts Spokane, WA 97 221(D)(4) FHA 1,090,086.08 1,090,086.08 8.125% 4/01/35 N/A 11/94 4
River Chase II Apts Jackson, MS 120 221(D)(4) FHA 1,233,052.44 1,220,844.00 8.000% 4/01/35 N/A 1/95 8
Riverview Health East Haven, CT 120 232 FHA 8,817,419.31 8,524,393.30 8.500% 6/01/34 N/A 9/94 8
Wingate @ Brighton Brighton, MA 123 232 FHA 3,737,921.01 3,700,911.90 8.550% 12/01/34 N/A 5/93 25
3801 Grand Board Des Moines, IA 73 232 FHA 959,404.79 941,169.63 8.000% 10/01/34 N/A 8/93 20
--------------- ---------------
Construction Loans 15 $ 43,879,206.13 $ 43,524,241.18
--------------- ---------------
Total Loans 125(b) $496,750,496.00 $493,568,357.85
=============== ===============
</TABLE>
(a) Includes a supplemental note in the principal balance of $268,568 with a
net coupon of 9.25% and a maturity date of July 1, 1996.
(b) Excludes one Mortgage Held for Disposition.
A-4
<PAGE>
CRI LIQUIDATING
GOVERNMENT INSURED MULTIFAMILY MORTGAGES
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CARRYING
NO. OF SECTION LOAN VALUE FACE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Central Park Apts. Detroit, MI 92 223(f) GNMA $ 1,316,892.13 $ 1,673,621.67 9.750% 5/15/22 N/A 4/87 3
Charles River E. Boston, MA 152 236 FHA 2,146,214.52 2,993,956.27 6.875% 1/01/16 N/A 2/74 1
Cinnamon Run 1 Silver Spring, MD 288 221(d)4 FHA 7,917,301.27 10,536,916.79 7.430% 11/01/22 12/02 3/81 1
Cloverset Valley Kansas City, MO 258 221(d)4 FHA 7,397,051.35 9,944,417.90 7.430% 4/01/23 4/02 7/80 1
Colony Manor Apts. Goodlettsville, TN 112 221(d)4 FHA 2,164,017.70 3,077,034.16 7.430% 12/01/24 N/A 7/83 1
Crestwood Villas Birmingham, AL 270 221(d)4 FHA 4,661,914.19 6,702,549.50 7.430% 7/01/22 6/01 9/79 1
Crooked Creek Apts. Indianapolis, IN 216 221(d)4 FHA 4,678,602.59 6,292,047.66 7.430% 6/01/23 5/02 2/81 1
Dillerwood Apts. Bronx, NY 75 207 FHA 632,173.87 726,005.42 11.110% 4/01/23 N/A 3/83 1
Festival Field Newport, RI 204 236 FHA 2,114,447.73 2,941,441.27 6.875% 6/01/14 N/A 2/73 1
Firethorn I Indianapolis, IN 240 221(d)4 FHA 4,721,674.35 6,861,214.85 7.430% 9/01/23 9/02 3/81 1
Firethorn II Apts. Indianapolis, IN 160 221(d)4 FHA 3,218,860.87 3,963,622.18 9.680% 9/01/23 N/A 5/82 1
Fox Hill Apts. Hampton, VA 96 236 FHA 1,251,617.79 1,784,219.35 6.850% 4/01/15 N/A 11/73 1
Gordon Terrace Chicago, IL 96 207 FHA 3,201,613.52 4,172,453.48 7.500% 2/01/21 N/A 8/79 1
Grandview Plaza Great Falls, MT 97 236 FHA 764,977.76 1,058,127.00 6.930% 3/01/15 N/A 8/73 1
Hampton Gardens North Hampton, MA 207 236 FHA 2,803,281.75 3,901,558.07 6.875% 3/01/15 N/A 12/72 1
Havenside Terrace Sacramento, CA 38 221(d)4 FHA 1,086,308.98 1,523,410.67 7.430% 8/01/20 8/00 6/79 1
Holiday Park Garland, TX 184 223(f) GNMA 2,376,995.95 3,016,504.51 9.750% 9/15/22 N/A 9/87 25
Kingston Townhouses Essex, MD 115 236 FHA 1,297,842.03 1,809,669.76 6.875% 11/01/15 N/A 9/71 1
Kulana Nani Kaneohe, HI 160 236 FHA 2,181,481.24 3,001,580.40 6.930% 6/01/13 N/A 5/73 1
Lawyers Hill Ellicott City, MD 84 236 FHA 873,712.36 1,219,096.17 6.875% 2/01/16 N/A 3/73 1
Lincoln Disc. Pk. Sacramento, CA 128 221(d)4 FHA 2,782,721.95 3,930,814.29 7.430% 9/01/24 N/A 7/84 1
Los Robles Apts. Union City, CA 140 236 FHA 2,020,744.65 2,819,554.55 6.875% 2/01/16 N/A 1/73 1
Manassas Park Manassas Park, VA 166 236 FHA 2,543,856.76 3,542,169.31 6.875% 5/01/15 N/A 5/72 1
Meadows East Sparks, NV 200 236 FHA 1,844,423.95 2,543,788.50 6.930% 3/01/14 N/A 12/72 1
Mountain View Apts. Camarillo, CA 106 221(d)4 FHA 2,359,582.32 3,301,219.85 7.430% 11/01/19 1/00 6/78 1
Northshore Woods Knoxville, TN 140 221(d)4 FHA 2,765,054.92 3,711,121.08 7.430% 7/01/22 3/03 9/80 1
Old Oak Apartments Little Rock, AR 112 221(d)4 FHA 2,620,402.08 3,247,150.24 7.430% 2/01/25 N/A 8/83 1
Parker House Apts. Detroit, MI 36 221(d)4 FHA 303,649.53 373,683.92 9.680% 11/01/22 N/A 7/82 1
Parkview Apts. Great Falls, MT 84 236 FHA 656,950.00 901,418.38 6.930% 9/01/12 N/A 7/71 1
Pin Oak Village Oil City, PA 100 236 FHA 1,016,091.42 1,445,936.86 6.850% 5/01/15 N/A 12/73 1
Pleasant Greens Pleasanton, CA 131 236 FHA 1,985,538.24 2,756,168.16 6.930% 5/01/16 N/A 5/74 1
Pleasant Village Fresno, CA 100 236 FHA 863,140.73 1,195,281.88 6.930% 8/01/15 N/A 2/73 1
Pleasantdale Apts. Doralville, GA 210 221(d)4 FHA 4,272,599.47 6,417,131.23 7.430% 9/01/24 N/A 4/82 1
Regency Manor Rutland, VT 120 236 FHA 1,202,494.58 1,672,806.72 6.875% 9/01/13 N/A 10/72 1
Riverwood Apts Milwaukee, WI 90 221(d)4 FHA 1,940,738.70 2,525,227.45 7.430% 1/01/22 8/00 8/80 1
Russell Square Apts Phenix City, AL 100 221(d)4 FHA 1,801,696.68 2,191,261.98 9.680% 2/01/25 N/A 8/83 1
Shelter Hill Apts. Mill Valley, CA 75 236 FHA 1,736,329.56 2,430,408.73 6.875% 5/01/17 N/A 12/75 1
Sleepy Hollow Apts. Madison, WI 124 221(d)4 FHA 2,229,150.91 3,163,296.81 7.430% 5/01/21 5/01 12/79 1
Stonewood Village Madison, WI 144 221(d)4 FHA 2,880,745.86 3,690,816.42 9.680% 2/01/25 N/A 6/83 1
Tanglewood Apts. Knoxville, TN 105 221(d)4 FHA 1,545,638.81 2,108,048.36 7.430% 9/01/20 11/01 11/78 1
The Willows Port Arthur, TX 168 221(d)4 FHA 3,078,491.17 3,744,811.82 9.680% 6/01/25 N/A 12/83 1
Timbercroft IV & V Reistertown, MD 279 236 FHA 3,577,946.18 4,859,022.32 7.600% 11/01/17 N/A 12/75 1
Turtle Creek Apts. Pontiac, MI 125 221(d)4 FHA 3,069,519.47 3,778,504.79 7.430% 8/01/21 N/A 3/80 1
</TABLE>
A-5
<PAGE>
CRI LIQUIDATING
GOVERNMENT INSURED MULTIFAMILY MORTGAGES--(CONTINUED)
AS OF DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
CARRYING
NO. OF SECTION LOAN VALUE FACE NET MATURITY PUT L/PP L/PP
PROPERTY NAME LOCATION UNITS OF THE ACT TYPE (TAX) VALUE COUPON DATE DATE START CODE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Villa de Mission Las Vegas, NV 226 221(d)4 FHA $ 5,794,308.42 $ 7,611,407.87 7.430% 3/01/21 2/01 9/79 1
Wakefield Terrace St. Charles, MD 204 236 FHA 3,760,314.88 5,231,385.34 7.350% 4/01/20 N/A 9/77 1
Willow Creek Portage, IN 130 236 FHA 1,576,526.97 2,192,065.10 6.875% 11/01/14 N/A 2/73 1
Willow Dayton II Chicago, IL 87 220 FHA 3,286,727.94 4,187,903.93 9.680% 3/01/25 N/A 6/83 1
Willowcrest Prcl G Frederick, MD 204 221(d)4 FHA 3,064,373.67 4,397,817.38 7.430% 8/01/19 5/00 10/77 1
Windrush Apartments Decatur, GA 202 221(d)4 FHA 4,649,155.96 6,751,322.29 7.430% 7/01/24 5/03 5/82 1
1120 North Lasalle Chicago, IL 263 220 FHA 9,830,123.53 13,643,931.31 7.500% 9/01/22 N/A 6/80 1
441 Ocean Avenue Brooklyn, NY 207 223(f) FHA 877,159.91 1,045,100.24 9.340% 1/01/25 N/A 12/84 1
--------------- ---------------
Subtotal 51(a) 138,743,181.17 188,610,024.19
--------------- ---------------
The following Government Insured Multifamily Mortgages were sold by CRI
Liquidating on February 10, 1994:
Brookridge Twnhs 2 Salisbury, MD 140 221(d)4 FHA 3,189,003.96 4,584,909.98 7.430% 7/01/22 2/02 4/81 1
Hidden Oaks II Albany, GA 112 221(d)4 FHA 1,854,739.48 2,604,962.66 7.430% 12/01/21 3/01 4/80 1
Hidden Valley Apts. Spring Township, PA 154 221(d)4 FHA 2,557,580.25 3,611,460.87 7.430% 5/01/19 2/00 6/77 1
Holly St. Tnhs 2 Waldorf, MD 60 221(d)4 FHA 1,106,182.36 1,575,458.87 7.400% 2/01/21 10/00 10/79 1
Holly St. Tnhs 1 Waldorf, MD 150 221(d)4 FHA 2,807,779.49 4,002,075.53 7.400% 6/01/21 12/00 10/79 1
The Glen Falls Church, VA 152 221(d)4 FHA 1,870,274.00 2,611,626.18 7.430% 4/01/19 11/99 1/86 1
The Tree House Schaumburg, IL 272 221(d)4 FHA 4,293,765.20 6,115,313.65 7.400% 2/01/21 4/01 8/78 1
Treehaven Apts Summerville, SC 88 221(d)4 FHA 800,227.89 1,133,839.17 7.400% 2/01/20 2/00 2/80 1
Westwind Apts Roseville, CA 126 221(d)4 FHA 2,520,472.09 3,596,688.11 7.400% 12/01/21 5/01 7/80 1
Windermere House Chicago, IL 220 221(d)4 FHA 6,085,988.39 8,006,545.94 7.430% 6/01/23 1/03 12/80 1
--------------- ---------------
Subtotal 10(a) 27,086,013.11 37,842,880.96
--------------- ---------------
Total 61(a) $165,829,194.28 $226,452,905.15
===== =============== ===============
</TABLE>
(a) Excludes two Mortgages Held for Disposition.
A-6
<PAGE>
LOAN LOCKOUT/PREPAYMENT PENALTY ("L/PP") CODE DESCRIPTIONS TO APPENDIX A
1. 3% prepayment penalty ("PP") declining by 1/8% p/yr
2. 9 year lock; thereafter 3% PP declining by 1% p/yr
3. 3% PP declining by 1% p/yr
4. 10 year lock
5. 5 year lock
6. 3 year lock
7. 3% PP declining by 1/4% p/yr
8. 5 year lock; thereafter 5% PP declining by 1% p/yr
9. 3 year lock; thereafter 3 1/2% PP declining by 1/2% p/yr
10. 6 year; thereafter 5% PP declining by 1% p/yr
11. 5% PP declining by 1% p/yr
12. 7 year lock; thereafter 2% PP declining by 1% p/yr
13. 7 year lock; thereafter 3% PP declining by 1/2% p/yr
14. 5 year lock; thereafter 10%, 7%, 5%, 3%, 1%
15. 6% PP declining by 1% p/yr
16. 5% PP until end of year 6; thereafter declining by 1% p/yr
17. 2 4/5% PP declining by 1/5% p/yr
18. 2 year lock; thereafter 2% PP declining by 1% p/yr
19. 10 year lock starting at end of construction or final endorsement
20. 5 year lock; thereafter 5% PP declining by 1% p/yr starting at end of
construction or final endorsement
21. 3 year lock; thereafter 3% PP declining by 1% p/yr
22. 10% PP declining by 1% p/yr
23. 8 year lock
24. 5 year lock; thereafter 3% PP declining by 1% p/yr
25. No lockout or prepayment penalty
26. 2 month lock; thereafter 5% PP declining by 1% p/yr
27. 3% PP until end of year 3; thereafter declining by 1% p/yr
A-7
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK.)
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Income........................................... F-4
Consolidated Statements of Changes in Shareholders' Equity.................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
CRIIMI MAE Inc.
We have audited the accompanying consolidated balance sheets of CRIIMI MAE
Inc. (CRIIMI MAE) and its Subsidiaries as of December 31, 1992 and 1993, and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the years ended December 31, 1991, 1992 and 1993. These
financial statements are the responsibility of CRIIMI MAE's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 consolidated financial position of CRIIMI MAE and
its Subsidiaries as of December 31, 1992 and 1993, and the consolidated results
of their operations and their cash flows for the years ended December 31, 1991,
1992 and 1993, in conformity with generally accepted accounting principles.
As explained in Note 2 of the notes to the consolidated financial statements,
effective December 31, 1993, CRIIMI MAE and its Subsidiaries changed their
method of accounting for their investment in mortgages.
Arthur Andersen & Co.
Washington, D.C.
February 11, 1994
F-2
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1992 1993
------ ------------ ------------
<S> <C> <C>
Investment in mortgages, at amortized cost, net of
unamortized discount of $49,183,644 and unamor-
tized premium of $3,182,138, respectively
Near par or premium.............................. $233,590,108 $495,846,514
Discount......................................... 192,703,833 903,982
Participating.................................... 22,024,884 --
Mortgages held for disposition................... 24,644,408 --
------------ ------------
Total.......................................... 472,963,233 496,750,496
------------ ------------
Investment in mortgages, at fair value
Discount......................................... -- 215,866,436
Near par or premium.............................. -- 17,647,797
Mortgages held for disposition................... -- 11,326,356
------------ ------------
Total.......................................... -- 244,840,589
------------ ------------
Investment in insured mortgage funds and advisory
partnership....................................... 31,144,793 30,907,157
Investment in limited partnerships................. 953,868 436,090
Cash and cash equivalents.......................... 6,600,134 13,599,860
Receivables and other assets....................... 5,800,119 7,600,729
Deferred financing costs, net of accumulated amor-
tization of $3,633,291 and $7,355,095, respective-
ly................................................ 6,695,299 9,745,974
Deferred costs, principally paid to related par-
ties, net of accumulated amortization of
$1,974,492 and $1,870,587, respectively........... 2,509,612 4,820,135
------------ ------------
Total assets................................... $526,667,058 $808,701,030
============ ============
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Commercial paper................................. $186,300,000 $ 95,306,000
Long-term debt................................... 61,668,480 383,739,048
Accounts payable and accrued expenses............ 601,851 3,391,411
Interest payable................................. 591,311 2,575,979
------------ ------------
Total liabilities.............................. 249,161,642 485,012,438
------------ ------------
Minority interests in consolidated subsidiary...... 84,396,604 108,399,813
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock.................................. -- --
Common stock..................................... 211,848 211,848
Net unrealized gains on mortgage investments of
subsidiary...................................... -- 29,028,019
Additional paid-in capital....................... 202,409,067 195,561,015
------------ ------------
202,620,915 224,800,882
Less treasury stock, at cost--1,001,274 shares... (9,512,103) (9,512,103)
------------ ------------
Total shareholders' equity..................... 193,108,812 215,288,779
------------ ------------
Total liabilities and shareholders' equity..... $526,667,058 $808,701,030
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1991 1992 1993
------------ ----------- -----------
<S> <C> <C> <C>
Income:
Mortgage investment income:
Stated interest.................... $ 47,984,287 $44,685,263 $49,003,805
Discount amortization.............. 1,369,050 1,271,288 1,307,072
Premium amortization............... (30,693) (25,603) (41,305)
------------ ----------- -----------
49,322,644 45,930,948 50,269,572
Other investment income.............. 3,547,196 2,209,979 3,646,224
Income from investment in insured
mortgage funds and advisory partner-
ship................................ 824,283 1,959,979 2,490,854
Income from investment in limited
partnerships........................ 623,876 600,852 43,605
------------ ----------- -----------
54,317,999 50,701,758 56,450,255
------------ ----------- -----------
Expenses:
Interest expense..................... 25,790,597 24,391,901 28,008,282
Termination of interest rate swap.... -- -- 4,890,234
Annual Fee to related party.......... 2,324,847 2,073,818 2,500,785
Incentive Fee to related party....... -- 163,798 213,972
General and administrative........... 2,320,797 2,287,013 2,509,567
Provision for settlement of litiga-
tion................................ -- -- 1,500,000
Professional fees.................... 634,535 539,196 1,296,459
Amortization of deferred costs....... 494,113 374,591 343,407
Mortgage servicing fees.............. 303,461 304,105 489,773
------------ ----------- -----------
31,868,350 30,134,422 41,752,479
------------ ----------- -----------
Income before mortgage dispositions,
gain on sale of shares of subsidiary
and loss on investment in limited
partnership........................... 22,449,649 20,567,336 14,697,776
Mortgage dispositions:
Gains................................ 5,230,542 6,115,747 8,116,948
Losses............................... (1,182,656) (382,602) (759,203)
Gain on sale of shares of subsidiary... -- -- 3,281,750
Loss on investment in limited partner-
ship.................................. -- (731,951) --
------------ ----------- -----------
Income before minority interests and
extraordinary item.................... 26,497,535 25,568,530 25,337,271
Minority interests in net income of
consolidated subsidiary............... (10,854,526) (9,527,299) (9,579,766)
------------ ----------- -----------
Income before extraordinary item....... 15,643,009 16,041,231 15,757,505
Extraordinary item--loss on extinguish-
ment of debt.......................... (6,642,450) -- --
------------ ----------- -----------
Net income............................. $ 9,000,559 $16,041,231 $15,757,505
============ =========== ===========
Per share data:
Operating income..................... $ .78 $ .79 $ .78
Extraordinary loss................... (.33) -- --
------------ ----------- -----------
Net income per share............. $ .45 $ .79 $ .78
============ =========== ===========
Weighted average shares outstanding,
exclusive of shares held in treasury.. 20,183,552 20,183,533 20,183,533
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAINS ON
-------------------- MORTGAGE ADDITIONAL TOTAL
PAR INVESTMENTS PAID-IN UNDISTRIBUTED TREASURY SHAREHOLDERS'
SHARES VALUE OF SUBSIDIARY CAPITAL NET INCOME STOCK EQUITY
---------- -------- ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1990................... 21,185,671 $211,857 $ -- $220,495,165 $ -- $(9,512,103) $211,194,919
Adjustment to amounts
issued................ (845) (9) -- 9 -- -- --
Net income............. -- -- -- -- 9,000,559 -- 9,000,559
Dividends of $0.45 per
share................. -- -- -- -- (9,000,559) -- (9,000,559)
Return of capital of
$0.63 per share....... -- -- -- (12,797,677) -- -- (12,797,677)
---------- -------- ----------- ------------ ----------- ----------- ------------
Balance, December 31,
1991................... 21,184,826 211,848 -- 207,697,497 -- (9,512,103) 198,397,242
Adjustment to amounts
issued................ (19) -- -- -- -- -- --
Adjustment to minority
interests in
consolidated subsidi-
ary
for actual shares is-
sued.................. -- -- -- 766,891 -- -- 766,891
Payment of dividends
for prior years....... -- -- -- (298,331) -- -- (298,331)
Net income............. -- -- -- -- 16,041,231 -- 16,041,231
Dividends of $0.79 per
share................. -- -- -- -- (16,041,231) -- (16,041,231)
Return of capital of
$0.29 per share....... -- -- -- (5,756,990) -- -- (5,756,990)
---------- -------- ----------- ------------ ----------- ----------- ------------
Balance, December 31,
1992................... 21,184,807 211,848 -- 202,409,067 -- (9,512,103) 193,108,812
Net income............. -- -- -- -- 15,757,505 -- 15,757,505
Dividends of $0.78 per
share................. -- -- -- -- (15,757,505) -- (15,757,505)
Return of capital of
$0.34 per share....... -- -- -- (6,848,052) -- -- (6,848,052)
Net unrealized gains on
mortgage investments
of subsidiary......... -- -- 29,028,019 -- -- -- 29,028,019
---------- -------- ----------- ------------ ----------- ----------- ------------
Balance, December 31,
1993................... 21,184,807 $211,848 $29,028,019 $195,561,015 $ -- $(9,512,103) $215,288,779
========== ======== =========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1991 1992 1993
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net income........................ $ 9,000,559 $ 16,041,231 $ 15,757,505
Adjustments to reconcile net in-
come to net cash provided by op-
erating activities:
Amortization of deferred costs.. 494,113 374,591 343,407
Amortization of deferred financ-
ing costs and discount on long-
term debt...................... 907,972 3,249,891 4,209,980
Amortization of deferred AIM ac-
quisition costs................ -- 322,017 224,528
Mortgage discount amortization.. (1,369,050) (1,271,288) (1,307,072)
Mortgage premium amortization... 30,693 25,603 41,305
Other short-term investment pre-
mium amortization.............. -- 1,226,457 7,727,101
Gains on mortgage dispositions.. (5,230,542) (6,115,747) (8,116,948)
Losses on mortgage dispositions. 1,182,656 382,602 759,203
Gain on sale of shares of sub-
sidiary........................ -- -- (3,281,750)
Loss on investment in limited
partnership.................... -- 731,951 --
Equity earnings from investment
in limited partnerships........ (623,876) (600,852) (43,605)
Interest received under the eq-
uity method of accounting but
treated as reduction of invest-
ment in limited partnerships... 919,755 972,704 308,093
Other operating activities...... 75,120 (69,086) --
Minority interest in earnings of
subsidiary..................... 10,854,526 9,527,299 9,579,766
Changes in assets and liabili-
ties:
(Increase) decrease in receiv-
ables and other assets....... (140,692) 1,011,754 (1,800,610)
Increase (decrease) in ac-
counts payable and accrued
expenses..................... 499,450 (1,632,057) 2,789,560
(Decrease) increase in inter-
est payable.................. (2,983,369) 318,023 1,576,692
------------ ------------ -------------
Net cash provided by operat-
ing activities.............. 13,617,315 24,495,093 28,767,155
------------ ------------ -------------
Cash flows from investing activi-
ties:
Purchase of mortgages and advances
on construction loans............ (61,502,471) (31,823,117) (312,654,818)
Proceeds from mortgage disposi-
tions............................ 119,049,031 50,425,606 93,437,842
Purchase of other short-term in-
vestments........................ -- (66,751,139) (175,300,539)
Proceeds from sale of other short-
term investments................. -- 65,491,782 167,111,884
Net proceeds from sale of shares
of subsidiary.................... -- -- 26,431,250
Purchase of interests in insured
mortgage funds and advisory part-
nership.......................... (24,429,305) -- --
Receipt of mortgage and other
short-term investment principal
from scheduled payments.......... 3,791,664 3,939,855 4,961,447
Receipt of principal from invest-
ment in insured mortgage funds... -- 585,567 13,108
Payment of deferred costs (includ-
ing deferred acquisition costs).. (3,715,958) (42,147) (2,653,930)
Annual return from investment in
limited partnerships............. 373,310 253,292 253,292
Proceeds from redemption/sale of
HUD debentures................... -- 2,334,150 6,062,502
------------ ------------ -------------
Net cash provided by (used
in) investing activities.... 33,566,271 24,413,849 (192,337,962)
------------ ------------ -------------
Cash flows from financing activi-
ties:
Proceeds from long-term debt...... 85,000,000 -- 346,712,648
Principal payments on long-term
debt............................. (13,250,000) (23,331,520) (24,642,080)
Net proceeds from/(paydown of)
commercial paper................. 26,514,266 25,832,435 (90,586,024)
Decrease in debt service reserve.. 17,627,640 -- --
Proceeds from short-term debt..... -- 56,150,273 115,631,517
Payment on short-term debt........ -- (56,150,273) (115,631,517)
Increase in deferred financing
costs............................ (3,718,405) (328,029) (7,260,655)
Dividends (including return of
capital) paid to shareholders,
including minority interests..... (53,376,523) (46,142,788) (53,653,356)
Early extinguishment of long-term
debt............................. (97,621,875) -- --
Purchase of U.S. Treasury Securi-
ties for defeasance of long-term
debt............................. (21,604,000) -- --
------------ ------------ -------------
Net cash (used in) provided
by financing activities..... (60,428,897) (43,969,902) 170,570,533
------------ ------------ -------------
Net (decrease) increase in cash and
cash equivalents.................. (13,245,311) 4,939,040 6,999,726
Cash and cash equivalents, begin-
ning of year...................... 14,906,405 1,661,094 6,600,134
------------ ------------ -------------
Cash and cash equivalents, end of
year.............................. $ 1,661,094 $ 6,600,134 $ 13,599,860
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND THE MERGER
CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage Association,
Inc.), is an infinite-life, actively managed real estate investment trust
(REIT), which specializes in government insured and guaranteed mortgage
investments secured by multifamily housing complexes (Government Insured
Multifamily Mortgages) located throughout the United States. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders while preserving and protecting its capital.
CRIIMI MAE seeks to achieve these objectives by investing primarily in
Government Insured Multifamily Mortgages using a combination of debt and
equity financing. CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc.
(CRI Liquidating), are Maryland corporations.
CRIIMI MAE and CRI Liquidating were formed in 1989 to effect the merger into
CRI Liquidating (the Merger) of three federally insured mortgage funds
sponsored by C.R.I., Inc. (CRI), a Delaware corporation formed in 1974: CRI
Insured Mortgage Investments Limited Partnership (CRIIMI I); CRI Insured
Mortgage Investments II, Inc. (CRIIMI II); and CRI Insured Mortgage
Investments III Limited Partnership (CRIIMI III; and, together with CRIIMI I
and CRIIMI II, the CRIIMI Funds). The Merger was effected to provide certain
potential benefits to investors in the CRIIMI Funds, including the elimination
of unrelated business taxable income for certain tax-exempt investors, the
diversification of investments, the reduction of general overhead and
administrative costs as a percentage of assets and total income and the
simplification of tax-reporting information. In the Merger, which was approved
by investors in each of the CRIIMI Funds and subsequently consummated on
November 27, 1989, investors in the CRIIMI Funds received, at their option,
shares of CRI Liquidating common stock or shares of CRIIMI MAE common stock.
Investors in the CRIIMI Funds that received shares of CRIIMI MAE common
stock became shareholders in an infinite-life, actively managed REIT having
the potential to increase the size of its portfolio and enhance the returns to
its shareholders. CRIIMI MAE shareholders retained their economic interests in
the assets of the CRIIMI Funds which were transferred to CRI Liquidating
through the issuance of one CRI Liquidating share to CRIIMI MAE for each share
of CRIIMI MAE common stock issued to investors in the Merger. Upon the
completion of the Merger, CRIIMI MAE held a total of 20,361,807 CRI
Liquidating shares, or approximately 67% of the issued and outstanding CRI
Liquidating shares.
Investors in the CRIIMI Funds that received shares of CRI Liquidating common
stock, as well as CRIIMI MAE, became shareholders in a finite-life, self-
liquidating REIT the assets of which consist primarily of Government Insured
Multifamily Mortgages and other assets formerly held by the CRIIMI Funds. CRI
Liquidating intends to hold, manage and dispose of its mortgage investments in
accordance with the objectives and policies of the CRIIMI Funds, including
disposing of any remaining mortgage investments by 1997 through an orderly
liquidation.
Pursuant to a Registration Rights Agreement dated November 28, 1989 between
CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI
Liquidating shares in an underwritten public offering which was consummated in
November 1993. As a result of such sale, CRIIMI MAE holds a total of
17,199,307 CRI Liquidating shares, or approximately 57% of CRI Liquidating's
issued and outstanding common stock. CRIIMI MAE used approximately $4.9
million of the approximately $26.5 million in net proceeds to terminate a
9.23% interest rate swap agreement on $25 million of CRIIMI MAE's existing
indebtedness and used the remaining net proceeds to purchase Government
Insured Multifamily Mortgages.
CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors with extensive industry related
experience. The Board of Directors of CRIIMI MAE and CRI Liquidating has
engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the
Adviser) to act in the capacity of adviser to CRIIMI MAE and CRI Liquidating.
The Adviser's general partner is CRI
F-7
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and its operations are conducted by CRI's employees. CRIIMI MAE's and CRI
Liquidating's executive officers are senior executive officers of CRI. The
Adviser manages CRIIMI MAE's portfolio of Government Insured Multifamily
Mortgages and other assets with the goal of maximizing CRIIMI MAE's value, and
conducts CRIIMI MAE's day-to-day operations. Under an advisory agreement
between CRIIMI MAE and the Adviser, the Adviser and its affiliates receive
certain fees and expense reimbursements (see Note 3).
On September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary
CRIIMI, Inc., acquired from Integrated Resources, Inc. (Integrated) all of the
general partnership interests in four publicly held limited partnerships known
as the American Insured Mortgage Investors Funds (the AIM Funds). The AIM
Funds own mortgage investments which are substantially similar to those owned
by CRIIMI MAE and CRI Liquidating. CRIIMI, Inc. receives the general partner's
share of income, loss and distributions (which ranges among the AIM Funds from
2.9% to 4.9%) from each of the AIM Funds. In addition, CRIIMI MAE owns
indirectly a limited partnership interest in the adviser to the AIM Funds in
respect of which CRIIMI MAE receives a guaranteed return each year (see Note
14).
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs under Sections 856-860 of the Internal Revenue Code. As
REITs, CRIIMI MAE and CRI Liquidating do not pay taxes at the corporate level.
Qualification for treatment as REITs require CRIIMI MAE and CRI Liquidating to
meet certain criteria, including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income.
On October 19, 1993, CRIIMI MAE filed a Registration Statement on Form S-3
(Commission File No. 33-50679), expected to be amended on February 16, 1994,
to register for sale to the public approximately 6.0 million shares of CRIIMI
MAE's common stock (or 6.9 million shares if the underwriters exercise their
overallotment option) (the Equity Offering). While there is no assurance that
the Equity Offering will be consummated, it is currently expected that the
sale will be completed in March 1994, subject to, among other things, such
Registration Statement becoming effective and market conditions at such time.
The net proceeds from the sale of the shares are estimated to be approximately
$64.3 million (based on an offering price of $11.50 per share, the reported
last sale price on February 11, 1994, and not including the over-allotment).
Although no specific investments have as yet been selected, CRIIMI MAE intends
to use such proceeds primarily for the acquisition of Government Insured
Multifamily Mortgages, the purchase of interest rate hedging agreements and
for other general corporate purposes, including, without limitation, working
capital. It is not expected that any of the proceeds will be used to repay
indebtedness of CRIIMI MAE. The costs of the Equity Offering, including
professional fees, filing fees, printing costs and other items, are expected
to approximate $.6 million (which was incurred or accrued as of December 31,
1993). Additionally, underwriting fees in an amount which approximates 6.0% of
the gross offering proceeds are expected to be incurred.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of accounting
The consolidated financial statements of CRIIMI MAE are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles.
Reclassifications
Certain amounts in the consolidated financial statements as of December 31,
1992 and for the years ended December 31, 1991 and 1992 have been reclassified
to conform with the 1993 presentation.
F-8
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and cash equivalents
Cash and cash equivalents consist of money market funds, time and demand
deposits and repurchase agreements with original maturities of three months or
less.
Consolidation and minority interests
The consolidated financial statements reflect the financial position,
results of operations, and cash flows of CRIIMI MAE, CRI Liquidating, and
CRIIMI, Inc., for all periods presented. All intercompany accounts and
transactions have been eliminated in consolidation.
Since CRIIMI MAE owned approximately 67%, 67% and 57% of CRI Liquidating as
of December 31, 1991, 1992 and 1993, respectively, the ownership interests of
the other shareholders in the equity and net income of CRI Liquidating are
reflected as minority interests in the accompanying consolidated financial
statements.
Consolidated statements of cash flows
Since the consolidated statements of cash flows are intended to reflect only
cash receipt and cash payment activity, the consolidated statements of cash
flows do not reflect investing and financing activities that affect recognized
assets and liabilities and do not result in cash receipts or cash payments.
Such activity consisted of the following:
. In July 1991, CRI Liquidating received $2,334,150 in 12 3/4% United
States Department of Housing and Urban Development (HUD) debentures as
proceeds from the disposition of the mortgage investment in Oak Hill Road
Apartments. The proceeds from the redemption of the HUD debentures,
including interest, were received in January 1992.
Cash payments made for interest for the years ended December 31, 1991, 1992
and 1993 were $27,883,482, $20,826,987 and $22,448,356, respectively.
Investment in mortgages
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). This statement requires that most
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 using the
amortized cost method and all other securities must be recorded at their fair
values. This statement, though not required to be adopted until 1994 for
CRIIMI MAE and CRI Liquidating, has been adopted for the year ended December
31, 1993.
CRIIMI MAE, an infinite-life entity, has the intent and ability to hold its
mortgage investments until maturity. Consequently, all mortgage investments,
excluding Mortgages Held for Disposition (see Note 6), have been classified as
Held to Maturity and continue to be recorded at amortized cost as of December
31, 1993. CRI Liquidating intends to dispose of existing Government Insured
Multifamily Mortgages by March 31, 1997 through an orderly liquidation. In
order to achieve this objective, CRI Liquidating will sell certain of its
mortgage investments in addition to mortgages assigned to HUD. Consequently,
the Adviser believes that the mortgage investments held by CRI Liquidating
fall into the Available for Sale category (as defined by SFAS 115). As such,
as of December 31, 1993, all of CRI Liquidating's mortgage investments are
F-9
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recorded at fair value with CRIIMI MAE's share of the net unrealized gains on
CRI Liquidating's mortgage investments reported as a separate component of
shareholders' equity. Subsequent increases or decreases in the fair value of
Available for Sale mortgage investments shall be included as a separate
component of shareholders' equity. Realized gains and losses for mortgage
investments classified as Available for Sale will continue to be reported in
earnings, as discussed below. Prior to December 31, 1993, CRI Liquidating
accounted for its mortgage investments at amortized cost.
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.
CRIIMI MAE's consolidated investment in mortgages is comprised of Government
Insured Multifamily Mortgages issued or sold pursuant to programs of the
Federal Housing Administration (FHA) (FHA-Insured Loans) and mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Securities). Payment of principal and interest on FHA-Insured Loans is
insured by HUD pursuant to Title 2 the National Housing Act. Payment of
principal and interest on GNMA Securities is guaranteed by GNMA pursuant to
Title 3 of the National Housing Act.
Mortgages held for disposition
At any point in time, CRI Liquidating and CRIIMI MAE may be aware of certain
mortgages which have been assigned to HUD or for which the servicer has
received proceeds from a prepayment. In addition, at certain times CRI
Liquidating may enter into a contract to sell certain mortgages. In these
cases, CRIIMI MAE and CRI Liquidating will classify these mortgages as
Mortgages Held for Disposition. Mortgages Held for Disposition have been
accounted for at the lower of cost or market prior to December 31, 1993, and at
fair value as of December 31, 1993 under the Available for Sale criteria of
SFAS 115.
Gains from dispositions of mortgages are recognized upon the receipt of funds
or HUD debentures.
Losses on dispositions of mortgages are recognized when it becomes probable
that a mortgage will be disposed of and that the disposition will result in a
loss.
Investment in insured mortgage funds and advisory partnership
The acquisition of certain interests in the AIM Funds in September 1991 (see
Note 14), including certain acquisition costs aggregating approximately $7.7
million, have been recorded under the purchase method of accounting, which
provides that the investment be recorded at cost, including the acquisition
costs. CRIIMI MAE is utilizing the equity method of accounting for its
investment in the AIM Funds and advisory partnership, which provides for
recording CRIIMI MAE's share of net earnings or losses in the AIM Funds and
advisory partnership reduced by distributions from the limited partnerships and
adjusted for purchase accounting amortization. The purchase price, including
the deferred acquisition costs of approximately $7.7 million, was allocated
among the general partner interests and the advisory partnership interest based
on the partnerships' and advisory contracts' estimated fair values. The general
partnership and advisory interests were assigned a total value of approximately
$27 million and $5 million, respectively.
F-10
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred costs
Included in deferred costs are mortgage selection fees, which are being paid
to the Adviser of CRIIMI MAE (see Note 3) or were paid to the former general
partners or adviser to the CRIIMI Funds. These deferred costs are being
amortized using the effective interest method on a specific mortgage basis from
the date of the acquisition of the related mortgage to the expected dissolution
date of CRI Liquidating or over the term of the mortgage for CRIIMI MAE (see
Note 1). Upon disposition of a mortgage, the related unamortized fee is treated
as part of the mortgage investment carrying value in order to measure the gain
or loss on the disposition.
Borrowing policy of CRI Liquidating
CRI Liquidating's Articles of Incorporation do not limit the amount or
percentage of indebtedness which CRI Liquidating may incur. CRI Liquidating
does not intend to incur any indebtedness, except in connection with the
maintenance of its REIT status. During 1992 and 1993, CRI Liquidating entered
into transactions in which it incurred debt in connection with the purchase of
government guaranteed mortgage-backed securities and government insured
certificates backed by project loans. This debt was nonrecourse and fully
secured with the purchased government guaranteed mortgage-backed securities and
government insured certificates backed by project loans. As of December 31,
1992 and 1993, CRI Liquidating disposed of these government guaranteed
mortgage-backed securities and government insured certificates backed by
project loans, and repaid the related debt.
Interest expense is based on the seller financing of a portion of the
purchase price of the other short-term investments in government guaranteed
mortgage-backed securities and government insured certificates backed by
project loans (see Note 7).
Deferred financing costs
Costs incurred in connection with the establishment of CRIIMI MAE's
commercial paper facility (the Commercial Paper Facility) and the issuance of
long-term debt and commercial paper (see Notes 10 and 11) are amortized using
the effective interest method over the terms of the borrowings.
Interest rate hedge agreements
Amounts to be paid or received under interest rate hedge agreements are
accrued currently and are netted for financial statement presentation purposes.
Shareholders' equity
CRIIMI MAE has authorized 60,000,000 shares of $.01 par value common stock
and issued 21,184,807 shares as of December 31, 1992 and 1993. All shares
issued, exclusive of the shares held in treasury, are outstanding. As of
December 31, 1992 and 1993, 10,266 and 7,732 shares, respectively, were held
for issuance pending presentation of predecessor units and are considered
outstanding. Additionally, 25,000,000 shares of $.01 par value preferred stock
are authorized; however, no shares are issued or outstanding.
Income taxes
CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs as defined in the Internal Revenue Code and, as such, will not
be taxed on that portion of their taxable income which is distributed to
shareholders provided that at least 95% of such taxable income is distributed.
CRIIMI MAE and CRI Liquidating intend to distribute substantially all of their
taxable income and, accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements. CRIIMI MAE and CRI
Liquidating, however, may be subject to tax at normal corporate rates on net
income or capital gains not distributed.
F-11
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Per share amounts
Net income, dividends and return of capital per share amounts for 1991, 1992
and 1993 represent net income, dividends and return of capital, respectively,
divided by the weighted average shares outstanding during each year. The per
share amounts are based on the weighted average shares outstanding, including
shares held for issuance, pending presentation of predecessor units in the
CRIIMI Funds.
3. TRANSACTIONS WITH RELATED PARTIES
Below is a summary of the related party transactions which occurred during
the years 1991, 1992 and 1993. These items are described further in the text
which follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
PAYMENTS TO THE ADVISER: 1991 1992 1993
- ------------------------ ---------- ---------- ----------
<S> <C> <C> <C>
Annual fee--CRIIMI MAE (a)(h)............. $ 792,751 $ 859,409 $1,266,494
Annual fee--CRI Liquidating (a)........... 1,532,096 1,214,409 1,234,291(g)
Incentive fee--CRIIMI MAE (a)............. -- 163,798 213,972
Incentive fee--CRI Liquidating (f)........ 517,399 -- 256,290
Mortgage selection fees--CRIIMI MAE (b)... 372,972 110,120 2,416,253
---------- ---------- ----------
Total................................. $3,215,218 $2,347,736 $5,387,300
========== ========== ==========
PAYMENTS TO CRI:
- ----------------
Expense reimbursement--CRIIMI MAE (c)..... $ 808,194 $ 650,988 $ 707,110
Expense reimbursement--CRI Liquidating
(c)...................................... 279,951 244,457 254,039
---------- ---------- ----------
Total................................. $1,088,145 $ 895,445 $ 961,149
========== ========== ==========
AMOUNTS RECEIVED OR ACCRUED FROM RELATED
PARTIES
- ----------------------------------------
CRIIMI, Inc.
Income (d)................................ $ 587,658 $1,581,996 $2,015,861
Return of capital (e)..................... -- 585,567 13,108
---------- ---------- ----------
Total................................. $ 587,658 $2,167,563 $2,028,969
========== ========== ==========
CRI/AIM Investment, L.P. (d)(h)........... $ 222,466 $ 700,000 $ 700,000
========== ========== ==========
</TABLE>
- --------
(a) Included in the accompanying consolidated statements of income. A detailed
schedule of CRI Liquidating's annual fee is reflected in the tables below.
(b) These amounts are deferred on the accompanying consolidated balance sheets
and amortized over the mortgage investment term.
(c) Included as general and administrative expenses on the accompanying
consolidated statements of income.
(d) Included as income from investment in insured mortgage funds and advisory
partnership, before amortization, on the accompanying consolidated
statements of income.
(e) Included as a reduction of investment in insured mortgage funds and
advisory partnership on the accompanying consolidated balance sheets.
(f) Included as a component of gains from mortgage dispositions on the
accompanying consolidated statements of income.
(g) As a result of reaching the carryover CRIIMI I target yield during the
first and fourth quarters of 1993, CRI Liquidating paid deferred annual
fees during these quarters (including $86,395 of deferred annual fees from
the third and fourth quarters of 1992 which were paid during the first
quarter of 1993).
F-12
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured
Mortgage Association, Inc. Advisory Agreement, CRIIMI MAE was granted the
right to reduce the amounts paid to the Adviser by the difference between
its guaranteed $700,000 distribution and the amount actually paid to CRIIMI
MAE by CRI/AIM Investment Limited Partnership. As such, the amounts paid to
the Adviser during 1993 were reduced by $101,859 which represents the
difference between the guaranteed distribution for the period and the
amount actually paid to CRIIMI MAE.
CRIIMI MAE has entered into an agreement with the Adviser (the Advisory
Agreement) under which the Adviser is obligated to present an investment
program to CRIIMI MAE, to evaluate and negotiate voluntary and involuntary
mortgage dispositions, provide administrative services for CRIIMI MAE and
conduct CRIIMI MAE's day-to-day operations.
The Advisory Agreement is for a term through November 27, 1995. The Advisory
Agreement, absent a notice of termination or non-renewal, will be automatically
renewed for successive three-year terms. The Advisory Agreement may be
terminated solely for cause, as defined in the Advisory Agreement, by CRIIMI
MAE or the Adviser. Notice of non-renewal must be given at least 180 days prior
to the expiration date of the Advisory Agreement. If CRIIMI MAE terminates the
Advisory Agreement other than for cause, or the Adviser terminates the Advisory
Agreement for cause, in addition to compensation otherwise due, CRIIMI MAE will
be required to pay the Adviser a fee equal to the Annual Fee (as described
below) payable for the previous fiscal year. If the Advisory Agreement is not
renewed, no termination fee will be payable.
Under the Advisory Agreement, the Adviser receives compensation from CRIIMI
MAE as follows:
. An annual fee (the Annual Fee) for managing CRIIMI MAE's portfolio of
mortgages. The Annual Fee is equal to 0.375% of average invested assets
invested in Additional Mortgage Investments (defined as mortgages
acquired by CRIIMI MAE after the Merger), payable quarterly.
. Included in the Annual Fee shown in the preceding table is the master
servicing fee for overseeing the servicing of the Additional Mortgage
Investments. The master servicing fee is equal to 0.025% annually of the
outstanding face balance of the Additional Mortgage Investments, payable
quarterly.
. A mortgage selection fee for analyzing, evaluating and structuring
Additional Mortgage Investments. The mortgage selection fee equals 0.75%
of amounts invested in Additional Mortgage Investments. The Adviser is
also entitled to receive one-half of the fees paid to CRIIMI MAE by the
owner or developer of a property underlying a participating mortgage
investment, provided that the interest rate on the base mortgage
investment is at least equal to the prevailing market interest rate for
similar base mortgage investments coupled with investments in limited
partnerships.
In 1991, the Adviser adopted a policy with respect to borrowings above and
beyond the original $140 million Notes (see Note 11) and $140 million
Commercial Paper Facility (see Note 10) which would result in a reduction
in the amount of fees payable by CRIIMI MAE if Net Positive Spreads (the
difference between the yield on a mortgage investment acquired with
borrowings and all incremental borrowing and operating expenses on a tax
basis associated with the acquisition of such mortgage investment) are not
maintained: the total annual fee and master servicing fee of 0.40% of
invested assets payable to the Adviser with respect to mortgage investments
purchased with the proceeds of any particular tranche of borrowings will be
reduced incrementally if CRIIMI MAE's Net Positive Spread on such tranche
of borrowings falls below 0.40%, and the mortgage selection fee will be
eliminated upon reinvestment of proceeds of mortgage dispositions where the
mortgage investment was purchased with borrowed funds and disposed of in
less than five years without providing a cumulative yield on the original
mortgage investment at disposition of at least 100 basis points higher than
the original yield at the date of purchase. Since the adoption of this
policy, CRIIMI MAE expanded its Commercial Paper Facility (defined below)
by $50 million (which expansion was paid down in 1993), increased its Bank
Term Loan (defined below) by $15 million and entered into Master Repurchase
Agreements (defined below) of approximately $350 million. As of December
31, 1992 and 1993, CRIIMI MAE had a Net Positive Spread of approximately 60
and 177 basis points, respectively, on its borrowings.
F-13
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
. An incentive fee equal to 25% of the amount by which net income from
Additional Mortgage Investments exceeds the annual target return on
equity is payable quarterly, subject to year-end adjustment. Net income
from Additional Mortgage Investments is the difference between mortgage
investment income, including gains or losses on dispositions, from the
mortgage investments directly invested in by CRIIMI MAE less financing
costs and operating expenses, including a portion of CRIIMI MAE's general
and administrative and professional expenses that the Adviser has
determined to be specifically assigned to those mortgage investments.
Equity for purposes of this computation is CRIIMI MAE's shareholders'
equity on a tax basis. The target return on equity will be determined on
a quarterly basis and will equal 1% over the average yield on Treasury
Bonds maturing nearest to ten years from such quarter, as reported on a
daily basis throughout such quarter, based on quotations supplied by the
Federal Reserve Bank of New York, as reported by The Wall Street Journal.
CRI Liquidating has also entered into an agreement with the Adviser (the CRI
Liquidating Advisory Agreement) under which the Adviser is obligated to
evaluate and negotiate voluntary mortgage dispositions, provide administrative
services for CRI Liquidating and conduct CRI Liquidating's day-to-day affairs.
The terms of the CRI Liquidating Advisory Agreement are similar to CRIIMI MAE's
terms.
Under the CRI Liquidating Advisory Agreement, the Adviser receives
compensation from CRI Liquidating as follows:
. An annual fee (the CRI Liquidating Annual Fee) for managing CRI
Liquidating's portfolio of mortgages. The CRI Liquidating Annual Fee is
calculated separately for each of the remaining mortgage pools from the
former CRIIMI Funds. With respect to CRIIMI I, the CRI Liquidating Annual
Fee will equal 0.75% of average invested assets invested in mortgage
investments transferred by CRIIMI I in the Merger, one-third of which
will be deferred and paid on a cumulative basis only during such quarters
as the carryover CRIIMI I target yield, as discussed below, is achieved
on a cumulative basis. Any such deferred amounts will be paid only out of
proceeds of mortgage dispositions attributable to CRIIMI I mortgage
investments representing market discount.
With respect to CRIIMI II, the CRI Liquidating Annual Fee will equal 0.75%
of average invested assets invested in existing mortgage investments
transferred by CRIIMI II in the Merger, one-fourth of which will be
deferred and paid on a cumulative basis only during such quarters as the
carryover CRIIMI II target yield, as discussed below, is achieved on a
cumulative basis. Any such deferred amounts will be paid only out of
operating income attributable to CRIIMI II mortgage investments.
With respect to CRIIMI III, the CRI Liquidating Annual Fee will equal 0.25%
of average invested assets invested in mortgage investments transferred by
CRIIMI III in the Merger. After December 31, 1993, this fee will be reduced
to 0.125% for any quarter that the carryover CRIIMI III cumulative annual
fee yield, as discussed below, is not achieved.
The carryover CRIIMI I target yield will be achieved during any quarter
that the former CRIIMI I mortgage investments transferred in the Merger
generate a cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of 13.33% per annum based
on financial statement income. The carryover CRIIMI II target yield will be
achieved during any quarter that the former CRIIMI II mortgage investments
transferred in the Merger generate a cumulative yield (including gains or
losses on mortgage dispositions) on amounts invested in such assets of
11.66% per annum based on financial statement income. The carryover CRIIMI
III cumulative annual fee yield will be achieved during any quarter,
commencing after December 31, 1993, that the former CRIIMI III mortgage
investments transferred in the Merger generate a cumulative yield
(including
F-14
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
gains or losses on mortgage dispositions) on amounts invested in such
assets of 10.89% per annum based on financial statement income.
Detail of the CRI Liquidating Annual Fees for the years 1991, 1992 and
1993 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1991
----------------------------------------------------------------------------
ANNUAL FEES PAID
CUMULATIVE ACTUAL --------------------
TARGET/ANNUAL CUMULATIVE ANNUAL DEFERRED CUMULATIVE
YIELD YIELD COMPONENT COMPONENT TOTAL DEFERRED DEFERRED
------------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I................ 13.33% 13.53% $ 362,235 $181,118 $ 543,353 $ -- $ --
CRIIMI II............... 11.66% 9.49% 690,925 -- 690,925 230,308 1,531,062
CRIIMI III.............. 10.89% 8.13% 297,818 -- 297,818 -- --
---------- -------- ---------- -------- ----------
Totals............... $1,350,978 $181,118 $1,532,096 $230,308 $1,531,062
========== ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
----------------------------------------------------------------------------
ANNUAL FEES PAID
CUMULATIVE ACTUAL --------------------
TARGET/ANNUAL CUMULATIVE ANNUAL DEFERRED CUMULATIVE
YIELD YIELD COMPONENT COMPONENT TOTAL DEFERRED DEFERRED
------------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I................ 13.33% 13.24% $ 344,090 $ 85,650 $ 429,740 $ 86,395 $ 86,395
CRIIMI II............... 11.66% 9.92% 540,204 -- 540,204 180,068 1,711,130
CRIIMI III.............. 10.89% 8.07% 244,465 -- 244,465 -- --
---------- -------- ---------- -------- ----------
Totals............... $1,128,759 $ 85,650 $1,214,409 $266,463 $1,797,525
========== ======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------------------------------
ANNUAL FEES PAID
CUMULATIVE ACTUAL --------------------
TARGET/ANNUAL CUMULATIVE ANNUAL DEFERRED CUMULATIVE
YIELD YIELD COMPONENT COMPONENT TOTAL DEFERRED DEFERRED
------------- ---------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I................ 13.33% 13.33% $ 314,595 $243,692 $ 558,287 $ -- $ --
CRIIMI II............... 11.66% 10.05% 484,147 -- 484,147 162,390 1,873,520
CRIIMI III.............. 10.89% 8.05% 191,857 -- 191,857 -- --
---------- -------- ---------- -------- ----------
Totals............... $ 990,599 $243,692 $1,234,291 $162,390 $1,873,520
========== ======== ========== ======== ==========
</TABLE>
. The Adviser is also entitled to certain incentive fees (the Incentive
Fees) in connection with the disposition of certain mortgage investments.
Like the CRI Liquidating Annual Fee, the Incentive Fees are calculated
separately with respect to mortgage investments transferred in the Merger
by CRIIMI I and CRIIMI II. No Incentive Fees are payable with respect to
mortgage investments transferred by CRIIMI III.
During any quarter in which either the carryover CRIIMI I or CRIIMI II
target yields have been achieved on a cumulative basis and the Adviser has
been paid any deferred amounts of the CRI Liquidating Annual Fee, the
Incentive Fee will equal approximately 9.08% of net disposition proceeds
representing the financial statement gain on the related CRIIMI I or CRIIMI
II mortgage investments disposed of. After the carryover CRIIMI I adjusted
contribution or the carryover CRIIMI II adjusted share capital has been
reduced to zero, the Incentive Fee will increase to approximately 9.08% of
the net disposition proceeds from the disposition of CRIIMI I or CRIIMI II
mortgage investments, each determined separately.
The carryover CRIIMI I adjusted contribution and the carryover CRIIMI II
adjusted share capital equal the aggregate adjusted contribution of CRIIMI
I investors (initial investment of investors reduced by all amounts
distributed to them representing distributions of principal on their
original mortgage investments other than distributions of proceeds of
mortgage dispositions representing
F-15
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
market discount that have been applied to the target yield) and the
aggregate share capital of CRIIMI II investors (initial investment of
investors reduced by all amounts distributed to them representing
distributions of principal on their original mortgage investments other
than distributions of proceeds of mortgage dispositions representing
market discount that have been applied to the target yield),
respectively, as of November 27, 1989, the consummation date of the
Merger. Subsequent to November 27, 1989, the carryover CRIIMI I adjusted
contribution and the carryover CRIIMI II adjusted share capital are
reduced by all amounts of principal received from their respective former
mortgage investments, whether as part of regular mortgage payments or as
proceeds of mortgage dispositions, except for proceeds of mortgage
dispositions representing market discount that have been applied to the
respective target yield.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair values of CRIIMI MAE's consolidated 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 CRIIMI
MAE.
As of December 31, 1992, CRIIMI MAE and CRI Liquidating recorded their
mortgage investments at amortized cost (excluding Mortgages Held for
Disposition which were recorded at the lower of cost or market as discussed in
Note 6). In connection with CRIIMI MAE's and CRI Liquidating's implementation
of SFAS 115 as of December 31, 1993 (see Note 2), CRIIMI MAE's Investment in
Mortgages continues to be recorded at amortized cost; however, CRI
Liquidating's Investment in Mortgages and CRIIMI MAE's and CRI Liquidating's
Mortgages Held for Disposition (see Note 6), are recorded at fair value as of
December 31, 1993. The difference between the amortized cost and the fair value
of CRI Liquidating's Government Insured Multifamily Mortgages represents the
unrealized net gains on CRI Liquidating's Government Insured Multifamily
Mortgages. CRIIMI MAE's share of the unrealized net gains on CRI Liquidating's
Government Insured Multifamily Mortgages is reported as a separate component of
shareholders' equity as of December 31, 1993.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1992 AS OF DECEMBER 31, 1993
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in mortgages,
accounted for at amor-
tized cost:
Near par or premium.... $233,590,108 $242,313,168 $495,846,514 $505,578,030
Discount............... 192,703,833 236,925,191 903,982 1,004,399
Participating.......... 22,024,884 22,817,941 -- --
Mortgages held for dis-
position.............. 24,644,408 27,238,771 -- --
------------ ------------ ------------ ------------
472,963,233 529,295,071 496,750,496 506,582,429
------------ ------------ ------------ ------------
Investment in mortgages,
accounted for at fair
value:(a)
Near par or premium.... -- -- 166,913,207 215,866,436
Discount............... -- -- 16,983,594 17,647,797
Mortgages held for dis-
position.............. -- -- 9,594,024 11,326,356
------------ ------------ ------------ ------------
-- -- 193,490,825 244,840,589
------------ ------------ ------------ ------------
Cash and cash equiva-
lents.................. 6,600,134 6,600,134 13,599,860 13,599,860
Accrued interest receiv-
able................... 4,493,957 4,493,957 5,702,667 5,702,667
LIABILITIES
Commercial paper........ $186,300,000 $186,300,000 $ 95,306,000 $ 95,306,000
Long-term debt.......... 61,668,480 61,668,480 383,739,048 383,739,048
Interest rate hedge
agreements............. (56,158) 13,729,372 (4,113,713) 3,115,531
</TABLE>
- --------
(a) CRI Liquidating's Mortgage Investments and all Mortgages Held for
Disposition were accounted for at fair value on the accompanying
consolidated balance sheet as of December 31, 1993 (see Note 2).
F-16
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Investment in Mortgages and Mortgages Held for Disposition
The fair value of the Government Insured Multifamily Mortgages and mortgages
held for disposition are based on the average of the quoted market prices from
three investment banking institutions which trade insured mortgage loans as
part of their day-to-day activities.
Cash and Cash Equivalents and Accrued Interest Receivable
The carrying amount approximates fair value because of the short maturity of
these instruments.
Commercial Paper
The carrying amount approximates fair value because of the short maturity of
the debt.
Long-term Debt
The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.
Interest Rate Hedge Agreements
The fair value of interest rate hedge agreements (used to hedge CRIIMI MAE's
commercial paper and long-term debt) is the estimated amount that CRIIMI MAE
would pay to terminate the agreements as of December 31, 1992 and 1993, taking
into account current interest rates and the current creditworthiness of the
counterparties. The amount was determined based on the average of two quotes
received from financial institutions which enter into these types of
transactions as part of their day-to-day activities.
5. INVESTMENT IN MORTGAGES
CRIIMI MAE's investment policies, which are overseen by the CRIIMI MAE Board
of Directors, are intended to foster its objectives of providing stable or
growing quarterly cash distributions to its shareholders while preserving and
protecting its capital. CRIIMI MAE seeks to achieve these objectives by
investing primarily in Government Insured Multifamily Mortgages issued or sold
pursuant to programs sponsored by FHA and GNMA. CRIIMI MAE's sources of
capital include borrowings, principal distributions received on its CRI
Liquidating shares, principal proceeds of CRIIMI MAE mortgage dispositions and
proceeds from equity offerings.
As of December 31, 1992 and 1993, CRIIMI MAE directly owned 60 and 126
Government Insured Multifamily Mortgages, respectively, which had a weighted
average effective interest rate of approximately 10.1% and 8.52%, a weighted
average remaining term of approximately 31 years and 34 years, and a tax basis
of approximately $226 million and $499 million, respectively.
As of December 31, 1992 and 1993, CRIIMI MAE indirectly owned through its
subsidiary, CRI Liquidating, 73 and 63 Government Insured Multifamily
Mortgages, respectively, which had a weighted average effective interest rate
of approximately 9.91% and 10.03%, a weighted average remaining term of
approximately 28 years and 27 years, and a tax basis of approximately $221
million and $173 million, respectively.
Thus, on a consolidated basis, as of December 31, 1992 and 1993, CRIIMI MAE
owned, directly or indirectly, 133 and 189 Government Insured Multifamily
Mortgages, respectively. These consolidated mortgage investments (including
Mortgages Held for Disposition) had a weighted average effective interest rate
of approximately 9.98%, a weighted average remaining term of approximately 29
years and a tax basis of
F-17
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
approximately $447 million, as of December 31, 1992. These amounts compare to a
weighted average effective interest rate of approximately 8.95%, a weighted
average remaining term of approximately 32 years and a tax basis of
approximately $672 million, as of December 31, 1993. In addition, as of
December 31, 1993, CRIIMI MAE had committed approximately $41 million for
investment in Government Insured Multifamily Mortgages or advances on FHA-
Insured Loans relating to the construction or rehabilitation of multifamily
housing projects, including nursing homes and intermediate care facilities
(Government Insured Construction Mortgages), to be funded by borrowings under
the Commercial Paper Facility and the remaining funds available under the
Master Repurchase Agreements (see Notes 10 and 11).
During 1993, CRIIMI MAE directly acquired 61 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $284 million at
purchase prices ranging from $0.5 million to $30.8 million, with a weighted
average effective interest rate of approximately 7.56% and a weighted average
remaining term of approximately 33.4 years. In addition, during 1993 CRIIMI MAE
funded advances of approximately $29 million on Government Insured Construction
Mortgages with a weighted average effective interest rate of approximately
8.73%. As of December 31, 1993, CRIIMI MAE had committed to acquire additional
Government Insured Multifamily Mortgages and to make additional advances on
and/or acquire Government Insured Construction Mortgages totalling
approximately $41 million.
In connection with CRI Liquidating's business plan which calls for an orderly
liquidation of approximately 25% of its December 31, 1993 portfolio balance
each year through 1997, on February 10, 1994, CRI Liquidating sold twelve
Government Insured Multifamily Mortgages resulting in net sales proceeds of
approximately $48.7 million. As of the date of the sale, these twelve
Government Insured Multifamily Mortgages had a weighted average effective
interest rate of approximately 10.3%, a weighted average remaining term of
approximately 28 years and a tax basis of approximately $34 million. This sale
is expected to result in financial statement and tax basis gains of
approximately $11.7 million and $14.7 million, respectively.
As discussed below, CRIIMI MAE is permitted to make direct investments in
primarily two categories of Government Insured Multifamily Mortgages at, near,
or above par value (Near Par or Premium Mortgage Investments).
FHA-Insured Loans
The first category of Near Par or Premium Mortgage Investments in which
CRIIMI MAE is permitted to invest consists of FHA-Insured Loans. All of the
FHA-Insured Loans in which CRIIMI MAE invests are insured by HUD for
effectively 99% of their current face value. As part of its investment
strategy, CRIIMI MAE also invests in Government Insured Construction Mortgages
which involve a two-tier financing process in which a short-term loan covering
construction costs is converted into a permanent loan. CRIIMI MAE also becomes
the holder of the permanent loan upon conversion. The construction loan is
funded in HUD-approved draws based upon the progress of construction. The
construction loans are GNMA-guaranteed or insured by HUD. The construction loan
generally does not amortize during the construction period. Amortization begins
upon conversion of the construction loan into a permanent loan, which generally
occurs within a 24-month period from the initial endorsement by HUD.
Mortgage-Backed Securities
The second category of Near Par or Premium Mortgage Investments in which
CRIIMI MAE is permitted to invest consists of federally guaranteed mortgage-
backed securities or other securities backed by Government Insured Multifamily
Mortgages issued by entities other than GNMA (Mortgage-Backed
F-18
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities) and GNMA Securities. As of December 31, 1993, all of CRIIMI MAE's
mortgage investments in this category were GNMA Securities. The GNMA Securities
in which CRIIMI MAE invests are backed by Government Insured Multifamily
Mortgages insured in whole by HUD, or insured by HUD and a coinsured lender
under HUD mortgage insurance programs and the coinsurance provisions of the
National Housing Act. The Mortgage-Backed Securities in which CRIIMI MAE is
permitted to invest, although none have been acquired as of December 31, 1993,
are backed by Government Insured Multifamily Mortgages which are insured in
whole by HUD under HUD mortgage insurance programs.
Generally, Government Insured Multifamily Mortgages which are purchased near,
at or above par value will result in a loss if the mortgage investment is
prepaid or assigned prior to maturity because the amortized cost of the
mortgage investment, including acquisition costs, is approximately the same as
or slightly higher than the insured amount of the mortgage investment. As of
December 31, 1993, substantially all of the mortgage investments owned directly
by CRIIMI MAE consisted of Government Insured Multifamily Mortgages that are
Near Par or Premium Mortgage Investments. Based on current interest rates, the
Adviser does not believe that the prepayment, assignment, or sale of any of
CRIIMI MAE's Government Insured Multifamily Mortgages would result in a
material financial statement or tax basis gain or loss.
CRI Liquidating Mortgage Investments
CRI Liquidating's mortgage investments consist solely of the Government
Insured Multifamily Mortgages it acquired from the CRIIMI Funds in the Merger.
The CRIIMI Funds invested primarily in Government Insured Multifamily Mortgages
issued or sold pursuant to programs of GNMA and FHA.
The majority of CRI Liquidating's mortgage investments were acquired by the
CRIIMI Funds at a discount to face value (Discount Mortgage Investments) on the
belief that based on economic, market, legal and other factors, such Discount
Mortgage Investments might be sold for cash, prepaid as a result of a
conversion to condominium housing or otherwise disposed of or refinanced in a
manner requiring prepayment or permitting other profitable disposition three to
twelve years after acquisition by the CRIIMI Funds. Based on current interest
rates, the Adviser expects that (i) the disposition of most of CRI
Liquidating's Government Insured Multifamily Mortgages will result in a gain on
a financial statement basis, and (ii) the disposition of any of CRI
Liquidating's Government Insured Multifamily Mortgages will not result in a
material loss on a financial statement basis and will result in a gain on a tax
basis.
The safekeeping and servicing of the mortgage investments (excluding the
investment in limited partnerships) is performed by various trustees and
servicers under the terms of the Servicing Agreements.
Other Investments
In addition to investing in FHA-Insured Loans and GNMA Securities, CRIIMI
MAE's investment policies also permit CRIIMI MAE to invest in Government
Insured Multifamily Mortgages which are not FHA-insured or GNMA-guaranteed
(Other Insured Mortgages) and in certain other mortgage investments which are
not federally insured or guaranteed (Other Multifamily Mortgages). Pursuant to
CRIIMI MAE's policy, at the time of their acquisition, Other Multifamily
Mortgages must have an expected yield of at least 150 basis points (1.5%)
greater than the yield on Government Insured Multifamily Mortgages which could
be acquired in the then current market and must meet certain other strict
underwriting guidelines. See Note 5 of Notes to Consolidated Financial
Statements. The CRIIMI MAE Board has adopted a policy limiting Other
Multifamily Mortgages to 20% of CRIIMI MAE's total consolidated assets. As of
December 31, 1993, CRIIMI MAE had not invested or committed to invest in any
Other Insured Mortgages or other Multifamily Mortgages and CRIIMI MAE does not
currently intend to invest in any such mortgage investments for at least twelve
months after the date of this Prospectus.
CRIIMI MAE is currently exploring opportunities in connection with the
sponsorship of securities offerings which involve the pooling of certain Other
Multifamily Mortgages to further enhance potential
F-19
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
returns to CRIIMI MAE shareholders. Such sponsorship may also include the
investment by CRIIMI MAE in the non-investment grade or unrated tranches of
mortgage pools having a high current yield. As of December 31, 1993, CRIIMI MAE
had not participated in the sponsorship of any such securities offerings. The
Adviser does not expect that investments of this nature will exceed 5% of
CRIIMI MAE's total consolidated assets for at least twelve months after the
date of this Prospectus.
Descriptions of the mortgage investments owned, directly or indirectly by
CRIIMI MAE which exceed 3% of the total carrying amount of the consolidated
mortgage investments as of December 31, 1993, summarized information regarding
other mortgage investments and mortgage investment income earned in 1991, 1992
and 1993, including interest earned on the disposed mortgage investments, are
as follows:
<TABLE>
<CAPTION>
MORTGAGE MORTGAGE MORTGAGE
CARRYING INVESTMENT INVESTMENT INVESTMENT
FACE VALUE OF EFFECTIVE INCOME INCOME INCOME FINAL
AMOUNT OF MORTGAGES INTEREST EARNED EARNED EARNED MATURITY
COMPLEX NAME MORTGAGES(B) (A),(C),(D) RATE IN 1991 IN 1992 IN 1993 DATE
------------ ------------ ------------ --------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI MAE
FHA-INSURED LOANS
DISCOUNT
Other (2 mortgages).... $ 944,273 $ 903,982 10.25%- $ 91,607 $ 93,629 $ 93,335 March 2020-
10.49% April 2031
NEAR PAR OR PREMIUM
Other
(30 mortgages)........ 109,082,188 108,938,710 7.35%- 2,329,772 3,420,128 6,101,481 February 2019-
11.00% April 2033
CONSTRUCTION
LOANS(15)*............. 43,524,241 43,879,707 7.75%- 1,912,882 5,422,891 5,099,429 ***
10.00%
GNMA SECURITIES
NEAR PAR OR PREMIUM
San Jose South......... 29,978,522 30,249,793 7.66% -- -- 11,479 October 2023
Somerset Park.......... 30,181,585 30,767,678 7.41% -- -- 734,515 July 2028
Other
(76 mortgages)........ 279,857,549 282,010,626 7.11%- 8,128,480 8,305,277 14,782,468 August 2015-
------------ ------------ ----------- ----------- -----------
10.94% September 2032
Sub-Total CRIIMI MAE. 493,568,358 496,750,496 12,462,741 17,241,925 26,822,707
------------ ------------ ----------- ----------- -----------
CRI LIQUIDATING
FHA-INSURED LOANS
DISCOUNT
Other
(53 mortgages)........ 209,718,293 215,866,436 8.35%- 17,200,704 17,086,715 16,975,303 August 2012-
12.48% March 2025
NEAR PAR OR PREMIUM
Other (6 mortgages).... 12,044,486 12,806,520 9.22%- 1,195,239 1,187,778 1,179,560 December 2022-
10.79% June 2025
GNMA SECURITIES
NEAR PAR OR PREMIUM
Other (2 mortgages).... 4,690,126 4,841,277 10.14%- 464,621 462,392 459,925 May 2022-
------------ ------------ ----------- ----------- -----------
10.16% September 2022
Sub-total CRI
Liquidating ........ 226,452,905 233,514,233 18,860,564 18,736,885 18,614,788
------------ ------------ ----------- ----------- -----------
Currently invested in
mortgages............. 720,021,263 730,264,729 31,323,305 35,978,810 45,437,495
Less CRI Liquidating's
share of mortgage
interest relating to
investment in limited
partnerships accounted
for under the equity
method................ (919,755) (972,704) (308,093)
</TABLE>
F-20
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
MORTGAGE MORTGAGE MORTGAGE
CARRYING INVESTMENT INVESTMENT INVESTMENT
FACE VALUE OF EFFECTIVE INCOME INCOME INCOME
AMOUNT OF MORTGAGES INTEREST EARNED EARNED EARNED
MORTGAGES(B) (A),(C),(D) RATE IN 1991 IN 1992 IN 1993
------------ ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Dispositions:
1991................... -- -- 9.42%- 4,946,994 -- --
12.84%
1992................... -- -- 9.48%- 3,930,147 979,109 --
12.04%
1993................... -- -- 8.00%- 9,102,925 9,041,910 4,241,328
11.79%
Mortgages Held for Dis-
position:
1993**................. -- -- 8.44%- 939,028 903,823 898,842
12.00%
------------ ------------ ----------- ----------- -----------
Investment in Mortgages. $720,021,263 $730,264,729 $49,322,644 $45,930,948 $50,269,572
============ ============ =========== =========== ===========
Investment in Limited $ 436,090 $ 623,876 $ 600,852 $ 43,605
Partnerships...........
============ =========== =========== ===========
</TABLE>
- --------
* As construction loans convert to permanent loans, information reported in
prior periods is reclassified to the applicable permanent loan
classification.
** For additional information regarding Mortgages Held for Disposition, see
Note 6 of the notes to consolidated financial statements.
*** Construction draws are part of a short-term financing process and are
funded to cover construction costs. The construction draws are converted
into a long-term permanent loan generally within a 24-month period from
the initial endorsement by HUD.
(A) All mortgages are collateralized by first or second liens on residential
apartment, retirement home, nursing home, development land or townhouse
complexes which have diverse geographic locations and are FHA-Insured Loans or
GNMA Securities. Payment of the principal and interest on FHA-Insured Loans is
insured by HUD pursuant to Title 2 of the National Housing Act. Payment of the
principal and interest on GNMA Securities is guaranteed by GNMA pursuant to
Title 3 of the National Housing Act. The investment in limited partnerships is
not federally insured or guaranteed.
(B) Principal and interest on permanent mortgages is payable at level
amounts over the life of the mortgage investment. Total annual debt service
payable to CRIIMI MAE and CRI Liquidating (excluding principal and interest on
the mortgages classified as held for disposition) for the mortgage investments
held as of December 31, 1993 is approximately $61.1 million.
F-21
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(C) Reconciliations of the carrying amount of CRIIMI MAE's consolidated
mortgage investments for the years ended December 31, 1992 and 1993 follow:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1992 DECEMBER 31, 1993
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Balance at beginning of
year.................... $446,702,752 $448,318,825
Additions during year:
Purchases.............. 31,823,117 312,654,818
Amortization of dis-
count................. 1,271,288 1,307,072
Other.................. 281,485 --
Net unrealized gains on
mortgage investments
of subsidiary......... -- 51,349,764
Deductions during year:
Principal payments..... $ 3,844,296 $ 4,527,816
Mortgage dispositions:
Mortgages............ 44,421,242 92,114,681
Mortgages previously
classified as held
for disposition..... (41,317,473) (24,579,884)
Mortgages
reclassified to held
for disposition..... 24,786,149 11,261,832
Amortization of premi-
um.................... 25,603 31,759,817 41,305 83,365,750
------------ ------------ ------------ ------------
Balance at end of year... $448,318,825 $730,264,729
============ ============
</TABLE>
(D) Principal Amount of Loans Subject to Delinquent Principal or Interest is
not presented since all required payments with respect to these FHA-Insured
Loans or GNMA Securities are current and none of these mortgages are delinquent
as of December 31, 1993, except the mortgages classified as Mortgages Held for
Disposition as discussed in Note 6 and the mortgages on Guinn Nursing Home and
Oak Hills Nursing Home which had an aggregate face value of approximately $6.2
million as of December 31, 1993.
The following table sets forth certain information concerning dispositions of
Government Insured Multifamily Mortgages by CRIIMI MAE and CRI Liquidating for
the past five years:
Historical Dispositions
<TABLE>
<CAPTION>
NET GAIN/(LOSS)
RECOGNIZED FOR NET GAIN/(LOSS)
TYPE OF DISPOSITIONS FINANCIAL RECOGNIZED
----------------------------------- STATEMENT FOR TAX
YEAR ASSIGNMENT(1) SALE PREPAYMENT TOTAL PURPOSES PURPOSES(3)
---- ------------- ---- ---------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1989--CRI Liquidating... 5 1 1 7 $ 2,957,598 $ 2,977,188
CRIIMI MAE............. -- -- -- -- -- --
1990--CRI Liquidating... 6 -- -- 6 3,853,503 8,005,092
CRIIMI MAE............. 2 -- -- 2 (59,338) (59,338)
1991--CRI Liquidating... 8 19 -- 27 4,481,534 12,706,737
CRIIMI MAE............. 5 1 -- 6 (433,648) (310,089)
1992--CRI Liquidating... 3 -- -- 3 6,097,102 11,202,237
CRIIMI MAE............. 4 -- -- 4 (363,957) (118,498)
1993--CRI Liquidating... 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE............. 2 -- 5 7 (732,095) (650,339)
--- --- --- --- ----------- -----------
37(2) 26 9 72 $23,890,539 $48,691,118
=== === === === =========== ===========
</TABLE>
F-22
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
- --------
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9%
of the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Eight of the 37 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI
Liquidating or CRIIMI MAE receiving near or above face value.
(3) In connection with the Merger, CRI Liquidating recorded its investment in
mortgages at the lower of cost or fair value, which resulted in an overall
net write down for tax purposes. For financial statement purposes,
carryover basis of accounting was used. Therefore, since the Merger, the
net gain for tax purposes was greater than the net gain recognized for
financial statement purposes. As a REIT, dividends to shareholders are
based on tax basis income.
6. MORTGAGES HELD FOR DISPOSITION
As of December 31, 1992 and 1993, the following mortgages were classified as
held for disposition:
<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED NET FINANCIAL ANTICIPATED
MORTGAGES HELD FOR DATE OF TYPE OF CARRYING STATEMENT TAX BASIS
DISPOSITION DISPOSITION DISPOSITION VALUE(1) (LOSS)/GAIN GAIN/(LOSS)
- ------------------ ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Booker Gardens Apts.--
9%(1)................. 1993 Assignment $ 31,508 $ (3,815) $ 2,733
The Manhattan Build-
ing(1)................ 1993 Assignment 4,929,861 1,839,707 1,695,797
Woodbridge Apts.(1).... 1993 Assignment 5,552,934 431,399 1,107,332
White Oak Apts.(1)..... 1993 Sale 4,949,225 37,780 1,052,137
Wingate Apts.(2)....... 1993 Assignment 6,519,863 -- (86,491)
Lexington Green
Apts.(2).............. 1993 Assignment 2,628,001 -- (54,283)
Providence Apts.--
9%(2)................. 1993 Assignment 33,016 4,562 4,562
----------- ---------- ----------
MORTGAGES HELD FOR
DISPOSITION AS OF
DECEMBER 31, 1992. $24,644,408 $2,309,633 $3,721,787
=========== ========== ==========
Booker Gardens Apts.--
9%(1)................. 1994 Assignment $ 31,508 $ (3,815) $ 2,733
Lincoln Countrywood
Apts.(1).............. 1994 Assignment 4,991,963 586,179 1,100,971
Timberlake Apts.(1).... 1994 Assignment 4,557,938 1,044,698 1,457,193
Broadview Apts.(2)..... 1994 Prepayment 1,711,931 -- --
Providence Apts.--
9%(2)................. 1994 Assignment 33,016 4,562 4,562
----------- ---------- ----------
MORTGAGES HELD FOR
DISPOSITION AS OF
DECEMBER 31, 1993. $11,326,356 $1,631,624 $2,565,459
=========== ========== ==========
</TABLE>
- --------
(1) Represents a CRI Liquidating mortgage investment. In connection with CRI
Liquidating's implementation of SFAS 115 (see Note 2) as of December 31,
1993, all of CRI Liquidating's mortgage investments, including Mortgages
Held for Disposition, were recorded at fair value. As of December 31,
1992, all of CRI Liquidating's mortgage investments classified as
Mortgages Held for Disposition were recorded at the lower of cost or
market.
(2) Represents a CRIIMI MAE mortgage investment. As of December 31, 1992, all
of CRIIMI MAE's mortgage investments classified as Mortgages Held for
Disposition were recorded at the lower of cost or market. In connection
with CRIIMI MAE's implementation of SFAS 115 (see Note 2) as of
December 31, 1993, all of CRIIMI MAE's mortgage investments classified as
Mortgages Held for Disposition were recorded at fair value.
F-23
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OTHER SHORT-TERM INVESTMENTS
During 1993, CRIIMI MAE, and, during each of 1992 and 1993, CRI Liquidating
entered into transactions in which mortgage-backed and other government agency
securities were purchased. These transactions provided CRIIMI MAE with above
average returns compared to its other short-term investments while maintaining
the high quality of its assets and assisted in maintaining CRI Liquidating's
REIT status. Some of these purchases were financed with borrowings which were
nonrecourse and fully secured with the purchased mortgage-backed and other
government agency securities. As of December 31, 1993, CRIIMI MAE and as of
December 31, 1992 and 1993, CRI Liquidating had disposed of the mortgage-
backed and other government agency securities acquired in such year, and
repaid the related debt.
8. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME TO TAX BASIS INCOME
Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1991, 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Financial statement net income applicable
to CRIIMI MAE........................... $ 9,000,559 $16,041,231 $15,757,505
Adjustment due to accounting for subsidi-
ary as a pooling for financial statement
purposes and a purchase for tax purpos-
es...................................... 6,270,888 4,931,900 4,412,645
Income from investment in insured mort-
gage funds and advisory partnership..... -- 504,157 87,341
Mortgage dispositions.................... 123,560 245,459 81,756
Interest income--U.S. Treasuries......... -- 1,074,517 973,619
Interest expense--defeased notes......... -- (1,583,318) (1,390,672)
Interest expense--amortization of hedge
upfront costs........................... -- -- 366,093
Interest expense--deferred financing
costs................................... -- 445,127 (280,683)
Extraordinary item-loss on early extin-
guishment of debt....................... 6,642,450 -- --
Gain on sale of shares of subsidiary..... -- -- 1,581,247
Nondeductible expenses:
Other.................................. -- (33,343) 176,387
Provision for settlement of litigation. -- -- 1,250,000
----------- ----------- -----------
Tax basis income......................... $22,037,457 $21,625,730 $23,015,238
=========== =========== ===========
</TABLE>
Differences in the financial statement net income and the tax basis income
principally relate to differences in the tax bases of assets and liabilities
and their related financial reporting amounts resulting from the Merger,
investment in mortgages, long-term debt and deferred financing costs,
investment in U.S. Treasury Securities and partnership investments. The tax
basis of investment in mortgages is approximately $70.3 million less than the
financial statement basis as of December 31, 1993. The tax basis of long-term
debt and deferred financing costs as of December 31, 1993 was approximately
$15 million and $5 million, respectively, greater than the financial statement
basis. The tax basis of investments in U.S. Treasury Securities, purchased in
connection with the defeasance of long-term debt (see Note 11) and netted with
the defeased long-term debt for financial statement purposes, is approximately
$15 million greater than the financial statement basis as of December 31,
1993.
As a result of the foregoing, the nature of the dividends for income tax
purposes on a per share basis is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Ordinary income........................................ $0.67 $0.75 $0.81
Long-term capital gains................................ 0.41 0.33 0.31
Non-taxable dividend................................... -- -- --
----- ----- -----
$1.08 $1.08 $1.12
===== ===== =====
</TABLE>
F-24
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
the years ended December 31, 1991, 1992 and 1993:
<TABLE>
<CAPTION>
1991
QUARTER ENDED
-------------------------------------------------
SEPTEMBER
MARCH 31 JUNE 30 30 DECEMBER 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally mortgage
investment income)......... $14,041,084 $13,923,874 $12,920,425 $13,432,616
Net gain (loss) on mortgage
dispositions............... 3,952,314 (271,228) (316,181) 682,981
Income before extraordinary
item....................... 6,409,510 3,404,002 2,438,973 3,390,524
Extraordinary item.......... -- -- -- (6,642,450)
Net income (loss)........... 6,409,510 3,404,002 2,438,973 (3,251,926)
Net income (loss) per share. .32 .17 .12 (.16)
<CAPTION>
1992
QUARTER ENDED
-------------------------------------------------
SEPTEMBER
MARCH 31 JUNE 30 30 DECEMBER 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally mortgage
investment income)......... $12,601,668 $12,149,241 $13,123,895 $12,826,954
Net gain (loss) on mortgage
dispositions............... 5,311,633 9,708 487,507 (75,703)
Loss on investment in lim-
ited partnership........... -- -- -- (731,951)
Net income.................. 6,797,138 2,886,910 3,526,115 2,831,068
Net income per share........ .34 .14 .17 .14
<CAPTION>
1993
QUARTER ENDED
-------------------------------------------------
SEPTEMBER
MARCH 31 JUNE 30 30 DECEMBER 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (principally mortgage
investment income)......... $12,892,685 $12,912,261 $15,199,422 $15,445,887
Net gain on mortgage dispo-
sitions.................... 1,522,785 284,274 489,171 5,061,515
Net income.................. 4,431,388 3,490,212 3,800,643 4,035,262
Net income per share........ .22 .17 .19 .20
</TABLE>
10. COMMERCIAL PAPER
The following table shows commerical paper borrowing activity as of December
31, 1992 and 1993 and for the years then ended:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1992 1993
------------ -----------
<S> <C> <C>
Amount borrowed.................................... $186,300,000 $95,306,000
Weighted average interest rate (including all bor-
rowing and hedging costs)......................... 8.96% 7.84%
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1992 1993
------------ ------------
<S> <C> <C>
Maximum amount outstanding........................ $186,300,000 $186,300,000
Average amount outstanding........................ $179,174,236 $133,563,678
Weighted average interest rate (including all bor-
rowing and
hedging costs)................................... 8.79% 8.25%
</TABLE>
In May 1991, CRIIMI MAE entered into an agreement to amend the Commercial
Paper Facility which increased the funds available for borrowings from $140.0
million to $190.0 million. As of December 31, 1992 and 1993, CRIIMI MAE had
borrowed a total of approximately $186.3 million and $95.3 million,
respectively.
F-25
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The base issuance rate for commercial paper issued under CRIIMI MAE's
commercial paper facility (the Commercial Paper Facility) ranged from 3.20% to
4.45% during the year ended December 31, 1992 and 3.15% to 3.68% during the
year ended December 31, 1993, and was 4.02% and 3.41% as of December 31, 1992
and 1993, respectively.
CRIIMI MAE's Commercial Paper Facility provides for the issuance of
commercial paper by CRI Funding Corporation, an unaffiliated special purpose
corporation, which lends the proceeds from the issuance to CRIIMI MAE. If
commercial paper is not issued, the special purpose corporation may meet its
obligation to provide financing to CRIIMI MAE by borrowing at a rate of LIBOR
plus 0.50% under a $140.0 million revolving credit facility which was
established in connection with the Commercial Paper Facility.
Borrowings pursuant to the Commercial Paper Facility are collateralized by a
pledge of certain of CRIIMI MAE's Government Insured Multifamily Mortgages.
The loan agreements contain numerous covenants which CRIIMI MAE must satisfy,
including requirements that the fair value of collateral pledged must equal at
least 110% of the amounts borrowed and that interest on the collateral pledged
equal at least 120% of the debt service on the amounts borrowed. In addition,
60% of the Government Insured Multifamily Mortgages pledged as collateral must
be GNMA Securities. As of December 31, 1993, Government Insured Multifamily
Mortgages held directly by CRIIMI MAE with a market value and face value of
approximately $145.4 million and $139.7 million, respectively, were used as
collateral pursuant to the Commercial Paper Facility.
In February 1993, CRIIMI MAE entered into an agreement to replace a $190.0
million letter of credit which provided the credit enhancement for the
Commercial Paper Facility and related revolving credit facility, with two
letters of credit in the amount of $35.0 million and $155.0 million provided
by National Australia Bank, Limited and Canadian Imperial Bank of Commerce
(CIBC), respectively. In April 1993, the letter of credit provided by CIBC was
reduced to $105.0 million. Subsequent to December 31, 1993, the special
purpose corporation replaced borrowings under the Commercial Paper Facility
with revolving credit loans. These revolving credit loans were scheduled to
mature on January 28, 1994; however, the maturity date has been extended until
February 28, 1994. CRIIMI MAE executed a Commitment Letter and Term Sheet for
a revolving credit facility, dated November 24, 1993, to replace these
agreements with a 30-month non-amortizing bank loan to be issued prior to the
expiration date of the letter of credit agreements by lenders including the
aforementioned bank group on terms substantially similar to the April 1993
Master Repurchase Agreements (defined below). While there is no assurance,
CRIIMI MAE expects to close on such new revolving credit facility on or before
February 28, 1994. If CRIIMI MAE is unable to consummate the loan by such
date, the Adviser believes that it will be able to obtain a further extension
of its existing revolving credit loans.
11. LONG-TERM DEBT
The following table summarizes CRIIMI MAE's long-term debt as of December
31, 1992 and 1993:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1992 1993
----------- ------------
<S> <C> <C>
Master Repurchase Agreements....................... $ -- $331,712,648
Bank Term Loan..................................... 61,668,480 52,026,400
----------- ------------
Total Long-Term Debt........................... $61,668,480 $383,739,048
=========== ============
</TABLE>
CRIIMI MAE's long-term debt matures over the next three years as follows:
<TABLE>
<S> <C>
1994........................................................ $ 15,800,000
1995........................................................ 15,800,000
1996........................................................ 352,139,048
------------
Total....................................................... $383,739,048
============
</TABLE>
F-26
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Master Repurchase Agreements
On April 30, 1993, CRIIMI MAE entered into master repurchase agreements (the
Master Repurchase Agreements) with Nomura Securities International, Inc. and
Nomura Asset Capital Corporation (collectively, Nomura) which provide CRIIMI
MAE with $350.0 million of available financing for a three-year term. CRIIMI
MAE intends to seek renewal of the Master Repurchase Agreements upon
expiration. Interest on such borrowings is based on the three-month LIBOR plus
0.75% or 0.50% depending on whether FHA-Insured Loans or GNMA Securities,
respectively, are pledged as collateral. For April through December 1993, the
three-month LIBOR for these borrowings ranged from 3.18% to 3.50%. The value
of the collateral pledged must equal at least 105% and 110% of the amounts
borrowed for GNMA Securities and FHA-Insured Loans, respectively. No more than
60% of the collateral pledged may be FHA-Insured Loans and no less than 40%
may be GNMA Securities. As of December 31, 1993, mortgage investments directly
owned by CRIIMI MAE which approximate $349.4 million at market value and
$342.2 million at face value, were used as collateral pursuant to certain
terms of the Master Repurchase Agreements. As of December 31, 1993, CRIIMI
MAE's debt-to-equity ratio, excluding approximately $41.0 million of
borrowings committed for investment in mortgages, was 2.2:1 and its debt-to-
equity ratio, including such borrowings, was 2.4:1.
As of December 31, 1993, CRIIMI MAE used approximately $281.7 million of the
funds available under the Master Repurchase Agreements to acquire Government
Insured Multifamily Mortgages and $50.0 million to repay a portion of
borrowings under the Commercial Paper Facility. In addition, approximately
$18.3 million of the balance of the funds available have been committed for
investment in Government Insured Multifamily Mortgages or advances on
Government Insured Construction Mortgages.
On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura will provide CRIIMI MAE with
an additional $150.0 million of available financing for a three-year term. The
agreements provide that the funding will be utilized to purchase FHA-Insured
Loans and GNMA Securities in the event of the successful completion of the
offering of Shares hereby. In that event, it is contemplated that CRIIMI MAE
will borrow the full $150.0 million no earlier than the consummation of this
offering but no later than July 1, 1994. The terms of the $150.0 million
financing arrangements are similar to the terms of the Master Repurchase
Agreements entered into in April 1993.
Bank Term Loan
On October 23, 1991, CRIIMI MAE entered into a credit agreement with two
banks for a reducing term loan facility (the Bank Term Loan) in an aggregate
amount not to exceed $85.0 million, subject to certain terms and conditions.
In December 1992, the credit agreement was amended to increase the reducing
term loan by $15.0 million. The Bank Term Loan had an outstanding principal
balance of approximately $61.7 million and $52.0 million as of December 31,
1992 and 1993, respectively. As of December 31, 1992 and 1993, the Bank Term
Loan was secured by the value of 17,784,000 and 13,874,000 CRI Liquidating
shares owned by CRIIMI MAE, respectively. As a result of principal payments on
the Bank Term Loan in 1993, 750,000 of the 13,874,000 CRI Liquidating shares
pledged as collateral were released in January 1994. The Bank Term Loan
requires a quarterly principal payment based on the greater of the return of
capital portion of the dividend received by CRIIMI MAE on CRI Liquidating
shares securing the Bank Term Loan or an amount to bring the Bank Term Loan to
its scheduled outstanding balance at the end of such quarter. The minimum
amount of annual principal payments is approximately $15.8 million, with any
remaining amounts of the original $85.0 million of principal due in April 1996
and any remaining amounts of the $15.0 million of increased principal due in
December 1996.
The amended Bank Term Loan provides for an interest rate of 1.10% over the
three-month LIBOR plus an agent fee of 0.05% per year. During 1992 and 1993,
the three-month LIBOR for borrowings under the Bank Term Loan ranged from
3.44% to 4.50% and 3.19% to 3.59%, respectively.
F-27
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 31, 1991, with the $85 million from the Bank Term Loan and the
debt service reserve account, CRIIMI MAE repurchased approximately $97.6
million and defeased the remaining $19.2 million of the outstanding notes
issued pursuant to an Indenture dated November 28, 1989 (the Notes). CRIIMI
MAE purchased approximately $21.6 million of U.S. Treasury Securities to fund
the principal and interest due in accordance with the original payment
schedule to defease the Notes which were not repurchased. As a result of this
early extinguishment of debt, CRIIMI MAE recognized an extraordinary loss of
approximately $6.6 million in the accompanying consolidated statements of
income for the year ended December 31, 1991. All remaining costs associated
with the Bank Term Loan have been included in deferred financing fees on the
accompanying balance sheet and will be amortized using the effective interest
method over the life of the Bank Term Loan. However, for tax purposes these
deferred financing fees as well as the extraordinary loss have been
capitalized and will be amortized over the term of the Bank Term Loan.
12. INTEREST RATE HEDGE AGREEMENTS
CRIIMI MAE is subject to the risk that changes in interest rates could
reduce Net Positive Spreads by increasing CRIIMI MAE's borrowing costs and/or
decreasing the yield on its Government Insured Multifamily Mortgages. An
increase in CRIIMI MAE borrowing costs could result from an increase in short-
term interest rates. To partially limit the adverse effects of rising interest
rates, CRIIMI MAE has entered into a series of interest rate hedging
agreements in an aggregate notional amount approximately equal to all of its
outstanding borrowings and commitments. To the extent CRIIMI MAE has not fully
hedged its portfolio, in periods of rising interest rates CRIIMI MAE's overall
borrowing costs would increase with little or no overall increase in mortgage
investment income, resulting in returns to shareholders that would be lower
than those available if interest rates had remained unchanged.
Borrowings by CRIIMI MAE generally are hedged by swap, cap or collar
agreements. As of December 31, 1993, CRIIMI MAE had in place interest rate
collars on the indices underlying borrowing rates for the Commercial Paper
Facility (the CP Index) with an aggregate notional amount of $115 million, a
weighted average floor of 8.55% and a weighted average cap of 10.37%. An
interest rate collar limits the CP Index to a maximum interest rate and also
enables CRIIMI MAE to receive the benefit of a decline in the CP Index to the
floor of the collar for the period of the collar. To the extent that the CP
Index increases, CRIIMI MAE's overall borrowing costs would not increase until
the CP Index reaches the level of the floor of the collar. At that point,
CRIIMI MAE's borrowing costs would increase as the CP Index increases but only
until the CP Index reaches the maximum rate provided for by the collar.
As of December 31, 1993, CRIIMI MAE had in place interest rate caps on the
CP Index and LIBOR underlying borrowing rates for the Commercial Paper
Facility and Master Repurchase Agreements. The caps based on the CP Index have
an aggregate notional amount of $50 million with a weighted average cap of
8.73%. The caps based on LIBOR have an aggregate notional amount of $300
million with a weighted average cap of 6.23%. CRIIMI MAE also had an interest
rate cap with a notional amount of approximately $63 million and a cap of 6.5%
on the LIBOR underlying the Bank Term Loan. An interest rate cap effectively
limits CRIIMI MAE's interest rate risk on floating rate borrowings by limiting
the CP Index or LIBOR, as the case may be, to a maximum interest rate for the
period of the cap. To the extent the CP Index or LIBOR decrease, CRIIMI MAE's
borrowing costs would decrease under such caps. To the extent the CP Index or
LIBOR increases, CRIIMI MAE's borrowing costs would increase but only until
the CP Index or LIBOR reaches the maximum rate provided for by the cap. As of
December 31, 1993, certain cap agreements based on the three-month LIBOR with
a notional amount of $300 million were between approximately 2.62% and 3.13%
above the current three-month LIBOR.
On December 1, 1993, CRIIMI MAE paid approximately $4.9 million to terminate
an interest rate swap entered into on February 8, 1990 with a notional amount
of $25 million and a fixed rate of 9.23%. The termination of this swap was
effective December 1, 1993. The cost to terminate the interest rate swap was
expensed in the accompanying consolidated statement of income for the year
ended December 31, 1993 as
F-28
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the underlying debt under the Commercial Paper Facility being hedged was
repaid. As of December 31, 1993, CRIIMI MAE had in place no swap agreements.
Current interest rates are substantially lower than when CRIIMI MAE entered
into $165 million of its existing interest rate hedging agreements. As of
December 31, 1993, certain collar agreements based on the CP Index with a
notional amount of $115 million carried minimum interest rates which were
between approximately 5.0% and 5.4% above the current CP Index. Such hedging
agreements expire in 1995. While there is no assurance that any new agreements
will be made, the Adviser is actively exploring alternatives to replace these
hedging agreements when they expire in order to capitalize on the current low
interest rate environment.
As a result of minimum interest rate levels associated with the swap
agreement terminated in December, 1993 and the collar agreements which expire
in 1995, CRIIMI MAE incurred additional interest expense of $4.3 million, $8.1
million and $8.6 million for the years ended December 31, 1991, 1992 and 1993,
respectively, of which approximately $0.8 million, $1.3 million and $1.4
million, respectively, was attributable to the terminated swap agreement. The
additional interest expense amounts also include amortization of approximately
$0.1 million, $0.2 million and $0.6 million, respectively, related to up-front
hedging costs.
The following table sets forth information relating to CRIIMI MAE's hedging
agreements as of December 31, 1993 with respect to borrowings under the
Commercial Paper Facility and Master Repurchase Agreements:
<TABLE>
<CAPTION>
HEDGING NOTIONAL
INSTRUMENT AMOUNT EFFECTIVE DATE MATURITY DATE FLOOR CAP INDEX(C)
<S> <C> <C> <C> <C> <C> <C>
Collar $ 30.0 million March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar 20.0 million March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar 30.0 million July 8, 1990 February 8, 1995 8.625% 10.625% CP
Accreting Collar 35.0 million July 9, 1990 through July 9, 1995 8.750% 10.500% CP
December 9, 1990
Cap(a) 25.0 million May 24, 1991 May 24, 1996 N/A(a) 9.000% CP
Cap 25.0 million June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap(b) 50.0 million June 25, 1993 June 25, 1998 N/A 6.50% LIBOR
Cap(b) 50.0 million July 1, 1993 June 3, 1996 N/A 6.50% LIBOR
Cap(b) 50.0 million July 20, 1993 July 20, 1998 N/A 6.25% LIBOR
Cap(b) 50.0 million August 10, 1993 August 10, 1997 N/A 6.00% LIBOR
Cap(b) 50.0 million August 27, 1993 August 27, 1997 N/A 6.125% LIBOR
Cap(b) 50.0 million November 10, 1993 November 10, 1997 N/A 6.00% LIBOR
--------------
$465.0 million
==============
</TABLE>
- --------
(a) On May 24, 1993, CRIIMI MAE and CIBC terminated the floor on this former
collar. In consideration of such termination, CRIIMI MAE paid CIBC
approximately $2.3 million. This amount was deferred on the accompanying
consolidated balance sheet as the underlying debt being hedged is still
outstanding. This amount will be amortized for the period from May 24,
1993 through May 24, 1996. CRIIMI MAE amortized approximately $0.5 million
of this deferred amount in the accompanying consolidated statements of
income for the year ended December 31, 1993.
(b) Approximately $4.5 million of costs were incurred in 1993 in connection
with the establishment of interest rate hedges. These costs are being
amortized using the effective interest method over the term of the
interest rate hedge agreement for financial statement purposes and in
accordance with the regulations under Internal Revenue Code Section 446
with respect to notional principal contracts for tax purposes.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index
(CP) or three-month LIBOR.
In addition, CRIIMI MAE entered into an interest rate hedge agreement on the
Bank Term Loan to cap LIBOR at 6.5% based on the expected paydown schedule and
an incremental hedge of 10.5% on the difference between the required and
expected paydown schedules. As of December 31, 1993, three-month LIBOR was
approximately 3.13% below the 6.5% cap.
CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate hedging agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by
any of the counterparties, each of which has long-term debt ratings of A or
above by Standard and Poor's and A2 or above by Moody's.
F-29
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. TREASURY STOCK
On January 12, 1990, CRIIMI MAE commenced a cash tender offer (the Tender
Offer) to repurchase and to hold in treasury up to 1,000,000 outstanding CRIIMI
MAE shares at $9.50 per share. The offer expired at midnight on February 12,
1990. Pursuant to the Tender Offer, CRIIMI MAE purchased and holds in treasury
1,001,274 CRIIMI MAE shares at $9.50 per share which are shown at cost on the
accompanying consolidated balance sheets. Such shares could be reissued for
such purposes as, among others, the acquisition of other businesses and the
distribution of stock dividends.
14. ACQUISITION--AIM FUNDS INTEREST
Effective March 1, 1991, CRIIMI MAE entered into a Purchase Agreement dated
as of December 13, 1990 with Integrated and certain of its affiliates, and AIM
Acquisition Corporation to acquire certain of the interests of Integrated and
its affiliates in the AIM Funds sponsored by Integrated. On September 6, 1991,
CRIIMI, Inc. acquired all of the general partnership interests in the AIM Funds
for $23,342,591. In addition, CRIIMI MAE and CRI each invested $1,086,714 for
an aggregate 20% limited partnership interest in a limited partnership which
serves as the adviser to the AIM Funds. The remaining 80% of the adviser
partnership is owned by parties unrelated to CRIIMI MAE or CRI. The adviser
partnership entered into subadvisory agreements with an affiliate of CRI under
which such affiliate will perform certain services with respect to the mortgage
portfolios of the AIM Funds. For its investment, CRIIMI, Inc. will receive the
General Partner's share of income, loss and distributions (which ranges among
the AIM Funds from 2.9%-4.9%) from each fund and an affiliate of CRIIMI, Inc.
will receive certain expense reimbursements. CRIIMI MAE is guaranteed an annual
return on its investment in the adviser partnership, through the distributions
it receives indirectly from the adviser partnership and a right of offset
against amounts payable to its Adviser (see Note 3).
F-30
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Combined summarized financial information as of December 31, 1992 and 1993
and for the years ended December 31, 1991, 1992 and 1993 of the AIM Funds in
which CRIIMI MAE's equity in the net income exceeds 10 percent of CRIIMI MAE's
net income, is as follows:
COMBINED SUMMARIZED FINANCIAL INFORMATION
(UNAUDITED)
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-------------------------
1992 1993
------------ ------------
<S> <C> <C>
Investment in mortgages (including mortgages
held for disposition).......................... $551,945,077 $574,143,207
Cash and cash equivalents....................... 35,517,072 33,083,298
Receivables and other assets.................... 35,038,462 16,309,358
------------ ------------
Total assets.................................. $622,500,611 $623,535,863
============ ============
Accounts payable................................ $ 5,558,778 $ 4,320,381
Distributions payable........................... 10,932,331 16,140,188
Partners' equity................................ 606,009,502 603,075,294
------------ ------------
Total liabilities and partners' equity........ $622,500,611 $623,535,863
============ ============
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1991 1992 1993
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Mortgage investment income............. $47,564,646 $43,539,260 $50,675,275
Other income........................... 4,110,858 4,399,554 2,381,912
----------- ----------- -----------
Total income......................... 51,675,504 47,938,814 53,057,187
----------- ----------- -----------
Expenses:
Management fees........................ 7,287,893 5,410,464 5,648,028
Other expenses......................... 2,596,283 3,067,730 2,181,309
----------- ----------- -----------
Total expenses....................... 9,884,176 8,478,194 7,829,337
----------- ----------- -----------
Income before mortgage dispositions...... 41,791,328 39,460,620 45,227,850
Gains from mortgage dispositions......... 801,083 148,955 3,422,500
Losses from mortgage dispositions........ (13,005,766) (2,510,571) (2,034,941)
----------- ----------- -----------
Net income............................... $29,586,645 $37,099,004 $46,615,409
=========== =========== ===========
</TABLE>
F-31
<PAGE>
CRIIMI MAE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. SETTLEMENT OF LITIGATION
On March 22, 1990, a complaint was filed, on behalf of a class comprised of
certain limited partners of CRIIMI III and shareholders of CRIIMI II (the
Plaintiffs), in the Circuit Court for Montgomery County, Maryland against
CRIIMI MAE, CRI Liquidating, CRIIMI I and its general partner, CRIIMI II,
CRIIMI III and its general partner, CRI and William B. Dockser, H.William
Willoughby and Martin C. Schwartzberg (the Defendants). On November 18, 1993,
the Court entered an order granting final approval of a settlement agreement
between the Plaintiffs and the Defendants pursuant to which CRIIMI MAE will
issue to class members, including certain former limited partners of CRIIMI I,
up to 2.5 million warrants, exercisable for 18 months after issuance, to
purchase shares of CRIIMI MAE common stock at exercise price of $13.17 per
share. In addition, the settlement included a payment of $1.4 million for
settlement administration costs and the Plaintiff's attorneys' fees and
expenses. Insurance provided $1.15 million of the $1.4 million cash payment,
with the balance paid by CRIIMI MAE. CRIIMI MAE accrued a total of $1.5 million
in the accompanying consolidated statements of income for the uninsured portion
of the cash settlement paid by CRIIMI MAE and for the estimated value of the
warrants that are expected to be issued as part of the settlement. The number
of warrants to be issued is dependent on the number of class members who submit
a proof of claim within 60 days of January 14, 1994 (the date the proof of
claim was mailed by CRIIMI MAE).
The issuance of the warrants pursuant to the settlement agreement will have
no impact on CRIIMI MAE's tax basis income. Depending upon the number of
warrants issued, CRIIMI MAE will record in its financial statements a non-cash
expense ranging from $0 (if no warrants are issued) to $5 million (if all 2.5
million warrants are issued). Based on the Adviser's estimate of the number of
warrants to be issued, CRIIMI MAE has accrued a total provision of $1.5 million
(which includes the uninsured portion of the cash settlement) in the
accompanying consolidated statement of income for 1993, which provision may be
increased or decreased once the actual number of warrants issued is known. The
Adviser estimates that the final charge (after adjustments to the provision) to
net income and the increase in the number of shares of common stock outstanding
as a result of the exercise of the warrants will not have a material adverse
effect on CRIIMI MAE's net income and net income per share. The exercise of the
warrants will not result in a charge to CRIIMI MAE's tax basis income. Further,
the Adviser believes that the exercise of the warrants will not have material
adverse effect on CRIIMI MAE's tax basis income per share or annualized cash
dividends per share because CRIIMI MAE intends to invest the proceeds from any
exercise of the warrants in accordance with its investment policy to purchase
Government Insured Multifamily Mortgages and other authorized investments.
However, in the case of a significant decline in the yield on mortgage
investments and a significant decrease in the Net Positive Spread which CRIIMI
MAE could achieve on its borrowings, the exercise of the warrants may have a
dilutive effect on tax basis income per share and cash dividends per share.
Receipt of the proceeds from the exercise of the warrants will increase CRIIMI
MAE's shareholders' equity.
F-32
<PAGE>
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CRIIMI MAE OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OF-
FER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT ITS DATE.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information..................................................... 2
Incorporation Of Certain Documents By Reference........................... 2
Prospectus Summary........................................................ 3
CRIIMI MAE................................................................ 6
Use of Proceeds........................................................... 12
Price Range Of Common Stock and Dividends................................. 12
Capitalization............................................................ 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 15
Management................................................................ 29
Certain United States
Tax Considerations....................................................... 31
Underwriting.............................................................. 34
Legal Matters............................................................. 36
Experts................................................................... 36
Appendix A................................................................ A-1
Index To Financial Statements............................................. F-1
</TABLE>
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5,000,000 SHARES
CRIIMI MAE INC.
[LOGO OF CRIIMI MAE APPEARS HERE]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CS FIRST BOSTON
OPPENHEIMER & CO., INC.
ADVEST, INC.
LEGG MASON WOOD WALKER
INCORPORATED
MARCH 8, 1994
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