CRIIMI MAE INC, 10-Q, 1995-11-13

CRIIMI MAE INC
10-Q, 1995-11-13
ASSET-BACKED SECURITIES

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<PAGE>1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 1995
------------------

Commission file number 1-10360
-------

CRIIMI MAE INC.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)

Maryland 52-1622022
- ------------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)

(301) 816-2300
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

Class Outstanding as of November 13, 1995
- ---------------------------- -----------------------------------
Common Stock, $.01 par value 30,407,024

<PAGE>2

CRIIMI MAE INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 1995

Page
----

PART I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets - as of September 30, 1995
(unaudited) and December 31, 1994 . . . . . . . 3

Consolidated Statements of Income - for the
three and nine months ended September 30, 1995
and 1994 (unaudited) . . . . . . . . . . . . . 6

Consolidated Statement of Changes in
Shareholders' Equity - for the nine months
ended September 30, 1995 (unaudited) . . . . . 7

Consolidated Statements of Cash Flows -
for the nine months ended September 30, 1995
and 1994 (unaudited) . . . . . . . . . . . . . 8

Notes to Consolidated Financial Statements . . .
(unaudited) . . . . . . . . . . . . . . . . . . 10

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 40

PART II. Other Information

Item 2. Legal Proceedings . . . . . . . . . . . . . . . . 53

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 54

Signature . . . . . . . . . . . . . . . . . . . . . . . . 55

<PAGE>3

PART I. FINANCIAL INFORMATION
PART 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- ---------------
(Unaudited)
<S> <C> <C>
Investment in mortgages, at
amortized cost, net of
unamortized discount and premium $ 447,347,680 $ 703,215,753

Investment in participation
certificates, at amortized cost,
net of unamortized discount and
premium 252,675,428 --

Investment in mortgages, at fair
value 111,901,988 154,373,576

Investment in subordinated
securities, at amortized cost,
net of unamortized discount and 117,109,050 38,858,349
premium

Investment in insured mortgage funds
and advisory partnership 29,405,915 29,923,240

Terminated contract and workforce, net
of accumulated amortization of $597,500 23,302,500 --

Investment in Services Corporation 6,867,034 --

Investment in Services Partnership 951,681 --

Mortgage servicing assets, net of
accumulated amortization of $22,025 858,975 --

Goodwill, net of accumulated amortization
of $96,135 3,910,738 --

Cash and cash equivalents 12,374,381 5,143,171

Note receivable 5,002,183 --

Receivables and other assets 9,795,882 9,097,080

Deferred financing and debt issue costs,
net of accumulated amortization of
$4,504,367 and $11,065,595,
respectively 6,746,061 8,632,333

Deferred costs, principally paid to
related parties, net of
accumulated amortization of
$1,198,333 and $1,933,697,
respectively 5,675,544 5,806,499
-------------- --------------
Total assets $1,033,925,040 $ 955,050,001
============== ==============
<PAGE>4

The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>

<PAGE>5

PART I. FINANCIAL INFORMATION
PART 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Master Repurchase Agreements $ 346,996,771 $456,984,347
Funding Note Payable, net of unamortized
discount of $9,424,137 239,900,458 --
Revolving Credit Facility -- 115,000,000
Other Repurchase Agreements 77,484,429 24,891,783
Bank Term Loans 22,016,880 30,371,800
Deferred compensation payable 5,002,183 --
Interest payable 4,081,267 6,645,676
Accounts payable and accrued expenses 2,032,476 1,497,290
-------------- ------------
Total liabilities 697,514,464 635,390,896
-------------- ------------
Minority interests in
consolidated subsidiary 51,082,615 69,617,184
-------------- ------------
Commitments and contingencies

Shareholders' equity:
Preferred stock -- --
Common stock, $0.01 par value, 30,935,618
and 26,227,253 shares issued as of
September 30, 1995 and December 31, 1994,
respectively, and 30,434,344 and 25,725,979
shares outstanding as of September 30, 1995
and December 31, 1994, respectively 309,356 262,272
Net unrealized gains on mortgage
investments 14,175,513 10,316,768
Additional paid-in capital 275,605,195 244,224,984
-------------- ------------
290,090,064 254,804,024
Less treasury stock, at cost -
501,274 shares (4,762,103) (4,762,103)
-------------- ------------
Total shareholders' equity 285,327,961 250,041,921
-------------- ------------
Total liabilities and shareholders'
equity $1,033,925,040 $955,050,001
============== ============

The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>

<PAGE>6

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME

<TABLE> (Unaudited)
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Mortgage investment income $ 16,461,886 $ 18,120,901 $ 49,763,511 $ 49,300,366
Income from investment in subordinated
securities 2,811,803 335,289 6,248,247 335,289
Other investment income 315,689 128,993 1,313,605 894,214
Income from investment in insured
mortgage funds and advisory partnership 585,896 579,162 1,733,290 1,737,489
Income from Services Corporation 226,543 -- 226,543 --
Equity in income of Services Partnership 19,681 -- 19,681 --
------------ ------------ ------------ ------------
20,421,498 19,164,345 59,304,877 52,267,358
------------ ------------ ------------ ------------
Expenses:
Interest expense 12,010,136 10,812,920 36,063,926 27,853,771
Adjustment to hedges for valuation and sales 1,944,837 -- 1,944,837 --
Annual fee to related party 95,702 887,070 1,813,831 2,369,953
Incentive fee to related party -- 233,623 -- 497,675
General and administrative 1,250,096 752,541 3,112,184 2,548,887
Depreciation and amortization 84,735 53,479 219,825 248,411
Amortization of assets acquired in the
Merger 715,660 -- 715,660 --
Mortgage servicing fees 128,183 189,502 409,681 465,914
Adjustment to provision for settlement
of litigation -- -- -- (557,340)
------------ ------------ ------------ ------------
16,229,349 12,929,135 44,279,944 33,427,271
------------ ------------ ------------ ------------
Income before mortgage dispositions 4,192,149 6,235,210 15,024,933 18,840,087

Mortgage dispositions:
Gains -- 870,469 1,819,176 13,153,450
Losses (9,409) (146,030) (194,306) (356,068)
------------ ------------ ------------ ------------
Income before minority interests 4,182,740 6,959,649 16,649,803 31,637,469

Minority interests in net income of
consolidated subsidiary (945,381) (1,510,398) (3,887,635) (10,129,794)
------------ ------------ ------------ ------------
Net income $ 3,237,359 $ 5,449,251 $ 12,762,168 $ 21,507,675
============ ============ ============ ============
Net income per share $ .11 $ .22 $ .46 $ .90
============ ============ ============ ============
Weighted average shares outstanding,
exclusive of shares held in treasury 30,133,575 25,183,533 27,721,252 23,833,168
============ ============ =========== ============

The accompanying notes are an integral
part of these consolidated financial statements.

</TABLE>

<PAGE>7

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the nine months ended September 30, 1995

(Unaudited)

Net
Unrealized
Gains on Additional Total
Common Stock Mortgage Paid-In Undistributed Treasury Shareholders'
Par Value Investments Capital Net Income Stock Equity
----------- ------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 262,272 $ 10,316,768 $244,224,984 $ -- $(4,762,103) $ 250,041,921
Net income -- -- -- 12,762,168 -- 12,762,168
Dividends of $.69 per weighted
average share -- -- (6,368,778) (12,762,168) -- (19,130,946)
Adjustment to net unrealized
gains on mortgage investments
of subsidiary and mortgages
held for disposition -- 3,858,745 -- -- -- 3,858,745
Shares issued 47,084 -- 37,748,989 -- -- 37,796,073
----------- ------------- ------------ ------------ ----------- -------------
Balance, September 30, 1995 $ 309,356 $ 14,175,513 $275,605,195 $ -- $(4,762,103) $285,327,961
=========== ============= ============ ============ =========== =============

The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>

<PAGE>8

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION> For the nine months ended
September 30,
1995 1994
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $12,762,168 $21,507,675
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of deferred financing costs 3,054,129 3,307,341
Amortization of deferred AIM acquisition costs 274,790 184,768
Amortization of assets acquired in the Merger 715,660 --
Adjustment to hedges for valuation and sales 1,944,837 --
Depreciation and amortization 219,825 248,411
Mortgage discount amortization (503,079) (726,170)
Subordinated securities discount amortization (705,026) (23,881)
Mortgage premium accretion 81,225 70,828
Equity in earnings of Services Corporation 3,966 --
Equity in earnings of Services Partnership (19,681) --
Gains on mortgage dispositions (1,819,176) (13,153,450)
Losses on mortgage dispositions 194,306 356,068
Equity in income from investment in limited partnerships (89,645) 19,145
Minority interests in earnings of consolidated subsidiary 3,887,635 10,129,794
Changes in assets and liabilities:
Increase in receivables and other assets (849,860) (885,068)
Decrease in accounts payable and accrued expenses (1,598,514) (1,794,239)
(Decrease) increase in interest payable (2,564,409) 3,152,829
------------ ------------
Net cash provided by operating activities 14,989,151 22,394,051
------------ ------------
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (6,049,793) (231,114,482)
Purchase of subordinated securities (77,866,846) (12,344,708)
Receipt of principal from subordinated securities 321,171 37,837
Proceeds from mortgage dispositions 56,162,174 74,854,364
Receipt of mortgage principal from scheduled payments 4,398,649 4,514,584
Receipt of principal from investment in insured mortgage funds 242,535 579,928
Payment of deferred costs (1,213,004) (646,093)
Annual return from investment in limited partnerships 189,969 189,969
Investment in Services Partnership (394,000) --
------------ ------------
Net cash used in investing activities (24,209,145) (163,928,601)
------------ ------------
Cash flows from financing activities:
Proceeds from obligations incurred under financing facilities 560,357,330 291,435,026
Principal payments on obligations incurred under financing
facilities (510,306,722) (159,956,424)
Increase in deferred financing and debt issue costs (3,112,694) (1,834,845)
Dividends (including return of capital) paid to shareholders,
including minority interests (44,519,882) (50,339,993)
Proceeds from the issuance of common stock 14,238,595 56,250,000
Payment of stock issuance/offering costs (205,423) (4,050,000)
------------ ------------
Net cash provided by financing activities 16,451,204 131,503,764
------------ ------------
Net increase (decrease) in cash and cash equivalents 7,231,210 (10,030,786)
Cash and cash equivalents, beginning of period 5,143,171 13,599,860

<PAGE>9

------------ ------------
Cash and cash equivalents, end of period $ 12,374,381 $ 3,569,074
============ ============
The accompanying notes are an integral part
of these consolidated financial statements.
</TABLE>

<PAGE>10

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization

CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage Association,
Inc.) is an infinite-life, actively managed real estate investment trust (REIT).
On June 30, 1995, pursuant to a shareholder-approved merger transaction (the
Merger), CRIIMI MAE became a fully integrated, self-administered and self-
managed mortgage company, engaging in mortgage investment, mortgage advisory
services and mortgage servicing and origination activities. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders by investing in government insured and
guaranteed mortgage investments secured by multifamily housing complexes
(Government Insured Multifamily Mortgages) located throughout the United States
and uninsured mortgage and mortgage-related investments, such as higher yielding
subordinated securities, using a combination of debt and equity financing (see
Note 6, below).

In connection with the Merger, as further described in Note 4, on June 30,
1995, CRICO Mortgage Company, Inc. (CRICO Mortgage), CRI/AIM Management Inc.
(CRI/AIM Management), and CRI Acquisition, Inc. (CRI Acquisition ) were merged
with and into CRIIMI MAE Management, Inc. (CRIIMI Management), a newly-formed,
wholly owned subsidiary of CRIIMI MAE. CRICO Mortgage, CRI/AIM Management and
CRI Acquisition (collectively, the CRI Mortgage Businesses) were affiliates of
C.R.I., Inc. (CRI). In connection with the Merger, on June 30, 1995, all of the
employees of the CRI Mortgage Businesses became employees of CRIIMI Management
and the advisory agreement between CRIIMI MAE, and its adviser, CRI Insured
Mortgage Associates Adviser Limited Partnership (the Adviser), was terminated,
as discussed below. Immediately prior to the Merger, the CRI Mortgage
Businesses sold the sub-advisory contracts related to four publicly held limited
partnerships known as the American Insured Mortgage Investors Funds (the AIM
Funds) and certain mortgage servicing contracts to CRIIMI MAE Services, Inc.
(the Services Corporation), a newly-formed Maryland corporation, in exchange for
15-year interest bearing installment notes in the aggregate principal amount of
$6,586,000. The Services Corporation immediately contributed these assets to
CRIIMI MAE Services Limited Partnership, a newly-formed Maryland limited
partnership (the Services Partnership), in exchange for a 92% sole limited
partnership interest. The remaining mortgage servicing contracts acquired by
CRIIMI Management in the Merger were immediately contributed to the Services
Partnership in exchange for an 8% sole general partnership interest.
Additionally, on June 30, 1995, CRIIMI MAE contributed $285,000 to the Services
Corporation in exchange for 100% of the non-voting common stock (which shares
are entitled to 95% of the dividends) of the Services Corporation and certain
directors and officers of CRIIMI MAE collectively contributed $15,000 to the
Services Corporation in exchange for 100% of the voting common stock (which
shares are entitled to 5% of the dividends) of the Services Corporation. It is
anticipated that substantially all of the economic benefits of ownership of the
Services Corporation will inure to the benefit of CRIIMI MAE by virtue of its
debt and equity interests therein.

The Services Partnership provides mortgage servicing and advisory services
to third parties, certain affiliates of CRI and the AIM Funds on a fee basis.
Additionally, the Services Partnership acts as the master servicer with respect
to the collateralized mortgage obligations issued in October 1995, as described
in Note 10 below. As of November 1, 1995, the Services Partnership's mortgage
servicing portfolio had an aggregate unpaid principal balance of approximately
$1.3 billion. CRIIMI MAE, through CRIIMI Management, manages the Services
Partnership as general partner.

In addition to its investments in Government Insured Multifamily Mortgages,
subordinated securities, the Services Partnership and the Services Corporation,
CRIIMI MAE also owns approximately 57% of CRI Liquidating REIT, Inc. (CRI
Liquidating), a finite-life, self-liquidating REIT which owns Government

<PAGE>11

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. Organization - Continued

Insured Multifamily Mortgages. CRIIMI MAE also owns 100% of CRIIMI MAE
Financial Corporation II, a wholly owned financing subsidiary formed in
September 1995, which owns participation certificates evidencing 100% beneficial
interests in Government Insured Multifamily Mortgages (see Note 5, below).
CRIIMI MAE also owns 100% of CRIIMI MAE Financial Corporation, a wholly owned
financing subsidiary formed in June 1995, which was formed for the purpose of
issuing collateralized mortgage obligations in October 1995, (see Note 10,
below). Additionally, CRIIMI, Inc., a wholly owned subsidiary of CRIIMI MAE,
owns all of the general partnership interests in the AIM Funds. CRIIMI MAE,
CRI Liquidating, CRIIMI MAE Financial Corporation II, CRIIMI MAE Financial
Corporation, CRIIMI, Inc. and CRIIMI Management are Maryland corporations.

CRIIMI MAE is governed by a board of directors (the Board of Directors), a
majority of whom are independent directors. From inception through June 30,
1995, the Board of Directors engaged the Adviser, an affiliate of CRI, to act in
the capacity of adviser to CRIIMI MAE. Prior to June 30, 1995, the Adviser
conducted CRIIMI MAE's day-to-day operations and managed CRIIMI MAE's portfolio
of Government Insured Multifamily Mortgages and other assets with the goal of
maximizing CRIIMI MAE's value. Under the advisory agreement between CRIIMI MAE
and the Adviser, the Adviser and its affiliates received certain fees and
expense reimbursements from CRIIMI MAE through June 30, 1995. However, as
discussed in Note 4, effective June 30, 1995, CRIIMI MAE became a self-
administered and self-managed REIT and, pursuant to the Merger, the advisory
agreement was terminated. Accordingly, the Adviser no longer manages CRIIMI
MAE's operations and is, thus, not entitled to receive fees and expense
reimbursements from CRIIMI MAE.

CRI Liquidating is also governed by a board of directors, which has engaged
the Adviser to act in the capacity of adviser to CRI Liquidating. Under an
advisory agreement between CRI Liquidating and the Adviser, the Adviser is
obligated to provide administrative services on behalf of CRI Liquidating,
evaluate and negotiate voluntary dispositions of mortgage investments and
conduct CRI Liquidating's day-to-day affairs. In return for these services, the
Adviser is entitled to receive annual fees based on amounts invested by CRI
Liquidating and incentive fees based on the achievement of certain performance
goals. From inception through June 30, 1995, the Adviser and its affiliates
were entitled to reimbursement for certain expenses incurred in connection with
the operation and administration of CRI Liquidating. However, as discussed in
Note 4, on June 30, 1995, affiliates of CRIIMI MAE acquired the mortgage
servicing, origination and advisory businesses conducted by CRI and certain of
its affiliates, including certain of the physical assets and the workforce of
the Adviser. The Adviser will continue to perform advisory services on behalf
of CRI Liquidating following the Merger. However, pursuant to a reimbursement
agreement entered into between the Adviser and CRIIMI Management in connection
with the Merger, the employees of CRIIMI Management perform certain services on
behalf of the Adviser under the CRI Liquidating advisory agreement. While
neither CRIIMI Management nor CRIIMI MAE will receive advisory fees in return
for these services, CRIIMI Management is reimbursed, at cost, for its employees'
time and expenses pursuant to the reimbursement agreement.

2. Basis of Presentation

In management's opinion, the accompanying unaudited consolidated financial
statements of CRIIMI MAE, including CRI Liquidating, CRIIMI Management, CRIIMI
MAE Financial Corporation, CRIIMI MAE Financial Corporation II and CRIIMI, Inc.,
contain all adjustments (consisting of only normal recurring adjustments and
consolidating adjustments) necessary to present fairly the consolidated
financial position of CRIIMI MAE as of September 30, 1995 and December 31, 1994

<PAGE>12

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2. Basis of Presentation - Continued

and the consolidated results of its operations for the three and nine months
ended September 30, 1995 and 1994 and its cash flows for the nine months ended
September 30, 1995 and 1994.

These unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. While management believes that the disclosures
presented are adequate to make the information not misleading, it is suggested
that these financial statements be read in conjunction with the financial
statements and the notes included in CRIIMI MAE's Annual Report filed on Form
10-K and amended on Forms 10-K/A for the year ended December 31, 1994. In
relation to the Merger, it is also suggested that these financial statements be
read in conjunction with the proxy statement dated April 28, 1995, and the
Report on Form 8-K dated June 30, 1995, and filed with the SEC on July 14, 1995.

3. Summary of Significant Accounting Policies

Merger of CRI Mortgage Businesses
---------------------------------
Assets acquired and costs incurred in connection with the Merger were
recorded using the purchase method of accounting. The amounts allocated to
the assets acquired were based on management's estimate of their fair
values with the excess of purchase price over fair value allocated to
goodwill.

The AIM sub-advisory contracts and the mortgage servicing contracts
transferred to the Services Partnership are amortized using the effective
interest method over 10 years. This amortization is reflected through
CRIIMI MAE's equity in earnings of the Services Partnership and the
Services Corporation. The remaining assets acquired by CRIIMI MAE,
including goodwill, are amortized using the straight-line method over ten
years.

Fixed Assets
------------
Fixed assets of approximately $239,000 (included in receivables and
other assets on the accompanying consolidated balance sheet as of September
30, 1995) are recorded at cost. Depreciation of furniture and equipment is
computed over the estimated useful lives of the related assets using the
straight-line method.

<PAGE>13

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Summary of Significant Accounting Policies - Continued

Deferred Financing and Debt Issue Costs
---------------------------------------
Costs incurred in connection with the establishment of CRIIMI MAE's
financing facilities are amortized using the effective interest method over
the terms of the borrowings. Costs incurred to purchase interest rate cap
agreements that qualify for hedge accounting are amortized over the term of
the interest rate cap agreement. Interest rate cap agreements that do not
qualify for hedge accounting are accounted for at fair value, with any gain
or loss included as a component of net income.

Discount on Funding Note Payable
--------------------------------
Discounts incurred in connection with the issuance of debt are
amortized using the effective interest method over the term of the debt.

Investment in Services Corporation
----------------------------------
CRIIMI MAE accounts for its investment in the Services Corporation
under the equity method because the voting common stock of the Services
Corporation is owned by directors and officers of CRIIMI MAE and because
CRIIMI MAE is entitled to substantially all of the economic benefits of
ownership of the Services Corporation.

Investment in Services Partnership
----------------------------------

CRIIMI MAE's investment in the Services Partnership is accounted for
under the equity method since unaffiliated limited partners have the right
to approve any significant actions that are required to manage the Services
Partnership.

Statements of Cash Flows
------------------------
Interest expense paid for the nine months ending September 30, 1995
and 1994 was $35,574,206 and $21,393,601, respectively.

In connection with the Merger, the following significant non-cash
investing and financing activities were recorded during the nine months
ending September 30, 1995:

<PAGE>14

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3. Summary of Significant Accounting Policies - Continued

Assets Acquired
---------------
Investment in Services Corporation $ 6,871,000
Investment in Services Partnership 538,000
Note receivable 5,002,183
Terminated contract and workforce 23,900,000
Mortgage servicing assets 881,000
Goodwill 4,006,873
Fixed assets 212,484
Decrease in deferred costs (1,162,756)
Decrease in receivables and other
assets (250,000)
-----------
Total assets acquired $39,998,784
===========

Liabilities assumed and stock issued
------------------------------------
Bank term loan $ 9,100,000
Deferred compensation payable 5,002,183
Merger costs payable 2,133,700
Common stock issued 22,262,901
Value of stock options issued 1,500,000
-----------
Liabilities assumed and stock issued $39,998,784
===========

4. Merger of CRI Mortgage Businesses

On September 29, 1994, a special committee of the Board of Directors (the
Special Committee) was appointed by the Board of Directors to consider whether,
and on what basis, CRIIMI MAE should become self-administered and self-managed.
The members of the Special Committee, Garrett G. Carlson, Sr., G. Richard
Dunnells and Robert F. Tardio, are not and have not been affiliates of CRI or
the CRI Mortgage Businesses nor officers or employees of CRIIMI MAE.

The consideration paid by CRIIMI MAE in connection with the Merger was
determined in negotiations between William B. Dockser and H. William Willoughby
(collectively, the Principals) and the Special Committee. In the negotiations,
the Special Committee was assisted by Duff & Phelps Capital Markets Co. (Duff &
Phelps) and considered the views of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, the financial adviser to CRIIMI MAE with respect to the merger
proposal. Duff & Phelps rendered an opinion to the effect that the merger
proposal was fair to CRIIMI MAE and its stockholders, other than the Principals,
from a financial point of view.

The Special Committee unanimously recommended the merger proposal to the
Board of Directors. The Board of Directors (with the Principals abstaining)
unanimously approved the merger proposal and recommended that the stockholders
of CRIIMI MAE vote for the merger proposal. The merger proposal was approved by
the stockholders of CRIIMI MAE at a meeting held on June 21, 1995. Holders of
approximately fifty six percent of the 26,888,456 shares outstanding as of the
April 24, 1995 record date voted in favor of the Merger. Of the shares voted,
the margin was 8.5 to 1 in favor of the Merger.

The Merger became effective on June 30, 1995 (the Closing Date) at which
time certain assets and liabilities of the CRI Mortgage Businesses were merged
with and into CRIIMI Management. The CRI Mortgage Businesses were affiliates of

<PAGE>15

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Merger of CRI Mortgage Businesses - Continued

CRI. CRI and its affiliates had been involved in mortgage origination,
underwriting, investment and related activities for over 20 years. CRICO
Mortgage was formed in 1975 to assist CRI and its affiliates with mortgage-
related activities.

CRI/AIM Management was formed in 1991 to act as sub-advisor to the AIM
Funds, which hold investments in Government Insured Multifamily Mortgages.
CRI/AIM Management provided origination, servicing, and loan management services
on behalf of the AIM Funds pursuant to its advisory agreements.

As discussed in Note 1, through June 30, 1995, the Adviser provided
advisory services to CRIIMI MAE pursuant to an advisory agreement. Immediately
prior to the Merger, the advisory agreement between CRIIMI MAE and the Adviser
was sold to CRI Acquisition, a newly formed entity.

The consideration paid by CRIIMI MAE (measured on the Closing Date) for the
CRI Mortgage Businesses was approximately $32,900,000. Additionally, CRIIMI MAE
incurred costs of approximately $3.3 million to execute the Merger. As part of
the consideration paid in the Merger, CRIIMI MAE issued on the Closing Date
1,325,419 shares of common stock (Common Shares), which vested immediately, to
each of the Principals. On the Closing Date, CRIIMI MAE issued, for services
rendered in connection with the Merger, to Jay R. Cohen, Frederick J. Burchill,
Deborah A. Linn and Cynthia O. Azzara (collectively, the Executive Officers) a
total of 110,452 Common Shares. The Common Shares issued to the Executive
Officers will vest in three equal installments on the first three anniversaries
of the Closing Date. The aforementioned Common Shares issued to the Principals
and the Executive Officers may not be sold or otherwise transferred, with
certain exceptions, until the third anniversary of the Closing Date. As a
result of these transactions, the Principals and Executive Officers held
approximately 10% of the 30,434,344 Common Shares outstanding as of September
30, 1995.

Pursuant to the Merger Agreement, CRIIMI Management became liable for
certain debt of the CRI Mortgage Businesses in the principal amount of
$9,100,000, as discussed in Note 10, below.

As discussed in Note 9, the Principals and the Executive Officers entered
into employment agreements with CRIIMI Management for terms of five years and
three years, respectively. In addition, each of the Principals received from
CRIIMI MAE options to purchase one million Common Shares at $1.50 per share more
than the aggregate average of the high and low sale prices of Common Shares on
the New York Stock Exchange during the ten trading days preceding the Closing
Date, which average sale price was calculated at $8.27 per share (the Trading
Price) and 500,000 Common Shares at $4.00 per share more than the Trading Price.
The options vest in equal installments on the first five anniversaries of the
Closing Date. The Executive Officers received options to purchase a total of
180,000 Common Shares at $1.50 per share more than the Trading Price. In
addition, certain other officers (the Other Officers) of CRIIMI MAE received
options to purchase a total of 50,000 Common Shares at $1.50 per share more than
the Trading Price. These options vest in equal installments on the first three
anniversaries of the Closing Date. The Principals', Executive Officers' and
Other Officers' options expire on the eighth anniversary of the Closing Date.

<PAGE>16

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

4. Merger of CRI Mortgage Businesses - Continued

As discussed in Note 14, on June 20, 1995, a complaint was filed in the
United States District Court for the District of Maryland against CRIIMI MAE's
directors in connection with the Merger.

5. Investment in Mortgages and Participation Certificates

CRIIMI MAE's consolidated investment in mortgages is comprised of
participation certificates evidencing a 100% undivided beneficial interest in
Government Insured Multifamily Mortgages issued or sold pursuant to programs of
the Federal Housing Administration (FHA) (FHA-Insured Loans), mortgage-backed
securities guaranteed by the Government National Mortgage Association (GNMA)
(GNMA Mortgage-Backed Securities) and Federal Home Loan Mortgage Corporation
(Freddie Mac) participation certificates, as discussed below. FHA-Insured
loans, GNMA Mortgage-backed securities and Freddie Mac participation
certificates are collectively referred to as mortgages herein. Payment of
principal and interest on FHA-Insured Loans is insured by the United States
Department of Housing and Urban Development (HUD) pursuant to Title 2 of the
National Housing Act. Payment of principal and interest on GNMA Mortgage-Backed
Securities is guaranteed by GNMA pursuant to Title 3 of the National Housing
Act. Payment of principal and interest on Freddie Mac participation
certificates is guaranteed by Freddie Mac.

As of September 30, 1995 and December 31, 1994, CRIIMI MAE directly owned
111 and 173 Government Insured Multifamily Mortgages and Government Insured
Construction Mortgages, as defined below, respectively, which had a weighted
average net effective interest rate of approximately 8.43% and 8.00%, a weighted
average remaining term of approximately 32 and 33 years, and an aggregate fair
value of approximately $455 million and $653 million, respectively.

During September 1995, CRIIMI MAE transferred 59 Government Insured
Multifamily Mortgages to Freddie Mac in exchange for Freddie Mac participation
certificates evidencing 100% beneficial interests in Government Insured
Multifamily Mortgages (Freddie Mac Giant Participation Certificates). CRIIMI
MAE immediately transferred the Freddie Mac Giant Participation Certificates to
its wholly owned, financing subsidiary, CRIIMI MAE Financial Corporation II. As
a result of these transactions, as of September 30, 1995, CRIIMI MAE Financial
Corporation II owned Freddie Mac Giant Participation certificates evidencing
100% beneficial interests in 59 Government Insured Multifamily Mortgages, with a
weighted average net effective interest rate of approximately 7.19%, a weighted
average remaining term of approximately 31 years and an aggregate fair value of
approximately $250 million.

As of September 30, 1995 and December 31, 1994, CRIIMI MAE indirectly owned
through its subsidiary, CRI Liquidating, 22 and 44 Government Insured
Multifamily Mortgages, respectively, which had a weighted average net effective
interest rate of approximately 10.67% and 10.02%, a weighted average remaining
term of approximately 27 years and 26 years, and an aggregate fair value of
approximately $112 million and $154 million, respectively.

Thus, on a consolidated basis, as of September 30, 1995 and December 31,
1994, CRIIMI MAE or its subsidiaries owned, directly or indirectly, 192 and 217
Government Insured Multifamily Mortgages and Government Insured Construction

<PAGE>17

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Investment in Mortgages and Participation Certificates - Continued

Mortgages (as defined below), respectively. As of September 30, 1995, these
investments had a weighted average net effective interest rate of approximately
8.34%, a weighted average remaining term of approximately 32 years and an
aggregate fair value of approximately $817 million. These amounts compare to a
weighted average net effective interest rate of approximately 8.33%, a weighted
average remaining term of approximately 32 years and an aggregate fair value of
approximately $807 million, as of December 31, 1994. In addition, as of
September 30, 1995, CRIIMI MAE had committed approximately $2.7 million for
advances on FHA-Insured Loans and GNMA Mortgage-Backed Securities relating to
the construction or rehabilitation of multifamily housing projects, including
nursing homes and intermediate care facilities (Government Insured Construction
Mortgages).

As discussed in Note 10, in connection with the issuance of $216 million of
fixed rate collateralized mortgage obligations in October 1995, CRIIMI MAE
transferred 57 Government Insured Multifamily Mortgages with an amortized cost
and fair value, at September 30, 1995 of $223 million and $227 million,
respectively, to its wholly-owned financing subsidiary, CRIIMI MAE Financial
Corporation. As further discussed in Note 10, management is negotiating the
issuance of additional collateralized mortgage obligations of approximately $200
million in December 1995, the proceeds of which would primarily be applied to
the refinancing of floating-rate debt. This transaction, as currently
structured, contemplates the transfer of the remaining GNMA Mortgage-Backed
Securities to a wholly owned financing subsidiary.

During the nine months ended September 30, 1995, CRIIMI MAE funded advances
of approximately $5.8 million on Government Insured Construction Mortgages with
a weighted average net effective interest rate of approximately 8.26%. These
loans are anticipated to convert to permanent loans over the next six months
with an anticipated maturity of 40 years.

During the nine months ended September 30, 1995, CRIIMI MAE, through its
subsidiary, CRI Liquidating, disposed of 22 mortgage investments which
constituted approximately 33% of CRI Liquidating's December 31, 1994 portfolio
balance. The 22 dispositions resulted in net financial statement gains of
approximately $1.6 million and tax basis gains of approximately $9.5 million.
In addition, during the nine months ended September 30, 1995, there were four
prepayments of Government Insured Multifamily Mortgages held directly by CRIIMI
MAE. The prepayment of one of the above-mentioned mortgages resulted in a loss
of approximately $12,000 which is included in losses on mortgage dispositions on
the accompanying consolidated statement of income for the nine months ended
September 30, 1995. The other mortgage prepayments resulted in financial
statement gains of approximately $67,000, which are included in gains on
mortgage dispositions on the accompanying consolidated statement of income for
the nine months ended September 30, 1995. Additionally, during September 1995,
CRIIMI MAE elected to assign the mortgage on Guinn Nursing Home to HUD.
Management does not anticipate that this assignment will have a material adverse
impact on the consolidated financial statements.

The following estimated fair values of CRIIMI MAE's Government Insured
Multifamily Mortgages are presented in accordance with generally accepted
accounting principles which define fair value as the amount at which a

<PAGE>18

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Investment in Mortgages and Participation Certificates - Continued

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.

The fair value of the Government Insured Multifamily Mortgages is based on
quoted market prices.

<PAGE>19

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. Investment in Mortgages and Participation Certificates - Continued

<TABLE>
<CAPTION>
As of September 30, 1995 As of December 31, 1994
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in mortgages, at
amortized cost $447,347,680 $454,879,920 $703,215,753 $653,062,381
============ ============ ============ ============

Investment in participation
certificates, at amortized cost $252,675,428 $250,107,649 $ -- $ --
============ ============ ============ ============

Investment in mortgages, at fair
value $ 86,823,835 $111,901,988 $136,120,900 $154,373,576
============ ============ ============ ============
</TABLE>

6. Investment in Subordinated Securities

As of September 30, 1995, CRIIMI MAE had purchased securities issued by
Mortgage Capital Funding, Inc. Series 1994-MC1 (MCF 1994-MC1), Mortgage Capital
Funding, Inc. Series 1993-C1 (MCF 1993-C1), Nomura Asset Securities Corporation,
Series 1994-C3 (NASC 1994-C3), Structured Mortgage Securities Corporation Series
1995-M1 (SMC 1995-M1), Asset Securitization Corporation Series 1995-D1 (ASC
1995-D1) and Mortgage Capital Funding, Inc., Series 1995-MC1 (MCF 1995-MC1). An
election has been made by each of the issuers to treat the securities as real
estate mortgage investment conduits (REMICs). During October 1995, CRIIMI MAE
invested an additional $6.1 million in securities issued by Lehman Pass-Through
Securities, Inc., Series 1994-A.

The REMICs allocate the cash flow from the underlying mortgages to the
securitized tranches, with the investment grade or higher rated tranches having
a priority right to the principal and interest cash flow. After required
payments are made to the most senior tranche, any remaining cash flow is
allocated among the other tranches in order of their relative seniority. To the
extent there are defaults and unrecoverable losses on the underlying mortgages,
resulting in reduced cash flows, the unrated tranche will bear this loss first.
To the extent there are losses in excess of the unrated tranche's stated right
to principal, then the most subordinated rated tranches will begin absorbing

<PAGE>20

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Investment in Subordinated Securities - Continued

losses.

The following table summarizes financial statement information related to
these investments on an aggregate basis by pool:

<PAGE>21

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Investment in Subordinated Securities - Continued

<TABLE>
<CAPTION>
Original Amortized Fair
Face Purchase Cost as of Value as of
Pool Amount Price September 30, 1995 September 30, 1995
- --------- ----------- ----------- -------------------- ---------------------
<S> <C> <C> <C> <C>
MCF 1994-MC1 $ 34,404,343 $ 22,038,132 $ 22,032,809 $ 23,126,169

MCF 1993-C1 19,678,873 16,810,299 17,321,829 18,051,582

NASC 1994-C3 25,177,237 22,233,678 22,128,300 23,009,115

SMC 1995-M1 15,204,614 9,894,793 9,882,796 9,947,372

ASC 1995-D1 30,575,983 20,195,646 20,204,750 20,424,479

MCF 1995-MC1 33,174,996 25,542,729 25,538,566 25,899,750
------------ ------------ ------------ ------------
Total $158,216,046 $116,715,277 $117,109,050 $120,458,467
============ ============ ============ ============
</TABLE>

The aggregate investments by the underlying rating of the securities are
as follows:

<TABLE>
<CAPTION>
Amortized Cost
Security Rating Face Amount as of September 30, 1995
- --------------- ------------ --------------------------
<C> <C> <C>
BBB Rated $ 4,000,000 $ 3,977,184
BB Rated 70,336,842 60,640,248
B Rated 52,895,742 40,402,314
Unrated 30,983,462 12,089,304
------------ ------------
Total $158,216,046 $117,109,050
============ ============
</TABLE>

As described in Note 10, upon closing on the purchase of the subordinated
securities, CRIIMI MAE entered into a series of repurchase agreements which
provided financing to purchase the rated tranches of the subordinated securities
(the unrated tranches were purchased with equity or available cash). As of
September 30, 1995, between 65% and 80% of the respective purchase prices were
financed, resulting in aggregate borrowings of approximately $77.5 million. See
Note 10 for a further discussion of these repurchase agreements.

<PAGE>22

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Investment in Subordinated Securities - Continued

accounting treatment required under generally accepted accounting principles
requires that the income on these investments be recorded on a level yield basis
given the anticipated yield to maturity on these investments. This currently
results in income which is lower for financial statement purposes than for tax
purposes. On a leveraged basis, the current weighted average anticipated yield
to maturity on these investments is approximately 24%. This anticipated return
was determined based on the anticipated yield to maturity, net of interest
expense attributable to the financing of the rated tranches at current interest
rates.

The anticipated returns on these investments are based upon a number of
assumptions that are currently subject to several business and economic
uncertainties and contingencies, including, without limitation, the potential
lack of a liquid secondary market for these securities, prevailing interest
rates on the current floating-rate debt financings, renewal of the repurchase
agreements (which provided financing toward the purchase of the rated tranches
of the subordinated securities) at similar terms or the availability of
alternative financing, the general condition of the real estate market,
competition for tenants and changes in market rental rates. As these
uncertainties and contingencies are generally beyond CRIIMI MAE's control, no
assurance can be given that the anticipated yields to maturity will be achieved.

In making these investments, CRIIMI MAE and its affiliates applied their
knowledge of multifamily and other commercial mortgages to perform due diligence
on the mortgage investments collateralizing the securities. This analysis may
include reviewing, to the extent available, the operating records of the
underlying real estate assets, appraisals, environmental studies, market studies
and architectural and engineering studies, and where deemed necessary,
independently developing projected operating budgets. In addition, site visits
are conducted at a majority of the properties. In addition to performing these
steps in connection with the due diligence, CRIIMI MAE also reviews the
servicing terms of the transactions. CRIIMI MAE will generally make investments
of this type when satisfactory arrangements exist whereby CRIIMI MAE can closely
monitor the performance of the collateral. CRIIMI MAE believes that all
transactions entered into to date have had such satisfactory arrangements.

Investments in uninsured mortgage and mortgage-related investments, such as
subordinated securities, are expected to represent a major component of CRIIMI
MAE's new business activity during 1995 and this is expected to continue for the
foreseeable future. As of September 30, 1995 and December 31, 1994, these
investments represent approximately 11% and 4%, respectively, of CRIIMI MAE's
total consolidated assets. CRIIMI MAE's business plan anticipates additional
investments in subordinated securities of approximately $156 million during the
fourth quarter of 1995 (of which $6.1 million was invested during October 1995),
bringing the anticipated total investments in subordinated securities to
approximately 23% of total consolidated assets and the total investments in
uninsured mortgage and mortgage-related investments to approximately 29% of
total consolidated assets by December 31, 1995. In August 1995, CRIIMI MAE's
Board of Directors modified CRIIMI MAE's investment policy and authorized CRIIMI
MAE to invest up to 30% of total consolidated assets in uninsured mortgage and
mortgage-related investments, of which a maximum of 25% of total consolidated
assets may be invested in subordinated securities. Management is evaluating

<PAGE>23

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

6. Investment in Subordinated Securities - Continued

CRIIMI MAE's business plan and the resulting impact on this investment policy in
order to make appropriate recommendations for changes in the policy.

7. Reconciliation of Financial Statement Net Income to Tax Basis
Income

On an annual basis, CRIIMI MAE expects to pay to its shareholders quarterly
cash dividends equal to virtually all of its tax basis income.

Reconciliations of the financial statement net income to the tax basis
income for the three and nine months ended September 30, 1995 and 1994 are as
follows:

<PAGE>24

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

7. Reconciliation of Financial Statement Net Income to Tax Basis
Income - Continued

<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consolidated financial statement net income $ 3,237,359 $ 5,449,251 $ 12,762,168 $ 21,507,675
Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes 41,339 120,992 4,489,192 2,227,733
Income from investment in insured
mortgage funds and advisory partnership 105,165 8,383 171,048 25,151
Mortgage dispositions -- 211,698 39,155 254,987
Reamortization of investments in
subordinated securities 128,914 81,150 405,541 81,150
Interest income - U.S. Treasuries 176,105 213,256 547,530 655,296
Interest expense - defeased notes (245,326) (293,487) (772,097) (916,581)
Interest expense - amortization of deferred
financing costs (458,631) (45,776) (1,327,841) 766,971
Adjustment to hedges for valuation and sales 1,944,837 -- 1,944,837 --
Provision for settlement of litigation -- -- -- (557,340)
Other (5,235) 40,107 (15,120) 30,629
Equity in income of Services Partnership 3,084 -- 3,084 --
Income from Services Corporation 22,408 -- 22,408 --
Capital Gain on Installment Sale 154,309 -- 154,309 --
Amortization of assets acquired in the Merger 715,660 -- 715,660 --
------------ ------------ ------------ ------------
Tax basis income $ 5,819,988 $ 5,785,574 $ 19,139,874 $ 24,075,671
============ ============ ============ ============
Tax basis income per share $ .19 $ .23 $ .69 $ .96
============ ============ ============ ============
Weighted average number of shares
outstanding (for tax purposes) 30,434,344 25,183,533 27,906,217 25,183,533
============ ============ ============ ============
</TABLE>

8. Dividends to Shareholders

For the nine months ended September 30, 1995, dividends of $0.685 per share
were paid to shareholders. These dividends, which include long-term capital
gains, are as follows:

Dividend Record Date
-------- ------------------
Quarter ended March 31, 1995 $ 0.225 March 20, 1995
Quarter ended June 30, 1995 0.225 June 19, 1995
Quarter ended September 30, 1995 0.235 September 18, 1995
--------
Year-to-date September 30, 1995 $ 0.685
========

<PAGE>25

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

8. Dividends to Shareholders - Continued

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. However, the rise in short-term interest rates during 1994
significantly increased CRIIMI MAE's interest expense which resulted in reduced
net income and, ultimately, lower dividend distributions in 1995, as compared to
1994. During September 1995, the Board approved an increase in the quarterly
dividend per share to 23.5 cents. The anticipated dividend level for 1995 of
$0.92 per share includes assumptions regarding interest rates, the amount and
timing of investments in subordinated securities, and other factors. The
assumption regarding interest rates is that short-term interest rates would, on
average, remain at the levels of early September 1995. While a sustained period
of higher short-term interest rates could reduce the dividend, the adverse
effects of such an increase in interest rates should be limited by CRIIMI MAE's
debt refinancings, as discussed in Note 10, and interest rate caps, as discussed
in Note 11. The anticipated dividend level also assumes that CRIIMI MAE will
invest an additional $156 million in subordinated securities during the fourth
quarter of 1995 ($6.1 million of which was invested during October 1995) with
terms that are similar to the $117 million of subordinated securities that
CRIIMI MAE purchased through September 30, 1995.

9. Transactions with Related Parties

Below is a summary of the related party transactions which occurred during
the three and nine months ended September 30, 1995 and 1994:

<PAGE>26

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Transactions with Related Parties - Continued

<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1995 1994 1995 1994
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Payments to the Adviser:
- ----------------------------
Annual fee - CRIIMI MAE (a)(h) $ -- $ 719,356 $ 1,493,297 $ 1,836,392
Annual fee - CRI Liquidating (a)(g) 95,702 167,714 320,534 533,561
Incentive fee - CRIIMI MAE (a) -- 233,623 -- 497,675
Incentive fee - CRI Liquidating (f) -- -- -- 394,812
Mortgage selection fees - CRIIMI MAE (b) -- 238,840 211,137 1,371,638
------------- ------------ ------------ ------------
Total $ 95,702 $ 1,359,533 $ 2,024,968 $ 4,634,078
============= ============ ============ ============

Payments to CRI:
- --------------------
Expense reimbursement - CRIIMI MAE (c)(i) $ 193,666 $ 413,290 $ 1,123,082 $ 1,113,157
Expense reimbursement - CRI
Liquidating (c)(j) 13,896 71,243 125,482 216,856
------------- ------------ ------------ ------------
Total $ 207,562 $ 484,533 $ 1,248,564 $ 1,330,013
============= ============ ============ ============
Amounts Received or Accrued from
Related Parties
- ---------------------------------
CRIIMI, Inc.
- -----------
Income (d) $ 531,786 $ 465,752 $ 1,464,336 $ 1,397,257
Return of capital (e) 30,404 150,096 242,535 677,695
------------ ------------ ------------ ------------
Total $ 562,190 $ 615,848 $ 1,706,871 $ 2,074,952
============ ============ ============ ============

<PAGE>27

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Transactions with Related Parties - Continued

CRI/AIM Investment Limited
Partnership (d)(h) $ 193,744 $ 175,000 $ 543,744 $ 525,000
============ ============ ============ ============
Expense Reimbursements
- ----------------------
CRI Liquidating and the AIM Funds (c)(j) $ 120,000 $ -- $ 120,000 $ --
Services Partnership (c)(j) 145,611 -- 145,611 --
------------ ------------ ------------ ------------
265,611 -- $ 265,611 $ --
============ ============ ============ ============
</TABLE>

(a) Included on the accompanying consolidated statements of income.
(b) Included as deferred costs on the accompanying consolidated balance
sheets and amortized over the expected mortgage life.
(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) Netted with gains on mortgage dispositions on the accompanying
consolidated statements of income.
(g) As a result of reaching the carryover CRI Insured Mortgage Investments
Limited Partnership (CRIIMI I) target yield during the first quarter
of 1995, CRI Liquidating paid deferred annual fees of $28,467. The
carryover CRIIMI I target yield was not achieved during the second or
third quarters of 1995. As a result of reaching the carryover CRIIMI
I target yield during the first, second and third quarters of 1994,
CRI Liquidating paid deferred annual fees of $31,279, $29,068 and
$29,175, respectively.
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured
Mortgage Association, Inc. advisory agreement (the Advisory
Agreement), CRI guaranteed that CRIIMI MAE would receive an annual
distribution from CRI/AIM Investment Limited Partnership of $700,000.
CRIIMI MAE was granted the right to reduce the amounts paid to the
Adviser by the difference between the 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 for the
nine months ended September 30, 1995 were reduced by $154,862, which
represents the difference between the guaranteed distribution for the
six months ended June 30, 1995 and the amount actually paid to CRIIMI
MAE. The amounts paid to the Adviser for the three and nine months
ended September 30, 1994, were reduced by $77,236 and $234,306,
respectively, which represents the difference between the guaranteed
distribution for the period and the amount actually paid to CRIIMI
MAE. This guarantee was terminated effective June 30, 1995 in
connection with the transaction in which CRIIMI MAE acquired the CRI
Mortgage Businesses and became self-managed and self-administered, as
discussed in Notes 1 and 4.
(i) Prior to CRIIMI MAE becoming a self-managed and self-administered

<PAGE>28

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Transactions with Related Parties - Continued

REIT, amounts were paid to CRI as reimbursement for expenses incurred
by the Adviser on behalf of CRIIMI MAE. In connection with the
transaction in which CRIIMI MAE became a self-managed and self-
administered REIT, effective June 30, 1995, CRIIMI MAE is no longer
required to reimburse the Adviser, as these expenses are now directly
incurred by CRIIMI MAE. However, pursuant to an agreement between
CRIIMI MAE and CRI (the CRI Administrative Services Agreement), CRI
provides CRIIMI MAE with certain administrative and office facility
services and other services, at cost, with respect to certain aspects
of CRIIMI MAE's business. CRIIMI MAE uses the services provided under
the CRI Administrative Services Agreement to the extent such services
are not performed by CRIIMI Management or provided by another service
provider. The CRI Administrative Services Agreement is terminable on
30 days notice at any time by CRIIMI MAE.
(j) Prior to CRIIMI MAE becoming a self-managed and self-administered
REIT, amounts were paid to CRI as reimbursement for expenses incurred
by the Adviser on behalf of CRI Liquidating and the AIM funds. As
discussed in Note 4, the transaction in which CRIIMI MAE became a
self-administered and self-managed REIT has no impact on CRI
Liquidating's or the AIM fund's financial statements except that the
expense reimbursements previously paid to CRI, are, effective June 30,
1995, paid to CRIIMI Management. Additionally, effective June 30,
1995, CRIIMI Management is reimbursed for its employees' time and
expenses incurred on behalf of the Services Partnership. The amounts
paid by CRI Liquidating to CRI during the three months ended September
30, 1995, represent the reimbursement of expenses incurred prior to
June 30, 1995.

In addition to the transactions discussed above, in connection with the
Merger (as discussed in Note 4, above), CRIIMI MAE has entered into the
following transactions with related parties and certain directors and officers
as of September 30, 1995:

CRI Sublease - CRIIMI MAE has entered into an agreement with CRI to
sublease approximately 11,800 square feet of office space leased by CRI, at a
total annual rent of approximately $237,000. All increases in lease occupancy
charges, including inflation adjustments and expense reimbursements, will be
passed through on a per square foot basis. This amount reflects prevailing
market rates and is below CRI's lease agreement cost. The term of the sublease
runs concurrently with CRI's lease, which expires on October 31, 1997. CRIIMI
MAE anticipates leasing additional space, on an as needed basis. During the
three and nine months ended September 30, 1995, CRIIMI MAE incurred rent charges
of approximately $66,000, which is included in general and administrative
expenses on the accompanying consolidated statements of operations.

Registration Rights and Lock-up Agreement - The Common Shares received by
the Principals and the Executive Officers pursuant to the Merger Agreement (the
Restricted Shares) are "restricted securities" within the meaning of Rule 144
under the Securities Act of 1933, as amended (the Securities Act), and may be
sold only pursuant to an effective registration statement under the Securities
Act or an applicable exemption, including an exemption under Rule 144. On June
30, 1995, the Principals and the Executive Officers entered into an agreement

<PAGE>29

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Transactions with Related Parties - Continued

with CRIIMI MAE (the Registration Rights and Lock-Up Agreement) pursuant to
which those persons are not permitted to offer, sell, contract to sell or
otherwise dispose of any Restricted Shares for 36 months after the Closing Date,
except for gifts to relatives and charitable contributions. Each Principal is
prohibited from making such gifts in excess of 662,709 Common Shares during such
period. After expiration of the lock-up period, the holders of the Restricted
Shares, after notifying CRIIMI MAE of their intention, will be permitted,
subject to certain procedural requirements, to sell Restricted Shares. If an
exemption from the registration requirements is not available, the Principals
and Executive Officers may exercise piggyback registration rights, may utilize
any available shelf-registration and, if the aggregate number of Common Shares
to be registered exceeds 50,000 Common Shares, exercise demand registration
rights; provided that a maximum of two demand registration statements may be
required and a second notice demanding registration must be at least a year
after the first. Under the agreements providing for such registration rights,
CRIIMI MAE will pay all expenses, other than underwriting discounts, in
connection with any registration.

Employment and Non-Competition Agreements - In connection with the Merger,
on June 30, 1995, CRIIMI Management entered into employment and non-competition
agreements with each of the Principals. Each Principal's employment agreement
provides for minimum annual compensation of $125,000 and a term expiring on the
fifth anniversary of the Closing Date. The agreements require each Principal to
devote the substantial portion of his time to the affairs of CRIIMI MAE and its
affiliated entities, except that each of them may devote time to his other
existing business activities; provided that the time devoted to such other
existing business activities does not interfere with the performance of his
duties to CRIIMI MAE and its affiliated entities. The agreements define the
phrase "the substantial portion" to mean all of the time required to perform the
services necessary and appropriate for the conduct of the businesses of CRIIMI
MAE and its affiliated entities.

The employment agreements include provisions prohibiting the Principals
from competing with CRIIMI Management, CRIIMI MAE or CRIIMI MAE's affiliated
entities for at least six years after the Closing Date, unless the Principal's
employment is terminated other than for "cause" or pursuant to an "involuntary
resignation" (as such terms are defined in the employment agreements). However,
subsequent to the Merger, the Principals continue to have a substantial economic
interest in, and control over, CRI and its affiliates, which will continue to
(1) be a general partner in, and have minority economic interests in, certain
existing partnerships which, directly or indirectly, own equity or debt
investments in multifamily or commercial properties, (2) engage in and manage
trading operations in multifamily and related mortgages, and (3) through the
Adviser, which is an affiliate of CRI, serve as the adviser to CRI Liquidating.

Also in connection with the Merger, on June 30, 1995, CRIIMI Management
entered into employment agreements with each of the Executive Officers, namely
Jay R. Cohen, Frederick J. Burchill, Deborah A. Linn, and Cynthia O. Azzara.
The Executive Officers' agreements have three-year terms and provide for minimum
annual salaries of $175,000, $175,000, $125,000 and $120,000 ($130,000 beginning
on September 1, 1995 for Ms. Linn and Ms. Azzara), respectively. Each of the
Agreements with the Executive Officers includes provisions prohibiting the

<PAGE>30

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. Transactions with Related Parties - Continued

Executive Officer from competing with CRIIMI Management, CRIIMI MAE or CRIIMI
MAE's affiliated entities while employed by CRIIMI Management.

Stock Options - As discussed in Note 4, in connection with the Merger, the
Principals, Executive Officers and Other Officers received certain stock options
for services provided in connection with the Merger.

Deferred Compensation Payable and Note Receivable - As discussed in Note
12, below, in connection with the Merger, on June 30, 1995, CRIIMI MAE entered
into a deferred compensation agreement with each of the Principals and acquired
a note receivable from CRI in the amount of $5,002,183 (the Note Receivable).
During the three and nine months ended September 30, 1995, CRIIMI MAE, through
CRIIMI Management, recognized interest income of $135,847 on the Note
Receivable, which is included in other investment income on the accompanying
consolidated statements of income, and recognized interest expense of $135,847
on the deferred compensation obligation, which is included in interest expense
on the accompanying consolidated statements of income.

10. Obligations under Financing Facilities

Funding Note Payable
- --------------------
On September 26, 1995, CRIIMI MAE Financial Corporation II sold a long-
term, fixed-rate funding note payable (the Funding Note) to Freddie Mac.
Freddie Mac purchased the Funding Note using the net proceeds of a public
offering of long-term, fixed-rate, pass-through debt securities, which are
guaranteed by Freddie Mac. The Funding Note has a fixed interest rate of 7.0%
per annum, a maturity date of September 2031 and an expected weighted average
life of approximately twenty (20) years. The Funding Note is secured by the
Freddie Mac Giant Participation Certificates (discussed above, in Note 5). As
discussed below, the net proceeds from the issuance of the Funding Note were
used to pay down certain of CRIIMI MAE's floating-rate debt obligations. In
issuing the Funding Note, CRIIMI MAE incurred approximately $2.9 million in debt
issue costs, which were capitalized and are included in deferred financing and
debt issue costs on the accompanying consolidated balance sheet as of September
30, 1995. The pricing on the financing was locked on August 31, 1995 through
the use of a forward sale of the securities collateralizing the transaction.

Master Repurchase Agreements
- ----------------------------
During April and November 1993, CRIIMI MAE entered into two separate
facilities with one lender providing $350 million and $150 million of available
financing, respectively (collectively, Master Repurchase Agreement I). Both
facilities had a three year term and were collateralized by FHA-Insured Loans
and GNMA Mortgage-Backed Securities. During January 1995, the related FHA
portions of both facilities were terminated and paid off with the proceeds of a
master repurchase agreement with another lender at substantially similar terms.

On September 26, 1995, $201.6 million was paid off under the facilities
from the proceeds of the Funding Note discussed above. As of September 30,
1995, $129.3 million was outstanding under the facilities. On October 11, 1995,
with the issuance of the collateralized mortgage obligations discussed below, an

<PAGE>31

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Obligations under Financing Facilities - Continued

additional $38.9 million was repaid, resulting in a remaining balance of $90.4
million. Interest on the facilities is based on the three-month London
Interbank Offered Rate (LIBOR), plus a spread of .5%.

As of September 30, 1995, mortgage investments directly owned by CRIIMI
MAE, which approximated $144.3 million at fair value, were used as collateral
pursuant to certain terms of Master Repurchase Agreement I. The value of the
GNMA mortgage-backed securities pledged as collateral must equal at least 110%
of the amounts borrowed.

As mentioned above, during January 1995, CRIIMI MAE entered into a master
repurchase agreement with another lender (Master Repurchase Agreement II) which
provided CRIIMI MAE with $300 million of available financing through April 1,
1996. The proceeds from this facility were used to repay a portion of Master
Repurchase Agreement I. Generally, the value of the FHA-Insured Loans or GNMA
Mortgage-Backed Securities pledged as collateral must equal at least 105% of the
amounts outstanding and no more than 60% of the collateral pledged may be FHA-
Insured Loans and no less than 40% may be GNMA Mortgage-Backed Securities.
Interest on Master Repurchase Agreement II is based on one-month LIBOR, plus a
spread of .5% or .75%, depending on the type of collateral pledged.

As of September 30, 1995, approximately $217.7 million was outstanding
under this facility, including $64 million which was incurred to terminate the
Revolving Credit Facility, as discussed below. As of September 30, 1995, these
borrowings were collateralized by mortgage investments with an aggregate fair
value of approximately $257.2 million.

<PAGE>32

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Obligations under Financing Facilities - Continued

Revolving Credit Facility
- -------------------------
As of September 30, 1995, the Revolving Credit Facility, which had an
original maturity date of August 28, 1996, was terminated. The balance was
transferred to Master Repurchase Agreement II, as noted above. A charge to
income of approximately $325,000 representing the unamortized costs associated
with the establishment of this facility was recognized during the third quarter
of 1995, which is included in adjustment to hedges for valuation and sales on
the accompanying consolidated statements of income.

Bank Term Loans
- ---------------

The reducing term loan facility (Bank Term Loan I) had an outstanding
principal balance of approximately $12.9 million as of September 30, 1995. As
of September 30, 1995, Bank Term Loan I was secured by the value of 6,950,000
CRI Liquidating shares owned by CRIIMI MAE. In April 1995, CRIIMI MAE obtained
the release of 6,174,000 of CRI Liquidating shares due to the revision in
collateral requirements resulting from the refinancing, as discussed below.

Bank Term Loan I was refinanced effective March 31, 1995. The revised
terms provide for a reduced interest rate spread, CRIIMI MAE's choice of one,
two or three-month LIBOR and collateral requirements of 175% of the outstanding
loan amount. Bank Term Loan I requires a quarterly principal payment based on
the greater of (i) the return of capital portion of the dividend received by
CRIIMI MAE on its CRI Liquidating shares securing Bank Term Loan I or (ii) the
amount necessary to bring Bank Term Loan I to its scheduled outstanding balance
at the end of such quarter. Any remaining amounts outstanding are due by April
1, 1997.

In connection with the Merger of the CRI Mortgage Businesses into CRIIMI
MAE, as discussed in Note 4, CRIIMI Management assumed certain debt of the CRI
Mortgage Businesses in the principal amount of $9,100,000 (Bank Term Loan II).
Simultaneous with the closing of the Merger, this debt was refinanced. Bank
Term Loan II is secured by certain cash flows generated by CRIIMI MAE's direct
and indirect interests in the AIM Funds and is guaranteed by CRIIMI MAE. The
loan requires quarterly principal payments of $650,000 and matures December 31,
1998. Interest on the loan is based on one-month LIBOR, plus a spread of 1.25%.
A one time commitment fee of $22,750 was due at closing.

Other Repurchase Agreements
- ---------------------------
As of September 30, 1995, CRIIMI MAE financed, through repurchase
agreements, between 65% and 80% of the purchase price of each of the BBB, BB and
B rated tranches of the subordinated securities. The interest rates are based
on one or six-month LIBOR, plus a spread ranging from 1.0% to 1.50%. The
repurchase agreements are secured, generally, by the rated tranches. As of
September 30, 1995, approximately $77.5 million was outstanding under these
repurchase agreements, which were collateralized by subordinated securities with
an aggregate fair value of approximately $110.7 million. The agreements mature
between December 1995 and May 1996. CRIIMI MAE expects to renew each of the
outstanding agreements.

<PAGE>33

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Obligations under Financing Facilities - Continued

Working Capital Line of Credit
- ------------------------------
CRIIMI MAE executed a $10 million working capital line of credit with a
lender during February 1995. This line of credit will be secured by shares of
CRI Liquidating valued at approximately 175% of any outstanding borrowings.

During September 1995, $7 million was borrowed under the working capital
line of credit on an interim basis until the proceeds from the Funding Note were
received, at which time the working capital line of credit was paid in full.

Debt Refinancing
- ----------------
In September 1995, CRIIMI MAE Financial Corporation, a newly-formed,
wholly-owned financing subsidiary of CRIIMI MAE, filed an amended registration
statement with the SEC in connection with an offering of fixed-rate
collateralized mortgage obligations (CMOs). The registration statement was
declared effective on September 29, 1995 and $216 million (face amount) of 7%
CMOs were sold on October 11, 1995. The CMOs have a maturity date of January 1,
2033 and are collateralized by FHA-Insured Loans and GNMA Mortgage Backed
Securities with a fair value of approximately $227 million as of September 30,
1995. The proceeds were used to refinance approximately $180 million of CRIIMI
MAE's secured, floating-rate debt. The remaining net proceeds will be used for
other corporate purposes, which could include investing in subordinated
securities or acquiring mortgage servicing rights. On an interim basis,
additional short-term debt has been repaid until the proceeds are reinvested.
This transaction and the refinancing completed in September 1995 (discussed
above) have been accounted for as financings in accordance with Financial
Accounting Standards Board Technical Bulletin 85-2.

Other Debt Related Information
- ------------------------------
For the nine months ended September 30, 1995, the weighted average cost of
borrowing on all of CRIIMI MAE's borrowings, including amortization of deferred
financing fees of approximately $3.1 million, was approximately 7.6%. This does
not include the impact of the adjustment to hedges for valuation and sales (see
Note 11 for further discussion). As of September 30, 1995, CRIIMI MAE's debt-
to-equity ratio was approximately 2.4 to 1. Under certain of CRIIMI MAE's
existing debt facilities, CRIIMI MAE's debt to equity ratio, as defined, may not
exceed 3.0 to 1.0.

Certain of the debt agreements require that a minimum level of unencumbered
assets be maintained, the most restrictive of which requires that a minimum
unencumbered asset level of 1% of total indebtedness be maintained by CRIIMI
MAE. As of September 30, 1995, CRIIMI MAE had approximately $53 million, at
fair value, of unencumbered FHA-Insured Loans and GNMA Mortgage-Backed
Securities. Additionally, CRIIMI MAE has other unencumbered assets which, in
some cases, are subject to certain lender eligibility requirements including,
but not limited to, cash, the working capital line of credit and unencumbered
CRI Liquidating stock.

CRIIMI MAE reduced its exposure to changes in interest rates through the
refinancing of a substantial portion of its short-term, floating-rate debt, as

<PAGE>34

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Obligations under Financing Facilities - Continued

previously discussed. The proceeds from the new debt issuances were used to
refinance approximately $382 million in short-term, floating-rate debt and to
pay down an additional amount of approximately $58 million in short-term,
floating-rate debt on an interim basis until the proceeds are used for other
corporate purposes, which will likely include acquiring subordinated securities
backed by multifamily and other uninsured commercial mortgages, as well as
acquiring mortgage servicing rights and mortgage companies in related
businesses. Subsequent to the closing of these transactions, $477 million in
FHA-Insured Loans and GNMA Mortgage-Backed Securities, at fair value (as of
September 30, 1995), are pledged as collateral for the fixed-rate debt
issuances. Changes in interest rates will have no impact on the cost of funds
or the collateral requirements on $451 million (net of unamortized discount) of
CRIIMI MAE's consolidated debt. Fluctuations in interest rates will continue to
impact the value on that portion of CRIIMI MAE's investments which are not match
funded and could impact potential returns to shareholders through increased cost
of funds on the floating-rate debt in place. In certain circumstances, CRIIMI
MAE would be required to pledge additional collateral in connection with its
short-term, floating-rate borrowing facilities.

Management is continually monitoring the levels of unencumbered collateral
and has reduced the risk of collateral calls through the two long-term, fixed-
rate refinancings discussed above. Additionally, management is in the process
of negotiating a third refinancing of the remaining short-term, floating rate
debt which is collateralized by the remaining GNMA Mortgage-Backed Securities.
This refinancing is expected to close during December 1995. Management is also
exploring options to refinance the existing repurchase agreements which are
secured, generally, by holdings of rated subordinated securities.

As previously discussed, management is actively pursuing investments in
uninsured mortgages and mortgage-related investments, such as subordinated
securities. While management believes the investments in subordinated
securities are attractive investment opportunities on a risk-adjusted basis,
changes in interest rates have an impact on the value of the subordinated
securities and the cost to finance these transactions. Given that CRIIMI MAE
intends to hold these investments to maturity, a significant impact of this
potential change in value is on the collateral requirements under the debt
facilities. Management continually monitors the collateral requirements under
the repurchase agreements which were used to finance the purchases of the rated
tranches to ensure that adequate collateral exists to meet these requirements.
Management also monitors the overall level of interest rate hedge agreements in
place to ensure that all debt, including that entered into in connection with
the subordinated securities, is adequately hedged against substantial increases
in interest rates.

CRIIMI MAE has sought to enhance the return to its shareholders through the
use of leverage. Nevertheless, CRIIMI MAE's use of leverage carries with it the
risk that the cost of borrowings could increase without a corresponding increase
in the return on its mortgage investments, which could result in reduced net
income and thereby reduce the return to shareholders. This risk has been
substantially reduced with the refinancings discussed above. The flexibility in
CRIIMI MAE's leverage is dependent upon the levels of unencumbered assets,

<PAGE>35

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

10. Obligations under Financing Facilities - Continued

which, as discussed above, are inherently linked to prevailing interest rates.
CRIIMI MAE's ability to extend or refinance debt facilities upon maturity will
depend on a number of variables including, among other things, CRIIMI MAE's
financial condition and its current and projected results from operations which
are impacted by changes in interest rates. Management continuously monitors
CRIIMI MAE's outstanding borrowings and hedging techniques in an effort to
ensure that CRIIMI MAE is making optimal use of its borrowing ability based on
market conditions and opportunities. Management also continues to explore
additional financing alternatives to the short-term, secured, floating-rate
lending which remains in place.

11. Interest Rate Hedge Agreements

CRIIMI MAE has entered into a series of interest rate hedging agreements to
partially limit the adverse effects of rising interest rates on its floating-
rate borrowings. Interest rate caps provide protection to CRIIMI MAE to the
extent interest rates, based on a readily determinable interest rate index,
increase above the stated interest rate cap, in which case, CRIIMI MAE will
receive payments based on the difference between the index and the cap. During
the first nine months of 1995, the interest rate indices exceeded the interest
rate cap on four caps which had the result of reducing CRIIMI MAE's overall
interest expense by approximately $125,000. The following hedge agreements with
an aggregate notional amount of $335 million were in place at September 30,
1995:

<PAGE>36

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Interest Rate Hedge Agreements - Continued

Notional
Amount Effective Date Maturity Date Cap Index
- ------------ -------------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
$ 50,000,000 June 25, 1998 June 25, 1998 6.5000% 3M LIBOR
50,000,000 July 20, 1993 July 20, 1998 6.2500% 3M LIBOR
50,000,000 August 20, 1993 August 10, 1997 6.0000% 3M LIBOR
50,000,000 August 27, 1993 August 27, 1997 6.1250% 3M LIBOR
50,000,000 November 10, 1993 November 10, 1997 6.0000% 3M LIBOR
35,000,000(a) February 2, 1994 February 2, 1999 6.1250% 1M LIBOR
50,000,000(a) March 25, 1994 March 25, 1998 6.5000% 3M LIBOR
- ------------
$335,000,000(b)
==============
<FN>
(a) Approximately $1.7 million of costs were incurred during the first nine months of 1994 in connection with the purchase of
interest rate hedge agreements. These costs are being amortized using the effective interest method over the term of the
interest rate hedge agreements 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. No new hedge agreements were entered into
during 1995.
(b) CRIIMI MAE's designated interest rate hedge agreements hedge CRIIMI MAE's floating-rate borrowing costs. As of September 30,
1995, total borrowings, including outstanding commitments under CRIIMI MAE's Master Repurchase Agreements I and II, other
repurchase agreements and the bank term loans are hedged by the interest rate hedge agreements.
</FN>
</TABLE>

In addition to the above interest rate cap agreements which are treated as
hedges against rising interest rates, CRIIMI MAE holds the following additional
interest rate caps which are based on the Commercial Paper Composite Rate (CP
Index) and LIBOR:

<PAGE>37

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Interest Rate Hedge Agreements - Continued

Notional
Amount Effective Date Maturity Date Cap Index
- ------------ -------------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
$ 25,000,000 May 24, 1991 May 24, 1996 9.0000% CP
25,000,000 June 17, 1991 June 17, 1996 8.4500% CP
50,000,000 July 1, 1993 June 3, 1996 6.5000% 3M LIBOR
23,025,875(a) December 31, 1991 March 31, 1996 6.5000% 3M LIBOR
2,381,858(a) January 15, 1993 March 29, 1996 6.5000% 3M LIBOR
22,974,125(a) December 31, 1991 March 31, 1996 10.500% 3M LIBOR
4,180,642(a) March 31, 1993 December 31, 1996 10.500% 3M LIBOR
- ------------
$152,562,500
============

<FN>
(a) The notional amounts of these hedges amortize based on the expected pay down schedule of Bank
Term Loan I.
</FN>
</TABLE>

Due to the refinancing completed during September 1995, as discussed in
Note 10, these cap agreements are no longer needed to hedge interest rate
changes. These agreements have been accounted for at fair value, resulting in a
charge to income of approximately $787,000 for the three and nine months ended
September 30, 1995, which is included in adjustment to hedges for valuation and
sales on the accompanying consolidated statements of income. Management expects
to hold these caps and continue to account for them at fair value until their
expiration dates, or until such time as they are needed to hedge against
increases in interest rates on floating-rate debt.

Two interest rate cap agreements with an aggregate notional amount of $100
million were sold during September 1995 upon the completion of the refinancing
discussed in Note 10. A loss of approximately $833,000 was recognized on the
sale during the three and nine months ended September 30, 1995, which is
included in adjustment to hedges for valuation and sales on the accompanying
consolidated statements of income.

Additionally, during the nine months ended September 30, 1995, interest
rate collars with an aggregate notional amount of $115 million matured. No
collars remain outstanding at September 30, 1995. During 1995 and 1994, the CP
Index was below the floor on all of the collars in place, resulting in CRIIMI
MAE making payments to the counterparties. Total payments to the counterparties
on the interest rate collars during the nine months ended September 30, 1995 and
1994 amounted to approximately $825,000 and $3.6 million, respectively, which is
included in interest expense on the accompanying consolidated statements of
income.

CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate hedge agreements should interest rates

<PAGE>38

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

11. Interest Rate Hedge Agreements - Continued

exceed the caps. However, management does not anticipate nonperformance by any
of the counterparties. All of the counterparties have long-term debt ratings of
A+ or above by Standard and Poor's and A1 or above by Moody's. Management
believes that these hedge instruments are highly liquid. The hedges could be
sold or transferred with the consent of the counterparties. Management does not
believe that this consent would be withheld. Although none of CRIIMI MAE's
hedge instruments are exchange-traded, there are a number of financial
institutions which enter into these types of transactions as part of their day-
to-day activities.

Although CRIIMI MAE expects the overall average life of its mortgage
investments to exceed ten years, CRIIMI MAE's hedging agreements range in
initial maturity from 3 to 5 years. As of September 30, 1995, the average
remaining term of these hedging agreements is approximately 2 years. Because
CRIIMI MAE's mortgage investments have fixed interest rates, upon expiration of
CRIIMI MAE's cap agreements, CRIIMI MAE will have interest rate risk to the
extent interest rates increase on its floating-rate borrowings unless the hedges
are replaced or other steps are taken to mitigate this risk. As previously
discussed, in September and October 1995, management replaced $381.6 million of
floating-rate debt with long-term, fixed-rate debt and management continues to
review its debt and asset/liability hedging techniques in order to minimize the
impact of interest rate risk.

12. Deferred Compensation Payable and Note Receivable

In connection with the Merger discussed in Note 4, CRIIMI MAE has entered
into a deferred compensation arrangement with the Principals in the aggregate
amount of $5,002,183 pursuant to which CRIIMI MAE agreed to pay each of the
Principals for services performed in connection with structuring the Merger.
CRIIMI MAE's obligation to pay the deferred compensation is limited, with
certain exceptions, to the creation of an irrevocable grantor trust for the
benefit of the Principals and to the transfer to such trust of the Note
Receivable in the amount of $5,002,183. The deferred compensation is fully
vested and payable only to the extent that CRI continues to make principal
payments on the Note Receivable. However, in the event of bankruptcy or a
similar event affecting CRIIMI MAE, the remaining trust corpus would revert back
to CRIIMI MAE, and the Principals would become unsecured creditors of CRIIMI
MAE. Payments of principal and interest on the Note Receivable and the deferred
compensation are payable quarterly and terminate in 10 years. Both the Note
Receivable and the deferred compensation obligation bear interest at the prime
rate (8.75% as of September 30, 1995) plus 2% per annum.

13. Issuance of Stock

On June 23, 1994, CRIIMI MAE filed with the SEC a shelf registration
statement on Form S-3 (Commission File No. 33-54267) in order to register debt
securities, preferred shares and common shares of CRIIMI MAE for sale to the
public in the aggregate principal amount of up to $200 million. CRIIMI MAE may
from time to time offer in one or more series the securities in amounts, at
prices and on terms to be set forth in supplements to the registration
statement. During the nine months ended September 30, 1995, CRIIMI MAE issued
1,875,000 shares under the shelf registration statement for net proceeds of

<PAGE>39

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

13. Issuance of Stock - Continued

approximately $13.5 million. These proceeds were invested primarily in
subordinated securities. Through September 30, 1995, 2,375,000 shares,
resulting in net proceeds of approximately $17.8 million, have been issued under
the shelf registration statement. Additionally, during October 1995, CRIIMI MAE
repurchased 27,320 shares of its outstanding stock, which will be held in
treasury, for $208,715, or $7.625 per share.

14. Litigation

On June 20, 1995, Edge Partners, L.P. filed a complaint in the United
States District Court for the District of Maryland against CRIIMI MAE's
directors. The complaint purports to be a derivative action on behalf of CRIIMI
MAE and alleges breach of fiduciary duty by the directors and a misleading proxy
statement in connection with the Merger. The plaintiff seeks unspecified
damages, a determination that the shareholder vote in favor of the Merger should
be set aside and other relief. Management of CRIIMI MAE and the defendants
believe that the suit is without merit. Defendant's Motion to Dismiss is
currently pending.

<PAGE>40

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
- ---------------------
1995 VERSUS 1994
- ----------------

General
-------
CRIIMI MAE Inc. (CRIIMI MAE) is an infinite-life, actively managed real
estate investment trust (REIT). On June 30, 1995, pursuant to a shareholder-
approved merger transaction (the Merger, see below), CRIIMI MAE became a fully
integrated, self-administered and self-managed mortgage company, engaging in
mortgage investment, mortgage advisory services and mortgage servicing and
origination activities.

Merger
------
The Merger was approved by the stockholders of CRIIMI MAE and became
effective on June 30, 1995 at which time certain assets and liabilities of CRICO
Mortgage Company, Inc., CRI/AIM Management, Inc., and CRI Acquisition, Inc.
(collectively, the CRI Mortgage Businesses), were merged with and into CRIIMI
MAE Management, Inc. (CRIIMI Management). The CRI Mortgage Businesses were
affiliates of C.R.I., Inc. (CRI).

The consideration paid by CRIIMI MAE (measured on June 30, 1995 (the
Closing Date)) for the CRI Mortgage Businesses was approximately $32,900,000,
including a total of 2,761,290 shares of common stock (Common Shares) issued to
William B. Dockser and H. William Willoughby (collectively, the Principals) and
Jay R. Cohen, Frederick J. Burchill, Deborah A. Linn and Cynthia O. Azzara
(collectively, the Executive Officers). As a result of these transactions, the
Principals and Executive Officers held approximately 10% of the 30,434,344
Common Shares outstanding as of September 30, 1995.

The Merger has impacted CRIIMI MAE's results of operations on both a
financial statement basis and an income tax basis. On a financial statement
basis, this transaction has resulted in an increase in revenues over what they
would have been without the Merger as a result of revenues from CRIIMI MAE's new
lines of business - mortgage servicing, origination and advisory services. The
increases in revenues are reflected on CRIIMI MAE's consolidated statements of
income as equity in the earnings of CRIIMI MAE Services Limited Partnership (the
Services Partnership) and CRIIMI MAE Services, Inc. (the Services Corporation),
as well as in other investment income. However, net income for financial
statement purposes has decreased as a result of the Merger, as compared to what
it would have been without the Merger, primarily as a result of non-cash
expenses arising from the amortization of assets acquired in the Merger.
Partially offsetting this increase in non-cash expenses was a reduction in
annual and incentive management fees that CRIIMI MAE realized as a result of the
termination of the advisory agreement with CRI Insured Mortgage Associates
Adviser Limited Partnership (the Adviser).

The Merger has resulted in additional tax basis income on a per share
basis, as compared to what tax basis income would have been for the same period
on a pre-Merger basis. This is due to the increase in the revenue streams as a
result of the acquisition of the CRI Mortgage Businesses and the elimination of
fees as a result of the termination of the advisory agreement, as well as the

<PAGE>41

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

add-back of the majority of the non-cash amortization expenses described
above, partially offset by an increase in general and administrative expenses.

As discussed below in Legal Proceedings, on June 20, 1995, a complaint was
filed in the United States District Court for the District of Maryland against
CRIIMI MAE's directors in connection with the Merger.

For further information with respect to the Merger, reference is made to
the proxy statement dated April 28, 1995.

Earnings
--------
CRIIMI MAE earned approximately $5.8 million in tax basis income for the
three months ended September 30, 1995 as compared to approximately $5.8 million
for the corresponding period in 1994. Although these tax basis income amounts
were substantially unchanged during this period, certain items had increased or
decreased, as follows: CRI Liquidating's contribution to tax basis income
decreased as a result of CRI Liquidating mortgage dispositions which occurred
during 1994 and 1995. Additionally, capital gains decreased during this period
primarily as a result of a prepayment in 1994 of a CRIIMI MAE directly-held
mortgage investment. Partially offsetting these decreases was an increase in
income, net of related interest expense, from subordinated securities, as a
result of investments made in 1994 and 1995 and an increase in revenue streams
and the elimination of fees from the termination of the advisory agreement,
resulting from the Merger, partially offset by increased general and
administrative expenses incurred in connection with the growth of CRIIMI MAE.
On a per share basis, tax basis income decreased from $0.23 to $0.19 per
weighted average share during the three months ended September 30, 1994 and
1995, respectively, primarily due to approximately 21% more shares outstanding
during the period.

CRIIMI MAE earned approximately $19.1 million in tax basis income for the
nine months ended September 30, 1995, a 20.5% decrease from approximately $24.1
million for the corresponding period in 1994. On a per share basis, tax basis
income decreased to $0.69 per weighted average share for the nine months ended
September 30, 1995 from $0.96 for the nine months ended September 30, 1994.
This decrease was primarily due to a reduction in CRI Liquidating's contribution
to tax basis income, including both capital gains and ordinary income.
Additionally, the revenue and expense factors described in the preceding
paragraph, along with an 11% increase in weighted average shares outstanding,
contributed to the decrease in tax basis income and tax basis income per share
during the period.

Net income for financial statement purposes was approximately $3.2 million
for the three months ended September 30, 1995, a 40.6% decrease from
approximately $5.4 million for the three months ended September 30, 1994. Net
income for financial statement purposes was approximately $12.8 million for the
nine months ended September 30, 1995, a 40.7% decrease from approximately $21.5
million for the nine months ended September 30, 1994. On a per share basis,
financial statement net income for the three months ended September 30, 1995
decreased to $0.11 per weighted average share from $0.22 per weighted average
share for the three months ended September 30, 1994. On a per share basis,
financial statement net income for the nine months ended September 30, 1995
decreased to $0.46 per weighted average share from $0.90 per weighted average
share for the nine months ended September 30, 1994.

<PAGE>42

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Total income increased approximately $1.3 million or 6.6% to approximately
$20.4 million for the three months ended September 30, 1995 from approximately
$19.2 million for the three months ended September 30, 1994. Total income
increased approximately $7.0 million or 13.5% to approximately $59.3 million for
the nine months ended September 30, 1995 from approximately $52.3 million for
the nine months ended September 30, 1994. These increases were primarily due to
growth in income from subordinated securities and mortgage investment income
(net of decreases as a result of CRI Liquidating mortgage dispositions) which
CRIIMI MAE experienced during 1995 and 1994, as described below. Also
contributing to the increase in total income were increases in income from the
Services Corporation and equity in income of the Services Partnership as a
result of the Merger and an increase in other investment income, as discussed
below.

Total expenses increased approximately $3.3 million or 25.5% to
approximately $16.2 million for the three months ended September 30, 1995 from
approximately $12.9 million for the three months ended September 30, 1994.
Total expenses increased approximately $10.9 million or 32.5% to approximately
$44.3 million for the nine months ended September 30, 1995 from approximately
$33.4 million for the nine months ended September 30, 1994. These increases are
primarily due to an increase in interest expense, as discussed below, the
adjustment to hedges for valuation and sales (see discussion below), an increase
in general and administrative expenses, as discussed below, and a non-recurring
adjustment to the provision for settlement of litigation of $557,340 in 1994.
Partially offsetting these increases were decreases in incentive fees and annual
fees to related party, as described below.

Mortgage Investment Income
- --------------------------
Mortgage investment income decreased approximately $1.7 million or 9.2% to
approximately $16.5 million for the three months ended September 30, 1995 from
approximately $18.1 million for the three months ended September 30, 1994. This
decrease was primarily due to the dispositions of CRI Liquidating's mortgage
investments during the fourth quarter of 1994 and the first quarter of 1995, the
return of capital proceeds of which were reinvested in subordinated securities
or used to pay down floating-rate debt. Mortgage investment income increased
approximately $463,000 or 0.9% to approximately $49.8 million for the nine
months ended September 30, 1995 from approximately $49.3 million for the nine
months ended September 30, 1994. This increase was principally due to an
increase in mortgage investments, resulting from acquisitions of Government
Insured Multifamily Mortgages held directly by CRIIMI MAE and advances on
Government Insured Construction Mortgages during the first and second quarters
of 1994, partially offset by a decrease in mortgage investment income as a
result of the dispositions of CRI Liquidating's mortgage investments during the
fourth quarter of 1994 and the first quarter of 1995.

During September 1995, CRIIMI MAE transferred 59 Government Insured
Multifamily Mortgages to the Federal Home Loan Mortgage Corporation (Freddie
Mac) in exchange for Freddie Mac participation certificates evidencing 100%
beneficial interests in Government Insured Multifamily Mortgages (Freddie Mac
Giant Participation Certificates). CRIIMI MAE immediately transferred the
Freddie Mac Giant Participation Certificates to its wholly owned, financing
subsidiary, CRIIMI MAE Financial Corporation II. As a result of these
transactions, as of September 30, 1995, CRIIMI MAE Financial Corporation II

<PAGE>43

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

owned Freddie Mac Giant Participation Certificates evidencing 100% beneficial
interests in 59 Government Insured Multifamily Mortgages, with a weighted
average net effective interest rate of approximately 7.19%, a weighted average
remaining term of approximately 31 years and an aggregate fair value of
approximately $250 million.

On a consolidated basis, as of September 30, 1995 and December 31, 1994,
CRIIMI MAE or its subsidiaries owned, directly or indirectly, 192 and 217
Government Insured Multifamily Mortgages and Government Insured Construction
Mortgages, respectively. As of September 30, 1995, these investments had a
weighted average net effective interest rate of approximately 8.34%, a weighted
average remaining term of approximately 32 years and an aggregate fair value of
approximately $817 million. These amounts compare to a weighted average net
effective interest rate of approximately 8.33%, a weighted average remaining
term of approximately 32 years and an aggregate fair value of approximately $807
million, as of December 31, 1994. In addition, as of September 30, 1995, CRIIMI
MAE had committed approximately $2.7 million for advances on Government Insured
Construction Mortgages.

As discussed in Note 10, in connection with the issuance of $216 million of
fixed rate collateralized mortgage obligations, in October 1995, CRIIMI MAE
transferred 57 Government Insured Multifamily Mortgages, with an amortized cost
and fair value at September 30, 1995 of $223 million and $227 million,
respectively, to its wholly owned financing subsidiary, CRIIMI MAE Financial
Corporation. Additionally, management is negotiating the issuance of additional
collateralized mortgage obligations of approximately $200 million in December
1995, the proceeds of which would primarily be applied to the refinancing of
floating-rate debt. This transaction, as currently structured, contemplates the
transfer of the remaining GNMA Mortgage-Backed Securities to a wholly owned
financing subsidiary.

Income from Investments in Subordinated Securities
--------------------------------------------------
Income from investment in subordinated securities increased approximately
$2.5 million or 738.6% to $2.8 million for the three months ended September 30,
1995 from approximately $335,000 for the three months ended September 30,

<PAGE>44

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

1994. Income from investment in subordinated securities increased
approximately $5.9 million or 1,763.5% to $6.2 million for the nine months
ended September 30, 1995 from approximately $335,000 for the nine months ended
September 30, 1994. These increases were a result of the acquisition of
subordinated securities at purchase prices of approximately $38.9 million
during the third and fourth quarters of 1994, approximately $28.2 million
during the second quarter of 1995 and approximately $49.7 million during the
third quarter of 1995, as discussed in Note 6 to the financial statements.

In addition to investing in Government Insured Multifamily Mortgages,
CRIIMI MAE's Board of Directors has authorized CRIIMI MAE to invest in other
mortgage investments which are not federally insured or guaranteed. Since
adoption of this policy, CRIIMI MAE has been reviewing opportunities for
investment in other real estate securities which complement CRIIMI MAE's
existing holdings. In the current investment climate, CRIIMI MAE's management
believes that investments in uninsured mortgages and mortgage-related
investments, such as higher yielding subordinated securities, represent
attractive investment opportunities and, as such, are expected to represent a
major component of CRIIMI MAE's new business activity during 1995 and for the
foreseeable future. As of September 30, 1995 and December 31, 1994, these
investments represent approximately 11% and 4%, respectively, of CRIIMI MAE's
total consolidated assets. CRIIMI MAE's business plan anticipates additional
investments in subordinated securities of approximately $156 million during the
fourth quarter of 1995 (of which $6.1 million was invested in October 1995),
bringing the anticipated total investments in subordinated securities to
approximately 23% of total consolidated assets and the total investments in
uninsured mortgage and mortgage-related investments to approximately 29% of
total consolidated assets by December 31, 1995. In August 1995, CRIIMI MAE's
Board of Directors modified CRIIMI MAE's investment policy and authorized CRIIMI
MAE to invest up to 30% of total consolidated assets in uninsured mortgage and
mortgage-related investments, of which a maximum of 25% of total consolidated
assets may be invested in subordinated securities. Management is evaluating
CRIIMI MAE's business plan, and the resulting impact on this policy, in order to
make appropriate recommendations for changes in the policy.

Based on the timing and amount of future credit losses estimated by
management, the weighted average anticipated yield to maturity for the
investments in subordinated securities made to date is approximately 13%. The
accounting treatment required under generally accepted accounting principles
requires that the income on these investments be recorded on a level yield basis
given the anticipated yield to maturity on these investments. This currently
results in income which is lower for financial statement purposes than for tax
purposes. CRIIMI MAE anticipates the leveraged tax basis return on these
investments will approximate 26% during 1995. This return was determined based
on projected cash basis interest income, assuming no defaults or unrecoverable
losses, net of interest expense attributable to the financing of the rated
tranches at current interest rates and adjusted for amortization of original
issue discount related to these securities. CRIIMI MAE anticipates the
leveraged return on these investments for financial statement purposes will
approximate 24%. This return was determined based on the anticipated yield to
maturity, which factors in anticipated losses, net of interest expense
attributable to the financing of the rated tranches at current interest rates.

The anticipated returns on these investments are based upon a number of

<PAGE>45

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

assumptions that are currently subject to several business and economic
uncertainties and contingencies, including, without limitation, the potential
lack of a liquid secondary market for these securities, prevailing interest
rates on the current floating-rate debt financings, renewal of the repurchase
agreements (which provided financing toward the purchase of the rated tranches
of the subordinated securities) at similar terms or the availability of
alternative financing, the general condition of the real estate market,
competition for tenants and changes in market rental rates. As these
uncertainties and contingencies are generally beyond CRIIMI MAE's control, no
assurance can be given that the anticipated yields to maturity will be achieved.

In making these investments, CRIIMI MAE and its affiliates applied their
knowledge of multifamily and other commercial mortgages to perform due diligence
on the mortgage investments collateralizing the securities. This analysis may
include reviewing the operating records of the underlying real estate assets,
appraisals, environmental studies, market studies and architectural and
engineering studies, and where deemed necessary, independently developing
projected operating budgets. In addition, site visits are conducted at a
majority of the properties. In addition to performing these steps in connection
with the due diligence, CRIIMI MAE also reviews the servicing terms of the
transactions. CRIIMI MAE will generally make investments of this type when
satisfactory arrangements exist whereby CRIIMI MAE can closely monitor the
collateral of the pool. CRIIMI MAE believes that all transactions entered into
to date have had such satisfactory arrangements.

Other Investment Income
-----------------------
Other investment income increased approximately $187,000 or 144.7% to
approximately $316,000 for the three months ended September 30, 1995 from
approximately $129,000 for the three months ended September 30, 1994. Other
investment income increased approximately $419,000 or 46.9% to approximately
$1.3 million for the nine months ended September 30, 1995 from approximately
$894,000 for the nine months ended September 30, 1994. These increases were
primarily attributable to income earned from the short term investment of CRI
Liquidating's mortgage disposition proceeds received in January 1995 pending the
distribution to shareholders on March 31, 1995. Also contributing to these
increases was the recognition of interest income on the note receivable from CRI
(the Note Receivable) of approximately $135,000 during the third quarter of
1995.

Income from Services Corporation
--------------------------------
Income from Services Corporation increased to approximately $227,000 for
the three and nine months ended September 30, 1995. This income is primarily
comprised of interest income on the installment notes receivable from the
Services Corporation as a result of the sale of certain assets acquired by
CRIIMI MAE in the Merger, as discussed above.

Equity in income of Services Partnership
------------------------------------------
CRIIMI MAE's equity in the income of the Services Partnership increased to
approximately $20,000 for the three and nine months ended September 30, 1995.
This income is comprised of revenues earned on assets acquired by CRIIMI MAE in
the Merger, and contributed to the Services Partnership in exchange for an 8%

<PAGE>46

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

general partner interest, net of general and administrative expenses and
amortization expense.

Interest Expense
----------------
Interest expense increased approximately $1.2 million or 11.1% to
approximately $12.0 million for the three months ended September 30, 1995 from
approximately $10.8 million for the three months ended September 30, 1994.
Interest expense increased approximately $8.2 million or 29.5% to approximately
$36.1 million for the nine months ended September 30, 1995 from approximately
$27.9 million for the nine months ended September 30, 1994. These increases
were principally a result of additional amounts borrowed in connection with the
financing of subordinated securities and acquisition of mortgage investments
during 1995 and 1994 under CRIIMI MAE's financing facilities and an increase in
short term interest rates. Partially offsetting these increases was a decrease
in interest expense as a result of the expiration of CRIIMI MAE's interest rate
collars during the first and third quarters of 1995.

Adjustment to Hedges for Valuation and Sales
-------------------------------------------
During the third quarter of 1995, CRIIMI MAE sold two interest rate cap
agreements with an unamortized cost of approximately $1.1 million for
approximately $308,000, resulting in the recognition of a loss of approximately
$833,000. As a result of the refinancing of a portion of CRIIMI MAE's floating-
rate debt during September 1995, certain interest rate hedge agreements no
longer qualify for hedge accounting, and are now accounted for at fair value,
which resulted in a charge to income of approximately $787,000. Additionally,
during the third quarter of 1995, CRIIMI MAE terminated the Revolving Credit
Facility and recognized a charge to income of approximately $325,000,
representing the unamortized costs incurred in connection with the establishment
of this facility. Thus, a total adjustment to hedges for valuation and sales of
approximately $1.9 million was recognized for the three and nine months ended
September 30, 1995.

<PAGE>47

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Fees to Related Party
---------------------
Total fees to related party, are comprised of annual fees and incentive
fees paid to the Adviser. From inception through June 30, 1995, the Adviser
received annual fees for managing CRIIMI MAE's portfolio. In connection with
the Merger, effective June 30, 1995, CRIIMI MAE is no longer required to pay
such fees. The Adviser continues to receive annual fees for managing CRI
Liquidating's portfolio.

Total fees to related party decreased approximately $1.0 million or 91.5%
to approximately $96,000 for the three months ended September 30, 1995 from
approximately $1.1 million for the three months ended September 30, 1994. Total
fees to related party decreased approximately $1.1 million or 36.7% to
approximately $1.8 million for the nine months ended September 30, 1995 from
approximately $2.9 million for the nine months ended September 30, 1994. Annual
fees decreased approximately $791,000 or 89.2% to approximately $96,000 for the
three months ended September 30, 1995 from approximately $887,000 for the three
months ended September 30, 1994. Annual fees decreased approximately $556,000
or 23.5% to approximately $1.8 million for the nine months ended September 30,
1995 from approximately $2.4 million for the nine months ended September 30,
1994. These decreases were primarily the result of the Merger, subsequent to
which CRIIMI MAE is no longer required to pay annual fees to the Adviser
(effective June 30, 1995). Also contributing to these decreases in annual fees
were reductions in the annual fees payable by CRI Liquidating resulting from
mortgage dispositions during 1994 and 1995.

The CRIIMI MAE incentive fee was equal to 25% of the amount by which net
income from additional mortgage investments exceeded the annual target return on
equity and was payable quarterly, subject to year-end adjustment. The incentive
fee decreased approximately $234,000 or 100% for the three months ended
September 30, 1995 from approximately $234,000 for the three months ended
September 30, 1994. The incentive fee decreased approximately $498,000 or 100%
for the nine months ended September 30, 1995 from approximately $498,000 for the
nine months ended September 30, 1994. These decreases were primarily the result
of the Merger, subsequent to which, CRIIMI MAE is no longer required to pay
incentive fees to the Adviser, effective June 30, 1995. Also contributing to
these decreases was an increase in interest rates during the first and second
quarters of 1995 which resulted in a failure to achieve the performance goals
specified in the advisory agreement.

Other Operating Expenses
------------------------
Other operating expenses increased approximately $1.2 million or 118.8% to
approximately $2.2 million for the three months ended September 30, 1995 from
approximately $1.0 million for the three months ended September 30, 1994. Other
operating expenses increased approximately $1.8 million or 64.7% to
approximately $4.5 million for the nine months ended September 30, 1995 from
approximately $2.7 million for the nine months ended September 30, 1994. These
increases were primarily due to amortization expense of approximately $716,000
related to assets acquired in the Merger in which CRIIMI MAE became self-
administered and self-managed. In connection with the Merger, CRIIMI MAE
acquired assets of approximately $28.8 million, which are being amortized using
the straight-line method over 10 years. Also contributing to the increase in
other expenses was an increase in general and administrative expenses, such as

<PAGE>48

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

rent expense as a result of the execution of the CRI Sublease, effective June
30, 1995, increases in payroll and payroll-related expenses as a result of the
Merger, and increases in legal and professional fees as a result of the
increasing size and complexity of CRIIMI MAE's operations. These increases were
partially offset by a reduction in fees to related party, as discussed above.
Also contributing to this increase was a non-recurring adjustment to the
provision for settlement of litigation in the second quarter of 1994 in the
amount of $557,340.

Gains/Losses on Mortgage Dispositions
-------------------------------------
Net gains (losses) on mortgage dispositions decreased approximately
$734,000 or 101.3% to approximately ($9,400) for the three months ended
September 30, 1995 from approximately $724,000 for the three months ended
September 30, 1994. Net gains on mortgage dispositions decreased approximately
$11.2 million or 87.3% to approximately $1.6 million for the nine months ended
September 30, 1995 from approximately $12.8 million for the nine months ended
September 30, 1994. Gains or losses on mortgage dispositions are based on the
number, carrying amounts, and proceeds of mortgage investments disposed of
during the period. During the three months ended September 30, 1994, one CRIIMI
MAE directly-held mortgage was prepaid, resulting in the recognition of a gain
approximately $870,000. Additionally, during the third quarter of 1994, a loss
of approximately $3,700 was recognized as a result of a prepayment of a CRIIMI
MAE directly-held mortgage and a provision for loan losses of approximately
$142,000 was recognized on two defaulted mortgage investments. This compares to
a loss of approximately $9,400 recognized in connection with a prepayment of a
CRI Liquidating mortgage during the three months ended September 30, 1995. The
net gains recognized during the nine months ended September 30, 1995 resulted
from the disposition of 22 CRI Liquidating and four CRIIMI MAE Government
Insured Multifamily Mortgages which resulted in net financial statement gains of
approximately $1.6 million. This compares to the disposition of 14 CRI
Liquidating and 5 CRIIMI MAE Government Insured Multifamily Mortgages during the
nine months ended September 30, 1994 that generated net financial statement
gains of approximately $12.8 million.

CASH FLOW
---------
Net cash provided by operating activities decreased for the nine months
ended September 30, 1995, as compared to the corresponding period in 1994
primarily due to the decrease in net income, as previously discussed, and to the
timing and amount of interest payments made during the nine months ended
September 30, 1995, as compared to the corresponding period in 1994.

Net cash used in investing activities decreased for the nine months ended
September 30, 1995, as compared to the corresponding period in 1994 primarily as
a result of a decrease in mortgage acquisitions and advances on construction
loans. Partially offsetting these decreases was an increase in subordinated
securities acquisitions during 1995 and a decrease in proceeds from the
disposition of CRI Liquidating Government Insured Multifamily Mortgages.

Net cash provided by financing activities decreased for the nine months
ended September 30, 1995, as compared to the corresponding period in 1994. This
decrease was primarily due to an increase in principal payments on obligations

<PAGE>49

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

incurred under financing facilities to approximately $510.3 million for the nine
months ended September 30, 1995 from approximately $160.0 million for the
corresponding period in 1994, partially offset by an increase in proceeds from
obligations incurred under financing facilities to approximately $560.4 million
in 1995 from approximately $291.4 million in 1994. Also contributing to the
decrease in net cash provided by financing activities was a decrease in net
proceeds from the issuance of common stock to approximately $14.0 million for
the nine months ended September 30, 1995 from approximately $52.2 million for
the corresponding period in 1994.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CRIIMI MAE and CRI Liquidating closely monitor their cash flow and
liquidity positions, including compliance with debt covenants, 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's cash receipts
were sufficient for the nine months ended September 30, 1995 and 1994 to meet
operating, investing and financing cash requirements. It is anticipated that
cash receipts will be sufficient to meet operating, investing and financing cash
requirements in future periods. Cash flows from CRIIMI MAE's operating
activities have increased over what they would have been without the Merger as a
result of the revenue streams acquired from the CRI Mortgage Businesses. Cash
flow was also sufficient to provide for the payment of dividends to shareholders
and to meet the IRS requirements to continue to qualify as REITs. As of
September 30, 1995, there were no significant commitments for capital
expenditures. CRIIMI MAE has historically used proceeds from repurchase
agreements, a revolving credit facility, bank term loans, a working capital line
of credit and issuances of common stock under its shelf registration statement
filed with the SEC during June 1994 to meet its capital requirements.

As of September 30, 1995, CRIIMI MAE had pledged mortgage investments with
an aggregate fair value of approximately $401.5 million as collateral for
aggregate borrowings of approximately $347 million under Master Repurchase
Agreement I and II. CRIIMI MAE also had pledged 6,950,000 shares of CRI
Liquidating stock with a fair value of approximately $25 million as collateral
for borrowings of approximately $12.9 million under Bank Term Loan I and
subordinated securities with an aggregate fair value of approximately $110.7
million as collateral for $77.5 million in borrowings under other repurchase
agreements.

CRIIMI MAE reduced its exposure to changes in interest rates through the
refinancing of a substantial portion of its short-term, floating-rate debt with
long-term, fixed-rate debt. The proceeds from the new debt issuances were used
to refinance approximately $382 million in short-term, floating-rate debt and to
pay down an additional amount of approximately $58 million in short-term,
floating-rate debt on an interim basis until the proceeds are used for other
corporate purposes, which will likely include acquiring subordinated securities
backed by multifamily and other uninsured commercial mortgages, as well as
acquiring mortgage servicing rights and mortgage companies in related
businesses. Subsequent to the closing of these transactions, $477 million in
FHA-Insured Loans and GNMA Mortgage-Backed Securities, at fair value as of
September 30, 1995, are pledged as collateral for the fixed-rate debt issuances.
Changes in interest rates will have no impact on the cost of funds or the
collateral requirements on $451 million (net of unamortized discount) of CRIIMI

<PAGE>50

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

MAE's consolidated debt. Fluctuations in interest rates will continue to impact
the value on that portion of CRIIMI MAE's investments which are not match funded
and could impact potential returns to shareholders through increased cost of
funds on the floating-rate debt in place. In certain circumstances, CRIIMI MAE
would be required to pledge additional collateral in connection with its short-
term, floating-rate borrowing facilities.

Management is continually monitoring the levels of unencumbered collateral
and has reduced the risk of collateral calls through the two long-term, fixed-
rate refinancings discussed above. Additionally, management is in the process
of negotiating a third refinancing of the remaining short-term, floating-rate
debt which is collateralized by the remaining GNMA Mortgage-Backed Securities.
This refinancing is expected to close during December 1995. Management is also
exploring options to refinance the existing repurchase agreements which are
secured, generally, by holdings of rated subordinated securities.

CRIIMI MAE has a series of interest rate hedging agreements in place in
order to partially limit the adverse effects of rising interest rates on the
floating-rate debt. As discussed in Note 11 to the financial statements, as of
September 30, 1995, CRIIMI MAE holds approximately $488 million in interest rate
cap agreements. Of the notional amount of the interest rate caps in place, $335
million are treated as hedges. The $153 million in caps that are not being
treated as hedges are being kept in place due to the limited time until the
agreements expire in 1996.

The interest rate caps which are hedging the exposure on CRIIMI MAE's
short-term, floating-rate debt have a weighted average cap rate of approximately
6.2% and an average remaining term of approximately two years. As discussed in
Note 11, during the third quarter of 1995, two hedging agreements with an
aggregate notional principal amount of $100 million were sold to a third party.
Upon expiration of CRIIMI MAE's cap agreements, CRIIMI MAE will have interest
rate risk to the extent interest rates increase on its remaining floating-rate
borrowings unless the hedges are replaced or other steps are taken to mitigate
this risk.

CRIIMI MAE has sought to enhance the return to its shareholders through the
use of leverage. Nevertheless, CRIIMI MAE's use of leverage carries with it the
risk that the cost of floating-rate borrowings could increase without a

<PAGE>51

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

corresponding increase in the return on its mortgage investments, which could
result in reduced net income and thereby reduce the return to shareholders.
This risk has been substantially reduced with the refinancings discussed above.
The flexibility in CRIIMI MAE's leverage is dependent upon the levels of
unencumbered assets, which, as discussed above, are inherently linked to
prevailing interest rates. CRIIMI MAE's ability to extend or refinance debt
facilities upon maturity will depend on a number of variables including, among
other things, CRIIMI MAE's financial condition and its current and projected
results from operations which are impacted by changes in interest rates.
Management continuously monitors CRIIMI MAE's outstanding borrowings and hedging
techniques in an effort to ensure that CRIIMI MAE is making optimal use of its
borrowing ability based on market conditions and opportunities. Management also
continues to explore additional financing alternatives to the short-term,
secured, floating-rate lending which remains in place.

Management believes that the Merger has created the basis for an overall
return to CRIIMI MAE's shareholders that is less interest rate sensitive. The
income which has been derived from the Merger is primarily fee-based, in the
form of servicing fees, origination fees and advisory fees. While origination
fees may decline in a rising interest rate environment, servicing fees are
expected to become more stable in a rising interest rate environment as the
likelihood of prepayments or refinancings decreases with higher rates. The
potential loss of servicing fees as loans prepay or refinance in a period of
declining interest rates is expected to be partly offset by the savings CRIIMI
MAE would have on its cost of borrowing on floating-rate debt.

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. However, the rise in short-term interest rates during 1994
significantly increased CRIIMI MAE's interest expense which resulted in reduced
net income and, ultimately, lower dividend distributions. During the first six
months of 1995, CRIIMI MAE decreased its quarterly dividend to $0.225 per share,
but increased its quarterly dividend to $0.235 per share for the three months
ended September 30, 1995. During each of the four consecutive quarters of 1994,
CRIIMI MAE paid dividends of $0.29 per share. The anticipated annual dividend
level for 1995 of $0.92 per share includes assumptions regarding interest rates,
the amount and timing of investments in subordinated securities, and other
factors. The assumption regarding interest rates is that short-term interest
rates would, on average, remain at the levels of early September 1995. While a
sustained period of higher short-term interest rates could reduce the dividend,
the adverse effects of such an increase in interest rates have been limited by
the refinancing of $381.6 million of floating-rate debt during September and
October 1995 and by CRIIMI MAE's interest rate caps. The estimated dividend
level also assumes that, during the fourth quarter of 1995, CRIIMI MAE will
invest approximately $156 million in subordinated securities ($6.1 million of
which was invested during October 1995) with terms that are similar to the $117
million of subordinated securities that CRIIMI MAE purchased through September
30, 1995.

Although the mortgage investments held by CRIIMI MAE and CRI Liquidating
yield a fixed monthly mortgage payment once purchased, the cash dividends paid
by CRIIMI MAE and by CRI Liquidating may vary during each period 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)

<PAGE>52

PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

level of income earned on CRIIMI MAE's or its subsidiaries' mortgage investments
depending on prepayments, defaults, etc., (iii) the level of income earned on
investments in subordinated securities which vary depending on prepayments,
defaults, etc. (iv) the fluctuating yields on short-term debt and the rate at
which CRIIMI MAE's LIBOR-based debt is priced, (v) 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, (vi) 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, (vii) variations in the cash flow received from the AIM Funds,
and (viii) changes in operating expenses. CRIIMI MAE's dividends will also be
impacted by the timing and amounts of cash flows attributable to its new lines
of business - mortgage servicing, advisory and origination services.

The factors which impact CRI Liquidating's dividend include (i) gains or
losses on dispositions of CRI Liquidating's mortgage investments, (ii) the
reduction in the monthly mortgage payments due to mortgage dispositions, (iii)
changes in interest rates which impact the gain or loss from dispositions, (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 and (v) changes in operating expenses. Additionally, mortgage
dispositions may increase the return to the shareholders for a period, although
neither the timing nor the amount can be predicted.

<PAGE>53

PART II. OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS

<PAGE>54

PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A report on Form 8-K (Item 2) was filed with the Securities and Exchange
Commission on July 14, 1995, with respect to the acquisition of the CRI Mortgage
Businesses in the Merger effective June 30, 1995, as described in Notes 1 and 4
of the notes to the financial statements of CRIIMI MAE Inc. for the quarter
ended September 30, 1995.

The exhibits filed as part of this report are listed below.

Exhibit No. Description
----------- --------------------------------
27 Financial Data Schedule

All other items are not applicable.

<PAGE>55

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CRIIMI MAE INC.

November 13, 1995 /s/ Cynthia O. Azzara
- ------------------------- -----------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting Officer
and Chief Financial Officer<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10-Q.
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<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
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<SECURITIES> 929,034
<RECEIVABLES> 14,798
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<OTHER-SE> 285,019
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