CRIIMI MAE INC, 10-K/A, 1995-03-27

CRIIMI MAE INC
10-K/A, 1995-03-27
ASSET-BACKED SECURITIES

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<PAGE>

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A

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

For the fiscal year ended December 31, 1994
-----------------

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) 468-9200
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange on
Title of each class which registered
----------------------------------------- ---------------------------
Common Stock New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:

NONE
--------------------------------------------------------------------------------
(Title of class)

<PAGE>

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of February 15, 1995, 26,350,979 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
--------------------------------------------------------------------------------

Form 10-K Parts Document
---------------- ---------

I, II, III and IV 1994 Annual Report to Shareholders
III 1995 Notice of Annual Meeting of
Shareholders and Proxy Statement

<PAGE>

CRIIMI MAE INC.

1994 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I
------

Page
----

Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 5-6
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . . . . . . 7

PART II
-------
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters. . . . . . . . . . . . . . 7
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . 7
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . . . 7
Item 8. Financial Statements and Supplementary Data. . . . . . . . . 7
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 7

PART III
--------
Item 10. Directors and Executive Officers
of the Registrant. . . . . . . . . . . . . . . . . . . . . 8
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . 8
Item 12. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . 8
Item 13. Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . . . . . . . . . 8-9

<PAGE>

PART IV
-------
Page
----

Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . 9-16

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-18

Cross Reference Sheet. . . . . . . . . . . . . . . . . . . . . . . . . 19

Exhibit Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

<PAGE>

PART I

ITEM 1. BUSINESS

DEVELOPMENT AND DESCRIPTION OF BUSINESS

CRIIMI MAE Inc. (CRIMI MAE) (formerly CRI Insured Mortgage
Association, Inc.), is an infinite-life, actively managed real estate
investment trust (REIT), which specializes in government insured and guaranteed
mortgage investments secured by multifamily housing complexes (Government
Insured Multifamily Mortgages) located throughout the United States. CRIIMI
MAE's principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders while preserving and protecting its capital.
CRIIMI MAE has sought to achieve these objectives by investing in Government
Insured Multifamily Mortgages and, to a lesser degree, higher yielding uninsured
subordinated securities using a combination of debt and equity financing.
CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc. (CRI Liquidating), are
Maryland corporations.

PROPOSAL TO BECOME SELF-MANAGED AND SELF-ADMINISTERED

CRIIMI MAE's Board of Directors has determined that it is in CRIIMI
MAE's best interest to consider a proposed transaction in which CRIIMI MAE would
become a self-managed and self-administered REIT. CRIIMI MAE's portfolio
management and day-to-day operations are currently conducted by CRI Insured
Mortgage Assocates Advisor Limited Partnership (the Adviser) which is affiliated
with C.R.I. Inc. (CRI) CRI is owned by William B. Dockser and H. William
Willoughby, who are executive officers and directors of CRIIMI MAE. CRIIMI
MAE's board has formed a special committee comprised of the independent
directors to evaluate a proposed merger of CRI's mortgage businesses, including
the advisory business conducted on CRIIMI MAE's behalf and certain other
mortgage investment, servicing, origination and advisory businesses which CRI
currently conducts through various affiliates (CRI Mortgage Businesses). The
proposal calls for CRIIMI MAE to acquire the CRI Mortgage Businesses, including
CRICO Mortgage Company, Inc., (CRICO) and other CRI-affiliates by:

- issuing common stock to CRI's owners, William B. Dockser and H.
William Willoughby, and certain other executive officers of CRIIMI
MAE, with the exact number of shares determined by dividing $21.4
million by the aggregate average of the high and low sales prices of
CRIIMI MAE's common stock over the 10 trading days preceding the
execution of a definitive merger agreement, provided that at the
closing of the transaction the stock issued cannot total more than
$22.9 million or more than 2,761,290 shares,

- assuming $9.1 million of outstanding debt of the CRI Mortgage
Businesses, and

- granting CRI's owners options valued at approximately $1.5 million to
purchase an additional three million shares of CRIIMI MAE common
stock. (Options for two million shares will vest pro rata over five
years and are exercisable at $1.50 per share over the average high and
low sales prices during the 10 trading days preceding the date of the
closing of this transaction. Options for one million shares will vest
pro rata over five years and are exercisable at $4.00 per share over
the same average high and low price.) The options expire eight years
after issuance.

The special committee of independent directors has engaged Merrill
Lynch, Pierce, Fenner & Smith Incorporated to act as CRIIMI MAE's financial
advisor in connection with the proposed merger and Duff & Phelps Capital Markets
Co. to render an opinion as to the fairness of the proposed merger to the
shareholders of CRIIMI MAE. The proposed merger is subject to a number of
conditions, including the negotiation of a definitive merger agreement, the
delivery of a fairness opinion by Duff & Phelps Capital Markets Co., final
approval by the special committee of independent directors and the approval of
the holders of a majority of CRIIMI MAE's common shares voted at a meeting where
a quorum is present.

<PAGE> 6

If this transaction is approved by the special committee of
independent directors and the shareholders, all payments made by CRIIMI MAE
under the advisory agreement to the Adviser and to CRI would cease upon the
consummation of the transaction and CRIIMI MAE would no longer have a guaranteed
$700,000 distribution from CRI/AIM Investment Limited Partnership. Although
expense reimbursements to CRI by CRIIMI MAE would no longer be made, CRIIMI MAE
would incur these expenses directly.

The proposed transaction has no impact on the payments required to be
made by CRI Liquidating, other than that the expense reimbursement currently
paid by CRI Liquidating to CRI in connection with the provision of services by
its Adviser will be paid to CRIIMI MAE subsequent to the consummation of the
transaction.

Further, information concerning the business of CRIIMI MAE
is contained in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and in Notes 1, 5, 6 and 13 of
the notes to the consolidated financial statements of CRIIMI MAE contained in
Part IV (filed in response to Item 8 hereof), which is incorporated herein by
reference.

EMPLOYEES

CRIIMI MAE has no employees. Services are performed for CRIIMI MAE by
CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser) and
agents retained by it.

As discussed in Note 1 of the notes to the consolidated financial
statements on pages 65 through 68 of the 1994 Annual Report to Shareholders,
CRIIMI MAE's Board of Directors has determined that it is in CRIIMI MAE's best
interest to consider a proposed transaction in which CRIIMI MAE would become a
self-managed and self-administered real estate investment trust. It is
contemplated that substantially all of the agents retained by the Adviser to
perform services on behalf of CRIIMI MAE will become employees of CRIIMI MAE in
conjunction with such a transaction.

ITEM 2. PROPERTIES

CRIIMI MAE does not hold title to any real estate. CRIIMI MAE
indirectly holds interests in real estate through CRI Liquidating REIT, Inc.'s
(CRI Liquidating) equity investment in three Participating Mortgage Investments.
These investments were comprised of two components: 85% of the original
investment amount was a GNMA Mortgage-Backed Security; and 15% of the original
investment amount was an uninsured equity contribution to the limited
partnership (a Participation) which owns the underlying property. During 1993,
CRI Liquidating sold the GNMA Mortgage-Backed Securities, but retained its
Participations. In 1994, CRI Liquidating entered into a revised option agreement
granting the option to an affiliate of the general partner of the limited
partnership which owns one of the properties to purchase CRI Liquidating's
limited partnership interest in such limited partnership on or before November
30, 1997. The aggregate carrying value of these Participations represents less
than 1% of CRIIMI MAE's total consolidated assets as of December 31, 1993 and
1994.

Although CRIIMI MAE does not own the related real estate, the
Government Insured Multifamily Mortgages in which CRIIMI MAE has invested are
first or second liens, or are collateralized by first or second liens, on the
respective residential apartment, nursing home or townhouse complexes. The
subordinated securities in which CRIIMI MAE has invested are collateralized by
mortgages placed on multifamily and commercial property.

<PAGE>

ITEM 3. LEGAL PROCEEDINGS

In connection with the settlement of certain class action litigation
involving CRIIMI MAE and certain of its affiliates, CRIIMI MAE entered into a
settlement agreement, (the Settlement Agreement) which was approved by the Court
on November 18, 1993, providing, among other things, for the issuance of up to
2.5 million warrants, exercisable for 18 months after issuance, to purchase
shares of CRIIMI MAE common stock at an exercise price of $13.17 per share. The
number of warrants to be issued was dependent on the number of class members who
submitted proof of claim forms by April 15, 1994. Based on the proofs of claim
submitted as of such date, CRIIMI MAE issued approximately 334,000 warrants
pursuant to the Settlement Agreement. In April 1994, CRIIMI MAE filed a
Registration Statement on Form S-3 (Commission File No. 33-53031) to register up
to 375,000 shares of CRIIMI MAE's common stock, issuable upon the exercise of
the warrants of CRIIMI MAE.

Based on the Adviser's initial estimate of the number of warrants to
be issued, CRIIMI MAE accrued a total provision of $1.5 million (which included
the uninsured portion of a cash payment of $250,000 made in connection with the
Settlement Agreement) in its consolidated statement of income for the year ended
December 31, 1993. Because the actual number of warrants issued pursuant to the
Settlement Agreement was significantly lower than the initial estimate, CRIIMI
MAE reduced this provision in June 1994 to approximately $950,000.

The exercise of the warrants will not result in a charge to CRIIMI
MAE's tax basis income. Further, the Adviser believes that the exercise of the
warrants will not have a material adverse effect on CRIIMI MAE's tax basis
income per share or annualized cash dividends per share because CRIIMI MAE will
invest the proceeds from any exercise of the warrants in accordance with its
investment policy to purchase Government Insured Multifamily Mortgages or other
authorized investments. However, in the case of a significant decline in the
yield on mortgage investments and a significant decrease in the Net Positive
Spread which CRIIMI MAE could achieve on its borrowings, the exercise of the
warrants may have a dilutive effect on tax basis income per share and cash
dividends per share. Receipt of the proceeds from the exercise of the warrants
will increase CRIIMI MAE's shareholders' equity.

As of December 31, 1994, CRIIMI MAE was not involved in any pending
or threatened litigation, claims or assessments which would have a material
adverse impact on the financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the security holders to be voted on
during the fourth quarter of 1994.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS

(a), (b) and (c) The information required in these sections is
included in pages 23 through 24 of the 1994 Annual Report to Shareholders, which
section is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

Reference is made to Selected Consolidated Financial Data on pages 22
through 23 of the 1994 Annual Report to Shareholders, which section is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Reference is made to Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 25 through 58 of the 1994 Annual
Report to Shareholders, which section is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to pages 60 through 64 of the 1994 Annual Report to
Shareholders for the consolidated financial statements of CRIIMI MAE, which are
incorporated herein by reference. See also Item 14 of this report for
information concerning financial statements and financial statement schedules.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a), (b), (c) and (e)

The information required by Item 10 (a), (b), (c) and (e) with regard
to directors and executive officers of the registrant is incorporated
herein by reference to CRIIMI MAE's 1995 Notice of Annual Meeting of
Shareholders and Proxy Statement to be filed with the Securities and
Exchange Commission no later than April 30, 1995.

(d) There is no family relationship between any of the directors and
executive officers.

(f) Involvement in certain legal proceedings.

None.

(g) Promoters and control persons.

Not applicable.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by
reference to CRIIMI MAE's 1995 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 30, 1995,
and Note 3 of the notes to the consolidated financial statements included in the
1994 Annual Report to Shareholders, which section is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The information required by Item 12 is incorporated herein by
reference to CRIIMI MAE's 1995 Notice of Annual Meeting of Shareholders and
Proxy Statement to be filed with the Commission no later than April 30, 1995.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

(a) Transactions with management and others.

Of CRIIMI MAE's five officers, two are executive officers who serve on
CRIIMI MAE's Board of Directors. CRIIMI MAE's 1995 Notice of Annual
Meeting of Shareholders and Proxy Statement to be filed with the
Commission no later than April 30, 1995, and Note 3 of the notes to
the consolidated financial statements, included in the 1994 Annual
Report to Shareholders, which contain a discussion of the amounts,
fees and other compensation paid or accrued by CRIIMI MAE to the
directors and executive officers and their affiliates, are
incorporated herein by reference.

<PAGE>

As discussed in Item 1 (Business) above, CRIIMI MAE's Board of
Directors has determined that it is in CRIIMI MAE's best interest to
consider a proposed transaction in which CRIIMI MAE would become a
self-managed and self-administered real estate investment trust.

Under the terms of the proposed transaction, CRIIMI MAE would acquire
the advisory business conducted on CRIIMI MAE's behalf and certain
other mortgage investment, servicing, origination and advisory
business from CRI, and its affiliates. CRI is wholly-
owned by William B. Dockser and H. William Willoughby, who are
executive officers and directors of CRIIMI MAE.

(b) Certain business relationships.

CRIIMI MAE has no business relationship with entities of which the
general and limited partners of the Adviser to CRIIMI MAE are
officers, directors or equity owners other than as set forth in CRIIMI
MAE's 1995 Notice of Annual Meeting of Shareholders and Proxy
Statement to be filed with the Commission no later than April 30,
1995, which is incorporated herein by reference.

None.

(d) Transactions with promoters.

Not applicable.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K

(a) List of documents filed as part of this report:

1 and 2. Financial Statements and Financial Statement Schedules

The following financial statements are incorporated herein by
reference in Item 8 from the indicated pages of the 1994 Annual Report
to Shareholders:

Page
Description Number(s)
----------- --------------
Consolidated Balance Sheets as of December 31,
1993 and 1994 60 through 61

Consolidated Statements of Income for the
years ended December 31, 1992, 1993 and 1994 62

<PAGE>

Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1992, 1993 and 1994 63

Consolidated Statements of Cash Flows for the
years ended December 31, 1992, 1993 and 1994 64

Notes to Consolidated Financial Statements 65 through 108

The report of CRIIMI MAE's independent accountants with respect to the above
listed consolidated financial statements appears on page 59 of the 1994 Annual
Report to Shareholders.

All other financial statements and financial statement schedules have been
omitted since the required information is included in the financial statements
or the notes thereto, or is not applicable or required.

(a) 3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K)

Exhibit No. 3 - Articles of incorporation and bylaws.

d. Articles of Incorporation of CRIIMI MAE Inc. (Incorporated
by reference from Exhibit 3(d) to the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).

e. Bylaws of CRIIMI MAE Inc. (Incorporated by reference from
Exhibit 3(e) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).

f. Agreement and Articles of Merger between CRIIMI MAE Inc. and
CRI Insured Mortgage Association, Inc. as filed with the
Office of the Secretary of the State of Delaware
(Incorporated by reference from Exhibit 3(f) to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).

g. Agreement and Articles of Merger between CRIIMI MAE Inc. and
CRI Insured Mortgage Association, Inc. as filed with the
State Department of Assessment and Taxation for the State of
Maryland (Incorporated by reference from Exhibit 3(g) to the
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).

<PAGE>

Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.

a. $85,000,000 Credit Agreement, and the exhibits thereto,
dated as of October 23, 1991, between CRI Insured Mortgage
Association, Inc., Signet Bank/Virginia and Westpac Banking
Corporation (Incorporated by reference from Exhibit 4(g) to
the Annual Report on Form 10-K for 1991).

b. Collateral Pledge Agreement, and the exhibits thereto, dated
as of December 31, 1991, between CRI Insured Mortgage
Association, Inc., Signet Bank/Virginia, Westpac Banking
Corporation and Chemical Bank (Incorporated by reference
from Exhibit 4(h) to the Annual Report on Form 10-K for
1991).

c. Temporary Global Note, dated as of December 31, 1991, in the
aggregate amount of $19,190,625 issued by the registrant
(Incorporated by reference from Exhibit 4(i) to the Annual
Report on Form 10-K for 1991).

d. $100,000,000 Amended and Restated Credit Agreement, and the
exhibits thereto, dated as of October 23, 1991 and Amended
December 22, 1992, between CRI Insured Mortgage Association,
Inc., Signet Bank/Virginia and Westpac Banking Corporation
(Incorporated by reference from Exhibit 4(d) to the Annual
Report on Form 10-K for 1992).

e. Amended and Restated Collateral Pledge Agreement, and the
exhibits thereto, dated as of December 31, 1991 and amended
and restated as of December 29, 1992, between CRI Insured
Mortgage Association, Inc. and Chemical Bank (Incorporated
by reference from Exhibit 4(e) to the Annual Report on Form
10-K for 1992).

f. Amended and Restated Letter of Credit and Reimbursement
Agreement and the exhibits thereto, dated as of February 9,
1993 between CRI Funding Corporation, Canadian Imperial Bank
of Commerce New York Agency and National Australia Bank
Limited, New York Branch (Incorporated by reference from
Exhibit 4(f) to the Annual Report on Form 10-K for 1992).

g. Amended and Restated Guaranty, dated as of February 9, 1993
between CRI Insured Mortgage Association, Inc., Canadian
Imperial Bank of Commerce New York Agency and National
Australia Bank Limited, New York Branch (Incorporated by
reference from Exhibit 4(g) to the Annual Report on Form
10-K for 1992).

<PAGE>

h. Amended and Restated Loan Agreement and the exhibits
thereto, dated as of February 9, 1993 between CRI Insured
Mortgage Association, Inc. and CRI Funding Corporation
(Incorporated by reference from Exhibit 4(h) to the Annual
Report on Form 10-K for 1992).

i. Second Amended and Restated Security Agreement and the
exhibits thereto, dated as of February 9, 1993 between CRI
Insured Mortgage Association, Inc., Canadian Imperial Bank
of Commerce New York Agency and Chemical Bank (Incorporated
by reference from Exhibit 4(i) to the Annual Report on Form
10-K for 1992).

j. Committed Master Repurchase Agreement between Nomura
Securities International, Inc. and CRI Insured Mortgage
Association, Inc. dated April 30, 1993 (Incorporated by
reference from Exhibit 4(j) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).

k. Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates between Nomura Asset
Capital Corporation and CRI Insured Mortgage Association,
Inc. dated April 30, 1993 (Incorporated by reference from
Exhibit 4(k) to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).

l. Committed Master Repurchase Agreement between Nomura
Securities International, Inc. and CRIIMI MAE Inc. dated
November 30, 1993 (incorporated by reference from Exhibit
4(j) to the Annual Report on Form 10-K for the year ended
December 31, 1993).

m. Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates between Nomura Asset
Capital Corporation and CRIIMI MAE Inc. dated November 30,
1993 (incorporated by reference from Exhibit 4(m) to the
Annual Report on Form 10-K for the year ended December 31,
1993).

n. Extension and Amendment Agreement between CRI Funding
Corporation, CRIIMI MAE Inc., Canadian Imperial Bank of
Commerce New York Agency, National Australia Bank Limited,
New York Branch, and The Fuji Bank, Ltd., New York Branch
dated January 25, 1994 (incorporated by reference from
Exhibit 4(n) to the Annual Report on Form 10-K for the year
ended December 31, 1993).

o. Settlement Agreement between Alex J. Meloy, Trustee of the
Harry Meloy Family Trust and

<PAGE>

Alan J. Hunken, Trustee of the Alan J. Hunken Retirement
Plan, individually and in their capacities as
representatives of certain plaintiff classes in ALEX J.
MELOY, ET AL., V. CRI LIQUIDATING REIT, INC., ET AL., and
(ii) CRI Liquidating REIT, Inc.; CRIIMI MAE Inc.; C.R.I.,
Inc.; William B. Dockser; Martin C. Schwartzberg, and
H. William Willoughby dated September 24, 1993 (incorporated
by reference from Exhibit 4(o) to the Annual Report on
Form 10-K for the year ended December 31, 1993).

p. Dividend Reinvestment and Stock Purchase Plan between CRIIMI
MAE Inc. and shareholders (incorporated by reference on the
registration statement on Form S-3 filed September 22,
1994).

q. Revolving Credit Agreement between CRIIMI MAE Inc. and each
of the financial institutions that are signatories thereto
and Canadian Imperial Bank of Commerce dated February 28,
1994.*

r. Amendment Agreement No. 1 to the Revolving Credit Agreement
among CRIIMI MAE Inc., CIBC Inc., National Australia Bank
Limited, Signet Bank, The Fuji Bank and Bank Hapoalim and
Canadian Imperial Bank of Commerce dated June 1, 1994. *

s. Amendment Agreement No. 2 to the Revolving Credit Agreement
among CRIIMI MAE Inc., CIBC Inc., National Australia Bank
Limited, Signet Bank, The Fuji Bank and Bank Hapoalim and
Canadian Imperial Bank of Commerce dated December 9, 1994. *

t. Amendment Terminating Intercreditor Agreement, dated as of
February 28, 1994 among Canadian Imperial Bank of Commerce,
National Australia Bank Limited, The Fuji Bank, Limited, CRI
Funding Corporation, Nomura Asset Capital Corporation,
Nomura Securities International, Signet Bank, Westpac
Banking Corporation by ASLK-CGER Bank (its assignee) and
CRIIMI MAE Inc. *

u. Amendment to the Committed Master Repurchase Agreement among
Nomura Securities International, Inc., Nomura Asset Capital
Corporation and CRIIMI MAE Inc. dated December 12, 1994. *

v. Master Collateral Security and Netting Agreement dated as of
December 12, 1994 among Nomura Securities International,
Inc., Nomura Asset Capital Corporation, and CRIIMI MAE Inc.
*

<PAGE>

w. Letter Agreement among Nomura Securities International,
Inc., Nomura Asset Capital Corporation and CRIIMI MAE Inc.
dated as of December 20, 1994. *

x. Amendment to the Committed Master Repurchase Agreement among
Nomura Securities International, Inc., Nomura Asset Capital
Corporation and CRIIMI MAE Inc. dated January 19, 1995. *

y. Amendment to the Committed Master Repurchase Agreement by
and among Nomura Securities International, Inc., Nomura
Asset Capital Corporation and CRIIMI MAE Inc. dated January
24, 1995. *

z. First Amendment to Amended and Restated Credit Agreement
dated as of April 29, 1993 among CRIIMI MAE Inc., the Banks
listed on the signature pages thereto, and Signet Bank. *

aa. Second Amendment to Amended and Restated Credit Agreement
dated as of June 30, 1993 among CRIIMI MAE Inc., the Banks
listed on the signature pages thereto, and Signet Bank. *

bb. Third Amendment to Amended and Restated Credit Agreement
dated as of September 14, 1993 between CRIIMI MAE Inc., the
Banks listed on the signature pages thereto, and Signet
Bank. *

cc. Assignment and Assumption Agreement dated as of September
17, 1993 among Westpac Banking Corporation, ASLK-CGER Bank,
CRIIMI MAE Inc. and Signet Bank. *

dd. Fourth Amendment to Amended and Restated Credit Agreement
dated April 28, 1994 among CRIIMI MAE Inc., the Banks
listed on the signature pages thereto and Signet Bank. *

ee. Fifth Amendment to Amended and Restated Credit Agreement
dated December 9, 1994 among CRIIMI MAE Inc., the Banks
listed on the signature pages thereto and Signet Bank. *

ff. Repurchase Agreement on Mortgage Capital Funding, Inc.
Series 1994 - MC1 (tranche B-2) dated September 1, 1994
between CRIIMI MAE Inc. and Citibank, N.A. and/or Citicorp
Securities, Inc. *

gg. Repurchase Agreement on Mortgage Capital Funding, Inc.
Series 1994 - MC1 (tranche B-1) dated as of December 30,
1994 between CRIIMI MAE Inc. and Deutsche Bank Securities
Corporation. *

<PAGE>

hh. Commitment Letter between CRIIMI MAE Inc. and German
American Capital Corporation dated January 19, 1995. *

ii. Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates between German
American Capital Corporation and CRIIMI MAE Inc. dated
January 23, 1995. *

jj. Committed Master Repurchase Agreement between German
American Capital Corporation and CRIIMI MAE Inc. dated
January 23, 1995. *

kk. Side letter to the Master Repurchase Agreement dated as of
January 23, 1995 between CRIIMI MAE Inc. and German American
Capital Corporation. *

ll. Side letter to the Master Repurchase Agreement dated as of
January 27, 1995 between CRIIMI MAE Inc. and German American
Capital Corporation. *

Exhibit No. 10 - Material contracts.

a. Revised Form of Advisory Agreement. (Incorporated by
reference from Exhibit No. 10.2 to the Registration
Statement).

Exhibit No. 13 - Annual Report to security holders, Form 10-Q or
Quarterly Report to security holders.

a. 1994 Annual Report to Shareholders.

Exhibit No. 21 - Subsidiaries of the registrant.

a. CRI Liquidating REIT, Inc., incorporated in the state of
Maryland.

b. CRIIMI, Inc., incorporated in the state of Maryland.

Exhibit No. 27 - Financial Data Schedule *

a. Financial Data Schedule

* Previously Filed with Form 10-K on February 17, 1995

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the fourth quarter of
1994.

<PAGE>

The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)(3) above.

(d) Financial Statement Schedules

See Item (a) 1 and 2 above.

<PAGE>

SIGNATURES

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.

March 27, 1995 /s/ William B. Dockser
------------------------- -----------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive Officer

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

March 27, 1995 /s/ William B. Dockser
------------------------- -------------------------
William B. Dockser
Chairman of the Board and
Principal Executive Officer

March 27, 1995 /s/ H. William Willoughby
------------------------- -------------------------
DATE H. William Willoughby
Director, President and
Secretary

March 27, 1995 /s/ Cynthia O. Azzara
------------------------- -------------------------
DATE Cynthia O. Azzara
Vice President, Chief Financial
Officer and Principal Accounting
Officer

March 27, 1995 /s/ Garrett G. Carlson, Sr.
------------------------- ---------------------------
DATE Garrett G. Carlson, Sr.
Director

March 27, 1995 /s/ G. Richard Dunnells
------------------------- -------------------------
DATE G. Richard Dunnells
Director

March 27, 1995 /s/ Robert F. Tardio
------------------------- -------------------------
DATE Robert F. Tardio
Director

<PAGE>

CROSS REFERENCE SHEET

The item numbers and captions in Parts I, II, III and IV hereof and the
page and/or pages in the referenced materials where the corresponding
information appears are as follows:

Item Referenced Materials Page
---- -------------------- ---------------
<S> <C> <C>
5. Market for the Registrant's 1994 Annual Report 23 through 24
Common Stock and Related
Stockholder Matters

6. Selected Financial Data 1994 Annual Report 22 through 23

7. Management's Discussion and 1994 Annual Report 25 through 58
Analysis of Financial
Condition and Results of
Operations

8. Financial Statements, 1994 Annual Report 59 through 64
including Auditors'
Report, and Supplementary
Data

11. Executive Compensation 1994 Annual Report 74 through 80

13. Certain Relationships and 1994 Annual Report 74 through 80
Related Transactions
</TABLE>

<PAGE>
20

EXHIBIT INDEX

Exhibit
-------

(4)(q) Revolving Credit Agreement *

(4)(r) Amendment 1 to the Revolving Credit Agreement *

(4)(s) Amendment 2 to the Revolving Credit Agreement *

(4)(t) Amendment Terminating Intercreditor Agreement *

(4)(u) Amendment to the Committed Master Repurchase *
Agreement

(4)(v) Master Collateral Security and Netting *
Agreement

(4)(w) Letter Agreement as of December 20, 1994 *

(4)(x) Amendment to the Committed Master Repurchase *
Agreement

(4)(y) Amendment to Commited Master Repurchase Agreement *

(4)(z) First Amendment to Amended and Restated Credit Agreement *

(4)(aa) Second Amendment to Amended and Restated Credit Agreement *

(4)(bb) Third Amendment to Amended and Restated Credit Agreement *

(4)(cc) Assignment and Assumption Agreement *

(4)(dd) Fourth Amendment to Amended and Restated *
Credit Agreement

(4)(ee) Fifth Amendment to Amended and Restated *
Credit Agreement

(4)(ff) Repurchase Agreement on Mortgage Capital Funding, Inc. *
Series 1994 - MC1 (tranche B-2)

(4)(gg) Repurchase Agreement on Mortgage Capital Funding, Inc. *
Series 1994 - MC1 (tranche B-1)

(4)(hh) Commitment Letter *

(4)(ii) Committed Master Repurchase Agreement Governing Purchases
and Sales of Participation Certificates *

(4)(jj) Committed Master Repurchase Agreement *

(4)(kk) Side Letter to Master Repurchase Agreement *

(4)(ll) Side letter to the Master Repurchase Agreement *

(27) Financial Data Schedule *

* Previously filed with Form 10-K on February 17, 1995.

<PAGE>

CRIIMI MAE INC.

ANNUAL REPORT TO SHAREHOLDERS

<PAGE>

CRIIMI MAE INC.

Selected Consolidated Financial Data
<TABLE>
<CAPTION>
For the years ended December 31,
1990 1991 1992 1993 1994
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share data)
TAX BASIS ACCOUNTING

Composition of dividends per share
for income tax purposes:
Ordinary income $ 0.82 $ 0.67 $ 0.75 $ 0.81 $ .72
Capital gains 0.26 0.41 0.33 0.31 .44
-------- -------- -------- -------- ---------
Total dividends per share $ 1.08 $ 1.08 $ 1.08 $ 1.12 $ 1.16
======== ======== ======== ======== =========
Tax basis income $ 22,276 $ 22,037 $ 21,626 $ 23,015 $ 29,606
======== ======== ======== ======== =========
Tax basis income per share $ 1.10 $ 1.09 $ 1.07 $ 1.14 $ 1.17
======== ======== ======== ======== =========

ACCOUNTING UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

Statement of Income Data:
Income:
Mortgage investment income $ 50,039 $ 49,323 $ 45,931 $ 50,270 $ 68,019
Other income 4,991 4,995 4,771 6,180 3,423
-------- -------- -------- -------- ---------
Total income 55,030 54,318 50,702 56,450 71,442
-------- -------- -------- -------- ---------
Expenses:
Interest expense 22,346 25,791 24,392 28,008 39,245
Termination of interest rate swap -- -- -- 4,890 --
Other operating expenses 3,182 3,752 3,505 4,639 4,279
Fees to related party 2,544 2,325 2,238 2,715 3,761
Provision for settlement of litigation -- -- -- 1,500 (557)
-------- -------- -------- -------- ---------
Total expenses 28,072 31,868 30,135 41,752 46,728
-------- -------- -------- -------- ---------
Income before mortgage dispositions,
gain on sale of shares of
subsidiary, loss on investment
in limited partnership, non-
recurring merger costs and
minority interests 26,958 22,450 20,567 14,698 24,714
Net gains from mortgage dispositions 3,794 4,048 5,733 7,358 12,999
Gain on sale of shares of subsidiary -- -- -- 3,281 --
Loss on investment in limited
partnership -- -- (732) -- --
Minority interests (12,379) (10,855) (9,527) (9,580) (11,703)
-------- -------- -------- -------- --------
Income before extraordinary loss 18,373 15,643 16,041 15,757 26,010
Extraordinary loss from
extinguishment of debt -- (6,642) -- -- --
-------- -------- -------- -------- --------
Net income $ 18,373 $ 9,001 $ 16,041 $ 15,757 $ 26,010
======== ======== ======== ======== ========

Net income per share $ 0.91 $ 0.45 $ 0.79 $ 0.78 $ 1.07
======== ======== ======== ======== ========
Weighted average
shares outstanding 20,184 20,184 20,184 20,184 24,249
======== ======== ======== ======== ========
</TABLE>

<PAGE>

CRIIMI MAE INC.

As of December 31,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (In thousands)
Investment in mortgages (excludes
mortgages held for disposition) $546,448 $446,703 $448,319 $730,265(a) $857,589(a)
Total assets 602,786 546,054 526,667 808,701 955,050
Total debt 264,605 245,555 247,968 479,045 627,248
Shareholders' equity 211,195 198,397 193,109 215,289(a) 250,042(a)
<FN>
(a) Includes net unrealized gain on mortgage investments of CRI Liquidating of
approximately $29 million in 1993 and $10 million in 1994 due to the
implementation of Statement of Financial Accounting Standard No. 115.
</TABLE>

The selected consolidated statements of income data presented above for the
years ended December 31, 1992, 1993 and 1994, and the consolidated balance sheet
data as of December 31, 1993 and 1994, were derived from and are qualified by
reference to CRIIMI MAE's consolidated financial statements which have been
included elsewhere in this Annual Report to Shareholders. The consolidated
statements of income data for the years ended December 31, 1990 and 1991 and the
consolidated balance sheet data as of December 31, 1990, 1991 and 1992 were
derived from audited financial statements not included in this Annual Report to
Shareholders. This data should be read in conjunction with the consolidated
financial statements and the notes thereto.

MARKET DATA

On November 28, 1989, CRIIMI MAE was listed on the New York Stock Exchange
(Symbol CMM). Prior to that date, there was no public market for CRIIMI MAE's
shares. As of December 31, 1993 and 1994, there were 20,183,533 and 25,725,979,
respectively, shares held by approximately 23,000 and 23,900 investors,
respectively. The following table sets forth the high and low closing sales
prices and the dividends per share for CRIIMI MAE shares during the periods
indicated:

<PAGE>

CRIIMI MAE INC.
<TABLE>
<CAPTION>
1993
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ---------
<S> <C> <C> <C>
March 31, $11 1/4 $ 9 7/8 $ .28
June 30, 11 5/8 10 3/4 .28
September 30, 12 3/8 11 1/4 .28
December 31, 12 5/8 11 .28
---------
$ 1.12
=========
<CAPTION>
1994
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ---------
<S> <S> <S> <S>
March 31, $12 $ 9 3/8 $ .29
June 30, 11 1/8 9 3/4 .29
September 30, 11 1/4 9 3/8 .29
December 31, 9 1/2 6 5/8 .29
--------
$ 1.16
========
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

BACKGROUND

CRIIMI MAE Inc. (CRIIMI MAE) (formerly CRI Insured Mortgage Association,
Inc.), is an infinite-life, actively managed real estate investment trust
(REIT), which specializes in government insured and guaranteed mortgage
investments secured by multifamily housing complexes (Government Insured
Multifamily Mortgages) located throughout the United States. CRIIMI MAE's
principal objectives are to provide stable or growing quarterly cash
distributions to its shareholders while preserving and protecting its capital.
CRIIMI MAE has sought to achieve these objectives by investing in Government
Insured Multifamily Mortgages and, to a lesser degree, higher yielding uninsured
subordinated securities using a combination of debt and equity financing.
CRIIMI MAE and its subsidiary, CRI Liquidating REIT, Inc. (CRI Liquidating), are
Maryland corporations.

In addition to its portfolio of Government Insured Multifamily Mortgages
and other assets, CRIIMI MAE owns approximately 57% of the issued and
outstanding common stock of CRI Liquidating, a finite-life, self-liquidating
REIT which owns Government Insured Multifamily Mortgages. CRIIMI MAE and CRI
Liquidating were formed in 1989 to effect the merger into CRI Liquidating (the
CRIIMI Merger) of three federally insured mortgage funds sponsored by C.R.I.,
Inc. (CRI), a Delaware corporation formed in 1974 and an affiliate of CRIIMI
MAE's adviser, as discussed below: CRI Insured Mortgage Investments Limited
Partnership (CRIIMI I); CRI Insured Mortgage Investments II, Inc. (CRIIMI II);
and CRI Insured Mortgage Investments III Limited Partnership (CRIIMI III; and,
together with CRIIMI I and CRIIMI II, the CRIIMI Funds). The CRIIMI Merger was
effected to provide certain potential benefits to investors in the CRIIMI Funds,
including the elimination of unrelated business taxable income for certain tax-
exempt investors, the diversification of investments, the reduction of general
overhead and administrative costs as a percentage of assets and total income and
the simplification of tax reporting information. In the CRIIMI Merger, which
was approved by investors in each of the CRIIMI Funds and subsequently
consummated on November 27, 1989, investors in the CRIIMI Funds received, at
their option, shares of CRI Liquidating common stock or shares of CRIIMI MAE
common stock.

Investors in the CRIIMI Funds that received shares of CRIIMI MAE common
stock became shareholders in an infinite-life, actively managed REIT having the
potential to increase the size of its portfolio and enhance the returns to its
shareholders. CRIIMI MAE shareholders retained their economic interests in the
assets of the CRIIMI Funds which were transferred to CRI Liquidating through the
issuance of one CRI Liquidating share to CRIIMI MAE for each share of CRIIMI MAE
common stock issued to investors in the CRIIMI Merger. Upon the completion of
the CRIIMI Merger, CRIIMI MAE held a total of 20,361,807 CRI Liquidating shares,
or approximately 67% of the issued and outstanding CRI Liquidating shares.

Pursuant to a Registration Rights Agreement dated November 28, 1989 between
CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI Liquidating
shares in an underwritten public

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

offering which was consummated in November 1993 reducing CRIIMI MAE's ownership
of CRI Liquidating to approximately 57%.

Investors in the CRIIMI Funds that received shares of CRI Liquidating
common stock, as well as CRIIMI MAE, became shareholders in a finite-life, self-
liquidating REIT, the assets of which consist primarily of Government Insured
Multifamily Mortgages and other assets formerly held by the CRIIMI Funds. CRI
Liquidating intends to hold, manage and dispose of its mortgage investments in
accordance with the objectives and policies of the CRIIMI Funds, including
disposing of any remaining mortgage investments by 1997 through an orderly
liquidation.

CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors with extensive industry related
experience. The Board of Directors of CRIIMI MAE and CRI Liquidating have
engaged CRI Insured Mortgage Associates Adviser Limited Partnership (the
Adviser), an affiliate of CRI, to act in the capacity of adviser to CRIIMI MAE
and CRI Liquidating. The Adviser's general partner is CRI and its operations are
conducted by CRI's employees. The limited partners include William B. Dockser
and H. William Willoughby, who are the sole stockholders of CRI and who are
also executive officers and directors of CRIIMI MAE and a former stockholder
of CRI. The combined interests of CRI, William B. Dockser and H. William
Willoughby represent substantially all of the general and limited partner
interests in the Adviser. Additionally, CRIIMI MAE's and CRI Liquidating's
other executive officers are senior executive officers of CRI. The Adviser
manages CRIIMI MAE's portfolio of Government Insured Multifamily Mortgages and
other assets with the goal of maximizing CRIIMI MAE's value, and conducts CRIIMI
MAE's day-to-day operations. Under an advisory agreement between CRIIMI MAE and
the Adviser, the Adviser and its affiliates receive certain fees and expense
reimbursements.

CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs under Sections 856-860 of the Internal Revenue Code. As REITs,
CRIIMI MAE and CRI Liquidating do not pay taxes at the corporate level.
Qualification for treatment as REITs requires CRIIMI MAE and CRI Liquidating to
meet certain criteria, including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income.

PROPOSAL TO BECOME SELF-MANAGED AND SELF-ADMINISTERED

CRIIMI MAE's board of directors has determined that it is in CRIIMI MAE's
best interest to consider a proposed transaction in which CRIIMI MAE would
become a self-managed and self-administered REIT. As previously discussed,
CRIIMI MAE's portfolio management and day-to-day operations are currently
conducted by the Adviser, which is affiliated with CRI. CRI is owned by William
B. Dockser and H. William Willoughby, who are executive officers and directors
of CRIIMI MAE. CRIIMI MAE's board has formed a special committee comprised of
the independent directors to evaluate a proposed merger of CRI's Mortgage
Businesses, including the advisory business conducted on CRIIMI MAE's behalf and
certain other mortgage investment, servicing, origination and advisory
businesses which CRI currently conducts through various affiliates (CRI Mortgage
Businesses). The proposal calls for CRIIMI MAE to acquire the CRI Mortgage
Businesses, including CRICO Mortgage Company, Inc., (CRICO) and other
CRI-affiliates by:

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

- assuming $9.1 million of outstanding debt of the CRI Mortgage
Businesses, and

The special committee of independent directors has engaged Merrill Lynch,
Pierce, Fenner & Smith Incorporated to act as CRIIMI MAE's financial advisor in
connection with the proposed merger and Duff & Phelps Capital Markets Co. to
render an opinion as to the fairness of the proposed merger to the stockholders
of CRIIMI MAE. The proposed merger is subject to a number of conditions,
including the negotiation of a definitive merger agreement, the delivery of a
fairness opinion by Duff & Phelps Capital Markets Co., final approval by the
special committee of independent directors and the approval of the holders of a
majority of CRIIMI MAE's common shares voted at a meeting where a quorum is
present.

If this transaction is approved by the special committee of independent
directors and the stockholders, all payments made by CRIIMI MAE under the
advisory agreement to the Adviser and to CRI would cease upon the consummation
of the transaction and CRIIMI MAE would no longer have a guaranteed $700,000
distribution in connection with its investment in the AIM Funds from CRI/AIM
Investment Limited Partnership, an affiliate of CRI. Although expense
reimbursements to CRI by CRIIMI MAE would no longer be made, CRIIMI MAE would
incur these expenses directly.

The proposed transaction has no impact on the payments required to be made
by CRI Liquidating, other than that the expense reimbursement currently paid by
CRI Liquidating to CRI in connection with the provision of services by its
Adviser will be paid to CRIIMI MAE subsequent to the consummation of the
transaction.

- - - - - - - - - - - - - - - - - - - - - - - - -

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

In March 1994, CRIIMI MAE completed a public offering of an additional
5,000,000 shares of common stock at a price to the public of $11.25 per share
(the Equity Offering). The net proceeds of the Equity Offering totaled
approximately $52.2 million, which CRIIMI MAE used primarily to acquire
Government Insured Multifamily Mortgages. The costs of the Equity Offering,
including professional fees, filing fees, printing costs and other items,
approximated $.7 million. Additionally, underwriting fees in an amount which
approximated 6.0% of the gross offering proceeds were incurred.

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 for
sale Debt Securities, Preferred Shares and Common Shares of CRIIMI MAE 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. On November 3, 1994, CRIIMI MAE sold 500,000 shares of common stock,
which were formerly held in treasury, under the shelf registration statement at
an offering price of $8.744 per share. Net offering proceeds of approximately
$4.3 million were invested in subordinated securities. Additionally, on January
13, 1995, CRIIMI MAE sold 625,000 shares of common stock under the shelf
registration statement at an offering price of $6.867 per share for net proceeds
of approximately $4.2 million. CRIIMI MAE intends to use the proceeds from this
sale of securities to acquire additional mortgage investments, sponsor and/or
participate in securitized mortgage programs, and to make other investments and
acquisitions relating to CRIIMI MAE's mortgage business.

Beginning in the third quarter of 1994, CRIIMI MAE implemented a dividend
reinvestment and stock purchase plan (the Plan) which allows shareholders who
elect to participate in the Plan (Participants) to purchase additional CRIIMI
MAE shares at a 2% discount through the reinvestment of CRIIMI MAE's dividends
and through optional cash payments. Common shares purchased under the Plan may
be, at CRIIMI MAE's option, newly issued common shares or common shares
purchased for Participants in the open market. The price of common shares
purchased from CRIIMI MAE with reinvested dividends will be 98% of the average
of the closing sales prices of the common shares as reported on the New York
Stock Exchange Composite Tape on the five trading days prior to the date on
which dividends are paid subject to any threshold price restrictions, as more
fully described in the Registration Statement on Form S-3 filed with the SEC
covering the shares to be issued under the Plan. The price to Participants of
common shares purchased in the open market with reinvested dividends will be 98%
of the average price of common shares purchased for the Plan by the Agent over
the period during which such common shares are purchased, exclusive of taxes and
commissions. CRIIMI MAE reserves the right to modify the pricing or any other
provision of the Plan at any time. Participants in the Plan may have cash
dividends on all or a portion of their common shares automatically reinvested.
Participants may terminate their accounts at any time in the manner

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

provided for in the Plan. On December 30, 1994, 42,446 shares of stock were
issued under the Plan at a price of $6.6885 per share.

CRIIMI MAE INVESTMENTS

CRIIMI MAE invests in Government Insured Multifamily Mortgages and
subordinated securities collateralized by multifamily and commercial real
estate. CRIIMI MAE also holds the sole general partnership interests in four
publicly held limited partnerships and a limited partnership interest in the
advisor to those entities. The following is a summary of these investments at
December 31, 1994.

INVESTMENT IN MORTGAGES

As of December 31, 1993 and 1994, CRIIMI MAE directly owned 126 and 173
Government Insured Multifamily Mortgages and Government Insured Construction
Mortgages, respectively, which had a weighted average net effective interest
rate of approximately 8.22% and 8.00%, a weighted average remaining term of
approximately 34 years and 33 years, and a tax basis of approximately $499
million and $703 million, respectively.

As of December 31, 1993 and 1994, CRIIMI MAE indirectly owned through its
subsidiary, CRI Liquidating, 63 and 44 Government Insured Multifamily Mortgages,
respectively, which had a weighted average net effective interest rate of
approximately 9.97% and 10.02%, a weighted average remaining term of
approximately 27 years and 26 years, and a tax basis of approximately $173
million and $123 million, respectively.

Thus, on a consolidated basis, as of December 31, 1993 and 1994, CRIIMI MAE
owned, directly or indirectly, 189 and 217 Government Insured Multifamily
Mortgages and Government Insured Construction Mortgages, respectively. These
investments (including Mortgages Held for Disposition) had a weighted average
net effective interest rate of approximately 8.70%, a weighted average remaining
term of approximately 32 years and a tax basis of approximately $672 million, as
of December 31, 1993. 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 a tax basis of approximately $826 million, as of
December 31, 1994. In addition, as of December 31, 1994, CRIIMI MAE had
committed approximately $9.0 million for advances on FHA-Insured Loans relating
to the construction or rehabilitation of multifamily housing projects, including
nursing homes and intermediate care facilities (Government Insured Construction
Mortgages).

As discussed below, CRIIMI MAE makes direct investments in primarily two
categories of Government Insured Multifamily Mortgages at, near, or above par
value (Near Par or Premium Mortgage Investments).

FHA-Insured Investments--The first category of Near Par or Premium Mortgage
Investments in which CRIIMI MAE invests consists

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

of participation certificates evidencing a 100% undivided beneficial interest in
Government Insured Multifamily Mortgages insured by FHA pursuant to provisions
of the National Housing Act (FHA-Insured Loans). All of the FHA-Insured Loans
in which CRIIMI MAE invests are insured by HUD for effectively 99% of their
current face value. As part of its investment strategy, CRIIMI MAE also invests
in Government Insured Construction Mortgages which involve a two-tier financing
process in which a short-term loan covering construction costs is converted into
a permanent loan. CRIIMI MAE also becomes the holder of the permanent loan upon
conversion. The construction loan is funded in HUD-approved draws based upon
the progress of construction. The construction loans are GNMA-guaranteed or
insured by HUD. The construction loan generally does not amortize during the
construction period. Amortization begins upon conversion of the construction
loan into a permanent loan, which generally occurs within a 24-month period from
the initial endorsement by HUD. Approximately 31% of CRIIMI MAE's near par or
premium mortgage investments are FHA-Insured Loans or Government Insured
Construction Mortgages as of December 31, 1994.

Mortgage-Backed Securities--The second category of Near Par or Premium
Mortgage Investments in which CRIIMI MAE invests consists of federally
guaranteed mortgage-backed securities or other securities backed by Government
Insured Multifamily Mortgages issued by entities other than GNMA
(Mortgage-Backed Securities) and Mortgage-Backed Securities 100% guaranteed as
to principal and interest by GNMA (GNMA Mortgage-Backed Securities). As of
December 31, 1994, all of CRIIMI MAE's mortgage investments in this category
were GNMA Mortgage-Backed Securities. The GNMA Mortgage-Backed Securities in
which CRIIMI MAE invests are backed by Government Insured Multifamily Mortgages
insured in whole by HUD, or insured by HUD and a coinsured lender under HUD
mortgage insurance programs and the coinsurance provisions of the National
Housing Act. The Mortgage-Backed Securities in which CRIIMI MAE is permitted to
invest, although none have been acquired as of December 31, 1994, are backed by
Government Insured Multifamily Mortgages which are insured in whole by HUD under
HUD mortgage insurance programs. Approximately 69% of CRIIMI MAE's near par or
premium mortgage investments are GNMA Mortgage-Backed Securities as of December
31, 1994.

CRI Liquidating Mortgage Investments--CRI Liquidating's mortgage
investments consist solely of the Government Insured Multifamily Mortgages it
acquired from the CRIIMI Funds in the CRIIMI Merger. The CRIIMI Funds invested
primarily in Government Insured Multifamily Mortgages issued or sold pursuant to
programs of GNMA and FHA.

The majority of CRI Liquidating's mortgage investments were acquired by the
CRIIMI Funds at a discount to face value (Discount Mortgage Investments) on the
belief that based on economic, market, legal and other factors, such Discount
Mortgage Investments might be sold for cash, prepaid as a result of a conversion
to condominium housing or otherwise disposed of or refinanced in a manner
requiring prepayment or permitting other profitable

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

disposition three to twelve years after acquisition by the CRIIMI Funds.

Acquisitions--During 1994, CRIIMI MAE directly acquired 51 Government
Insured Multifamily Mortgages with an aggregate purchase price of approximately
$194 million with a weighted average net effective interest rate of
approximately 7.79% and a weighted average remaining term of approximately 32
years. In addition, during 1994, CRIIMI MAE funded advances of approximately
$41.8 million on Government Insured Construction Mortgages with a weighted
average net effective interest rate of approximately 8.22%. As previously
discussed, as of December 31, 1994, CRIIMI MAE had committed to make additional
advances on Government Insured Construction Mortgages, totalling approximately
$9.0 million.

Dispositions--Dispositions result from prepayments of, defaults on and
sales of Government Insured Multifamily Mortgages. Decreases in market interest
rates could result in the prepayment of certain mortgage investments. CRIIMI
MAE believes, however, that declining interest rates result in increased
prepayments of single-family mortgages to a greater extent than mortgages on
multifamily properties. This is partially due to lockouts (i.e. prepayment
prohibitions), prepayment penalties or difficulties in obtaining refinancing for
multifamily dwellings. However, based on current interest rates, CRIIMI MAE
does not expect to experience increased prepayment levels as compared to prior
years.

Decreases in occupancy levels, rental rates or value of any property
underlying a mortgage investment may result in the mortgagor being unable or
unwilling to make required payments on the mortgage and thereby defaulting. The
proceeds from the assignment (following a default) or prepayment of a Discount
Mortgage Investment are expected to exceed the amortized cost of the investment.
The proceeds from the assignment or prepayment of a Near Par or Premium Mortgage
Investment are expected to approximate the amortized cost of the investment.

On an amortized cost and tax basis, approximately 99% of CRIIMI MAE's
directly held mortgages are Near Par or Premium Mortgage Investments.
Therefore, the proceeds from a default or prepayment of any of CRIIMI MAE's
mortgage investments are expected to approximate the amortized cost and tax
basis of such mortgages.

On an amortized cost basis, as of December 31, 1994, approximately 89% of
CRI Liquidating's mortgages were Discount Mortgage Investments and approximately
11% were Near Par or Premium Mortgage Investments. On a tax basis, all of CRI
Liquidating's mortgages are Discount Mortgage Investments. Therefore, whether
by default or prepayment, the proceeds from the disposition of CRI Liquidating's
mortgage investments would, for the majority of such mortgages, be expected to
exceed the tax basis of such mortgages. However, on an amortized cost basis,
the proceeds from a default on, or prepayment of CRI Liquidating's Near Par or
Premium Mortgage Investments would be expected to approximate the amortized
cost.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

While it is not expected that CRIIMI MAE will sell any of its mortgage
investments, CRI Liquidating's business plan calls for an orderly liquidation of
its portfolio by 1997. Approximately 38%, 31% and 31%, respectively, of CRI
Liquidating's December 31, 1994 portfolio balance is expected to be liquidated
in 1995, 1996 and 1997. Therefore, to the extent mortgage investments are not
otherwise disposed of, CRI Liquidating intends to sell a substantial portion of
its portfolio as is necessary to effect its liquidation plan. On January 20,
1995, 21 mortgages were disposed of, with an aggregate amortized cost of
approximately $48.1 million, representing approximately 33% of the December 31,
1994 tax basis portfolio balance.

The following table sets forth certain information concerning dispositions
of Government Insured Multifamily Mortgages by CRIIMI MAE and CRI Liquidating
for the past three years:

<TABLE>
<CAPTION>
Net Gain/(Loss)
Recognized for Net Gain/(Loss)
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
---- ------------- ---- ---------- ----- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1992-CRI Liq. 3 -- -- 3 $ 6,097,102 $ 11,202,237
CRIIMI MAE 4 -- -- 4 (363,957) (118,498)
1993-CRI Liq. 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
1994-CRI Liq. 3 14 2 19 12,553,280 18,354,125
CRIIMI MAE -- -- 7 7 446,028 646,223
--- --- --- --- ------------ ------------
14(2) 19 17 50 $ 26,090,198 $ 44,371,876
=== === === === ============ ============
<FN>
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9% of
the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Five of the 14 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI Liquidating
or CRIIMI MAE receiving near or above face value.
(3) In connection with the CRIIMI Merger, CRI Liquidating recorded its
investment in mortgages at the lower of cost or fair value, which resulted
in an overall net write down for tax purposes. For financial statement
purposes, carryover basis of accounting was used. Therefore, since the
CRIIMI Merger, the net gain for tax purposes was greater than the net gain
recognized for financial statement purposes. As a REIT, dividends to
shareholders are based on tax basis income.
</TABLE>

INVESTMENT IN SUBORDINATED SECURITIES

In addition to investing in Government Insured Multifamily Mortgages,
CRIIMI MAE's board of directors has authorized CRIIMI MAE to invest up to 20% of
CRIIMI MAE's total consolidated assets in other mortgage investments which are
not federally insured or guaranteed. Since adoption of this policy, CRIIMI MAE
and its Adviser have 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 Adviser believes that well-researched
investments in high yielding subordinated securities represent attractive
investment opportunities. Such new investments are expected to enhance CRIIMI

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

MAE's projected dividend by diversifying its asset base with the addition of
higher-yielding/higher risk assets.

As of December 31, 1994, CRIIMI MAE had purchased three tranches of
securities issued by Mortgage Capital Funding, Inc. Series 1994-MC1 (MC-1) and
two tranches of securities issued by Mortgage Capital Funding, Inc. Series 1993-
C1 (C-1). Both MC-1 and C-1 issued multiple layers of securities and have
elected to be treated as real estate mortgage investment conduits (REMICs).

The following table summarizes information related to these investments:
<TABLE>
<CAPTION>
Original Amortized
Face Purchase Cost Anticipated
Pool Tranche Amount Price (as of December 31, 1994) Yield to Maturity (1)
----------- -------------- ------------ ----------- ------------------------- --------------------
<S> <C> <C> <C> <C> <C>
MC-1 B-1 (BB Rated) $12,041,520 $ 9,693,424 $ 9,702,113 12.5%

B-2 (B Rated) 10,321,303 7,708,723 7,770,361 13.6%

B-3 (Unrated) 12,041,520 4,635,985 4,542,208 18.1%
----------- ----------- -----------
Subtotal 34,404,343 22,038,132 22,014,682
----------- ----------- -----------

C-1 D (BB Rated) 10,596,316 9,430,721 9,447,186 12.8%

E (B Rated) 9,082,557 7,379,578 7,396,481 14.8%
----------- ----------- -----------
Subtotal 19,678,873 16,810,299 16,843,667
----------- ----------- -----------

Total $54,083,216 $38,848,431 $38,858,349
=========== =========== ===========
<FN>
(1) 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 tax
basis return on these investments will approximate 30% 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 BB rated and B rated tranches, as
discussed below, and adjusted for amortization of original issue discount
related to these securities.
</TABLE>

At closing, MC-1 consisted of securities having a face value of
approximately $172 million. The collateral for the securities consisted of
uninsured mortgages with an unpaid principal balance (UPB) of approximately $172
million - 30 multifamily loans representing 72% of the UPB of the pool and 14
commercial loans representing 28% of the UPB of the pool. The composition of
the pool as of December 31, 1994 was substantially the same.

At closing, C-1 consisted of securities having a face value of
approximately $151 million. The collateral for the securities consisted of
uninsured mortgages with a UPB of approximately $151 million - 29 multifamily
loans representing 47% of the UPB of the pool and 32 commercial loans
representing 53% of the UPB of the pool. The composition of the pool as of
December 31, 1994 was approximately 39% multifamily and 62% commercial due to
prepayments of mortgages in the pool.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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 cash flow until their investment returns are met. Then,
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 and interest, then the most
subordinated rated tranches will begin absorbing losses.

During the third and fourth quarters of 1994, CRIIMI MAE entered into a
series of repurchase agreements which provided CRIIMI MAE financing to purchase
the four rated tranches of the subordinated securities. Between 70% and 80% of
the purchase price was financed for aggregate borrowings of approximately $24.9
million. Under the agreements, the interest rate is based upon the then current
one-month or six-month LIBOR, as applicable, plus 1.0% to 1.25% depending on the
specific repurchase agreement. The table under "Other Repurchase Agreements"
describes more fully the terms of the financing.

In making these investments, CRIIMI MAE's Adviser and its affiliates
applied their knowledge of multifamily and commercial mortgages to perform due
diligence on the mortgage investments collateralizing the securities. This
analysis included reviewing the operating records of the underlying real estate
assets, reviewing appraisals, environmental studies, market studies,
architectural and engineering reviews, and reviewing, and where deemed
necessary, independently developing projected operating budgets. In addition,
site visits were conducted at substantially all of the properties, in an effort
to confirm market and architectural and engineering reviews.

CRIIMI MAE will generally make investments of this type when satisfactory
arrangements exist whereby CRIIMI MAE can closely monitor the collateral of the
pool. In this case, CRICO, an affiliate of the Adviser, will service the
majority of the mortgage investments comprising the pools, thereby enabling
CRICO to continuously monitor the performance of the pool, while actively
pursuing resolution of any delinquencies that may develop and maintaining
current records on the properties' operations and tax and insurance liabilities.
Additionally, CRICO is the special servicer for both pools which places it
directly in the position of asset manager in the event that a default occurs.
As special servicer, CRICO will use its efforts to create a financial solution
designed to maximize the benefit to all of the investors in the portfolio,
including CRIIMI MAE.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

rental rates. As these uncertainties and contingencies are generally beyond
CRIIMI MAE's control, no assurance can be given that the anticipated tax basis
return for the next year or the anticipated yield to maturity will be achieved.

Although investments in Government Insured Multifamily Mortgages and
government insured or guaranteed multifamily construction loans will continue to
comprise the majority of CRIIMI MAE's total consolidated asset base, CRIIMI MAE
expects that investments similar to the REMIC tranches discussed above will
represent a major component of CRIIMI MAE's new business activity during 1995.
As of December 31, 1994, these investments represent approximately 4% of CRIIMI
MAE's total consolidated assets. Investments of this type are not anticipated
to exceed 10% of CRIIMI MAE's total consolidated asset base through 1995.

INVESTMENT IN INSURED MORTGAGE FUNDS AND ADVISORY PARTNERSHIP

On September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary
CRIIMI, Inc., acquired from Integrated Resources, Inc. (Integrated) all of the
general partnership interests in four publicly held limited partnerships known
as the American Insured Mortgage Investors Funds (the AIM Funds). The AIM Funds
own mortgage investments which are substantially similar to those owned by
CRIIMI MAE and CRI Liquidating. CRIIMI, Inc. receives the general partner's
share of income, loss and distributions (which ranges among the AIM Funds from
2.9% to 4.9%) from each of the AIM Funds. In addition, CRIIMI MAE owns
indirectly a limited partnership interest in AIM Acquisition Partners, L.P.,
(AAP) an entity that provides advisory services to the AIM Funds. The general
partner of AAP is AIM Acquisition Corporation (AIM Acquisition), an
unaffiliated entity, and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRI/AIM
Investment Limited Partnership, a limited partnership formed by CRI and CRIIMI
MAE. As discussed below, CRI has guaranteed that CRIIMI MAE will receive an
annual distribution of at least $700,000 in connection with its investment in
CRI/AIM Investment Limited Partnership.

LIQUIDITY

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,
which have been derived from scheduled payments of outstanding principal of and
interest on, and proceeds from dispositions of, mortgage investments plus cash
receipts from interest on temporary investments, borrowings, cash received from
the AIM Funds and advisory partnership, were sufficient for the years 1992, 1993
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 years. 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 a REIT. As of December 31, 1994, there
were no significant commitments for capital expenditures; however, as of such
date, CRIIMI MAE had committed to fund additional Government Insured
Construction Mortgages totaling approximately $9.0 million. As discussed under
"Corporate Borrowings", CRIIMI MAE, in January 1995, paid down $126 million on
the borrowings under the Master Repurchase Agreements secured by FHA-Insured
Loans and $50 million on the Revolving Credit Facility. The borrowings were
replaced with substantially

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

similar financing provided by the German American Capital Corporation ("GACC").

Dividends -- During 1994, CRIIMI MAE increased its quarterly dividend to
$0.29 per share, or $1.16 per share for the year. During the four consecutive
quarters of 1993, CRIIMI MAE paid dividends of $0.28 per share. CRIIMI MAE's
objective is to pay a stable quarterly dividend and to increase the tax basis
income over time, and thereby increase the quarterly dividend. However, the
rise in short-term interest rates during the past year has significantly
increased CRIIMI MAE's interest expense which results in reduced net income and,
ultimately, dividend distributions. Consequently, in March 1995, the Board of
Directors declared a first quarter 1995 dividend of $0.225 per share. The
anticipated dividend level for 1995 of $0.90 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 March 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 would be limited by CRIIMI MAE's interest rate caps, as discussed
below. The estimated dividend level also assumes that during 1995 CRIIMI MAE
will invest approximately $62 million in subordinated securities with terms that
are similar to the $39 million of subordinated securities that CRIIMI MAE
purchased in 1994. The dividend estimate for 1995 does not include any of the
anticipated effect of CRIIMI MAE's proposed merger.

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 will 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) the
level of income earned on CRIIMI MAE's 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
London Interbank Offered Rate (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.

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

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

shareholders for a period, although neither the timing nor the amount can be
predicted.

FINANCIAL FLEXIBILITY

Fluctuations in interest rates impact the value of CRIIMI MAE's mortgage
investments as well as the potential returns to shareholders through increased
cost of funds. Increases in long-term rates could decrease the value of
mortgage investments and, in certain circumstances, require CRIIMI MAE to pledge
additional collateral in connection with its borrowing facilities. This would
reduce CRIIMI MAE's borrowing capacity and, in certain circumstances, could
force CRIIMI MAE to liquidate a portion of its assets at a loss in order to
comply with certain covenants under its borrowing facilities. As of December
31, 1994, CRIIMI MAE had pledged mortgage investments with an aggregate fair
value of approximately $634.5 million as collateral for aggregate borrowings of
approximately $572 million under the Master Repurchase Agreements and the
Revolving Credit Facility. CRIIMI MAE also had pledged 13,124,000 shares of CRI
Liquidating stock with a fair value of approximately $59 million as collateral
for borrowings of approximately $30.4 million under the Bank Term Loan and
subordinated securities with an aggregate fair value of $33.8 million as
collateral for $24.9 million in borrowings under Other Repurchase Agreements.
(See further discussion under "Corporate Borrowings.")

The Adviser is actively monitoring the levels of unencumbered collateral
and is taking steps to negotiate more favorable collateral requirements with
lenders. Subsequent to year end, CRIIMI MAE executed a master repurchase
agreement with GACC for maximum borrowings of $300 million secured by FHA-
Insured Loans and GNMA Mortgage-Backed Securities valued at approximately 105%
of the amounts borrowed. This compares to requirements under the Master
Repurchase Agreements with Nomura Securities International, Inc. and Nomura
Asset Capital Corporation (collectively, Nomura) of 110% of the value on
borrowings secured by FHA-Insured loans and 105% or 107% on borrowings secured
by GNMA Mortgage-Backed Securities depending on whether the $350 million
facility or the $150 million facility was used and collateral requirements of
110% of the value on borrowings under the Revolving Credit Facility.

The collateral requirements on the Bank Term Loan are also anticipated to
be reduced when the refinancing is completed after the March 31, 1995 required
principal payment is made from the return of capital on the shares of CRI
Liquidating stock pledged as collateral under the Bank Term Loan. (For further
information, see discussion under "Bank Term Loan.") The value of the required
collateral is anticipated to be reduced from 200% of the outstanding borrowings
to 175% of the outstanding borrowings. The Adviser has also provided for more
flexibility through the availability of a $10 million working capital line of
credit, secured by shares of CRI Liquidating stock, expected to be closed in
February 1995. The Adviser is also exploring financing alternatives other than
secured lending of the type currently in place.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

A reduction in long-term interest rates could have the impact of increasing
the value of CRIIMI MAE's mortgage investments, lowering collateral
requirements, and could also increase the level of prepayments on CRIIMI MAE's
mortgage investments. CRIIMI MAE's yield on mortgage investments will be
reduced to the extent CRIIMI MAE reinvests the proceeds from such prepayments in
new mortgage investments with effective rates which are below the rates of the
prepaid mortgages. Offsetting this risk is the opportunity to invest the
proceeds from a prepayment into other higher yielding mortgage investments such
as the subordinated securities.

As previously discussed, the Adviser is actively pursuing a new investment
program in subordinated securities. While the Adviser 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. As
discussed above in relation to all of CRIIMI MAE's mortgage investments,
changes in interest rates can increase or decrease the value of the
subordinated securities. Given that CRIIMI MAE intends to hold these investments
to maturity, the most significant impact of this potential change in value is on
the collateral requirements under the debt facilities. The Adviser 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. The Adviser 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. It is anticipated that investments in subordinated securities will
comprise the majority of CRIIMI MAE's new business activity during 1995. While
investments of this type are not expected to exceed 10% of CRIIMI MAE's total
consolidated asset base during 1995, CRIIMI MAE's board of directors has
authorized investments of up to 20% of total consolidated assets in other
mortgage investments which are not federally insured or guaranteed. The Adviser
also believes that if the proposed merger of CRIIMI MAE with CRI's Mortgage
Businesses is approved (see discussion under "Proposal to Become Self-Managed
and Self-Administered"), CRIIMI MAE's overall return will be less interest rate
sensitive. The income which is anticipated to be derived from the proposed
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
decrease 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
offset by the savings CRIIMI MAE would have on its cost of borrowing.

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. To partially limit the
adverse effects of rising interest rates, CRIIMI MAE has entered into a series
of interest rate hedging agreements. (See "Interest Rate Hedge Agreements" for
a further discussion.) 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. The Adviser 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.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

CORPORATE BORROWINGS

MASTER REPURCHASE AGREEMENTS

On April 30, 1993, CRIIMI MAE entered into master repurchase agreements,
(collectively, with the additional repurchase agreements described below, the
Master Repurchase Agreements) with Nomura which provided CRIIMI MAE with $350.0
million of available financing for a three-year term, expiring April 30, 1996.
Interest on such borrowings is based on the three-month LIBOR plus .75% or .50%
depending on whether FHA-Insured Loans or GNMA Mortgage-Backed Securities,
respectively, are pledged as collateral. The rate on the facility as of
December 31, 1994, including the applicable spreads, was 6.31% on the
borrowings secured by FHA-Insured Loans and 6.06% on the borrowings secured by
GNMA Mortgage-Backed Securities. The rates in effect on December 31, 1994 were
set on October 24, 1994 and reset on January 23, 1995 for three months at
6.875%, including the spread, for the borrowings secured by GNMA Mortgage-Backed
Securities. As discussed below, the borrowings secured by FHA-Insured Loans
were paid off on January 23, 1995 with proceeds from a new facility with GACC.
The value of the FHA-Insured Loans and the GNMA Mortgage-Backed Securities
pledged as collateral must equal at least 110% and 105%, respectively, of the
amounts borrowed. No more than 60% of the collateral pledged may be FHA-Insured
Loans and no less than 40% may be GNMA Mortgage-Backed Securities.

On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura agreed to provide CRIIMI MAE
with an additional $150.0 million of available financing for a three-year term,
expiring October 27, 1996. Interest on such borrowings for the first twelve
months after the initial funding (April 1994 through April 1995) is based on the
three-month LIBOR plus .90% or .70% depending on whether FHA-Insured Loans or
GNMA Mortgage-Backed Securities, respectively, are pledged as collateral.
Interest on the borrowings from May 1995 to October 1995 and from November 1995
through the maturity of the facility will be based on three-month LIBOR plus
.50% and .30%, respectively, for borrowings secured by GNMA Mortgage Backed
Securities. (As discussed below, the borrowings secured by FHA-Insured Loans
were paid off on January 23, 1995 with proceeds from a new facility with GACC).
The rate on the facility as of December 31, 1994, including the applicable
spreads was 6.46% on the borrowings secured by FHA-Insured Loans and 6.26% on
borrowings secured by GNMA Mortgage-Backed Securities. The rates in effect on
December 31, 1994 were set on October 24, 1994 and reset on January 23, 1995
for three months at 7.075%, including the spread, for the borrowings secured by
GNMA Mortgage-Backed Securities. The value of the FHA-Insured Loans and the
GNMA Mortgage-Backed Securities pledged as collateral must equal at least 110%

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

and 107%, respectively, of the amounts borrowed. No more than 40% of the
collateral pledged may be FHA-Insured Loans and no less than 60% may be GNMA
Mortgage-Backed Securities. CRIIMI MAE was required to pay commitment fees of
three basis points per month on the unutilized amount through June 1994 and
twelve basis points on any remaining unused amounts as of July 1, 1994. For the
year ended December 31, 1994, CRIIMI MAE incurred approximately $415,000 in
commitment fees related to the $150.0 million facility.

As of December 31, 1994, CRIIMI MAE had borrowed approximately $457.0
million of the funds available under the Master Repurchase Agreements primarily
to acquire Government Insured Multifamily Mortgages and to repay a portion of
borrowings under the Commercial Paper Facility, as discussed below. As of
December 31, 1994, mortgage investments directly owned by CRIIMI MAE, which
approximate $499.1 million at fair value, were used as collateral pursuant to
certain terms of the Master Repurchase Agreements.

On January 23, 1995, approximately $126 million of borrowings
collateralized with FHA-Insured Loans were paid off, terminating the related FHA
portion of the Master Repurchase Agreements. Replacement financing was obtained
from GACC through a master repurchase agreement at substantially similar terms,
except as related to collateral requirements as discussed under "Financial
Flexibility".

COMMERCIAL PAPER FACILITY/REVOLVING CREDIT FACILITY

In the first quarter of 1994, borrowings under the Commercial Paper
Facility, which matured on February 28, 1994, were replaced with revolving
credit loans. During the period January 1, 1994 through February 28, 1994, the
maximum amount outstanding on these borrowings was approximately $95.3 million
and the weighted average amount outstanding was approximately $86.4 million.
The weighted average interest rate for the period January 1, 1994 through
February 28, 1994 on these borrowings was 5.3%, including all hedging and
borrowing costs.

In February 1993, CRIIMI MAE entered into an agreement to replace a $190.0
million letter of credit which provided the credit enhancement for the
Commercial Paper Facility and related revolving credit facility, with two
letters of credit in the amount of $35.0 million and $155.0 million provided by
National Australia Bank, Limited and Canadian Imperial Bank of Commerce (CIBC),
respectively. In April 1993, the letter of credit provided by CIBC was reduced
to $105.0 million. In January 1994, the special purpose corporation replaced
borrowings under the Commercial Paper Facility with revolving credit loans.
These revolving credit loans were originally scheduled to mature on January 28,
1994; however, the maturity date was extended until February 28, 1994.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

aggregate principal amount of $110 million. Effective August 5, 1994, an
additional $25 million was made available for borrowing by CRIIMI MAE under this
facility. CRIIMI MAE was required to pay commitment fees of twenty five basis
points per annum on the $25 million increase to the facility. As of December
31, 1994, CRIIMI MAE incurred approximately $33,000 of commitment fees related
to the $25 million increase in the facility.

The interest rate on borrowings under the Revolving Credit Facility is
based on CRIIMI MAE's choice of (i) the one, two, three or six-month LIBOR plus
an interest rate margin of .50%, .5625%, or .625% depending on the percentage of
GNMA Mortgage-Backed Securities pledged as collateral or (ii) a base rate equal
to the higher of either the lender's prime rate or .50% per annum above the
Federal Funds rate, plus an interest rate margin of 0%, .0625%, or .125%
depending on the percentage of GNMA Mortgage-Backed Securities held as
collateral. The rate on substantially all of this facility as of December 31,
1994 was 5.69%, which is based on 6 month LIBOR and a spread of .50%. This rate
was set on August 5, 1994 and reset on February 2, 1995 at 6.75%, which is based
on one month LIBOR and a spread of .625%.

The value of the collateral pledged must equal at least 110% of the amounts
borrowed. No more than 60% of the collateral pledged may be FHA-Insured Loans
and no less than 40% may be GNMA Mortgage-Backed Securities. As of December 31,
1994, mortgage investments directly owned by CRIIMI MAE, which approximated
$135.3 million at fair value, were used as collateral pursuant to the terms of
the Revolving Credit Facility.

The Revolving Credit Agreement also requires a minimum Fixed Charge
Coverage Ratio, as defined in the amended agreement, of 1.35 to 1.0 for any
fiscal quarter through September 30, 1995 and a minimum of 1.4 to 1.0 for any
fiscal quarter after September 30, 1995. For the quarter ended December 31,
1994, the Fixed Charge Coverage Ratio was 1.56:1.0.

As of December 31, 1994, CRIIMI MAE had used $115 million under the
Revolving Credit Facility primarily to acquire Government Insured Multifamily
Mortgages, other mortgage investments and to repay borrowings under the
aforementioned Commercial Paper Facility. On January 27, 1995, CRIIMI MAE made
a $50 million payment on the Revolving Credit Facility to effect a permanent,
required reduction in the amount available under the facility. Replacement
financing in the amount of $50 million was obtained from GACC at terms
substantially similar to those on the Master Repurchase Agreements.

MASTER REPURCHASE AGREEMENT WITH GACC

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Securities, respectively, are pledged as collateral. 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.

As previously discussed, approximately $176 million was borrowed from this
facility in January 1995 to paydown the portion of the borrowings secured by
FHA-Insured Loans under the Master Repurchase Agreements and to effect a $50
million required, permanent reduction in the Revolving Credit Facility. The
weighted average rate on these borrowings, including applicable spreads, was
6.70%.

BANK TERM LOAN

On October 23, 1991, CRIIMI MAE entered into a credit agreement with two
banks for a reducing term loan facility (the Bank Term Loan) in an aggregate
amount not to exceed $85.0 million, subject to certain terms and conditions. In
December 1992, the credit agreement was amended to increase the Bank Term Loan
by $15.0 million. The Bank Term Loan had an outstanding principal balance of
approximately $52.0 million and approximately $30.4 million as of December 31,
1993 and 1994, respectively. As of December 31, 1993 and 1994, the Bank Term
Loan was secured by the value of 13,874,000 and 13,124,000 CRI Liquidating
shares owned by CRIIMI MAE, respectively, based on a current requirement that
collateral valued at 200% of the outstanding balance secure the loan. The Bank
Term Loan 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 the Bank Term Loan or (ii) an amount to bring the
Bank Term Loan to its scheduled outstanding balance at the end of such quarter.
The current minimum amount of annual principal payments is approximately $15.8
million, with any remaining amounts of the original $85.0 million of principal
due in April 1996 and any remaining amounts of the $15.0 million of increased
principal due in December 1996.

The Bank Term Loan currently provides for an interest rate of 1.10% over
three-month LIBOR plus an agent fee of 0.05% per year. As of December 31, 1994,
the interest rate, including the applicable spreads was 7.666%. The rate will
reset on March 31, 1995.

CRIIMI MAE is in the process of refinancing the facility with one lender
with more favorable terms including an interest rate based on .75% over CRIIMI
MAE's choice of one, two or three month LIBOR and collateral requirements of
175% of the loan amount. This refinancing is anticipated to occur
simultaneously with the paydown of approximately $17.4 million which is expected
to be made in March 1995 from the return of capital from CRI Liquidating.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

OTHER REPURCHASE AGREEMENTS

CRIIMI MAE financed between 70% and 80% of the purchase price of the BB
rated and B rated tranches of subordinated securities which were purchased
during the third and fourth quarters of 1994. The following table summarizes
the financing related to these investments.

<TABLE>
<CAPTION>
Current
Rate
Amount % of Purchase Base (including
Pool Tranche Financed Price Financed Rate Spread Spread) Term
---- ------- ----------- -------------- -------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MC-1 B-1 $ 6,785,396 70% 1M LIBOR 125 7.25% 1 Month (1)
MC-1 B-2 5,396,106 70% 6M LIBOR 110 6.41% 6 Months(2)
C-1 D 7,544,577 80% 6M LIBOR 100 7.75% 6 Months(2)
C-1 E 5,165,704 70% 6M LIBOR 110 7.85% 6 Months(2)
-----------
$24,891,783
===========
<FN>
(1) Financing was replaced on January 30, 1995 in the amount of $7,754,739
representing 80% of the purchase price at an initial rate of 7.75% (6 month
LIBOR plus 100 basis points) with an initial term of six months with a
cancellation notification period of six months and several six month
renewals.
(2) These facilities have an initial term of six months, cancellation
notification periods ranging from six months to one year and with several
six month renewals.
</TABLE>

As a requirement under certain of CRIIMI MAE's other debt facilities, financings
related to repurchase agreements associated with the purchase of subordinated
securities are limited to no more than $50 million without the approval of the
lenders under the Master Repurchase Agreement, the Revolving Credit Agreement
and the GACC master repurchase agreement.

WORKING CAPITAL LINE OF CREDIT

CRIIMI MAE is in the process of finalizing a $10 million working capital
line of credit with Riggs National Bank. This line of credit will be secured by
shares of CRI Liquidating valued at approximately 175% of any outstanding
borrowings. At CRIIMI MAE's option, the interest rate will be set on
outstanding borrowings at one, two or three month LIBOR plus .60%, the daily
federal funds rate plus .80% or prime minus 1.0%.

Certain of the financial covenants under the line of credit will be
consistent with those of the other debt facilities discussed above.

OTHER DEBT RELATED INFORMATION

During December 1994, CRIIMI MAE negotiated with its lenders to amend debt
agreements to provide for more flexibility in the restrictive covenants. Under
all of CRIIMI MAE's existing debt facilities, as amended, except the Other
Repurchase Agreements, CRIIMI MAE's debt to equity ratio, as defined, may not
exceed 3.0:1.0. As of December 31, 1994, CRIIMI MAE's debt-to-equity ratio was
2.51:1.0. The weighted average cost of CRIIMI MAI's borrowings, including
amortization of deferred financing fees of $5.5 million, for the year ended
December 31, 1994, was approximately 7.01%.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Certain of the debt agreements require that a minimum level of unencumbered
assets be maintained, the most restrictive of which requires 2% of total
indebtedness be maintained by CRIIMI MAE. As of January 24, 1995, CRIIMI MAE
had approximately $38 million, at management's estimated fair value, of
unencumbered FHA/GNMA Mortgage Investments. Additionally, CRIIMI MAE has other
unencumbered assets (which in some cases are subject to certain lender
eligibility requirements) including, but not limited to, cash, working capital
lines of credit and unencumbered CRI Liquidating stock.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

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
aggregate borrowings. The following hedge agreements with an aggregate
notional amount of approximately $709 million were in place at December 31,
1994:

<TABLE>
<CAPTION>
Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
---------------- -------------- -------------------- ----------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
Collar (e) $ 30,000,000 March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar (e) 20,000,000 March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar (e) 30,000,000 July 8, 1990 February 8, 1995 8.625% 10.625% CP
Accreting Collar(e)(f) 35,000,000 July 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25,000,000 May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25,000,000 June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (a) 50,000,000 June 25, 1993 June 25, 1998 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 July 1, 1993 June 3, 1996 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 July 20, 1993 July 20, 1998 N/A 6.25% 3M LIBOR
Cap (a) 50,000,000 August 10, 1993 August 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 50,000,000 August 27, 1993 August 27, 1997 N/A 6.125% 3M LIBOR
Cap (a) 50,000,000 November 10, 1993 November 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 35,000,000 February 2, 1994 February 2, 1999 N/A 6.125% 1M LIBOR
Cap (a) 50,000,000 March 15, 1994 March 15, 1997 N/A 6.375% 3M LIBOR
Cap (a) 50,000,000 March 25, 1994 March 25, 1998 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 October 7, 1994 October 7, 1997 N/A 6.75% 3M LIBOR
Cap (d) 33,385,131 December 31, 1991 March 31, 1996 N/A 6.50% 3M LIBOR
Cap (d) 6,451,291 January 15, 1993 March 29, 1996 N/A 6.50% 3M LIBOR
Cap (d) 18,614,868 December 31, 1991 March 31, 1996 N/A 10.50% 3M LIBOR
Cap (d) 1,048,709 March 31, 1993 December 31, 1996 N/A 10.50% 3M LIBOR
------------
$709,499,999
============
<FN>
(a) Approximately $4.5 million and $3.6 million of costs were incurred during
1993 and 1994, respectively, 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.
(b) On May 24, 1993, CRIIMI MAE and the counterparty to the collar, CIBC,
terminated the floor on this former collar. In consideration of such
termination, CRIIMI MAE paid CIBC approximately $2.3 million. This amount
was deferred on the accompanying consolidated balance sheets as the
underlying debt being hedged is still outstanding. This amount will be
amortized for the period from May 24, 1993 through May 26, 1996. CRIIMI
MAE amortized approximately $.5 million and $.8 million of this deferred
amount in the accompanying consolidated statements of income for the years
ended December 31, 1993 and 1994, respectively. Additionally, certain
costs incurred during 1991 in connection with an extinguishment of debt
which was financed with proceeds from a replacement facility, were deferred
and are being amortized using the effective interest method over the life
of the replacement facility. CRIIMI MAE amortized approximately $2.5
million and $1.6 million of such costs, during 1993 and 1994, respectively.
As of December 31, 1994, the unamortized balance of such costs was
approximately $630,000.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index
(CP), three-month LIBOR, or one-month LIBOR.
(d) The notional amount of these hedges amortize based on the expected paydown
schedule of the Bank Term Loan. The average notional amount of these
hedges is expected to be $25,540,441, $3,383,118, $18,959,559 and
$2,710,633, respectively, during 1995.
(e) Total payments to the counterparty during 1993 and 1994 amounted to $8.2
million and $5.0 million, respectively, and were included in interest
expense in the accompanying consolidated statements of income.
(f) The accreting collar increased on a monthly basis from an original
notional amount of $10 million in July 1990 to a final notional amount
of $35 million in December 1990. The notional amount will remain at
$35 million from December 1990 until maturity in July 1995. This is in
contrast to CRIIMI MAE's other collars for which the notional amount is
generally constant over the term of the collar agreement.
</TABLE>

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

INTEREST RATE COLLARS

Interest rate collars are hedging instruments that provide protection
within a range of interest rates, based on a readily determinable interest rate
index. When the interest rate index exceeds the cap then the counterparty pays
the difference between the index and the cap to CRIIMI MAE. Alternatively, if
the interest rate index is below the floor then CRIIMI MAE pays the difference
to the counterparty.

As of December 31, 1994, CRIIMI MAE had in place interest rate collars
based on the Federal Reserve 30 day Commercial Paper Composite Rate ("CP Index")
with an aggregate notional amount of $115 million, a weighted average floor of
8.55% and a weighted average cap of 10.37%. During 1993 and 1994, the CP Index
was below the floor resulting in CRIIMI MAE making payments to the counterparty.
These interest rate collars expire between February 1995 and July 1995. During
October 1994, the Adviser purchased a three year cap in the notional amount of
$50 million to replace certain of the expiring collars.

INTEREST RATE CAPS

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. As of December 31, 1994, CRIIMI MAE had in place
interest rate caps aggregating $594.5 million based on the CP Index and LIBOR.
The caps that are based on the CP Index have an aggregate notional amount of $50
million at December 31, 1994, with a weighted average cap of 8.70%. The cap
that is based on the one month LIBOR has a notional amount of $35 million and a
cap rate of 6.125%. Those based on the three month LIBOR, have an aggregate
notional amount of $510 million at December 31, 1994, with a weighted average
cap rate of 6.51%. At December 31, 1994 the three month LIBOR of 6.5% was at or
exceeded the cap rate on caps with a notional amount of $440 million. These
caps will reset during the first quarter of 1995 and if rates stay at that
level or increase, CRIIMI MAE will receive payments based on the difference
between three month LIBOR and the cap. During 1994, the interest rate indices
exceeded the interest rate cap on one cap which reset in December, which had the
result of reducing CRIIMI MAE's overall interest expense by approximately
$1,300.

CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate hedge agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by any
of the counterparties, each of which has long-term debt ratings of A or above by
Standard and Poor's and A3 or above by Moody's. The Adviser does not intend to
liquidate any of CRIIMI MAE's hedge instruments; however, the Adviser believes
that these instruments are highly liquid. The hedges could be sold or
transferred with the consent of the counterparty. 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, principally because of the high cost of
hedging instruments with maturities greater than 5 years. As of December 31,
1994, the average remaining term of these hedging agreements is approximately
2.2 years. Because CRIIMI MAE's mortgage investments have fixed interest rates,
upon expiration of CRIIMI MAE's collar and cap agreements, CRIIMI MAE will have
interest rate risk to the extent interest rates increase on its variable rate
borrowings unless the hedges are replaced or other steps are taken to mitigate
this risk. The Adviser continues to review its debt and asset/liability hedging
techniques in order to minimize the impact of interest rate risk.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

CASH FLOW--1994 VERSUS 1993

Net cash provided by operating activities increased for 1994 as compared to
1993 principally due to an increase in mortgage investment income, partially
offset by an increase in interest expense due primarily to mortgage acquisition
activity in 1994 funded by proceeds from financings. Also contributing to the
increase in net cash provided by operating activities was an increase in
interest payable as a result of the increase in debt incurred under financing
facilities during 1994. Partially offsetting the increase in net cash provided
by operating activities for 1994 was a decrease in accounts payable and accrued
expenses arising from the payment of costs incurred in connection with the
Equity Offering of common stock, and a decrease in short-term investment income,
as described below.

Net cash used in investing activities decreased for 1994 as compared to
1993. This decrease was principally due to the acquisition of Government
Insured Multifamily Mortgages and subordinated securities and advances on
Government Insured Construction Mortgages of approximately $274.6 million in
1994 as compared to $312.7 million in 1993. Also contributing to the decrease in
net cash used in investing activities was the receipt of net proceeds from the
sale of shares of subsidiary in 1993 of approximately $26.4 million.

Net cash provided by financing activities decreased for 1994 compared to
1993. This decrease was primarily due to the paydown of obligations incurred
under financing facilities of approximately $162.4 million during 1994 as
compared to $230.9 million during 1993. Also contributing to the decrease was a
reduction in proceeds from obligations incurred under financial facilities from
$462.3 million in 1993 to $310.6 million in 1994 and an increase in dividends
paid of $11.8 million from $53.7 million in 1993 to $65.5 million in 1994.
These decreases were partially offset by proceeds from share issuances of
approximately $56.8 million in 1994.

CASH FLOW--1993 VERSUS 1992

Net cash provided by operating activities increased for 1993 as compared to
1992 principally due to an increase in mortgage investment income partially
offset by an increase in interest expense due primarily to mortgage acquisition
activity in 1993 funded by proceeds from financings. Also contributing to the
increase in cash provided by operating activities was an increase in accounts
payable and accrued expenses attributable to the accrued costs incurred by
CRIIMI MAE with respect to its Equity Offering of common stock, as described
below in "Other Events." Partially offsetting the increase in net cash provided
by operating activities for 1993 was the payment of approximately $4.9 million
to terminate an interest rate swap agreement and an increase in interest expense
due primarily to mortgage acquisition activity in 1993 funded by proceeds from
financings.

Net cash used in investing activities increased for 1993 as compared to
1992. This increase was principally due to the

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

acquisition of Government Insured Multifamily Mortgages and advances on
Government Insured Construction Mortgages of approximately $312.7 million in
1993 as compared to $31.8 million in 1992. Also contributing to the increase in
cash used in investing activities was the acquisition of other short-term
investments of approximately $175.3 million in 1993 as compared to approximately
$66.8 million in 1992. In addition, proceeds of approximately $6.1 million were
received during 1993 related to the sale of HUD debentures, as compared to the
receipt of proceeds of approximately $2.3 million during the same period in 1992
related to the redemption of HUD debentures. Partially offsetting the increase
in net cash used in investing activities was the receipt of approximately $167.1
million from the disposition of other short-term investments and proceeds from
mortgage dispositions of approximately $93.4 million in 1993 as compared to
approximately $65.5 million and $50.4 million, respectively, in 1992.

Net cash provided by financing activities increased for 1993 compared to
1992. This increase was primarily due to the receipt of net proceeds of
approximately $462.3 million from obligations incurred under financing
facilities, partially offset by payments on obligations incurred under financing
facilities.

RESULTS OF OPERATIONS

1994 VERSUS 1993

CRIIMI MAE earned approximately $29.6 million in tax basis income for the
year ended December 31, 1994, a 28.6% increase from approximately $23.0 million
for the year ended December 31, 1993. On a per share basis, tax basis income
for the year ended December 31, 1994 increased to approximately $1.17 per
weighted average share from approximately $1.14 per weighted average share for
the year ended December 31, 1993.

Net income for financial statement purposes was approximately $26.0 million
for the year ended December 31, 1994, a 65.1% increase from approximately $15.8
million for the year ended December 31, 1993. On a per share basis, financial
statement net income for the year ended December 31, 1994 increased to
approximately $1.07 per share from approximately $.78 per share for the year
ended December 31, 1993.

Total income increased approximately $15.0 million or 26.6% to
approximately $71.4 million for the year ended December 31, 1994 from
approximately $56.5 million for the year ended December 31, 1993. This increase
was primarily due to growth in mortgage investment income which CRIIMI MAE
experienced during 1993 and 1994, as described below.

Mortgage investment income increased approximately $16.8 million or 33.4%
to approximately $67.0 million for the year ended December 31, 1994 from
approximately $50.3 million for the year ended December 31, 1993. This increase
was principally due to an increase in mortgage investments, net of dispositions,
resulting from acquisitions of Government Insured Multifamily Mortgages and

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

advances on Government Insured Construction Mortgages of approximately
$219 million and $141 million during 1993 and 1994, respectively, which were
principally funded by proceeds from the Master Repurchase Agreements and
the Equity Offering described above.

Income from investment in subordinated securities increased to
approximately $976,000 in 1994 as a result of the acquisition of subordinated
securities at a purchase price of approximately $39 million during the year.

Other investment income decreased approximately $2.5 million or 69.5% to
approximately $1.1 million for the year ended December 31, 1994 from
approximately $3.6 million for the year ended December 31, 1993. This decrease
was primarily attributable to other investment income earned in 1993 on
approximately $175 million in other short-term investments acquired by CRIIMI
MAE and CRI Liquidating during the year ended December 31, 1993, all of which
were disposed of by December 31, 1993.

Total expenses increased approximately $5.0 million or 11.9% to
approximately $46.7 million for the year ended December 31, 1994 from
approximately $41.8 million for the year ended December 31, 1993. This increase
is principally due to increases in interest expense and annual and incentive
fees to related party, as described below. Partially offsetting this increase
was an adjustment to the provision for settlement of litigation and a decrease
in general and administrative expenses, as discussed below.

Interest expense increased approximately $11.2 million or 40.1% to
approximately $39.2 million for the year ended December 31, 1994 from
approximately $28.0 million for the year ended December 31, 1993. This increase
was principally a result of additional net amounts borrowed during 1993 and 1994
under CRIIMI MAE's financing facilities of $231 million and $148 million,
respectively, and an increase in short term interest rates. This increase was
partially offset by interest savings due to the termination of the interest rate
swap and the buyout of the floor on a $25 million notional amount collar during
1993, as discussed below.

Other operating expenses decreased approximately $6.3 million or 45.6% to
approximately $7.5 million for the year ended December 31, 1994 from
approximately $13.7 million for the year ended December 31, 1993. This variance
was primarily attributable to the expense related to the termination of an
interest rate swap of $4.9 million in 1993. Also contributing to the decrease
were decreases in general and administrative expenses and an adjustment to
the provision for settlement of litigation, as discussed below. Partially
offsetting these changes were increases in fees paid to related party and
mortgage servicing fees, as discussed below.

Total fees to related party, as presented on the consolidated statements of
income, are comprised of annual fees and incentive fees paid to the Adviser.
The Adviser receives annual fees for managing the portfolios of CRIIMI MAE and
CRI Liquidating, as described below.

The Adviser earns an annual fee and a master servicing fee as compensation
for services provided in managing CRIIMI MAE's mortgage portfolio. The annual
fee is equal to 0.375% of average invested assets invested in Additional
Mortgage Investments (defined as mortgages acquired by CRIIMI MAE after the
CRIIMI Merger), payable quarterly. The master servicing fee is included in the
annual fee as presented on the accompanying Consolidated Statement of Income.
The Adviser earns this fee in return for services provided in overseeing the
servicing of the Additional Mortgage Investments. The master servicing fee is
equal to 0.025% annually of the outstanding face balance of the Additional
Mortgage Investments, payable quarterly.

An incentive fee equal to 25% of the amount by which net income from
Additional Mortgage Investments exceeds the annual target return on equity is
payable quarterly, subject to year-end adjustment. Net income from Additional
Mortgage Investments is the difference between mortgage investment income,
including gains or losses on dispositions, from the mortgage investments
directly invested in by CRIIMI MAE less financing costs and operating expenses,
including a portion of CRIIMI MAE's general and administrative and professional
expenses that the Adviser has determined to be specifically assigned to those
mortgage investments. All amounts for the purposes of this computation are on
a tax basis. The target return on equity will be determined on a quarterly
basis and will equal 1% over the average yield on Treasury Bonds maturing
nearest to ten years from such quarter, as reported on a daily basis throughout
such quarter, based on quotations supplied by the Federal Reserve Bank of New
York, as reported by The Wall Street Journal.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Additionally, the Adviser earns a mortgage selection fee for analyzing,
evaluating and structuring Additional Mortgage Investments. The mortgage
selection fee equals 0.75% of amounts invested in Additional Mortgage
Investments. Mortgage selection fees paid to the Adviser are capitalized and
amortized over the term of the related Additional Mortgage Investment using the
effective interest method. The Adviser is also entitled to receive one-half
of the fees paid to CRIIMI MAE by the owner or developer of a property
underlying a participating mortgage investment, provided that the interest rate
on the base mortgage investment is at least equal to the prevailing market
interest rate for similar base mortgage investments coupled with investments
in limited partnerships (no fees have been earned since inception).

In 1991, the Adviser adopted a policy with respect to borrowings above and
beyond the original $140 million notes and $140 million Commercial Paper
Facility (Incremental Borrowings) which would result in a reduction in the
amount of fees payable by CRIIMI MAE if Net Positive Spreads (the difference
between the yield on mortgage investments purchased after those mortgages
purchased with the original $140 million notes and $140 million Commercial
Paper Facility and the cost of funds for all Incremental Borrowings including
associated operating costs on a tax basis) are not maintained: the total annual
fee and master servicing fee of 0.40% of invested assets payable to the Adviser
with respect to mortgage investments purchased after those mortgages acquired
with the proceeds of the original $140 million notes and $140 million Commercial
Paper Facility will be reduced incrementally if CRIIMI MAE's Net Positive Spread
on such debt falls below 0.40%. During 1994, the Net Positive Spread on the
Incremental Borrowings was in excess of 0.40%. Additionally, as required by
this policy the mortgage selection fee will be eliminated upon reinvestment of
proceeds of mortgage dispositions where the mortgage investment was purchased
with borrowed funds and disposed of in less than five years without providing
a cumulative yield on the original mortgage investment at disposition of at
least 100 basis points higher than the original yield at the date of purchase.

The CRI Liquidating Annual Fee is calculated separately for each of the
remaining mortgage pools from the former CRIIMI Funds. With respect to CRIIMI I,
the CRI Liquidating Annual Fee will equal 0.75% of average invested assets
invested in mortgage investments transferred by CRIIMI I in the CRIIMI Merger,
one-third of which will be deferred and paid on a cumulative basis only during
such quarters as the carryover CRIIMI I target yield, as discussed below, is
achieved on a cumulative basis. Any such deferred amounts will be paid only
out of proceeds of mortgage dispositions attributable to CRIIMI I mortgage
investments.

With respect to CRIIMI II, the CRI Liquidating Annual Fee will equal
0.75% of average invested assets invested in existing mortgage investments
transferred by CRIIMI II in the CRIIMI Merger, one-fourth of which will be
deferred and paid on a cumulative basis only during such quarters as the
carryover CRIIMI II target yield, as discussed below, is achieved on a
cumulative basis. Any such deferred amounts will be paid only out of operating
income attributable to CRIIMI II mortgage investments.

With respect to CRIIMI III, the CRI Liquidating Annual Fee will equal 0.25%
of average invested assets invested in mortgage investments transferred by
CRIIMI III in the CRIIMI Merger. As of December 31, 1993, this fee was reduced
to 0.125% for any quarter that the carryover CRIIMI III cumulative annual fee
yield, as discussed below, is not achieved.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

The carryover CRIIMI I target yield will be achieved during any quarter
that the former CRIIMI I mortgage investments transferred in the CRIIMI Merger
generate a cumulative yield (including gains or losses on mortgage dispositions)
on amounts invested in such assets of 13.33% per annum based on financial
statement income. The carryover CRIIMI II target yield will be achieved during
any quarter that the former CRIIMI II mortgage investments transferred in the
CRIIMI Merger generate a cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of 11.66% per annum based on
financial statement income. The carryover CRIIMI III cumulative annual fee
yield will be achieved during any quarter, commencing after December 31, 1993,
that the former CRIIMI III mortgage investments transferred in the CRIIMI
Merger generate a cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of 10.89% per annum based on
financial statement income.

The Adviser is also entitled to certain incentive fees (the CRI Liquidating
Incentive Fees) in connection with the disposition of certain mortgage
investments. Like the CRI Liquidating Annual Fee, the CRI Liquidating Incentive
Fees are calculated separately with respect to mortgage investments transferred
in the CRIIMI Merger by CRIIMI I and CRIIMI II. No CRI Liquidating Incentive
Fees are payable with respect to mortgage investments transferred by CRIIMI III.

During any quarter in which either the carryover CRIIMI I or CRIIMI II
target yields have been achieved on a cumulative basis and the Adviser has been
paid any deferred amounts of the CRI Liquidating Annual Fee, the Incentive Fee
will equal approximately 9.08% of net disposition proceeds representing the
financial statement gain on the related CRIIMI I or CRIIMI II mortgage
investments disposed.

The carryover CRIIMI I adjusted contribution and the carryover CRIIMI II
adjusted share capital equal the aggregate adjusted contribution of CRIIMI I
investors (initial investment of investors reduced by all amounts distributed
to them representing distributions of principal on their original mortgage
investments other than distributions of proceeds of mortgage dispositions
representing market discount that have been applied to the target yield) and
the aggregate share capital of CRIIMI II investors (initial investment of
investors reduced by all amounts distributed to them representing distributions
of principal on their original mortgage investments other than distributions of
proceeds of mortgage dispositions representing market discount that have been
applied to the target yield), respectively, as of November 27, 1989, the
consummation date of the CRIIMI Merger. Subsequent to November 27, 1989, the
carryover CRIIMI I adjusted contribution and the carryover CRIIMI II adjusted
share capital are reduced by all amounts of principal received from their
respective former mortgage investments, whether as part of regular mortgage
payments or as proceeds of mortgage dispositions, except for proceeds of
mortgage dispositions representing market discount that have been applied to
the respective target yield.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Total fees to related party increased approximately $1.1 million or 38.5%
to approximately $3.8 million for the year ended December 31, 1994 from
approximately $2.7 million for the year ended December 31, 1993. This increase
was the result of increases in the CRIIMI MAE incentive and annual fees during
the year ended December 31, 1994, as discussed below. Annual fees increased
approximately $763,000 or 30.5% to approximately $3.3 million for the year ended
December 31, 1994 from approximately $2.5 million for the year ended December
31, 1993. This increase was primarily due to increased acquisitions of
approximately $141 million of mortgages and other mortgage investments and
advances on Government Insured Construction Mortgages, net of Mortgage
disposition. Partially offsetting this increase in annual fees for the year
ended December 31, 1994 as compared to the same period in 1993, was a reduction
of approximately $413,000 in the base component of the annual fees payable by
CRI Liquidating resulting from mortgage dispositions during 1994 and 1993, as
well as a reduction in the base component of the CRI Liquidating annual fee from
.25% to .125% of average invested assets formerly held by CRIIMI III. Also
offsetting this increase in annual fees for this period was a reduction in the
deferred component of approximately $125,033 of the CRI Liquidating annual fee.

The CRIIMI MAE incentive fee increased approximately $284,000 or 132.6% to
approximately $498,000 for the year ended December 31, 1994 from approximately
$214,000 for the year ended December 31, 1993. This increase was primarily
attributable to the increase in CRIIMI MAE's net income from additional mortgage
investments during the year ended December 31, 1994 as a result of the increase
in mortgage investment income and the decrease in other operating expenses, as
discussed above. Also contributing to the increase was the recognition of a tax
basis gain of approximately $937,000 in connection with the prepayment of the
mortgage on Williamstown Apartments.

General and administrative expenses decreased approximately $501,000 or
13.2% to approximately $3.3 million in 1994 from approximately $3.8 million
1993. This decrease was primarily attributable to a decrease in professional
services as a result of the settlement of litigation, as discussed below.

Mortgage servicing fees increased approximately $151,000 or $30.9% to
approximately $641,000 in 1994 from approximately $490,000 in 1993. This
increase is attributable to the increase in net mortgage acquisitions during
1993 and 1994.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

Provision for settlement of litigation decreased approximately $2.0 million
or 133% in 1994 from $1.5 million in 1993. This decrease is attributable to an
adjustment in the number of warrants issued in connection with the settlement of
litigation, as discussed below in "Other Events."

Net gains or losses on mortgage dispositions are based on the number,
carrying amounts, and proceeds of mortgage investments disposed of during the
period. Net gains on mortgage dispositions increased approximately $5.6 million
or 76.7% to approximately $13.0 million in the year ended December 31, 1994 from
approximately $7.4 million in the year ended December 31, 1993. This increase
was primarily due to the sale of nineteen CRI Liquidating Government Insured
Multifamily Mortgages during 1994. These dispositions resulted in financial
statement gains of approximately $12.5 million and tax basis gains of
approximately $18.3 million. This compares to the disposition of ten CRI
Liquidating Government Insured Multifamily Mortgages during the year ended
December 31, 1993, that generated financial statement gains of approximately
$8.1 million and tax basis gains of approximately $14.9 million.

1993 VERSUS 1992

CRIIMI MAE earned approximately $23.0 million in tax basis income for 1993,
a 6.4% increase from approximately $21.6 million for 1992. On a per share
basis, tax basis income for 1993 increased to approximately $1.14 per share from
approximately $1.07 per share for 1992.

Net income for financial statement purposes was approximately $15.8 million
for 1993, a 1.8% decrease from approximately $16.0 million for 1992. On a per
share basis, financial statement net income for 1993 decreased to approximately
$0.78 per share from $0.79 per share for 1992.

Mortgage investment income increased $4.4 million or 9.4% to $50.3 million
for 1993 from $45.9 million for 1992. This increase was due principally to an
increase in mortgage investments, net of dispositions, resulting from
acquisitions and advances on Government Insured Construction Mortgages of
approximately $219 million during 1993 which were funded principally by proceeds
from the Master Repurchase Agreements.

Other income increased $1.4 million or 30.0% to $6.2 million for 1993 from
$4.8 million for 1992. This increase was attributable primarily to approximately
$175 million in other short-term investments acquired by CRIIMI MAE and CRI
Liquidating during 1993, all of which were disposed of by December 31, 1993 as
compared to approximately $67 million in other short-term investments acquired
by CRI Liquidating during 1992, all of which were disposed of by December 31,
1992.

Total income increased $5.8 million or 11.3% to $56.5 million for 1993 from
$50.7 million for 1992. This increase was primarily

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

due to the growth in mortgage investment income and other income during 1993.

Interest expense increased $3.6 million or 14.8% to $28.0 million for 1993
from $24.4 million for 1992. This increase was principally a result of greater
amounts borrowed during 1993 under the Master Repurchase Agreements entered into
in April 1993 which provided financing of $350 million, of which approximately
$331.7 million was outstanding as of December 31, 1993. This increase was
partially offset by a reduction in interest rates on CRIIMI MAE's borrowings for
1993 as compared to 1992.

In December 1993, CRIIMI MAE paid approximately $4.9 million to CIBC to
terminate an interest rate swap entered into on February 8, 1990 with a notional
amount of $25 million and a fixed rate of 9.23%. The termination of this swap
was effective December 1, 1993.

Other operating expenses increased $1.1 million or 32.4% to $4.6 million
in 1993 from $3.5 million in 1992. This increase was attributable primarily
to legal fees of approximately $800,000 incurred in connection with certain
litigation as described below in "Other Events." Also contributing to the
increase in other operating expenses was an increase in general and
administrative expenses due primarily to increased mortgage acquisition and
disposition activities, the increase in costs to produce CRIIMI MAE's 1992
Annual Report to Shareholders due to its increased size and mailing costs, and
the recognition of costs of approximately $21,000 incurred in connection with
CRIIMI MAE's reincorporation as a Maryland corporation which was effective in
July 1993.

Fees to related party increased $0.5 million or 21.3% to $2.7 million for
1993 from $2.2 million for 1992. This increase was due primarily to an increase
in annual fees and incentive fees during 1993, as discussed below. Annual fees
increased $0.4 million or 20.6% to $2.5 million for 1993 from $2.1 million for
1992. This increase was primarily due to increased CRIIMI MAE mortgage assets,
including advances on Government Insured Construction Mortgages. Also
contributing to the increase for 1993 was the payment by CRI Liquidating in
1993, of the deferred component of the annual fee due to specific performance
goals being met, which included the payment of the deferred component for the
second half of 1992 of $86,395. Partially offsetting the increase in annual
fees for 1993 was a reduction in the mortgage base, which is a component used
in determining the annual fees payable by CRI Liquidating, of approximately
$54 million. The mortgage base has been decreasing as CRI Liquidating effects
its business plan to liquidate by 1997.

The incentive fee increased approximately $50,000 or 30.6% to $0.2 million
for 1993 from $0.2 million for 1992. This increase was primarily attributable
to the fact that CRIIMI MAE's net income from additional mortgage investments
exceeded the annual target return on equity during both the second and third
quarters of 1993; accordingly, an incentive fee was paid during those quarters.
This compares to 1992 when CRIIMI MAE's net income from additional

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

mortgage investments exceeded the annual target return on equity only in the
third quarter.

During 1993, CRIIMI MAE recorded a provision of $1.5 million, including
$0.25 million paid in cash, in connection with the settlement of the litigation
described below in "Other Events."

Total expenses increased $11.7 million or 38.6% to $41.8 million for 1993
from $30.1 million for 1992. This increase was principally due to costs
incurred to terminate an interest rate swap of approximately $4.9 million, an
increase in interest expense of approximately $3.6 million and the recognition
of a provision for settlement of litigation of $1.5 million described below in
"Other Events."

Net gains on mortgage dispositions increased $1.7 million or 28.3% to $7.4
million in 1993 from $5.7 million in 1992. Gains on mortgage dispositions
increased $2.0 million or 32.7% to $8.1 million in 1993 from $6.1 million in
1992. This increase was primarily due to the disposition of 17 mortgages during
1993, 11 of which resulted in gains. This compares to the disposition of seven
mortgages during 1992, three of which resulted in gains. Losses on mortgage
dispositions increased $0.4 million or 98.4% to $0.8 million in 1993 from $0.4
million in 1992 due to the financial statement loss of $0.5 million recognized
in March 1993 as a result of the prepayment of the mortgage on Owings Manor
Apartments.

In November 1993, CRIIMI MAE recognized a financial statement gain of
approximately $3.3 million and a tax basis gain of approximately $4.9 million in
connection with the sale of 3,162,500 CRI Liquidating shares held by CRIIMI MAE.

REIT STATUS

CRIIMI MAE and CRI Liquidating have qualified and intend to continue to
qualify as REITs as defined in the Internal Revenue Code and, as such, will not
be taxed on that portion of their taxable income which is distributed to share-
holders provided that at least 95% of such taxable income is distributed.
CRIIMI MAE and CRI Liquidating intend to distribute substantially all of their
taxable income and, accordingly, no provision for income taxes has been made in
the accompanying consolidated financial statements. CRIIMI MAE and CRI
Liquidating, however, may be subject to tax at normal corporate rates on net
income or capital gains not distributed.

OTHER EVENTS

In connection with the settlement of certain class action litigation
involving CRIIMI MAE and certain of its affiliates, CRIIMI MAE entered into a
settlement agreement, which was approved by the Court on November 18, 1993,
providing, among other things, for the issuance of up to 2.5 million warrants,
exercisable for 18 months after issuance, to purchase shares of CRIIMI MAE
common stock at an exercise price of $13.17 per share (the Settlement
Agreement). The number of warrants to be issued was dependent on the number of
class members who submitted proof of claim forms by

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

April 15, 1994. Based on the proofs of claim submitted as of such date, CRIIMI
MAE issued approximately 334,000 warrants pursuant to the Settlement Agreement.
In April 1994, CRIIMI MAE filed a Registration Statement on Form S-3 (Commission
File No. 33-53031) to register up to 375,000 shares of CRIIMI MAE's common
stock, issuable upon the exercise of the warrants of CRIIMI MAE.

Based on the Adviser's initial estimate of the number of warrants to be
issued, CRIIMI MAE accrued a total provision of $1.5 million (which included the
uninsured portion of a cash payment of $250,000 made in connection with the
Settlement Agreement) in its consolidated statement of income for the year ended
December 31, 1993. Because the actual number of warrants issued pursuant to the
Settlement Agreement was significantly lower than the initial estimate, CRIIMI
MAE reduced this provision in June 1994 to approximately $950,000.

The exercise of the warrants will not result in a charge to CRIIMI MAE's
tax basis income. Further, the Adviser believes that the exercise of the
warrants will not have a material adverse effect on CRIIMI MAE's tax basis
income per share or annualized cash dividends per share because CRIIMI MAE will
invest the proceeds from any exercise of the warrants in accordance with its
investment policy to purchase Government Insured Multifamily Mortgages or other
authorized investments. However, in the case of a significant decline in the
yield on mortgage investments and a significant decrease in the net positive
spread which CRIIMI MAE could achieve on its borrowings, the exercise of the
warrants may have a dilutive effect on tax basis income per share and cash
dividends per share. Receipt of the proceeds from the exercise of the warrants
will increase CRIIMI MAE's shareholders' equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following estimated fair values of CRIIMI MAE's consolidated financial
instruments are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of CRIIMI MAE.

In connection with CRIIMI MAE's and CRI Liquidating's implementation of
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115) as of December 31, 1993,
CRIIMI MAE's Investment in Mortgages continues to be recorded at amortized cost;
however, CRI Liquidating's Investment in Mortgages, is recorded at fair value as
of December 31, 1994. The difference between the amortized cost and the fair
value of CRI Liquidating's Government Insured Multifamily Mortgages represents
the net unrealized gains on CRI Liquidating's Government Insured Multifamily
Mortgages. CRIIMI MAE's share of the net unrealized gains on CRI Liquidating's
Government Insured Multifamily Mortgages is reported as a separate component of
shareholders' equity as of December 31, 1994.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

<TABLE>
<CAPTION>
As of December 31, 1994
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
ASSETS
Investment in mortgages,
accounted for at
amortized cost:
Near par or premium $698,226,137 $648,201,775
Discount 4,989,616 4,860,606

Investment in subordinated
securities, accounted for
at amortized cost 38,858,349 38,353,226
------------ ------------
Total $742,074,102 $691,415,607
------------ ------------

Investment in mortgages,
accounted for at fair
value:
Near par or premium $ 14,837,135 $ 14,957,572
Discount 121,283,765 139,416,004
------------ ------------
Total $136,120,900 $154,373,576
------------ ------------

LIABILITIES
Obligations incurred under
financing facilities:

Master Repurchase Agreements $456,984,347 $456,984,347
Revolving Credit Facility 115,000,000 115,000,000
Other Repurchase Agreements 24,891,783 24,891,783
Bank Term Loan 30,371,800 30,371,800
------------ ------------
Total $627,247,930 $627,247,930
------------ ------------
OFF BALANCE SHEET

Interest rate hedge
agreements-asset $ 6,053,163 $ 21,438,096
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

INVESTMENT IN MORTGAGES

The fair value of the Government Insured Multifamily Mortgages is based on
the average of the quoted market prices from three investment banking
institutions who trade these instruments as part of their day-to-day activities.

INVESTMENT IN SUBORDINATED SECURITIES

The fair value of the investments in subordinated securities is based on
the price obtained from an investment banking institution which trades
subordinated securities. Given the limited market for these securities, only
one quote was available.

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - Continued

OBLIGATIONS INCURRED UNDER FINANCING FACILITIES

The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.

INTEREST RATE HEDGE AGREEMENTS

The fair value of interest rate hedge agreements (used to hedge CRIIMI
MAE's debt) is the estimated amount that CRIIMI MAE would receive to terminate
the agreements as of December 31, 1994, taking into account current interest
rates and the current creditworthiness of the counterparties. The amount was
determined based on the average of two quotes received from financial
institutions which enter into these types of transactions as part of their day-
to-day activities.

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of
CRIIMI MAE Inc.

We have audited the accompanying consolidated balance sheets of CRIIMI MAE
Inc. (CRIIMI MAE) and its Subsidiaries as of December 31, 1993 and 1994, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years ended December 31, 1992, 1993 and 1994. These
financial statements are the responsibility of CRIIMI MAE's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CRIIMI MAE and
its Subsidiaries as of December 31, 1993 and 1994, and the consolidated results
of their operations and their cash flows for the years ended December 31, 1992,
1993 and 1994, in conformity with generally accepted accounting principles.

Arthur Andersen LLP
Washington, D.C.
February 7, 1995

<PAGE>

CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS

<TABLE>
<CAPTION>
December 31,
1993 1994
------------ ------------
<S> <C> <C>
Assets:
Investment in mortgages, at amortized cost,
net of unamortized discount and premium
of $3,182,138, and $3,408,860, respectively
Near par or premium $495,846,514 $698,226,137
Discount 903,982 4,989,616
------------ ------------
Total 496,750,496 703,215,753
------------ ------------
Investment in mortgages, at fair value
Discount 227,192,792 139,416,004
Near par or premium 17,647,797 14,957,572
------------ ------------
Total 244,840,589 154,373,576
------------ ------------
Investment in subordinated securities,
at amortized cost -- 38,858,349

Investment in insured mortgage funds and
advisory partnership 30,907,157 29,923,240

Cash and cash equivalents 13,599,860 5,143,171

Receivables and other assets 8,036,819 9,097,080

Deferred financing costs, net of accumulated
amortization of $7,355,095 and $11,065,595,
respectively 9,745,974 8,632,333

Deferred costs, principally paid to related
parties, net of accumulated amortization of
$1,870,587 and $1,933,697, respectively 4,820,135 5,806,499
------------ ------------
Total assets $808,701,030 $955,050,001
============ ============
</TABLE>

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

<PAGE>

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

<TABLE>
<CAPTION>
December 31,
1993 1994
------------ ------------
<S> <C> <C>
Liabilities:
Master Repurchase Agreements $331,712,648 $456,984,347
Revolving Credit Facility -- 115,000,000
Other Repurchase Agreements -- 24,891,783
Bank Term Loan 52,026,400 30,371,800
Commercial paper 95,306,000 --
Accounts payable and accrued expenses 3,391,411 1,497,290
Interest payable 2,575,979 6,645,676
------------ ------------
Total liabilities 485,012,438 635,390,896
------------ ------------
Minority interest in
consolidated subsidiary 108,399,813 69,617,184
------------ ------------
Commitments and contingencies

Shareholders' equity:
Preferred stock -- --
Common stock 211,848 262,272
Net unrealized gains on mortgage
investments 29,028,019 10,316,768
Additional paid-in capital 195,561,015 244,224,984
------------ ------------
224,800,882 254,804,024

Less treasury stock, at cost - 1,001,274
and 501,274 shares, respectively (9,512,103) (4,762,103)
------------ ------------
Total shareholders' equity 215,288,779 250,041,921
------------ ------------
Total liabilities and shareholders'
equity $808,701,030 $955,050,001
============ ============
</TABLE>

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

<PAGE>

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the years ended December 31,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Mortgage investment income:
Coupon interest $ 44,685,263 $ 49,003,805 $ 66,161,668
Discount amortization 1,271,288 1,307,072 979,054
Premium accretion (25,603) (41,305) (97,380)
------------ ------------ ------------
45,930,948 50,269,572 67,043,342
Income from investment in
subordinated securities, including
discount amortization of $0, $0 and
$103,695, respectively -- -- 975,835

Other investment income 2,209,979 3,646,224 1,112,938
Income from investment in insured mortgage funds
and advisory partnership 1,959,979 2,490,854 2,358,717
Income (loss) from investment in limited partnerships 600,852 43,605 (49,032)
------------ ------------- ------------
50,701,758 56,450,255 71,441,800
------------ ------------- ------------
Expenses:
Interest expense 24,391,901 28,008,282 39,244,621
Termination of interest rate swap -- 4,890,234 --
Annual fee to related party 2,073,818 2,500,785 3,263,443
Incentive fee to related party 163,798 213,972 497,675
General and administrative 2,826,209 3,806,026 3,305,323
Provision for settlement of litigation -- 1,500,000 (557,340)
Amortization of deferred costs 374,591 343,407 332,837
Mortgage servicing fees 304,105 489,773 641,329
------------ ------------- ------------
30,134,422 41,752,479 46,727,888
------------ ------------- ------------
Income before mortgage dispositions, gain on
sale of shares of subsidiary and loss on
investment in limited partnership 20,567,336 14,697,776 24,713,912

Mortgage dispositions:
Gains 6,115,747 8,116,948 13,482,665
Losses (382,602) (759,203) (483,357)

Gain on sale of shares of subsidiary -- 3,281,750 --

Loss on investment in limited partnership (731,951) -- --
------------ ------------- ------------
Income before minority interests 25,568,530 25,337,271 37,713,220

Minority interests in net income of
consolidated subsidiary (9,527,299) (9,579,766) (11,703,101)
------------ ------------- ------------

Net income $ 16,041,231 $ 15,757,505 $ 26,010,119
============ ============= ============
Per share data:
Net income per share $ .79 $ .78 $ 1.07
============ ============= ============

Weighted average shares outstanding,
exclusive of shares held in treasury 20,183,533 20,183,533 24,249,403
============ ============= ============
</TABLE>

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

<PAGE>

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1992, 1993 and 1994

Net
Unrealized
Gains on
Common Stock Mortgage Additional Total
Par Investments Paid-in Undistributed Treasury Shareholders'
Value of Subsidiary Capital Net Income Stock Equity
------------ ------------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $ 211,848 $ -- $207,697,497 $ -- $(9,512,103) $198,397,242

Adjustment to minority
interests in consolidated
subsidiary for actual
shares issued -- -- 766,891 -- -- 766,891
Payment of dividends for
prior years -- -- (298,331) -- -- (298,331)
Net income -- -- -- 16,041,231 -- 16,041,231
Dividends of $0.79 per share -- -- -- (16,041,231) -- (16,041,231)
Return of capital of $0.29
per share -- -- (5,756,990) -- -- (5,756,990)
--------- ------------- ------------ ------------ ----------- ------------
Balance, December 31, 1992 211,848 -- 202,409,067 -- (9,512,103) 193,108,812

Net income -- -- -- 15,757,505 -- 15,757,505
Dividends of $0.78 per share -- -- (15,757,505) -- (15,757,505)
Return of capital of $0.34
per share -- -- (6,848,052) -- -- (6,848,052)
Net unrealized gains on
mortgage investments -- 29,028,019 -- -- -- 29,028,019
--------- ------------- ------------ ------------ ----------- ------------
Balance, December 31, 1993 211,848 29,028,019 195,561,015 -- (9,512,103) 215,288,779

Net income -- -- -- 26,010,119 -- 26,010,119
Dividends of $1.07 per weighted
average share -- -- -- (26,010,119) (26,010,119)
Return of capital of $.14
per weighted average share -- -- (3,347,781) -- -- (3,347,781)
Adjustment to net unrealized
gains on mortgage investments -- (18,711,251) -- -- -- (18,711,251)
Shares issued 50,424 -- 52,011,750 -- 4,750,000 56,812,174
--------- ------------- ------------ ------------ ----------- ------------
Balance, December 31, 1994 $ 262,272 $ 10,316,768 $244,224,984 $ -- $(4,762,103) $250,041,921
========= ============= ============ ============ =========== ============
</TABLE>

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

<PAGE>

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 16,041,231 $ 15,757,505 $ 26,010,119
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of deferred costs 374,591 343,407 332,837
Amortization of deferred financing costs and discount
on long-term debt 3,249,891 4,209,980 5,483,786
Amortization of deferred AIM acquisition costs 322,017 224,528 246,357
Mortgage discount amortization (1,271,288) (1,307,072) (979,054)
Subordinated securities discount amortization -- -- (103,695)
Mortgage premium accretion 25,603 41,305 97,380
Other short-term investment premium amortization 1,226,457 7,727,101 --
Gains on mortgage dispositions (6,115,747) (8,116,948) (13,482,665)
Losses on mortgage dispositions 382,602 759,203 483,357
Gain on sale of shares of subsidiary -- (3,281,750) --
Loss on investment in limited partnership 731,951 -- --
Equity in (earnings) loss from investment in limited partnerships (600,852) (43,605) 49,032
Interest received under the equity method of accounting but
treated as reduction of investment in limited partnerships 972,704 308,093 --
Other operating activities (69,086) -- --
Minority interest in earnings of consolidated subsidiary 9,527,299 9,579,766 11,703,101
Changes in assets and liabilities:
(Increase) decrease in receivables and other assets 1,011,754 (1,800,610) (1,362,585)
Increase (decrease) in accounts payable and
accrued expenses (1,632,057) 2,789,560 (1,894,121)
Increase in interest payable 318,023 1,576,692 4,069,697
------------ ------------ ------------
Net cash provided by operating activities 24,495,093 28,767,155 30,653,546
------------ ------------ ------------
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (31,823,117) (312,654,818) (235,758,541)
Purchase of subordinated securities -- -- (38,848,431)
Receipt of principal from subordinated securities -- -- 93,777
Proceeds from mortgage dispositions 50,425,606 93,437,842 94,436,841
Purchase of other short-term investments (66,751,139) (175,300,539) --
Proceeds from sale of other short-term investments 65,491,782 167,111,884 --
Net proceeds from sale of shares of subsidiary -- 26,431,250 --
Receipt of mortgage and other short-term investment
principal from scheduled payments 3,939,855 4,961,447 6,107,350
Receipt of principal from investment in insured
mortgage funds 585,567 13,108 737,560
Payment of deferred costs (including deferred
acquisition costs) (42,147) (2,653,930) (1,319,201)
Annual return from investment in limited partnerships 253,292 253,292 253,292
Proceeds from redemption/sale of HUD debentures 2,334,150 6,062,502 --
------------ ------------ ------------
Net cash provided by (used in) investing activities 24,413,849 (192,337,962) (174,297,353)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from obligations incurred under financing facilities 81,982,708 462,344,165 310,618,324
Principal payments on obligations incurred under financing
facilities (79,481,793) (230,859,621) (162,415,442)
Increase in deferred financing costs (328,029) (7,260,655) (4,370,145)
Dividends (including return of capital) paid to
shareholders, including minority interests (46,142,788) (53,653,356) (65,457,793)
Proceeds from the issuance of common stock -- -- 56,812,174
------------ ------------ ------------
Net cash (used in) provided by financing activities (43,969,902) 170,570,533 135,187,118
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 4,939,040 6,999,726 (8,456,689)

Cash and cash equivalents, beginning of year 1,661,094 6,600,134 13,599,860
------------ ------------ ------------
Cash and cash equivalents, end of year $ 6,600,134 $ 13,599,860 $ 5,143,171
============ ============ ============
</TABLE>

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

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

In addition to its portfolio of Government Insured Multifamily Mortgages
and other assets, CRIIMI MAE also owns approximately 57% of the issued and
outstanding common stock of CRI Liquidating, a finite-life, self-liquidating
REIT which owns Government Insured Multifamily Mortgages.

CRIIMI MAE and CRI Liquidating were formed in 1989 to effect the merger
into CRI Liquidating (the CRIIMI Merger) of three federally insured mortgage
funds sponsored by C.R.I., Inc. (CRI), a Delaware corporation formed in 1974
and an affiliate of CRIIMI MAE's adviser, as discussed below: CRI Insured
Mortgage Investments Limited Partnership (CRIIMI I); CRI Insured Mortgage
Investments II, Inc. (CRIIMI II); and CRI Insured Mortgage Investments III
Limited Partnership (CRIIMI III; and, together with CRIIMI I and CRIIMI II, the
CRIIMI Funds). The CRIIMI Merger was effected to provide certain potential
benefits to investors in the CRIIMI Funds, including the elimination of
unrelated business taxable income for certain tax-exempt investors, the
diversification of investments, the reduction of general overhead and
administrative costs as a percentage of assets and total income and the
simplification of tax reporting information. In the CRIIMI Merger, which was
approved by investors in each of the CRIIMI Funds and subsequently consummated
on November 27, 1989, investors in the CRIIMI Funds received, at their option,
shares of CRI Liquidating common stock or shares of CRIIMI MAE common stock.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization - Continued

Pursuant to a Registration Rights Agreement dated November 28, 1989 between
CRIIMI MAE and CRI Liquidating, CRIIMI MAE sold 3,162,500 of its CRI Liquidating
shares in an underwritten public offering which was consummated in November 1993
reducing CRIIMI MAE's ownership of CRI Liquidating to approximately 57%.

CRIIMI MAE and CRI Liquidating are governed by a board of directors, a
majority of whom are independent directors. The Board of Directors of CRIIMI
MAE and CRI Liquidating has engaged CRI Insured Mortgage Associates Adviser
Limited Partnership (the Adviser), an affiliate of CRI, to act in the capacity
of adviser to CRIIMI MAE and CRI Liquidating. The Adviser's general partner is
CRI and its operations are conducted by CRI's employees. The limited partners
include William B. Dockser and H. William Willoughby, who are the sole
stockholders of CRI and who are also executive officers and directors of CRIIMI
MAE and a former stockholder of CRI. The combined interests of CRI, William B.
Dockser and H. William Willoughby represent substantially all of the general
and limited partner interests in the Adviser. Additionally, CRIIMI MAE's and CRI
Liquidating's other executive officers are senior executive officers of CRI.
The Adviser manages CRIIMI MAE's portfolio of Government Insured Multifamily
Mortgages and other assets with the goal of maximizing CRIIMI MAE's value, and
conducts CRIIMI MAE's day-to-day operations. Under an advisory agreement
between CRIIMI MAE and the Adviser, the Adviser and its affiliates receive
certain fees and expense reimbursements.

CRIIMI MAE's board has formed a special committee comprised of the
independent directors to evaluate a proposed merger of CRI's mortgage
businesses, including the advisory business conducted on CRIIMI MAE's behalf and
certain other mortgage investment, servicing, origination and advisory
businesses which CRI currently conducts through various affiliates (CRI Mortgage
Businesses). The proposal calls for CRIIMI MAE to acquire the CRI Mortgage
Businesses, including CRICO Mortgage Company, Inc. (CRICO) and other CRI-
affiliates by:

- issuing common stock to CRI's owners, William B. Dockser and H.
William Willoughby, and certain other executive officers of CRIIMI
MAE, with the exact number

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization - Continued

of shares determined by dividing $21.4 million by the aggregate
average of the high and low sales prices of CRIIMI MAE's common stock
over the 10 trading days preceding the execution of a definitive
merger agreement, provided that at the closing of the transaction the
stock issued cannot total more than $22.9 million or more than
2,761,290 shares,

- assuming $9.1 million of outstanding debt of the CRI Mortgage
Businesses, and

The special committee of independent directors has engaged Merrill Lynch,
Pierce, Fenner & Smith Incorporated to act as CRIIMI MAE's financial advisor in
connection with the proposed merger and Duff & Phelps Capital Markets Co. to
render an opinion as to the fairness of the proposed merger to the stockholders
of CRIIMI MAE. The proposed merger is subject to a number of conditions,
including the negotiation of a definitive merger agreement, the delivery of a
fairness opinion by Duff & Phelps Capital Markets Co., final approval by the
special committee of independent directors and the approval of the holders of a
majority of CRIIMI MAE's common shares voted at a meeting where a quorum is
present.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization - Continued

meet certain criteria, including certain requirements regarding the nature of
their ownership, assets, income and distributions of taxable income.

2. Summary of Significant Accounting Policies

METHOD OF ACCOUNTING
The consolidated financial statements of CRIIMI MAE are prepared on
the accrual basis of accounting in accordance with generally accepted
accounting principles.

RECLASSIFICATIONS
Certain amounts in the consolidated financial statements as of
December 31, 1993 and for the years ended December 31, 1992 and 1993 have
been reclassified to conform with the 1994 presentation.

CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of money market funds, time and
demand deposits and repurchase agreements with original maturities of three
months or less.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - Continued

CONSOLIDATION AND MINORITY INTERESTS
The consolidated financial statements reflect the financial position,
results of operations, and cash flows of CRIIMI MAE, CRI Liquidating, and
CRIIMI, Inc., for all periods presented. All intercompany accounts and
transactions have been eliminated in consolidation.

Since CRIIMI MAE owned approximately 67%, 57% and 57% of CRI
Liquidating as of December 31, 1992, 1993 and 1994, respectively, the
ownership interests of the other shareholders in the equity and net income
of CRI Liquidating are reflected as minority interests in the accompanying
consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Since the consolidated statements of cash flows are intended to
reflect only cash receipt and cash payment activity, the consolidated
statements of cash flows do not reflect investing and financing activities
that affect recognized assets and liabilities and do not result in cash
receipts or cash payments. Such activity consisted of the following:

- In July 1991, CRI Liquidating received $2,334,150 in 12 3/4%
United States Department of Housing and Urban Development (HUD)
debentures as proceeds from the disposition of the mortgage
investment in Oak Hill Road Apartments. The proceeds from the
redemption of the HUD debentures, including interest, were
received in January 1992.

Cash payments made for interest for the years ended December 31, 1992,
1993 and 1994 were $20,826,987, $22,448,356 and $29,691,138, respectively.

INVESTMENT IN MORTGAGES
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115). This statement
requires that most investments in debt and equity securities be classified
into one of the following investment categories based upon the
circumstances under which such securities might be sold: Held to Maturity,
Available for Sale, and Trading. Generally, certain debt securities for
which an enterprise has both the ability and intent to hold to maturity
should be accounted for using the amortized cost method and all other
securities must be recorded at their fair values. This statement was
adopted for the year ended December 31, 1993.

CRIIMI MAE, an infinite-life entity, has the intent and ability to
hold its mortgage investments until maturity.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - Continued

Consequently, all of its mortgage investments have been classified as Held
to Maturity and continue to be recorded at amortized cost as of December
31, 1994. CRI Liquidating intends to dispose of its existing Government
Insured Multifamily Mortgages by 1997 through an orderly liquidation. In
order to achieve this objective, CRI Liquidating will sell certain of its
mortgage investments in addition to mortgages assigned to HUD.
Consequently, the Adviser believes that the mortgage investments held by
CRI Liquidating fall into the Available for Sale category (as defined by
SFAS 115). As such, as of December 31, 1993 and 1994, all of CRI
Liquidating's mortgage investments are recorded at fair value with CRIIMI
MAE's share of the net unrealized gains on CRI Liquidating's mortgage
investments reported as a separate component of shareholders' equity.
Subsequent increases or decreases in the fair value of Available for Sale
mortgage investments will be included as a separate component of
shareholders' equity. Realized gains and losses for mortgage investments
classified as Available for Sale will continue to be reported in earnings,
as discussed below. Prior to December 31, 1993, CRI Liquidating accounted
for its mortgage investments at amortized cost.

The difference between the cost and the unpaid principal balance at
the time of purchase is carried as a discount or premium and amortized over
the remaining contractual life of the mortgage using the effective interest
method. The effective interest method provides a constant yield of income
over the term of the mortgage.

Mortgage investment income is comprised of amortization of the
discount plus the stated mortgage interest payments received or accrued
less amortization of the premium.

CRIIMI MAE's consolidated investment in mortgages is comprised of
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 certain other
mortgage investments which are not federally insured or guaranteed. Payment
of principal and interest on FHA-Insured Loans is insured by 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.

INVESTMENT IN SUBORDINATED SECURITIES
As an infinite-life entity, CRIIMI MAE has the intent and ability to
hold its investments in subordinated securities until maturity.
Consequently, these investments

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - Continued

are classified as Held to Maturity and are carried at amortized cost as of
December 31, 1994.

Income on investments in subordinated securities is recognized on the
effective interest method using the anticipated yield to maturity on these
investments.

MORTGAGES HELD FOR DISPOSITION
At any point in time, CRIIMI MAE may be aware of certain mortgages
which have been assigned to HUD or for which the servicer has received
proceeds from a prepayment. In these cases, CRIIMI MAE will classify these
mortgages as Mortgages Held for Disposition. Mortgages Held for
Disposition have been accounted for at the lower of cost or market prior to
December 31, 1993, and at fair value as of December 31, 1993 and 1994 under
the Available for Sale criteria of SFAS 115.

Gains from dispositions of mortgages are recognized upon the receipt
of funds or HUD debentures.

Losses on dispositions of mortgages are recognized when it becomes
probable that a mortgage will be disposed of and that the disposition will
result in a loss.

INVESTMENT IN INSURED MORTGAGE FUNDS AND ADVISORY
PARTNERSHIP
The acquisition of certain interests in the AIM Funds in September
1991, including certain acquisition costs aggregating approximately $7.7
million, have been recorded under the purchase method of accounting, which
provides that the investment be recorded at cost, including the acquisition
costs. CRIIMI MAE is utilizing the equity method of accounting for its
investment in the AIM Funds and advisory partnership, which provides for
recording CRIIMI MAE's share of net earnings or losses in the AIM Funds and
advisory partnership reduced by distributions from the limited partnerships
and adjusted for purchase accounting amortization. The purchase price,
including the deferred acquisition costs, was allocated among the general
partner interests and the advisory partnership interest based on the
partnerships' and advisory contracts' estimated fair values. The general
partnership and advisory interests were assigned a total value of
approximately $27 million and $5 million, respectively.

DEFERRED COSTS
Included in deferred costs are mortgage selection fees, which have
been paid to the Adviser of CRIIMI MAE or were paid to the former general
partners or adviser to the CRIIMI Funds. These deferred costs are being
amortized using the

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - Continued

effective interest method on a specific mortgage basis from the date of the
acquisition of the related mortgage to the expected dissolution date of CRI
Liquidating or over the term of the mortgage for CRIIMI MAE. Upon
disposition of a mortgage, the related unamortized fee is treated as part
of the mortgage investment carrying value in order to measure the gain or
loss on the disposition.

DEFERRED FINANCING COSTS
Costs incurred in connection with the establishment and issuance of
CRIIMI MAE's financing facilities are amortized using the effective
interest method over the terms of the borrowings.

INTEREST RATE HEDGE AGREEMENTS
All of CRIIMI MAE's interest rate hedge agreements represent
derivatives entered into to reduce CRIIMI MAE's exposure to interest rate
risk. All of the agreements qualify for hedge accounting and as such costs
incurred to purchase these agreements are amortized over the interest rate
agreement term. In the event that interest rate hedge agreements are
terminated, the associated gain or loss is deferred over the remaining
term of the agreement, provided that the underlying hedged asset or
liability still exists. Amounts to be paid or received under interest
rate hedge agreements are accrued currently and are netted for financial
statement presentation purposes.

SHAREHOLDERS' EQUITY
CRIIMI MAE has authorized 60,000,000 shares of $.01 par value common
stock and issued 21,184,807 and 26,227,253 shares as of December 31, 1993
and 1994, respectively. All shares issued, exclusive of the shares held in
treasury, are outstanding. As of December 31, 1993 and 1994, respectively,
7,732 and 7,421 shares were held for issuance pending presentation of
predecessor units and were considered outstanding. Additionally, 25,000,000
shares of $.01 par value preferred stock are authorized; however, no shares
are issued or outstanding.

INCOME TAXES
CRIIMI MAE and CRI Liquidating have qualified and intend to continue
to qualify as REITs as defined in the Internal Revenue Code and, as such,
will not be taxed on that portion of their taxable income which is
distributed to shareholders provided that at least 95% of such taxable
income is distributed. CRIIMI MAE and CRI Liquidating intend to distribute
substantially all of their taxable income and, accordingly, no provision
for income taxes has been made in the accompanying consolidated financial
statements. CRIIMI MAE and CRI Liquidating, however, may be subject to tax
at normal corporate rates on net income or capital gains not distributed.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Summary of Significant Accounting Policies - Continued

PER SHARE AMOUNTS
Net income, dividends and return of capital per share amounts for
1992, 1993 and 1994 represent net income, dividends and return of capital,
respectively, divided by the weighted average shares outstanding during
each year. The weighted average shares outstanding include shares held for
issuance pending presentation of predecessor units in the CRIIMI Funds.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties

Below is a summary of the related party transactions which occurred during
the years 1992, 1993 and 1994. These items are described further in the text
which follows:

<TABLE>
<CAPTION>
For the years ended December 31,
1992 1993 1994
------------ ------------ ------------
<S> <C> <C> <C>
PAYMENTS TO THE ADVISER:
Annual fee - CRIIMI MAE (a)(h) $ 859,409 $ 1,266,494 $ 2,567,101
Annual fee - CRI Liquidating (a) 1,214,409 1,234,291(g) 696,342(g)
Incentive fee - CRIIMI MAE (a) 163,798 213,972 497,675
Incentive fee - CRI Liquidating (f) -- 256,290 394,812
Mortgage selection fees - CRIIMI MAE (b) 110,120 2,416,253 1,570,415
------------ ------------ ------------
Total $ 2,347,736 $ 5,387,300 $ 5,726,345
============ ============ ============
PAYMENTS TO CRI:
Expense reimbursement - CRIIMI MAE (c) $ 650,988 $ 707,110 $ 1,524,440
Expense reimbursement - CRI Liquidating (c) 244,457 254,039 285,423
------------ ------------ ------------
Total $ 895,445 $ 961,149 $ 1,809,863
============ ============ ============
AMOUNTS RECEIVED OR ACCRUED FROM RELATED PARTIES
CRIIMI,INC.
Income (d) $ 1,581,996 $ 2,015,861 $ 1,905,074
Return of capital (e) 585,567 13,108 737,560
------------ ------------ -------------
Total $ 2,167,563 $ 2,028,969 $ 2,642,634
============ ============ =============

CRI/AIM Investment Limited Partnership (d)(h) $ 700,000 $ 700,000 $ 700,000
============ ============ =============
<FN>
(a) Included in 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 CRIIMI I Target Yield during 1994 and
1993, CRI Liquidating paid deferred annual fees of $118,659 for 1994 and
$330,087 for 1993. The amount paid in 1993 included deferred annual fees
of $86,395 from 1992.
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured
Mortgage Association, Inc. 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 year ended December 31, 1994 were reduced by $312,222, and the
amounts paid to the Adviser for the year ended December 31, 1993 were
reduced by $101,859, which represents the difference between the guaranteed
distribution for the period and the amount actually paid to CRIIMI MAE.
Additionally, during 1993 CRIIMI MAE was paid $199,805 by CRI in connection
with the guaranteed distribution.
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

CRIIMI MAE'S ADVISORY AGREEMENT

CRIIMI MAE has entered into an agreement with the Adviser (the Advisory
Agreement) under which the Adviser is obligated to present an investment program
to CRIIMI MAE, to evaluate and negotiate voluntary and involuntary mortgage
dispositions, provide administrative services for CRIIMI MAE and conduct CRIIMI
MAE's day-to-day operations.

The Advisory Agreement is for a term through November 27, 1995. The
Advisory Agreement, absent a notice of termination or non-renewal, will be
automatically renewed for successive three-year terms. The Advisory Agreement
may be terminated solely for cause, as defined in the Advisory Agreement, by
CRIIMI MAE or the Adviser. Notice of non-renewal must be given at least 180
days prior to the expiration date of the Advisory Agreement. If CRIIMI MAE
terminates the Advisory Agreement other than for cause, or the Adviser termi-
nates the Advisory Agreement for cause, in addition to compensation otherwise
due, CRIIMI MAE will be required to pay the Adviser a fee equal to the Annual
Fee (as described below) payable for the previous fiscal year. If the Advisory
Agreement is not renewed, no termination fee will be payable.

Under the Advisory Agreement, the Adviser receives compensation from CRIIMI
MAE as follows:

o An annual fee (the Annual Fee) for managing CRIIMI MAE's portfolio of
mortgages. The Annual Fee is equal to 0.375% of average invested
assets invested in Additional Mortgage Investments (defined as
mortgages acquired by CRIIMI MAE after the CRIIMI Merger), payable
quarterly.

o Included in the Annual Fee shown in the preceding table is the Master
Servicing Fee for overseeing the servicing of the Additional Mortgage
Investments. The master servicing fee is equal to 0.025% annually of
the outstanding face balance of the Additional Mortgage Investments,
payable quarterly.

o A mortgage selection fee for analyzing, evaluating and structuring
Additional Mortgage Investments. The mortgage selection fee equals
0.75% of amounts invested in Additional Mortgage Investments. The
Adviser is also entitled to receive one-half of the fees paid to
CRIIMI MAE by the owner or developer of a property underlying a
participating mortgage investment, provided that the interest rate on
the base mortgage investment is at least equal to the prevailing
market interest rate for similar base mortgage investments coupled
with investments in limited partnerships.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

In 1991, the Adviser adopted a policy with respect to borrowings above
and beyond the original $140 million notes and $140 million Commercial
Paper Facility (Incremental Borrowings) which would result in a
reduction in the amount of fees payable by CRIIMI MAE if Net Positive
Spreads (the difference between the yield on mortgage investments
purchased after those mortgages purchased with the original $140
million notes and $140 million Commercial Paper Facility and the cost
of funds for all Incremental Borrowings including associated operating
costs on a tax basis) are not maintained: the total annual fee and
master servicing fee of 0.40% of invested assets payable to the
Adviser with respect to mortgage investments purchased after those
mortgages acquired with the proceeds of the original $140 million
notes and $140 million Commercial Paper Facility will be reduced
incrementally if CRIIMI MAE's Net Positive Spread on such debt falls
below 0.40%. During 1994, the Net Positive Spread on the Incremental
Borrowings was in excess of 0.40%. Additionally, as required by this
policy the mortgage selection fee will be eliminated upon reinvestment
of proceeds of mortgage dispositions where the mortgage investment was
purchased with borrowed funds and disposed of in less than five years
without providing a cumulative yield on the original mortgage
investment at disposition of at least 100 basis points higher than the
original yield at the date of purchase.

As discussed in Note 1, in connection with the proposed transaction in
which CRIIMI MAE would become a self-managed and self-administered REIT, CRIIMI
MAE would acquire the CRI Mortgage

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

Businesses. If this transaction is approved by the special committee of
independent directors and the stockholders, all payments made by CRIIMI MAE
under the Advisory Agreement to the Adviser and to CRI would cease upon the
consummation of the transaction and CRIIMI MAE would no longer have a guaranteed
$700,000 distribution in connection with its investment in the AIM Funds from
CRI/AIM Investment Limited Partnership, an affiliate of CRI. Although expense
reimbursements to CRI by CRIIMI MAE would no longer be made, CRIIMI MAE would
incur these expenses directly.

CRI LIQUIDATING ADVISORY AGREEMENT

CRI Liquidating has also entered into an agreement with the Adviser (CRI
Liquidating Advisory Agreement) under which the Adviser is obligated to evaluate
and negotiate voluntary mortgage dispositions, provide administrative services
for CRI Liquidating and conduct CRI Liquidating's day-to-day affairs.

Under the CRI Liquidating Advisory Agreement, the Adviser receives
compensation from CRI Liquidating as follows:

o An annual fee (the CRI Liquidating Annual Fee) for managing CRI
Liquidating's portfolio of mortgages. The CRI Liquidating Annual Fee
is calculated separately for each of the remaining mortgage pools from
the former CRIIMI Funds. With respect to CRIIMI I, the CRI Liquidating
Annual Fee will equal 0.75% of average invested assets invested in
mortgage investments transferred by CRIIMI I in the CRIIMI Merger,
one-third of which will be deferred and paid on a cumulative basis
only during such quarters as the carryover CRIIMI I target yield, as
discussed below, is achieved on a cumulative basis. Any such deferred
amounts will be paid only out of proceeds of mortgage dispositions
attributable to CRIIMI I mortgage investments.

With respect to CRIIMI II, the CRI Liquidating Annual Fee will equal
0.75% of average invested assets invested in existing mortgage
investments transferred by CRIIMI II in the CRIIMI Merger, one-fourth
of which will be deferred and paid on a cumulative basis only during
such quarters as the carryover CRIIMI II target yield, as discussed
below, is achieved on a cumulative basis. Any such deferred amounts
will be paid only out of operating income attributable to CRIIMI II
mortgage investments.

With respect to CRIIMI III, the CRI Liquidating Annual Fee will equal
0.25% of average invested assets invested in mortgage investments
transferred by CRIIMI III in the CRIIMI Merger. As of December 31,
1993, this fee was reduced to 0.125% for any quarter that the
carryover CRIIMI III cumulative annual fee yield, as discussed below,
is not achieved.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

The carryover CRIIMI I target yield will be achieved during any
quarter that the former CRIIMI I mortgage investments transferred in
the CRIIMI Merger generate a cumulative yield (including gains or
losses on mortgage dispositions) on amounts invested in such assets of
13.33% per annum based on financial statement income. The carryover
CRIIMI II target yield will be achieved during any quarter that the
former CRIIMI II mortgage investments transferred in the CRIIMI Merger
generate a cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of 11.66% per annum
based on financial statement income. The carryover CRIIMI III
cumulative annual fee yield will be achieved during any quarter,
commencing after December 31, 1993, that the former CRIIMI III
mortgage investments transferred in the CRIIMI Merger generate a
cumulative yield (including gains or losses on mortgage dispositions)
on amounts invested in such assets of 10.89% per annum based on
financial statement income.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

Detail of the CRI Liquidating Annual Fees for the years 1992, 1993 and
1994 is as follows:

<TABLE>
<CAPTION>
For the year ended December 31, 1992

Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.24% $ 344,090 $ 85,650 $ 429,740 $ 86,395 $ 86,395
CRIIMI II 11.66% 9.92% 540,204 -- 540,204 180,068 1,711,130
CRIIMI III 10.89% 8.07% 244,465 -- 244,465 -- --
----------- ----------- ----------- ----------- -----------
Totals $ 1,128,759 $ 85,650 $ 1,214,409 $ 266,463 $ 1,797,525
=========== =========== =========== =========== ===========

For the year ended December 31, 1993

Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.33% $ 314,595 $ 243,692 $ 558,287 $ -- $ --
CRIIMI II 11.66% 10.05% 484,147 -- 484,147 162,390 1,873,520
CRIIMI III 10.89% 8.05% 191,857 -- 191,857 -- --
----------- ----------- ----------- ---------- -----------
Totals $ 990,599 $ 243,692 $ 1,234,291 $ 162,390 $ 1,873,520
=========== =========== =========== ========== ===========

For the year ended December 31, 1994

Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.40% $ 237,051 $ 118,659 $ 355,710 $ -- $ --
CRIIMI II 11.66% 10.58% 266,215 -- 266,215 88,297 1,961,817
CRIIMI III 10.89% 7.95% 74,417 -- 74,417 -- --
----------- ----------- ----------- ---------- -----------
Totals $ 577,683 $ 118,659 $ 696,342 $ 88,297 $ 1,961,817
=========== =========== =========== ========== ===========
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. Transactions with Related Parties - Continued

o The Adviser is also entitled to certain incentive fees (the Incentive
Fees) in connection with the disposition of certain mortgage
investments. Like the CRI Liquidating Annual Fee, the Incentive Fees
are calculated separately with respect to mortgage investments
transferred in the CRIIMI Merger by CRIIMI I and CRIIMI II. No
Incentive Fees are payable with respect to mortgage investments
transferred by CRIIMI III.

During any quarter in which either the carryover CRIIMI I or CRIIMI II
target yields have been achieved on a cumulative basis and the Adviser
has been paid any deferred amounts of the CRI Liquidating Annual Fee,
the Incentive Fee will equal approximately 9.08% of net disposition
proceeds representing the financial statement gain on the related
CRIIMI I or CRIIMI II mortgage investments disposed of.

The carryover CRIIMI I adjusted contribution and the carryover CRIIMI
II adjusted share capital equal the aggregate adjusted contribution of
CRIIMI I investors (initial investment of investors reduced by all
amounts distributed to them representing distributions of principal on
their original mortgage investments other than distributions of
proceeds of mortgage dispositions representing market discount that
have been applied to the target yield) and the aggregate share capital
of CRIIMI II investors (initial investment of investors reduced by all
amounts distributed to them representing distributions of principal on
their original mortgage investments other than distributions of
proceeds of mortgage dispositions representing market discount that
have been applied to the target yield), respectively, as of November
27, 1989, the consummation date of the CRIIMI Merger. Subsequent to
November 27, 1989, the carryover CRIIMI I adjusted contribution and
the carryover CRIIMI II adjusted share capital are reduced by all
amounts of principal received from their respective former mortgage
investments, whether as part of regular mortgage payments or as
proceeds of mortgage dispositions, except for proceeds of mortgage
dispositions representing market discount that have been applied to
the respective target yield.

As discussed in Note 1 the proposed transaction in which CRIIMI MAE would
become a self-managed and self-administered REIT has no impact on the payments
required to be made by CRI Liquidating, other than that the expense
reimbursement currently paid by CRI Liquidating to CRI in connection with the
provision of services by its Adviser will be paid to CRIIMI MAE subsequent to
the consummation of the proposed transaction.

On September 6, 1991, CRIIMI MAE, through its wholly owned subsidiary
CRIIMI, Inc., acquired from Integrated Resources, Inc. (Integrated) all of the
general partnership interests in four publicly held limited partnerships known
as the American Insured Mortgage Investors Funds (the AIM Funds). The AIM Funds
own mortgage investments which are substantially similar to those owned by
CRIIMI MAE and CRI Liquidating. CRIIMI, Inc. receives the general partner's
share of income, loss and distributions (which ranges among the AIM Funds from
2.9% to 4.9%) from each of the AIM Funds. In addition, CRIIMI MAE owns
indirectly a limited partnership interest in AIM Acquisition Partners, L.P.
(AAP), an entity that provides advisory services to the AIM Funds. The general
partner of AAP is AIM Acquisition Corporation (AIM Acquisition), an
unaffiliated entity, and the limited partners include, but are not limited to,
AIM Acquisition, The Goldman Sachs Group, L.P., Broad, Inc., and CRI/AIM
Investment Limited Partnership, a limited partnership formed by CRI and CRIIMI
MAE. As discussed above, CRI has guaranteed that CRIIMI MAE will receive an
annual distribution of at least $700,000 in connection with its investment in
CRI/AIM Investment Limited Partnership.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Fair Value of Financial Instruments

In connection with CRIIMI MAE's and CRI Liquidating's implementation of
SFAS 115 as of December 31, 1993 (see Note 2), CRIIMI MAE's Investment in
Mortgages continues to be recorded at amortized cost; however, CRI Liquidating's
Investment in Mortgages is recorded at fair value as of December 31, 1993 and
1994. The difference between the amortized cost and the fair value of CRI
Liquidating's Government Insured Multifamily Mortgages represents the net
unrealized gains on CRI Liquidating's Government Insured Multifamily Mortgages.
CRIIMI MAE's share of the net unrealized gains on CRI Liquidating's Government
Insured Multifamily Mortgages is reported as a separate component of
shareholders' equity as of December 31, 1993 and 1994.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Fair Value of Financial Instruments

As of December 31, 1993 As of December 31, 1994
Amortized Cost Fair Value Amortized Cost Fair Value
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Investment in mortgages,
accounted for at amortized cost:
Near par or premium $495,846,514 $505,578,030 $698,226,137 $648,201,775
Discount 903,982 1,004,399 4,989,616 4,860,606
------------ ------------ ------------ ------------
496,750,496 506,582,429 703,215,753 653,062,381
------------ ------------ ------------ ------------
Investment in mortgages, accounted for
at fair value:
Discount 176,507,231 227,192,792 121,283,765 139,416,004
Near par or premium 16,983,594 17,647,797 14,837,135 14,957,572
------------ ------------ ------------ ------------
193,490,825 244,840,589 136,120,900 154,373,576
------------ ------------ ----------- ------------

Investment in subordinated securities -- -- 38,858,349 38,353,226

Cash and cash equivalents 13,599,860 13,599,860 5,143,171 5,143,171

Accrued interest receivable 5,702,667 5,702,667 7,130,597 7,130,597

LIABILITIES
Commercial paper 95,306,000 95,306,000 -- --

OBLIGATIONS UNDER FINANCING FACILITIES
Master Repurchase Agreements 331,712,648 331,712,648 456,984,347 456,984,347
Revolving Credit Facility -- -- 115,000,000 115,000,000
Other Repurchase Agreements -- -- 24,891,783 24,891,783
Bank Term Loan 52,026,400 52,026,400 30,371,800 30,371,800
------------ ------------ ------------ ------------
383,739,048 383,739,048 627,247,930 627,247,930
------------ ------------ ------------ ------------
OFF BALANCE SHEET
Interest rate hedge
agreements-asset (liability) 4,113,713 (3,115,531) 6,053,163 21,438,096
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

INVESTMENT IN MORTGAGES

INVESTMENT IN SUBORDINATED SECURITIES

The fair value of the subordinated securities is based on the price
obtained from an investment banking institution which trades subordinated
securities. Given the limited market for these securities, only one quote was
available.

CASH AND CASH EQUIVALENTS AND ACCRUED INTEREST RECEIVABLE

The carrying amount approximates fair value because of the short maturity
of these instruments.

COMMERCIAL PAPER

The carrying amount approximates fair value because of the short maturity
of the debt.

OBLIGATIONS UNDER FINANCING FACILITIES

The carrying amount approximates fair value because the current rate on the
debt is reset quarterly based on market rates.

INTEREST RATE HEDGE AGREEMENTS

The fair value of interest rate hedge agreements (used to hedge CRIIMI
MAE's debt) is the estimated amount that CRIIMI MAE would pay or receive to
terminate the agreements as of December 31, 1993 and 1994, taking into account
current interest rates and the current creditworthiness of the counterparties.
The amount was determined based on the average of two quotes received from
financial institutions which enter into these types of transactions as part of
their day-to-day activities.

5. Investment in Mortgages

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

During 1994, CRIIMI MAE directly acquired 51 Government Insured Multifamily
Mortgages with an aggregate purchase price of approximately $194 million with a
weighted average net effective interest rate of approximately 7.79% and a
weighted average remaining term of approximately 32 years. In addition, during
1994, CRIIMI MAE funded advances of approximately $41.8 million on Government
Insured Construction Mortgages with a weighted average net effective interest
rate of approximately 8.22%. These loans are anticipated to convert to
permanent loans over the next 7 months with an anticipated maturity of 40 years.

FHA-Insured Investments--The first category of Near Par or Premium Mortgage
Investments in which CRIIMI MAE invests consists of participation certificates
evidencing a 100% undivided beneficial interest in Government Insured
Multifamily Mortgages insured by FHA pursuant to provisions of the National
Housing Act (FHA-Insured Loans). All of the FHA-Insured Loans in which CRIIMI
MAE invests are insured by HUD for effectively 99% of their current face value.
As part of its investment strategy, CRIIMI MAE also invests in Government
Insured Construction Mortgages which involve a two-tier financing process in
which a short-term loan covering construction costs is converted into a
permanent loan. CRIIMI MAE also becomes the holder of the

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

permanent loan upon conversion. The construction loan is funded in HUD-approved
draws based upon the progress of construction. The construction loans are GNMA-
guaranteed or insured by HUD. The construction loan generally does not amortize
during the construction period. Amortization begins upon conversion of the
construction loan into a permanent loan, which generally occurs within a
24-month period from the initial endorsement by HUD. Approximately 31% of
CRIIMI MAE's near par or premium mortgage investments are FHA-Insured Loans or
Government Insured Construction Mortgages as of December 31, 1994.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

Descriptions of the mortgage investments owned, directly or indirectly by
CRIIMI MAE which exceed 3% of the total carrying amount of the consolidated
mortgage investments as of December 31, 1994, summarized information regarding
other mortgage investments and mortgage investment income earned in 1992, 1993
and 1994, including interest earned on the disposed mortgage investments, are as
follows:

<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Effective Investment Investment Investment Final
Face Value of Interest Income Income Income Maturity
Amount of Mortgages Rate Earned Earned Earned Date
Mortgages(B) (A),(C),(D) Range in 1992 in 1993 in 1994 Range
------------- ------------- --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI MAE
FHA-INSURED LOANS
DISCOUNT
Other
(2 mortgages) $ 940,394 $ 900,658 10.248%- $ 93,629 $ 93,335 $ 93,009 March 2020 -
10.492% April 2031
NEAR PAR OR PREMIUM
Other
(46 mortgages) 175,217,387 175,269,093 7.345%- 2,307,929 5,180,879 12,723,293 May 1999 -
11.000% June 2034
CONSTRUCTION
LOANS (8)
Other
(8 loans) 40,093,680 40,271,456 7.500%- 5,422,891 5,099,429 4,145,462** *
9.250%
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Mortgages(B) (A),(C),(D) Rate in 1992 in 1993 in 1994 Date
------------- ------------- --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA Mortgage-
Backed Securities
-----------------
Discount
--------
Other
(2 mortgages) $ 4,148,517 $ 4,088,958 8.458%- $ -- $ -- $ 175,671 December 2022 -
8.627% June 2034
Near Par or Premium
-------------------
San Jose South 29,709,700 29,973,553 7.656%- -- 11,479 2,157,217 October 2023
Somerset Park 29,993,364 30,567,453 7.407% -- 734,515 2,197,079 July 2028
Other
(113 mortgages) 419,703,851 422,144,582 7.114%- 7,148,300 13,517,932 29,112,289 August 2015 -
10.935% November 2034

Sub-Total ------------ ------------ ------------ ------------ ------------
CRIIMI MAE
directly held $699,806,893 $703,215,753 $ 14,972,749 $ 24,637,569 $ 50,604,020
------------ ------------ ------------ ------------ ------------

CRI Liquidating
---------------
FHA-Insured Loans
-----------------
Discount
--------
Other
(38 mortgages) $152,614,384 $139,416,004 8.350%- $ 12,563,285 $ 12,483,996 $ 12,374,796 September 2012 -
12.480% March 2025
Near Par or Premium
-------------------
Other (5 mortgages) 11,581,234 11,871,525 9.220%- 1,151,149 1,143,151 1,134,337 February 2023 -
10.790% June 2025
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income Final
Amount of Mortgages Interest Earned Earned Earned Maturity
Mortgages(B) (A),(C),(D) Rate in 1992 in 1993 in 1994 Date
------------- ------------- --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
GNMA Mortgage-
Backed Securities
-----------------
Near Par or Premium
-------------------
Other (1 mortgage) $ 2,997,210 $ 3,086,047 10.14% $ 297,318 $ 295,749 $ 294,014 September 2022
------------ ------------ ------------ ------------ ------------
Sub-total CRI
Liquidating $167,192,828 $154,373,576 $ 14,011,752 $ 13,922,896 $ 13,803,147
------------ ------------ ------------ ------------ ------------
Total in mortgages $866,999,721 $857,589,329 $ 28,984,501 $ 38,560,465 $ 64,407,167
------------ ------------ ------------ ------------ ------------

Less CRI Liquidating's
share of mortgage interest
relating to investment in
limited partnerships
accounted for under the
equity method (972,704) (308,093) --
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

<TABLE>
<CAPTION>
Mortgage Mortgage Mortgage
Carrying Investment Investment Investment
Face Value of Effective Income Income Income
Amount of Mortgages Interest Earned Earned Earned
Mortgages(B) (A),(C),(D) Rate in 1992 in 1993 in 1994
------------- ------------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Dispositions:

1992 $ -- $ -- 9.48%- $ 979,109 $ -- $ --
12.04%

1993 -- -- 8.00%- 9,041,910 4,241,328 --
11.79%

1994 -- -- 8.44%- 7,898,132 7,775,872 2,636,175
12.12%
------------ ------------ ----------- ----------- -----------
Investment in
Mortgages $866,999,721 $857,589,329 $45,930,948 $50,269,572 $67,043,342
============ ============ =========== =========== ===========
Investment in
Limited Partner-
ships $ 133,767 $ 600,852 $ 43,605 $ (49,032)
============ =========== =========== ===========

<FN>
* Construction draws are part of a short-term financing process and are
funded to cover construction costs. The construction draws are converted
into a long-term permanent loan generally within a 24-month period from the
initial endorsement by HUD.
** Includes mortgage investment income earned on construction loans that
converted to permanent loans during 1994 (10 loans).
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

(A) All mortgages are collateralized by first or second liens on residential
apartment, retirement home, nursing home, development land or townhouse
complexes which have diverse geographic locations and are FHA-Insured Loans or
GNMA Mortgage-Backed Securities. Payment of the principal and interest on FHA-
Insured Loans is insured by HUD pursuant to Title 2 of the National Housing Act.
Payment of the principal and interest on GNMA Mortgage-Backed Securities is
guaranteed by GNMA pursuant to Title 3 of the National Housing Act. The
investment in limited partnerships is not federally insured or guaranteed.

(B) Principal and interest on permanent mortgages is payable at level amounts
over the life of the mortgage investment. Total annual debt service payable to
CRIIMI MAE and CRI Liquidating for the mortgage investments held as of December
31, 1994 is approximately $65.9 million.

(C) Reconciliations of the carrying amount of CRIIMI MAE's consolidated
mortgage investments for the years ended December 31, 1993 and 1994 follow:

<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1993 December 31, 1994
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $472,963,233 $741,591,085

Additions during year:
Purchases 312,654,818 235,758,541
Amortization of discount 1,307,072 979,054
Unrealized gains on mortgage
investments 51,349,764 --

Deductions during year:
Principal payments $ 4,527,816 $ 6,107,350
Mortgage dispositions 92,114,681 81,437,533

Adjustments to unrealized
gains on mortgage investments -- 32,592,066
Unrealized losses on mortgage
investments -- 505,022
Accretion of premium 41,305 96,683,802 97,380 120,739,351
------------- ------------ ------------ ------------
Balance at end of year $741,591,085 $857,589,329
============ ============
</TABLE>

(D) The following FHA-Insured Loans and GNMA Mortgage-Backed Securities are
delinquent with respect to payment of principal and/or interest as of
December 31, 1994:

<TABLE>
<CAPTION>
Face Amount of Mortgage
As of December 31, 1994
-----------------------
<S> <C>
Stoddard Baptist Nursing Home $ 9,469,014
Hickory Hills Townhomes 6,581,373
Guinn Nursing Home 2,280,523
-----------
Principal amount of loans
subject to delinquent principal
or interest $18,330,910
===========
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Investment in Mortgages - Continued

HISTORICAL DISPOSITIONS

The following table sets forth certain information concerning dispositions
of Government Insured Multifamily Mortgages by CRIIMI MAE and CRI Liquidating
for the past three years:

1992-CRI Liq. 3 -- -- 3 $ 6,097,102 $ 11,202,237
CRIIMI MAE 4 -- -- 4 (363,957) (118,498)
1993-CRI Liq. 2 5 3 10 8,089,840 14,938,128
CRIIMI MAE 2 -- 5 7 (732,095) (650,339)
1994-CRI Liq. 3 14 2 19 12,553,280 18,354,125
CRIIMI MAE -- -- 7 7 446,028 646,223
--- --- --- --- ------------ ------------
14(2) 19 17 50 $ 26,090,198 $ 44,371,876
=== === === === ============ ============

<FN>
(1) CRIIMI MAE or CRI Liquidating may elect to receive insurance benefits in
the form of cash when a Government Insured Multifamily Mortgage defaults.
In that event, 90% of the face value of the mortgage generally is received
within approximately 90 days of assignment of the mortgage to HUD and 9% of
the face value of the mortgage is received upon final processing by HUD
which may not occur in the same year as assignment. If CRIIMI MAE or CRI
Liquidating elects to receive insurance benefits in the form of HUD
debentures, 99% of the face value of the mortgage is received upon final
processing by HUD. Gains from dispositions are recognized upon receipt of
funds or HUD debentures and losses generally are recognized at the time of
assignment.
(2) Five of the 14 assignments were sales of Government Insured Multifamily
Mortgages then in default and resulted in the CRIIMI Funds, CRI Liquidating
or CRIIMI MAE receiving near or above face value.
(3) In connection with the CRIIMI Merger, CRI Liquidating recorded its
investment in mortgages at the lower of cost or fair value, which resulted
in an overall net write down for tax purposes. For financial statement
purposes, carryover basis of accounting was used. Therefore, since the
CRIIMI Merger, the net gain for tax purposes was greater than the net gain
recognized for financial statement purposes. As a REIT, dividends to
shareholders are based on tax basis income.
</TABLE>

6. Investment in Subordinated Securities

In addition to investing in Government Insured Multifamily Mortgages,
CRIIMI MAE's board of directors has authorized CRIIMI MAE to invest up to 20% of
CRIIMI MAE's total consolidated assets in other mortgage investments which are
not federally insured or guaranteed. Since adoption of this policy, CRIIMI MAE
and its Adviser have 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 Adviser believes that investments in
high yielding subordinated securities represent attractive investment
opportunities.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated Securities - Continued

The following table summarizes information related to these investments:

<TABLE>
<CAPTION>
Original Amortized
Face Purchase Cost Anticipated
Pool Tranche Amount Price (as of December 31, 1994) Yield to Maturity (1)
----------- -------------- ------------ ----------- ------------------------- --------------------
<S> <C> <C> <C> <C> <C>
MC-1 B-1 (BB Rated) $12,041,520 $ 9,693,424 $ 9,702,113 12.5%

B-2 (B Rated) 10,321,303 7,708,723 7,770,361 13.6%

B-3 (Unrated) 12,041,520 4,635,985 4,542,208 18.1%
----------- ----------- -----------
Subtotal 34,404,343 22,038,132 22,014,682
----------- ----------- -----------

C-1 D (BB Rated) 10,596,316 9,430,721 9,447,186 12.8%

E (B Rated) 9,082,557 7,379,578 7,396,481 14.8%
----------- ----------- -----------
Subtotal 19,678,873 16,810,299 16,843,667
----------- ----------- -----------

Total $54,083,216 $38,848,431 $38,858,349
=========== =========== ===========

<FN>
(1) 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.
</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated Securities - Continued

As described in Note 10, during the third and fourth quarters of 1994,
CRIIMI MAE entered into a series of repurchase agreements which provided CRIIMI
MAE financing to purchase the four rated tranches of the subordinated
securities. Between 70% and 80% of the purchase price was financed for
aggregate borrowings of approximately $24.9 million. Under the agreements, the
interest rate is based upon the then current one-month or six-month LIBOR, as
applicable, plus 1.0% to 1.25% depending on the specific repurchase agreement.

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 lack of a
secondary market for these securities, prevailing interest rates, 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
yield to maturity will be achieved.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated Securities - Continued

represent approximately 4% of CRIIMI MAE's total consolidated assets.
Investments of this type are not anticipated to exceed 10% of CRIIMI MAE's total
consolidated asset base through 1995.

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

Reconciliations of the financial statement net income to the tax basis
income for the years ended December 31, 1992, 1993 and 1994 are as follows:

<TABLE>
<CAPTION>
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Consolidated financial statement
net income $16,041,231 $15,757,505 $26,010,119

Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes 4,931,900 4,412,645 3,610,806
Income from investment in insured
mortgage funds and advisory partnership 504,157 87,341 (7,462)
Mortgage dispositions 245,459 81,756 200,195
Reamortization of investments in
subordinated securities -- -- 187,305
Interest income - U.S. Treasuries 1,074,517 973,619 860,202
Interest expense - defeased notes (1,583,318) (1,390,672) (1,198,027)
Interest expense - amortization of
deferred financing costs -- 366,093 (290,158)
Interest expense - write-off of deferred
financing costs 445,127 (280,683) 795,614
Gain on sale of shares of subsidiary -- 1,581,247 --
Provision for settlement of litigation -- 1,250,000 (557,340)
Other (33,343) 176,387 (4,831)
----------- ----------- -----------
Tax basis income $21,625,730 $23,015,238 $29,606,423
=========== =========== ===========

Tax basis income per share $ 1.07 $ 1.14 $ 1.17
=========== =========== ===========

Weighted average number
of shares outstanding (for tax purposes) 20,183,533 20,183,533 25,309,560
========== ========== ===========
</TABLE>

Differences in the financial statement net income and the tax basis income
principally relate to differences in the tax bases of assets and liabilities and
their related financial reporting amounts resulting from the CRIIMI Merger,
investment in mortgages, long-term debt and deferred financing costs, investment
in U.S. Treasury Securities and partnership investments. The tax basis of
investment in mortgages is approximately $13 million less than the financial
statement basis as of December 31, 1994. The tax basis of deferred financing
costs as of December 31, 1994 was approximately $6.7 million greater than the
financial statement basis. The tax basis of investments in U.S. Treasury
Securities, purchased in connection with the defeasance of long-term debt and
netted with the defeased long-term debt for financial statement purposes, is
approximately $12.6 million greater than the financial statement basis as of
December 31, 1994.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

As a result of the foregoing, the nature of the dividends for income tax
purposes on a per share basis is as follows:

<TABLE>
<CAPTION>
1992 1993 1994
------ ------ ------
<S> <C> <C> <C>
Ordinary income $ 0.75 $ 0.81 $ .72
Long-term capital gains 0.33 0.31 .44
------ ------ ------
$ 1.08 $ 1.12 $ 1.16
====== ====== ======
</TABLE>

8. Other Short-Term Investments

During 1993, CRIIMI MAE, and, during each of 1992 and 1993, CRI Liquidating
entered into transactions in which mortgage-backed and other government agency
securities were purchased. These transactions provided CRIIMI MAE with above
average returns compared to its other short-term investments while maintaining
the high quality of its assets and assisted in maintaining CRI Liquidating's
REIT status. Some of these purchases were financed with borrowings which were
nonrecourse and fully secured with the purchased mortgage-backed and other
government agency securities. As of December 31, 1993, CRIIMI MAE and as of
December 31, 1992 and 1993, CRI Liquidating had disposed of the mortgage-backed
and other government agency securities acquired in such year and repaid the
related debt.

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Summary of Quarterly Results of Operations (Unaudited)

The following is a summary of unaudited quarterly results of
operations for the years ended December 31, 1992, 1993 and 1994:

<TABLE>
<CAPTION>
1992
Quarter ended
March 31 June 30 September 30 December 31
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>

Income (principally
mortgage investment
income) $ 12,601,668 $12,149,241 $13,123,895 $12,826,954
Net gain (loss) on mortgage
dispositions 5,311,633 9,708 487,507 (75,703)
Loss on investment in limited
partnership -- -- -- (731,951)
Net income 6,797,138 2,886,910 3,526,115 2,831,068
Net income per share .34 .14 .17 .14

<CAPTION>
1993
Quarter ended
March 31 June 30 September 30 December 31
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>

Income (principally
mortgage investment
income) $ 12,892,685 $ 12,912,261 $ 15,199,422 $ 15,445,887
Net gain on mortgage
dispositions 1,522,785 284,274 489,171 5,061,515
Net income 4,431,388 3,490,212 3,800,643 4,035,262
Net income per share .22 .17 .19 .20

1994
Quarter ended
March 31 June 30 September 30 December 31
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>

Income (principally
mortgage investment
income) $ 15,918,972 $ 17,184,041 $ 19,164,345 $ 19,174,442
Net gain on mortgage
dispositions 11,627,196 445,747 724,439 201,926
Net income 9,982,050 6,076,374 5,449,251 4,502,444
Net income per share .47 .24 .22 .18

</TABLE>

10. Obligations under Financing Facilities

The following table summarizes CRIIMI MAE's debt outstanding as of
December 31, 1993 and December 31, 1994:

As of As of
December 31, December 31,
1993 1994
------------ ------------
<S> <C> <C>

Master Repurchase Agreements $331,712,648 $456,984,347
Revolving Credit Facility -- 115,000,000
Bank Term Loan 52,026,400 30,371,800
Other Repurchase Agreements -- 24,891,783
Commercial Paper Facility 95,306,000 --
------------ ------------

Total Corporate Borrowings $479,045,048 $627,247,930
============ ============

</TABLE>

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

CRIIMI MAE's debt matures over the next two years as follows:

<TABLE>

<S> <C>

1995 $ 90,691,783
1996 536,556,147
------------
Total $627,247,930
============

</TABLE>

MASTER REPURCHASE AGREEMENTS

On April 30, 1993, CRIIMI MAE entered into master repurchase agreements
(collectively, with the additional repurchase agreements described below, the
Master Repurchase Agreements) with Nomura Securities International, Inc. and
Nomura Asset Capital Corporation (collectively, Nomura) which provided CRIIMI
MAE with $350.0 million of available financing for a three-year term, expiring
April 30, 1996. Interest on such borrowings is based on the three-month LIBOR
plus .75% or .50% depending on whether FHA-Insured Loans or GNMA Mortgage-Backed
Securities, respectively, are pledged as collateral. The rate on the facility
as of December 31, 1994, including the applicable spreads, was 6.31% on the
borrowings secured by FHA-Insured Loans and 6.06% on the borrowings secured by
GNMA Mortgage-Backed Securities. The rates in effect on December 31, 1994 were
set on October 24, 1994 and reset on January 23, 1995 for three months at
6.875%, including the spread, for the borrowings secured by GNMA Mortgage-Backed
Securities. (As discussed below, the borrowings secured by FHA-Insured Loans
were paid off on January 23, 1995 with proceeds from a new facility with the
German American Capital Corporation (GACC)). The value of the FHA-Insured Loans
and the GNMA Mortgage-Backed Securities pledged as collateral must equal at
least 110% and 105%, respectively, of the amounts borrowed. No more than 60% of
the collateral pledged may be FHA-Insured Loans and no less than 40% may be GNMA
Mortgage-Backed Securities.

On November 30, 1993, CRIIMI MAE entered into additional repurchase
agreements with Nomura pursuant to which Nomura agreed to provide CRIIMI MAE
with an additional $150.0 million of available financing for a three-year term,
expiring October 27, 1996. Interest on such borrowings for the first twelve
months after the initial funding (April 1994 through April 1995) is based on the
three-month LIBOR plus .90% or .70% depending on whether FHA-Insured Loans or
GNMA Mortgage-Backed Securities, respectively, are pledged as collateral.
Interest on the borrowings from May 1995 to October 1995 and from November 1995
through the maturity of the facility will be based on three-month LIBOR plus
.50% and .30%, respectively, for borrowings secured by GNMA Mortgage Backed
Securities. (As discussed below, the borrowings secured by FHA-Insured Loans
were paid off on January 23, 1995 with proceeds from a new facility with the
GACC). The rate on the facility as of December 31, 1994, including the
applicable spreads was 6.46% on the borrowings secured by FHA-Insured Loans and
6.26% on borrowings secured by GNMA Mortgage-

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

Backed Securities. The rates in effect on December 31, 1994 were set on October
24, 1994 and reset on January 23, 1995 for three months at 7.075%, including the
spread, for the borrowings secured by GNMA Mortgage-Backed Securities.

The value of the FHA-Insured Loans and the GNMA Mortgage-Backed Securities
pledged as collateral must equal at least 110% and 107%, respectively, of the
amounts borrowed. No more than 40% of the collateral pledged may be FHA-Insured
Loans and no less than 60% may be GNMA Mortgage-Backed Securities. CRIIMI MAE
was required to pay commitment fees of three basis points per month on the
unutilized amount through June 1994 and twelve basis points on any remaining
unused amounts as of July 1, 1994. For the year ended December 31, 1994, CRIIMI
MAE incurred approximately $415,000 in commitment fees related to the $150.0
million facility.

COMMERCIAL PAPER FACILITY/REVOLVING CREDIT FACILITY

<PAGE>

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

the special purpose corporation replaced borrowings under the Commercial Paper
Facility with revolving credit loans. These revolving credit loans were
originally scheduled to mature on January 28, 1994; however, the maturity date
was extended until February 28, 1994.

As of February 28, 1994, these borrowings were replaced with a non-
amortizing revolving credit facility, maturing August 28, 1996 (the Revolving
Credit Facility) provided by certain lenders which had participated in the
Commercial Paper Facility. Under the Revolving Credit Facility, the lenders
agreed to loan CRIIMI MAE an aggregate principal amount of $110 million.
Effective August 5, 1994, an additional $25 million was made available for
borrowing by CRIIMI MAE under this facility. CRIIMI MAE was required to pay
commitment fees of twenty five basis points per annum on the $25 million
increase to the facility. As of December 31, 1994, CRIIMI MAE incurred
approximately $33,000 of commitment fees related to the $25 million increase in
the facility.

The interest rate on borrowings under the Revolving Credit Facility is
based on CRIIMI MAE's choice of (i) the one, two, three or six-month LIBOR plus
an interest rate margin of .50%, .5625%, or .625% depending on the percentage of
GNMA Mortgage-Backed Securities pledged as collateral or (ii) a base rate equal
to the higher of either the lender's prime rate or .50% per annum above the
Federal Funds rate, plus an interest rate margin of 0%, .0625%, or .125%
depending on the percentage of GNMA Mortgage-Backed Securities held as
collateral. The rate on substantially all of this facility as of December 31,
1994 was 5.69%, which is based on 6 month LIBOR and a spread of .50%. This
rate was set on August 5, 1994 and reset on February 2, 1995 at 6.75%, which is
based on one month LIBOR and a spread of .625%.

<PAGE>

100

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

a $50 million payment on the Revolving Credit Facility to effect a permanent,
required reduction in the amount available under the facility. Replacement
financing in the amount of $50 million was obtained from GACC at terms
substantially similar to those on the Master Repurchase Agreements.

BANK TERM LOAN

<PAGE>

101

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

OTHER REPURCHASE AGREEMENTS

MC-1 B-1 $ 6,785,396 70% 1M LIBOR 125 7.25% 1 Month (1)
MC-1 B-2 5,396,106 70% 6M LIBOR 110 6.41% 6 Months(2)
C-1 D 7,544,577 80% 6M LIBOR 100 7.75% 6 Months(2)
C-1 E 5,165,704 70% 6M LIBOR 110 7.85% 6 Months(2)
-----------
$24,891,783
===========
<FN>
(1) Financing was replaced on January 30, 1995 in the amount of $7,754,739
representing 80% of the purchase price at an initial rate of 7.75% (6 month
LIBOR plus 100 basis points) with an initial term of six months with a
cancellation notification period of six months and several six month
renewals.
(2) These facilities have an initial term of six months, cancellation
notification periods ranging from six months to one year and with several
six month renewals.

</TABLE>

As a requirement under certain of CRIIMI MAE's other debt facilities,
financings related to repurchase agreements associated with the purchase of
subordinated securities are limited to no more than $50 million without the
approval of the lenders under the Master Repurchase Agreement, the Revolving
Credit Agreement and the GACC master repurchase agreement.

MASTER REPURCHASE AGREEMENT WITH GACC

On January 23, 1995, CRIIMI MAE entered into a master repurchase agreement
with GACC which provided CRIIMI MAE with $300 million of available financing
through April 1, 1996. Interest on such borrowings is based on one month LIBOR
plus .75% or .50% depending on whether FHA-Insured Loans or GNMA Mortgage-Backed
Securities, respectively, are pledged as collateral. 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.

As previously discussed, approximately $176 million was borrowed from this
facility in January 1995 to paydown the portion of the borrowings secured by
FHA-Insured Loans under the Master Repurchase Agreements and to effect a $50
million required, permanent reduction the Revolving Credit Facility. The
weighted average rate on these borrowings, including applicable spreads, was
6.70%.

<PAGE>

102

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

WORKING CAPITAL LINE OF CREDIT

CRIIMI MAE is in the process of finalizing a $10 million working capital
line of credit with Riggs National Bank. This line of credit will be secured by
shares of CRI Liquidating valued at approximately 175% of any outstanding
borrowings. At CRIIMI MAE's option, the interest rate will be set on the
outstanding borrowings at one, two or three month LIBOR plus .60%, the daily
federal funds rate plus .80% or prime minus 1.0%.

Certain of the financial covenants under the line of credit will be
consistent with those of the other debt facilities discussed above.

OTHER DEBT RELATED INFORMATION

During December 1994, CRIIMI MAE negotiated with its lenders to amend debt
agreements to provide for more flexibility in the restrictive covenants. Under
all of CRIIMI MAE's existing debt facilities, as amended, except the Other
Repurchase Agreements, CRIIMI MAE's debt to equity ratio, as defined, may not
exceed 3.0:1.0. As of December 31, 1994, CRIIMI MAE's debt-to-equity ratio was
2.51:1.0. The weighted average cost of CRIIMI MAE's borrowings, including
amortization of deferred financing fees of $5.5 million for the year ended
December 31, 1994, was approximately 7.01%.

Certain of the debt agreements require that a minimum level of unencumbered
assets be maintained, the most restrictive of which requires 2% of total
indebtedness be maintained by CRIIMI MAE. As of January 24, 1995, CRIIMI MAE
had approximately $38 million, at management's estimated fair value, of
unencumbered FHA/GNMA Mortgage Investments. Additionally, CRIIMI MAE has other
unencumbered assets (which in some cases are subject to certain lender
eligibility requirements) including, but not limited to cash, working capital
lines of credit and unencumbered CRI Liquidating stock.

The Adviser is actively monitoring the levels of unencumbered collateral
and is taking steps to negotiate more favorable collateral requirements with
lenders. As discussed above, subsequent to year end, CRIIMI MAE executed a
master

<PAGE>

103

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Obligations under Financing Facilities - Continued

repurchase agreement with GACC for maximum borrowings of $300 million secured by
FHA-Insured Loans and GNMA Mortgage-Backed Securities valued at approximately
105% of the amounts borrowed. This compares to requirements under the Master
Repurchase Agreements with Nomura of 110% of the value on borrowings secured by
FHA-Insured loans and 105% or 107% on borrowings secured by GNMA Mortgage-Backed
Securities depending on whether the $350 million facility or the $150 million
facility was used and collateral requirements of 110% of the value on borrowings
under the Revolving Credit Facility.

The collateral requirements on the Bank Term Loan are also anticipated to
be reduced when the refinancing is completed after the March 31, 1995 required
principal payment is made from the return of capital on the shares of CRI
Liquidating stock pledged as collateral under the Bank Term Loan. The value of
the required collateral is anticipated to be reduced from 200% of the
outstanding borrowings to 175% of the outstanding borrowings. The Adviser has
also provided for more flexibility through the availability of a $10 million
working capital line of credit, secured by shares of CRI Liquidating stock,
expected to be closed in February 1995. The Adviser is also exploring financing
alternatives other than secured lending of the type currently in place.

As previously discussed, the Adviser is actively pursuing a new investment
program in subordinated securities. While the Adviser 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. As
discussed above in relation to all of CRIIMI MAE's mortgage investments,
changes in interest rates can increase or decrease the value of the
subordinated securities. Given that CRIIMI MAE intends to hold these investments
to maturity, the most significant impact of this potential change in value is on
the collateral requirements under the debt facilities. The Adviser 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. The Adviser 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. It is anticipated that investments in subordinated securities will
comprise the majority of CRIIMI MAE's new business activity during 1995. While
investments of this type are not expected to exceed 10% of CRIIMI MAE's total
consolidated asset base during 1995, CRIIMI MAE's board of directors has
authorized investments of up to 20% of total consolidated assets in other
mortgage investments which are not federally insured or guaranteed. The Adviser
also believes that if the proposed merger of CRIIMI MAE with CRI's Mortgage
Businesses is approved (see Note 1), CRIIMI MAE's overall return will be less
interest rate sensitive. The income which is anticipated to be derived from
the proposed 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 decrease 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 offset by the savings CRIIMI MAE would have on its cost of borrowing.

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. To partially limit the
adverse effects of rising interest rates, CRIIMI MAE has entered into a series
of interest rate hedging agreements, as discussed in Note 11. 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. The Adviser 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.

<PAGE>

104

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Interest Rate Hedge Agreements

Hedging Notional
Instrument Amount Effective Date Maturity Date Floor Cap Index(c)
------------------- ------------ --------------- ---------------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C>

Collar(e) $ 30,000,000 March 7, 1990 March 7, 1995 8.375% 10.125% CP
Collar(e) 20,000,000 March 30, 1990 March 30, 1995 8.375% 10.125% CP
Collar(e) 30,000,000 July 8, 1990 February 8, 1995 8.625% 10.625% CP
Accreting Collar(e)(f) 35,000,000 July 9, 1990 July 9, 1995 8.750% 10.500% CP
Cap (b) 25,000,000 May 24, 1991 May 24, 1996 N/A 9.000% CP
Cap 25,000,000 June 17, 1991 June 17, 1996 N/A 8.450% CP
Cap (a) 50,000,000 June 25, 1993 June 25, 1998 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 July 1, 1993 June 3, 1996 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 July 20, 1993 July 20, 1998 N/A 6.25% 3M LIBOR
Cap (a) 50,000,000 August 10, 1993 August 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 50,000,000 August 27, 1993 August 27, 1997 N/A 6.125% 3M LIBOR
Cap (a) 50,000,000 November 10, 1993 November 10, 1997 N/A 6.00% 3M LIBOR
Cap (a) 35,000,000 February 2, 1994 February 2, 1999 N/A 6.125% 1M LIBOR
Cap (a) 50,000,000 March 15, 1994 March 15, 1997 N/A 6.375% 3M LIBOR
Cap (a) 50,000,000 March 25, 1994 March 25, 1998 N/A 6.50% 3M LIBOR
Cap (a) 50,000,000 October 7, 1994 October 7, 1997 N/A 6.75% 3M LIBOR
Cap (d) 33,385,131 December 31, 1991 March 31, 1996 N/A 6.50% 3M LIBOR
Cap (d) 6,451,291 January 15, 1993 March 29, 1996 N/A 6.50% 3M LIBOR
Cap (d) 18,614,868 December 31, 1991 March 31, 1996 N/A 10.50% 3M LIBOR
Cap (d) 1,048,709 March 31, 1993 December 31, 1996 N/A 10.50% 3M LIBOR
------------
$709,499,999
============

<FN>
(a) Approximately $4.5 million and $3.6 million of costs were incurred during
1993 and 1994, respectively, 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.
(b) On May 24, 1993, CRIIMI MAE and the counterparty to the collar, CIBC,
terminated the floor on this former collar. In consideration of such
termination, CRIIMI MAE paid CIBC approximately $2.3 million. This amount
was deferred on the accompanying consolidated balance sheets as the
underlying debt being hedged is still outstanding. This amount will be
amortized for the period from May 24, 1993 through May 26, 1996. CRIIMI
MAE amortized approximately $.5 million and $.8 million of this deferred
amount in the accompanying consolidated statements of income for the years
ended December 31, 1993 and 1994, respectively. Additionally, certain
costs incurred during 1991 in connection with an extinguishment of debt
which was financed with proceeds from a replacement facility, were deferred
and are being amortized using the effective interest method over the life
of the replacement facility. CRIIMI MAE amortized approximately $2.5
million and $1.6 million of such costs, during 1993 and 1994, respectively.
As of December 31, 1994, the unamortized balance of such costs was
approximately $630,000.
(c) The hedges are based either on the 30-day Commercial Paper Composite Index
(CP), three-month LIBOR, or one-month LIBOR.
(d) The notional amount of these hedges amortize based on the expected paydown
schedule of the Bank Term Loan. The average notional amount of these
hedges is expected to be $25,540,441, $3,383,118, $18,959,559 and
$2,710,633, respectively, during 1995.
(e) Total payments to the counterparty during 1993 and 1994 amounted to $8.2
million and $5.0 million, respectively, and were included in interest
expense in the accompanying consolidated Statements of Income.
(f) The accreting collar increased on a monthly basis from an original
notional amount of $10 million in July 1990 to a final notional amount
of $35 million in December 1990. The notional amount will remain at
$35 million from December 1990 until maturity in July 1995. This is in
contrast to CRIIMI MAE's other collars for which the notional amount is
generally constant over the term of the collar agreement.
</TABLE>

<PAGE>

105

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Interest Rate Hedge Agreements - Continued

INTEREST RATE COLLARS

INTEREST RATE CAPS

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. As of December 31, 1994, CRIIMI MAE had in place
interest rate caps aggregating $594.5 million based on the CP Index and LIBOR.
The caps that are based on the CP Index have an aggregate notional amount of $50
million at December 31, 1994, with a weighted average cap of 8.70%. The cap
that is based on the one month LIBOR has a notional amount of $35 million and a
cap rate of 6.125%. Those based on the three month LIBOR, have an aggregate
notional amount of $510 million at December 31, 1994, with a weighted average
cap rate of 6.51%. At December 31, 1994 the three month LIBOR of 6.5% was at or
exceeded the cap rate on caps with a notional amount of $440 million. These
caps will reset during the first quarter of 1995 and if rates stay at that level
or increase, CRIIMI MAE will receive payments based on the difference between
three month LIBOR and the cap. During 1994, the interest rate indices exceeded
the interest rate cap on one cap which reset in December, which had the result
of reducing CRIIMI MAE's overall interest expense by approximately $1,300.

CRIIMI MAE is exposed to credit loss in the event of nonperformance by the
counterparties to the interest rate hedge agreements should interest rates
exceed the caps. However, the Adviser does not anticipate nonperformance by any
of the counterparties, each of which has long-term debt ratings of A or above by
Standard and Poor's and A3 or above by Moody's. The Adviser does not intend to
liquidate any of CRIIMI MAE's hedge instruments; however, the Adviser believes
that these instruments are highly liquid. The hedges could be sold or
transfered with the consent of the counterparty. 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

<PAGE>

106

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Interest Rate Hedge Agreements - Continued

agreements range in initial maturity from 3 to 5 years, principally because of
the high cost of hedging instruments with maturities greater than 5 years. As
of December 31, 1994, the average remaining term of these hedging agreements is
approximately 2.2 years. Because CRIIMI MAE's mortgage investments have fixed
interest rates, upon expiration of CRIIMI MAE's collar and cap agreements,
CRIIMI MAE will have interest rate risk to the extent interest rates increase on
its variable rate borrowings unless the hedges are replaced or other steps are
taken to mitigate this risk. The Adviser continues to review its debt and
asset/liability hedging techniques in order to minimize the impact of interest
rate risk.

12. 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 for
sale Debt Securities, Preferred Shares and Common Shares of CRIIMI MAE 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. On November 3, 1994, CRIIMI MAE sold 500,000 shares of common stock,
which were formerly held in treasury, under the shelf registration statement at
an offering price of $8.744 per share. Net offering proceeds of approximately
$4.3 million were invested in subordinated securities. On December 30, 1994, in
conjunction with the payment of CRIIMI MAE's fourth quarter dividend, 42,446
shares of common stock were issued under the dividend reinvestment plan at a
price of $6.6885 per share. Additionally, on January 13, 1995, CRIIMI MAE sold
625,000 shares of common stock under the shelf registration statement at an
offering price of $6.867 per share for net proceeds of approximately $4.2
million. CRIIMI MAE intends to use the proceeds from this sale of securities to
acquire additional mortgage investments, sponsor and/or participate in
securitized mortgage programs, and to make other investments and acquisitions
relating to CRIIMI MAE's mortgage business.

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107

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. Acquisition - AIM Funds Interest

Effective March 1, 1991, CRIIMI MAE entered into a Purchase Agreement dated
as of December 13, 1990 with Integrated and certain of its affiliates, and AIM
Acquisition Corporation to acquire certain of the interests of Integrated and
its affiliates in the AIM Funds sponsored by Integrated. On September 6, 1991,
CRIIMI, Inc. acquired all of the general partnership interests in the AIM Funds
for $23,342,591. In addition, CRIIMI MAE and CRI each invested $1,086,714 for
an aggregate 20% limited partnership interest in a limited partnership which
serves as the adviser to the AIM Funds. The remaining 80% of the adviser
partnership is owned by parties unrelated to CRIIMI MAE or CRI. The adviser
partnership entered into subadvisory agreements with an affiliate of CRI under
which such affiliate will perform certain services with respect to the mortgage
portfolios of the AIM Funds. For its investment, CRIIMI, Inc. will receive the
General Partner's share of income, loss and distributions (which ranges among
the AIM Funds from 2.9%-4.9%) from each fund and an affiliate of CRIIMI, Inc.
will receive certain expense reimbursements. CRIIMI MAE is guaranteed an annual
return on its investment in the adviser partnership, through the distributions
it receives indirectly from the adviser partnership and a right of offset
against amounts payable to its Adviser (see Note 3).

14. Settlement of Litigation

Based on the Adviser's initial estimate of the number of warrants to be
issued, CRIIMI MAE accrued a total provision of $1.5 million (which included the
uninsured portion of a cash payment of $250,000 made in connection with the
Settlement Agreement) in its consolidated statement of income for the year ended
December 31, 1993. Because the actual number of warrants issued pursuant to the
Settlement Agreement was significantly lower than the initial estimate, CRIIMI
MAE reduced this provision in June 1994 to approximately $950,000.
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108

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. Settlement of Litigation - Continued

The exercise of the warrants will not result in a charge to CRIIMI MAE's
tax basis income. Further, the Adviser believes that the exercise of the
warrants will not have a material adverse effect on CRIIMI MAE's tax basis
income per share or annualized cash dividends per share because CRIIMI MAE will
invest the proceeds from any exercise of the warrants in accordance with its
investment policy to purchase Government Insured Multifamily Mortgages or other
authorized investments. However, in the case of a significant decline in the
yield on mortgage investments and a significant decrease in the Net Positive
Spread which CRIIMI MAE could achieve on its borrowings, the exercise of the
warrants may have a dilutive effect on tax basis income per share and cash
dividends per share. Receipt of the proceeds from the exercise of the warrants
will increase CRIIMI MAE's shareholders' equity.

As of December 31, 1994, CRIIMI MAE was not involved in any pending or
threatened litigation, claims or assessments which would have a material
adverse impact on the financial statements.

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109

DIRECTORS AND EXECUTIVE OFFICERS

CRIIMI MAE
Name Position Principal Occupation
---------------------- --------------------- ---------------------------------------
<S> <C> <C>

William B. Dockser Chairman of the Board Chairman of the Board and Shareholder-
C.R.I., Inc.

H. William Willoughby Director, President President, Secretary, Director and
and Secretary Shareholder - C.R.I., Inc.

Garrett G. Carlson, Sr. Director Chairman of the Board-SCA Realty, Inc.;
President - Can American Realty
Corporation and Canadian Financial
Corporation

G. Richard Dunnells Director Partner - Holland & Knight

Robert F. Tardio Director Retired

Frederick J. Burchill Executive Vice President Senior Vice President - C.R.I., Inc.

Jay R. Cohen Executive Vice
President and Senior Vice President, Mortgages -
Treasurer C.R.I., Inc.

Cynthia O. Azzara Vice President and
Chief Financial Officer Vice President and Chief Financial Officer

</TABLE>

<PAGE>

110

The Annual Report to the Securities and Exchange Commission on Form 10-K is
available to Shareholders and may be obtained by writing:

Investor Services/CRIIMI MAE Inc.
C.R.I., Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852

CRIIMI MAE Inc. shares are traded on the New York Stock Exchange under the
symbol CMM.