CRIIMI MAE INC, 10-Q, 1996-05-15

CRIIMI MAE INC
10-Q, 1996-05-15
ASSET-BACKED SECURITIES

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<PAGE>1

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

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

For the quarter ended March 31, 1996
--------------

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

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

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

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

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

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

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

Class Outstanding as of May 15, 1996
- ---------------------------- --------------------------------
Common Stock, $.01 par value 30,407,024

<PAGE>2

CRIIMI MAE INC.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 1996

Page
----

PART I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets - as of March 31, 1996
(unaudited) and December 31, 1995 . . . . . . . 3

Consolidated Statements of Income - for the
three months ended March 31, 1996
and 1995 (unaudited) . . . . . . . . . . . . . 4

Consolidated Statement of Changes in
Shareholders' Equity - for the three months
ended March 31, 1996 (unaudited) . . . . . . . 5

Consolidated Statements of Cash Flows -
for the three months ended March 31, 1996
and 1995 (unaudited) . . . . . . . . . . . . . 6

Notes to Consolidated Financial Statements . . .
(unaudited) . . . . . . . . . . . . . . . . . . 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . 31

PART II. Other Information

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 41

Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 42

Signature . . . . . . . . . . . . . . . . . . . . . . . . 43

<PAGE>3

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE><CAPTION>
March 31, December 31,
1996 1995
-------------- --------------
(unaudited)
<S> <C> <C>
Assets:
Interest Bearing Investments
Mortgage security collateral, at
amortized cost $ 649,854,673 $ 674,289,774
Subordinated CMBS, at amortized cost 278,473,241 278,400,699
Mortgages, at fair value 73,599,448 132,823,515

Equity Investments 38,247,198 37,137,786

Other Assets
Assets acquired in Merger 26,703,962 27,425,483
Deferred costs 15,797,991 16,072,517
Receivables and other assets 17,972,290 20,575,725
Cash and cash equivalents 44,443,120 16,577,407
-------------- --------------
Total assets $1,145,091,923 $1,203,302,906
============== ==============

Liabilities:
Securitized Mortgage Obligations $ 621,218,760 $ 645,260,921
Repurchase Agreements - Subordinated CMBS 186,260,286 187,947,276
Bank Term Loans 20,577,880 21,227,880
Payables and accrued expenses 9,345,334 10,929,366
-------------- --------------
Total liabilities 837,402,260 865,365,443
-------------- --------------
Minority interests in
consolidated subsidiary 26,329,437 52,233,520
-------------- --------------
Commitments and contingencies

Shareholders' equity:
Preferred stock -- --
Common stock 309,356 309,356
Net unrealized gains on mortgage
investments 9,373,914 16,138,649
Additional paid-in capital 274,226,356 274,226,356
Undistributed Net Income 2,421,018 --
-------------- --------------
286,330,644 290,674,361

Less treasury stock, at cost-
528,594 shares (4,970,418) (4,970,418)
-------------- --------------
Total shareholders' equity 281,360,226 285,703,943
-------------- --------------
Total liabilities and shareholders'
equity $1,145,091,923 $1,203,302,906
============== ==============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.

<PAGE>4

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

For the three months ended
March 31,
1996 1995
------------ -------------
<S> <C> <C>
Income:
Mortgage investment income $ 14,770,146 $ 16,815,867
Income from investments in Subordinated
CMBS 8,193,709 1,351,917
Equity in earnings from investments 815,323 564,100
Other investment income 1,156,759 769,562
------------ ------------
24,935,937 19,501,446
------------ ------------
Expenses:
Interest expense 15,675,314 12,149,403
Fees to related party 171,116 862,259
General and administrative 1,250,506 1,169,153
Amortization of assets acquired in the Merger 721,521 --
------------ ------------
17,818,457 14,180,815
------------ ------------

Income before mortgage dispositions 7,117,480 5,320,631

Mortgage dispositions:
Gains 9,692,244 1,752,243
Losses (272,053) (184,897)
------------ ------------
Income before minority interests 16,537,671 6,887,977

Minority interests in net income of
consolidated subsidiary (4,994,546) (1,972,580)
------------ ------------
Net income $ 11,543,125 $ 4,915,397
============ ============
Per share data:
Net income per share $ 0.38 $ 0.19
============ ============
Weighted average shares outstanding,
exclusive of shares held in treasury 30,407,024 26,267,646
============ ============

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

<PAGE>5

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 1996
(Unaudited)

<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Gains on Additional Total
Par Mortgage Paid-in Undistributed Treasury Shareholders'
Value Investments Capital Net Income Stock Equity
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 309,356 $ 16,138,649 $ 274,226,356 $ -- $ (4,970,418) $285,703,943
Net income -- -- -- 11,543,125 -- 11,543,125
Dividends of $0.30 per weighted average share -- -- -- (9,122,107) -- (9,122,107)
Adjustment to net unrealized gains on
mortgage investments -- (6,764,735) -- -- -- (6,764,735)
------------ ------------- ------------- ------------- ------------ ------------
Balance, March 31, 1996 $ 309,356 $ 9,373,914 $ 274,226,356 $ 2,421,018 $ (4,970,418) $281,360,226
============ ============= ============= ============= ============ ============

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

<PAGE>6

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CRIIMI MAE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,543,125 $ 4,915,397
Adjustments to reconcile net income to net cash provided
by operating activities:
Amortization of discount and deferred financing
costs on debt 652,432 991,505
Amortization of assets acquired in the Merger 721,521 --
Depreciation and other amortization 224,404 137,867
Discount/Premium amortization on investments (534,524) (375,572)
Net gains on mortgage dispositions (9,420,191) (1,567,346)
Equity in earnings from investments (72,145) (29,881)
Valuation adjustment to hedges (148,189) --
Minority interests in earnings of consolidated subsidiary 4,994,546 1,972,580
Changes in assets and liabilities:
Decrease in receivables and other assets 2,460,465 747,044
(Decrease) increase in payables and accrued expenses (893,749) 42,764
Decrease in interest payable (565,228) (1,321,294)
----------- ------------
Net cash provided by operating activities 8,962,467 5,513,064
----------- ------------
Cash flows from investing activities:
Purchase of mortgages and advances on construction loans (115,816) (3,847,702)
Proceeds from mortgage dispositions 79,961,905 49,720,952
Receipt of principal payments 2,132,185 1,628,958
Decrease in (payment of) deferred costs 157,658 (480,296)
Servicing rights contributed to Services Partnership (1,558,017) --
Other investing activities 63,323 63,323
------------ -----------
Net cash provided by investing activities 80,641,238 47,085,235
------------ ------------
Cash flows from financing activities:
Proceeds from debt issuances 30,864,158 185,833,569
Principal payments on debt obligations (57,628,684) (200,296,722)
Increase in deferred financing costs (197,955) (74,862)
Dividends (including return of capital) paid to shareholders,
including minority interests (34,775,511) (28,937,693)
Proceeds from the issuance of common stock -- 4,495,740
------------ ------------
Net cash used in financing activities (61,737,992) (38,979,968)
------------ ------------
Net increase in cash and cash equivalents 27,865,713 13,618,331

Cash and cash equivalents, beginning of period 16,577,407 5,143,171
------------ ------------
Cash and cash equivalents, end of period $ 44,443,120 $ 18,761,502
============ ============

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

<PAGE>7

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

CRIIMI MAE Inc. (CRIIMI MAE), a full service commercial mortgage company
structured as a self-administered real estate investment trust (REIT), invests
in government insured and guaranteed mortgages secured by multifamily housing
complexes located throughout the United States (Government Insured Multifamily
Mortgages) and in uninsured mortgage and mortgage-related investments backed by
multifamily and other commercial mortgages, such as higher yielding, higher
risk, subordinated ownership interests in bonds issued in commercial mortgage
loan securitizations (Subordinated CMBS), using a combination of debt and
equity. In making investments in uninsured mortgage and mortgage-related
investments, such as Subordinated CMBS, CRIIMI MAE and its affiliates utilize
their extensive knowledge of multifamily and commercial real estate to perform
due diligence on the underlying collateral. CRIIMI MAE will generally make
investments of this type only when satisfactory arrangements exist whereby
CRIIMI MAE can proactively monitor the performance of the collateral and where
CRIIMI MAE has substantial foreclosure/modification rights with respect to the
underlying collateral. CRIIMI MAE's principal objectives are to provide
increasing dividends to its shareholders and to enhance the value of CRIIMI
MAE's common stock.

As a result of a shareholder-approved merger transaction (the Merger) with
certain mortgage businesses affiliated with C.R.I., Inc. (CRI) (the CRI Mortgage
Businesses) on June 30, 1995, CRIIMI MAE expanded its lines of business to
include mortgage advisory services, mortgage servicing and mortgage origination.
Through the Merger and as a result of employee additions, CRIIMI MAE has a team
of mortgage, real estate and financial professionals to take advantage of the
opportunities available for expanded investments in uninsured mortgage-related
products and services.

CRIIMI MAE owns 100% of CRIIMI MAE Financial Corporation, CRIIMI MAE
Financial Corporation II and CRIIMI MAE Financial Corporation III which are
wholly owned financing subsidiaries (discussed in Notes 5 and 9), 100% of CRIIMI
MAE Management, Inc. (CRIIMI Management) and approximately 57% of CRI
Liquidating REIT, Inc. (CRI Liquidating), a finite-life, self-liquidating REIT
which owns Government Insured Multifamily Mortgages. Additionally, CRIIMI,
Inc., a wholly owned subsidiary of CRIIMI MAE, owns all of the general
partnership interests in the American Insured Mortgage Investors Funds (the AIM
Funds). The AIM Funds own mortgage investments which are substantially similar
to the Government Insured Multifamily Mortgages 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 indirectly owns a limited partnership
interest in the adviser to the AIM Funds.

CRIIMI MAE has elected to qualify as a REIT for tax purposes. To qualify
for tax treatment as a REIT under the Internal Revenue Code, CRIIMI MAE must
meet certain income and asset tests. CRIIMI MAE closely monitors its
activities, its income and its assets so as to ensure that it maintains its
qualification as a REIT.

CRIIMI MAE intends to conduct its business so as not to become regulated as
an investment company under the Investment Company Act of 1940. The Investment
Company Act exempts entities that are "primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens on and interests in
real estate" (Qualifying Interests). Under current interpretation of the staff
of the Securities and Exchange Commission (SEC), in order to qualify for this
exemption, the Company must maintain at least 55% of its assets directly in
Qualifying Interests. CRIIMI MAE will closely monitor its compliance with this
requirement and intends to maintain its exempt status.

<PAGE>8

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Basis of Presentation

In management's opinion, the accompanying unaudited consolidated financial
statements of CRIIMI MAE, including CRI Liquidating, CRIIMI Management, CRIIMI
MAE Financial Corporation, CRIIMI MAE Financial Corporation II, CRIIMI MAE
Financial Corporation III and CRIIMI, Inc., contain all adjustments (consisting
of only normal recurring adjustments and consolidating adjustments) necessary to
present fairly the consolidated financial position of CRIIMI MAE as of March 31,
1996 and December 31, 1995 and the consolidated results of its operations and
its cash flows for the three months ended March 31, 1996 and 1995.

These unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the SEC. Certain information and note
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. While management believes that the disclosures presented are adequate
to make the information not misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes included in CRIIMI MAE's Annual Report filed on Form
10-K for the year ended December 31, 1995.

3. 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. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

Investments in Subordinated CMBS
--------------------------------
Income from investments in Subordinated CMBS is recognized based on
the effective interest method using the anticipated yield over the expected
life of these investments. CRIIMI MAE recognizes impairment on its
investments in Subordinated CMBS whenever it determines that the projected
yield is less than it had originally projected (or less than projected the
last time an impairment was recognized). Impairment losses are determined
by comparing the current fair value of a Subordinated CMBS to its existing
carrying amount, the difference being recognized as a loss in the current
period on the consolidated statement of income.

Reclassifications
-----------------
Certain amounts in the consolidated financial statements as of and for
the period ended March 31, 1995 have been reclassified to conform to the
1996 presentation.

Consolidated Statements of Cash Flows
-------------------------------------
Cash payments made for interest for the three months ended March 31,
1996 and 1995 were $15,588,110 and $12,479,192, respectively.

<PAGE>9

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Transactions with Related Parties

Below is a summary of the related party transactions which occurred during
the three months ended March 31, 1996, and 1995. These items are described
further in the text which follows:

<TABLE><CAPTION>
For the three months ended March 31,
1996 1995
-------------- -------------
<S> <C> <C>

PAYMENTS TO THE ADVISER:
- ------------------------
Annual fee - CRIIMI MAE (a)(b)(h) $ -- $ 732,385
Annual fee - CRI Liquidating (b) 171,116(g) 129,874(g)
Incentive fee - CRI Liquidating (f) 568,638 --
------------ -------------
Total $ 739,754 $ 862,259
============ =============
PAYMENTS TO CRI:
- ----------------
Expense reimbursement - CRIIMI MAE (c)(i) $ 228,516 $ 493,763
Expense reimbursement - CRI Liquidating (c)(j) -- 69,421
------------ -------------
Total $ 228,516 $ 563,184
============ =============

<PAGE>10

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Transactions with Related Parties - Continued

AMOUNTS RECEIVED OR ACCRUED FROM RELATED PARTIES:
CRIIMI, Inc.
- ------------------------------------------------
Income (d) $ 457,964 $ 456,678
Return of capital (e) 321,838 94,210
------------ -------------
Total $ 779,802 $ 550,888
============ =============

CRI/AIM Investment Limited Partnership $ 192,682(d) $ 175,000(d)(h)
============ =============
Expense Reimbursements to CRIIMI Management
- -------------------------------------------
CRI Liquidating and the AIM Funds (c)(j) $ 75,000 $ --
CRIIMI MAE Services Limited Partnership (c)(j) 425,000 --
------------ -------------
$ 500,000 $ --
============ =============
<FN>
(a) In connection with the Merger, effective June 30, 1995, CRIIMI MAE became a self-administered REIT, and as of that date is no
longer required to make payments to CRI Insured Mortgage Associates Adviser Limited Partnership (the Adviser).
(b) Included in the accompanying consolidated statements of income.
(c) Included as general and administrative expenses on the accompanying consolidated statements of income.
(d) Included as equity in earnings from investments on the accompanying consolidated statements of income.
(e) Included as a reduction of equity investments 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 the first quarter of 1996 and 1995, CRI Liquidating paid
deferred annual fees of $108,809 and $28,467, respectively. The amount paid for the three months ended March 31, 1996 included
deferred annual fees of $86,739 for the last three quarters of 1995.
(h) As of June 1, 1993, pursuant to the First Amendment to the CRI Insured Mortgage Association, Inc. advisory agreement (the
Advisory Agreement), CRI guaranteed that CRIIMI MAE would receive an annual distribution from CRI/AIM Investment Limited
Partnership of $700,000. CRIIMI MAE was granted the right to reduce the amounts paid to the Adviser by the difference between
the guaranteed $700,000 distribution and the amount actually paid to CRIIMI MAE by CRI/AIM Investment Limited Partnership. As
such, the amounts paid to the Adviser for the three months ended March 31, 1995 were reduced by $77,507, which represented the
difference between the guaranteed distribution for the three months ended March 31, 1995 and the amount actually paid to CRIIMI
MAE. This guarantee was terminated effective June 30, 1995 in connection with the transaction in which CRIIMI MAE became a
self-administered REIT.
(i) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred by the
Adviser on behalf of CRIIMI MAE. In connection with the Merger, on June 30, 1995, CRIIMI MAE was no longer required to
reimburse the Adviser, as these expenses are now directly incurred by CRIIMI MAE. However, pursuant to an agreement between
CRIIMI MAE and CRI (the CRI Administrative Services Agreement), CRI provides CRIIMI MAE with certain administrative and office
facility services and other services, at cost, with respect to certain aspects of CRIIMI MAE's business. CRIIMI MAE uses the
services provided under the CRI Administrative Services Agreement to the extent such services are not performed by CRIIMI
Management or provided by another service provider. The CRI Administrative Services Agreement is terminable on 30 days notice
at any time by CRIIMI MAE.
(j) Prior to CRIIMI MAE becoming a self-administered REIT, amounts were paid to CRI as reimbursement for expenses incurred by the
Adviser on behalf of CRI Liquidating and the AIM Funds. The transaction in which CRIIMI MAE became a self-administered REIT
had no impact on CRI Liquidating's or the AIM Funds' financial statements except that the expense reimbursements previously
paid to CRI, are, effective June 30, 1995, paid to CRIIMI Management. Additionally, effective June 30, 1995, CRIIMI Management
is reimbursed for its employees' time and expenses incurred on behalf of CRIIMI MAE Services Limited Partnership (the Services
Partnership).
</TABLE>

In addition to the above transactions, CRIIMI MAE entered into agreements
with CRI after June 30, 1995 to sublease approximately 22,400 square feet of
office space leased by CRI, at a total annual rent of approximately $450,000.
All increases in lease occupancy charges, including inflation adjustments and
expense reimbursements, will be passed through to CRIIMI MAE on a per square

<PAGE>11

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Transactions with Related Parties - Continued

foot basis. The term of the sublease runs concurrently with CRI's lease, which
expires on October 31, 1997. CRIIMI MAE may lease additional space, on an as-
needed, as- available basis. During the three months ended March 31, 1996,
CRIIMI MAE incurred rent charges of approximately $112,000, which is included in
general and administrative expenses on the accompanying consolidated statement
of income.

CRIIMI MAE has entered into a deferred compensation arrangement with
William B. Dockser and H. William Willoughby (collectively, the Principals) in
the aggregate amount of $5,002,183 pursuant to which CRIIMI MAE agreed to pay
each of the Principals for services performed in connection with structuring the
Merger. CRIIMI MAE's obligation to pay the deferred compensation is limited,
with certain exceptions, to the creation of an irrevocable grantor trust for the
benefit of the Principals and to the transfer to such trust of the right to
receive such deferred compensation (the Note Receivable) in the amount of
$5,002,183. The deferred compensation is fully vested and payable only to the
extent that CRI continues to make principal payments on the Note Receivable.
However, in the event of bankruptcy or a similar event affecting CRIIMI MAE, the
remaining trust corpus would revert back to CRIIMI MAE, and the Principals would
become unsecured creditors of CRIIMI MAE. Payments of principal and interest on
the Note Receivable and the deferred compensation are payable quarterly and
terminate in 10 years. Both the Note Receivable and the deferred compensation
obligation bear interest at the prime rate (8.25% as of March 31, 1996) plus 2%
per annum. During the three months ended March 31, 1996, CRIIMI MAE, through
CRIIMI Management, recognized interest income of approximately $123,000 on the
Note Receivable, which is included in other investment income on the
accompanying consolidated statement of income, and recognized interest expense
of approximately $123,000 on the deferred compensation obligation, which is
included in interest expense on the accompanying consolidated statement of
income. The deferred compensation obligation and the Note Receivable are
included in Payables and accrued expenses and Receivables and other assets,
respectively, on the accompanying consolidated balance sheets as of March 31,
1996 and December 31, 1995.

Since the Merger, through one of its affiliates, the Services Partnership,
CRIIMI MAE has increased its mortgage advisory and servicing activities in
conjunction with its purchases of Subordinated CMBS by acquiring servicing
rights for the mortgage loans collateralizing these investments. These
servicing rights allow CRIIMI MAE to proactively monitor the performance of its
investments in Subordinated CMBS and provide CRIIMI MAE with substantial
foreclosure/modification rights with respect to the underlying collateral. As
of May 1, 1996 and February 1, 1996, the Services Partnership provided a variety
of servicing functions on a mortgage portfolio of approximately $3.4 billion and
$2.7 billion, respectively. The servicing contracts are contributed to the
Services Partnership and increase CRIIMI MAE's interest in that partnership. As
of March 31, 1996, CRIIMI MAE held a 33% general partnership interest in the
Services Partnership. The Services Partnership provides mortgage servicing and
advisory services to third parties, CRIIMI MAE, certain affiliates of CRI and
the AIM Funds on a fee basis. CRIIMI MAE, through CRIIMI Management, manages
the Services Partnership as general partner.

<PAGE>12

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Mortgage Security Collateral and Mortgages

CRIIMI MAE's consolidated investment in mortgage security collateral and
mortgages is comprised of participation certificates evidencing a 100% undivided
interest in Government Insured Multifamily Mortgages issued or sold pursuant to
programs of the Federal Housing Administration (FHA) (FHA-Insured Loans), and
mortgage-backed securities guaranteed by the Government National Mortgage
Association (GNMA) (GNMA Mortgage-Backed Securities) and, to a lesser extent,
HUD-insured amortizing construction loans. Such construction loans are intended
to be converted to permanent, amortizing insured loans upon completion of
construction. Additionally, mortgage security collateral includes Federal Home
Loan Mortgage Corporation (Freddie Mac) participation certificates which are
collateralized by FHA-Insured Loans and GNMA Mortgage-Backed Securities, as
discussed below. As of March 31, 1996, 27% of CRIIMI MAE's investment in
mortgage security collateral and mortgages (including loans which collateralize
Freddie Mac participation certificates) were FHA-Insured Loans, 71% were GNMA
Mortgage-Backed securities and 2% were construction loans. FHA-Insured Loans,
GNMA Mortgage-Backed Securities and construction loans are collectively referred
to as mortgages herein. As of March 31, 1996, CRIIMI MAE had committed
approximately $788,000 for advances on FHA-Insured Loans relating to the
construction of nursing homes and intermediate care facilities (Government
Insured Construction Mortgages).

During the three months ended March 31, 1996, CRIIMI MAE funded advances of
approximately $116,000 on Government Insured Construction Mortgages with a
weighted average net effective interest rate of approximately 8.0%. These loans
are anticipated to convert to permanent loans over the next three months with a
maturity of 39 years.

Through its wholly owned subsidiaries and CRI Liquidating, CRIIMI MAE owns
the following mortgages directly and indirectly:

<PAGE>13

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Mortgage Security Collateral and Mortgages - Continued

As of March 31, 1996
-----------------------

Weighted
Average
Number of Carrying Fair Effective Weighted Average
Mortgages Value Value(a) Interest Rate Remaining Term
--------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 6 $ 18,301,318 $ 18,301,318 8.14% 36 years
CRIIMI MAE Financial Corporation 57 222,171,086 227,867,136 8.45% 33 years
CRIIMI MAE Financial Corporation II 59 251,623,438 249,326,746 7.19% 31 years
CRIIMI MAE Financial Corporation III(c) 42 176,060,149 177,988,132 8.22% 33 years
CRI Liquidating(b) 11 55,298,130 55,298,130 11.34% 26 years
--------- ------------ ------------
175 $723,454,121 $728,781,462
========= ============ ============

As of December 31, 1995
-------------------------

Weighted
Average
Number of Carrying Fair Effective Weighted Average
Mortgages Value Value(a) Interest Rate Remaining Term
--------- ------------ ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
CRIIMI MAE 6 $ 18,138,311 $ 18,138,311 8.16% 36 years
CRIIMI MAE Financial Corporation 57 222,533,271 227,923,719 8.45% 33 years
CRIIMI MAE Financial Corporation II 59 252,152,518 254,137,614 7.19% 31 years
CRIIMI MAE Financial Corporation III 46 199,603,985 203,080,637 8.36% 32 years
CRI Liquidating 22 114,685,204 114,685,204 10.67% 27 years
--------- ------------ ------------
190 $807,113,289 $817,965,485
========= ============ ============

</TABLE>

(a) The estimated fair values of CRIIMI MAE's Government Insured Multifamily
Mortgages are presented in accordance with generally accepted accounting
principles which define fair value as the amount at which a financial instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. These estimated fair values, however, do not
represent the liquidation value or the market value of CRIIMI MAE. The fair
value of the Government Insured Multifamily Mortgages is based on quoted market
prices.

(b) During the three months ended March 31, 1996, CRIIMI MAE, through its
subsidiary, CRI Liquidating, disposed of 11 Government Insured Multifamily
Mortgages which constituted approximately 52% of CRI Liquidating's December 31,
1995 tax basis portfolio balance. These 11 dispositions resulted in financial
statement gains of approximately $9.7 million and tax basis gains of
approximately $14.5 million.

<PAGE>14

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. Mortgage Security Collateral and Mortgages - Continued

(c) During the three months ended March 31, 1996, there were four prepayments
of Government Insured Multifamily Mortgages held by CRIIMI MAE Financial
Corporation III. These four prepayments generated net proceeds of approximately
$23 million and resulted in losses of approximately $272,000, which are included
in losses on mortgage dispositions on the accompanying consolidated statement of
income for the three months ended March 31, 1996. Additionally, during April
1996, one mortgage investment held by CRIIMI MAE Financial Corporation III was
prepaid. This prepayment does not have a material adverse impact on the
consolidated financial statements.

<PAGE>15

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS

In addition to investing in Government Insured Multifamily Mortgages, the
Board of Directors has authorized CRIIMI MAE to invest in other mortgage
investments which are not federally insured or guaranteed provided that certain
requirements are met, including specific equity requirements, based on
management's perceived level of risk of the investment.

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

<PAGE>16

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS - Continued

Face Current
Amount Pass-Through Weighted
Date as of 3/31/96 Rate Average
Pool Acquired (in millions) (as of 3/31/96) Remaining Life(1)
- ---- ------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mortgage Capital
Funding, Inc.
Series 1993-C1 Dec 1994 $ 19.7 8.6% 2 years
Series 1994-MC1 Jul-Dec 1994 34.4 8.6% 8 years
Series 1995-MC1 Aug 1995 33.2 9.6% 21 years

Nomura Asset Securities
Series 1994-C3 April-Aug 1995 25.1 11.75% 15 years

Structured Mortgage
Securities Corp.
Series 1995-M1 May 1995 15.2 9.0% 15 years

Asset Securitization Corp.
Series 1995-D1 Aug 1995 30.6 7.6% 20 years

Lehman Pass-Through
Securities Inc.
Series 1994-A Oct 1995 10.3 8.6% 9 years

LB Commercial Conduit
Series 1995-C2 Nov 1995 42.9 9.5% 15 years

DLJ Mortgage Acceptance
Corporation
Series 1995-CF2 Dec 1995 61.0 8.8% 13 years

Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C3 Dec 1995 90.1 8.5% 15 years
--------
Total $ 362.5
========

(1) Weighted average remaining life represents the weighted average expected life of the Subordinated CMBS prior to consideration
of losses, extensions or prepayments other than those factored in the assumed constant prepayment rate used in determining the March
31, 1996 fair value.
(2) Represents the original anticipated yield to maturity of the Subordinated CMBS, based on management's estimate of the timing
and amount of future credit losses and prepayments.
</TABLE>

<PAGE>17

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS - Continued

<TABLE>
<CAPTION>
Original Current
Amortized Amortized Anticipated Anticipated
Cost Cost Unlevered Unlevered
as of 3/31/96 as of 12/31/95 Yield to Yield to
Pool (in millions) (in millions) Maturity(2) Maturity
- ---- --------------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Mortgage Capital
Funding, Inc.
Series 1993-C1 $ 17.5 $ 17.4 13.0% 13.0%
Series 1994-MC1 22.1 22.1 14.1% 14.1%
Series 1995-MC1 25.5 25.6 12.2% 12.2%

Nomura Asset Securities
Series 1994-C3 22.0 22.0 12.3% 12.3%

Structured Mortgage
Securities Corp.
Series 1995-M1 9.8 9.8 12.9% 12.9%

Asset Securitization Corp.
Series 1995-D1 20.2 20.2 11.6% 11.6%

Lehman Pass-Through
Securities Inc.
Series 1994-A 6.1 6.1 13.4% 13.4%

LB Commercial Conduit
Series 1995-C2 35.5 35.5 11.2% 11.2%

DLJ Mortgage Acceptance
Corporation
Series 1995-CF2 50.8 50.7 11.0% 11.0%

Merrill Lynch Mortgage
Investors, Inc.
Series 1995-C3 69.0 69.0 11.1% 11.1%
---------- ----------
Total $ 278.5 $ 278.4
========== ==========

<PAGE>18

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS - Continued

In addition to the above investments, in early April 1996, CRIIMI MAE invested
an additional $48.2 million in Subordinated CMBS issued by Asset Securitization
Corp., Series 1996-D2, and anticipates investing an additional $9 million in
Subordinated CMBS within the next 30 days.

The aggregate investment by the underlying rating of the Subordinated CMBS is as
follows:

<PAGE>19

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS - Continued

</TABLE>
<TABLE>
<CAPTION>
Fair Value
Face Amount as as of Amortized Cost as of
of March 31, 1996 March 31, 1996(a) (in millions)
Security Rating (in millions) % (in millions) March 31, 1996 December 31, 1995
- --------------- ---------------- -------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
BBB Rated $ 4.0 1.1% $ 4.3 $ 4.0 $ 4.0

BB Rated (b) 173.1 47.8% 151.6 155.4 155.2

B Rated (b) 118.7 32.7% 89.7 91.9 91.7

Unrated 66.7 18.4% 26.8 27.2 27.5
-------- ------ --------- -------- ---------
Total $ 362.5 100.0% $ 272.4 $ 278.5 $ 278.4
======== ====== ========= ======== =========

</TABLE>

(a) The estimated fair values of Subordinated CMBS are based on quoted market
prices.

(b) In May 1996, Fitch Investor Services, one of the rating agencies for
Subordinated CMBS, announced that it had upgraded several of the Mortgage
Capital Funding, Inc. Series 1993-C1 tranches. As a result of the upgrade,
CRIIMI MAE's investment in the B rated tranche, with a face amount of $9.1
million and an amortized cost (at March 31, 1996) of $7.7 million, was
upgraded to BB rated and CRIIMI MAE's investment in the BB rated tranche,
with a face amount of $10.6 million and an amortized cost (at March 31,
1996) of $9.8 million, was upgraded to BBB rated.

CRIIMI MAE's investment in the lower rated and unrated tranches provides
credit support to the more senior bond classes of the related commercial
securitization. Cash flow from the underlying mortgages is allocated 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.

Based on the timing and amount of future credit losses and prepayments
estimated by management, the weighted average anticipated yield over the
expected average life for the investments in Subordinated CMBS as of March 31,
1996 is approximately 12%. The accounting treatment required under generally
accepted accounting principles requires that the income on Subordinated CMBS be
recorded on a level yield basis given the anticipated yield to maturity on these
investments. This currently results in income which is lower for financial
statement purposes than for tax purposes. CRIIMI MAE anticipates the leveraged
return on these investments will approximate 22% over the life of the
Subordinated CMBS. This return was determined based on the anticipated yield
over the expected weighted average life of the Subordinated CMBS, which
considers, among other things, anticipated losses, net of interest expense
attributable to the financing of the rated tranches at current interest rates

<PAGE>20

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Investment in Subordinated CMBS - Continued

and borrowing amounts.

Management's anticipated returns on its investments in Subordinated CMBS
are based upon a number of assumptions that are currently subject to certain
business and economic uncertainties and contingencies, including, without
limitation, the potential lack of a liquid secondary market for Subordinated
CMBS, prevailing interest rates on the current floating-rate debt financing,
renewal of the repurchase agreements (which provided financing toward the
purchase of the rated tranches of the Subordinated CMBS) at similar terms or the
availability of alternative financing, and the timing and magnitude of credit
losses on the underlying mortgages collateralizing the Subordinated CMBS that
are a result of the general condition of the real estate market, including
competition for tenants and changes in market rental rates. As these
uncertainties and contingencies are difficult to predict and are subject to
future events that may alter these assumptions, no assurance can be given that
the anticipated yields to maturity will be achieved.

In making these investments, CRIIMI MAE and its affiliates apply their
knowledge of multifamily and other commercial mortgages to perform due diligence
on the mortgage investments collateralizing the Subordinated CMBS. This
analysis may include reviewing, to the extent available, the operating records
of the underlying real estate assets, appraisals, environmental studies, market
studies and architectural and engineering studies, and where deemed necessary,
independently developing projected operating budgets. In addition, site visits
are conducted at a majority of the properties. Further, CRIIMI MAE will
generally make investments of this type only when satisfactory arrangements
exist whereby CRIIMI MAE can proactively monitor the performance of the
collateral and where CRIIMI MAE has substantial foreclosure/modification rights
with respect to the underlying collateral. CRIIMI MAE believes that all
transactions entered into to date have had such satisfactory arrangements.

The underlying mortgages collateralizing CRIIMI MAE's investment in
Subordinated CMBS (aggregate) as of May 1, 1996 are concentrated as follows:

Property Type Geographic
------------- ----------
Multifamily 52% Texas 20%
Retail 18% California 9%
Hotel 14% Florida 7%
Mobile Homes 6% Arizona 5%
Other 10% Michigan 5%
Other 54%(1)

(1) No other individual state makes up more than 5% of the total.

Investments in uninsured mortgage and mortgage-related investments, such as
Subordinated CMBS, are expected to represent a significant component of CRIIMI
MAE's new business activity for the foreseeable future. As described in Note 9,
upon closing on the purchase of the Subordinated CMBS, CRIIMI MAE entered into a
series of repurchase agreements which provided financing to purchase the rated
tranches of the Subordinated CMBS (the unrated tranches were purchased with
equity or available cash). As of March 31, 1996, on average, approximately 90%,
78% and 72% of the respective fair values of the BBB, BB and B rated tranches
were financed, resulting in aggregate borrowings of approximately $186.3
million. See Note 9 for a further discussion of these repurchase agreements.

<PAGE>21

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 three months ended March 31, 1996 and 1995 are as follows:

For the three months ended March 31,
1996 1995
------------ -----------
<S> <C> <C>
Consolidated financial statement
net income $ 11,543,125 $ 4,915,397

Adjustment due to accounting for subsidiary
as a pooling for financial statement
purposes and a purchase for tax purposes 2,673,771 4,460,425
Mortgage dispositions 146,737 11,518
Reamortization of investments in
Subordinated CMBS 373,020 119,634
Interest income - U.S. Treasuries 161,895 188,597
Interest expense - defeased notes (221,245) (269,406)
Interest expense - amortization of
deferred financing and debt issue costs (797,833) (514,110)
Equity in earnings from investments 184,751 32,945
Amortization of assets acquired in the Merger 721,521 --
Other (50,281) 2,935
------------ -----------
Tax basis income $ 14,735,461 $ 8,947,935
============ ===========

Tax basis income per share $ 0.48 $ 0.34
============ ===========

Weighted average number
of shares outstanding (for tax purposes) 30,407,024 26,350,979
============ ===========

</TABLE>

Differences in the financial statement net income and the tax basis income
principally relate to differences in the methods of accounting for the Merger,
investments in mortgage security collateral, mortgages and Subordinated CMBS,
long-term debt, deferred financing costs, U.S. Treasury Securities, partnership
investments and the merger of the CRIIMI Funds.

<PAGE>22

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Dividends to Shareholders

For the three months ended March 31, 1996, dividends of $0.30 per share
were paid to shareholders. These dividends, which include long-term capital
gains, are as follows:

Dividend Record Date
-------- ------------------
Quarter ended March 31, 1996 $ 0.30 March 18, 1996
========

CRIIMI MAE's principal objectives are to provide increasing dividends to
its shareholders and to enhance the value of CRIIMI MAE's common stock. Based
on 1996's first quarter results and assumptions described in CRIIMI MAE's
January 29, 1996 press release, management believes a quarterly dividend level
of at least $0.30 per share will be sustainable throughout 1996, as compared to
a quarterly dividend for the fourth quarter of 1995 of $0.235 per share.

The base dividend estimate for 1996 assumes that no losses on Subordinated
CMBS occur in 1996. However, such losses may occur in the event of defaults on
mortgage loans, although at this time no defaults resulting in losses are
anticipated. Additionally, no additional dispositions of CRIIMI MAE's
Government Insured Multifamily Mortgages (other than mortgage prepayments to-
date and dispositions of CRI Liquidating's mortgages) are assumed to occur in
1996. However, such dispositions may occur through additional prepayments, for
example, and could result in losses and a reduction in mortgage income.
Additionally, although CRIIMI MAE plans to issue additional equity during 1996,
for purposes of determining the 1996 base dividend estimate, no adjustment has
been made with respect to any equity raised in 1996.

The base dividend estimate also assumes that interest rates and CRIIMI
MAE's debt levels remain constant throughout 1996. Higher short-term interest
rates would increase borrowing costs on CRIIMI MAE's floating-rate debt.
However, such increased costs of funds would be limited due to CRIIMI MAE's
interest rate cap agreements, which hedge exposure on CRIIMI MAE's short-term,
floating-rate debt.

As discussed in Note 9, CRIIMI MAE financed a portion of its investments in
Subordinated CMBS with short-term, floating-rate debt. If the terms of certain
of this debt are not extended or alternative financing is unavailable, CRIIMI
MAE could be forced to sell assets at a loss to pay off such debt or, if such
assets were unavailable or inadequate to pay off the debt, there could be a
substantial impact on CRIIMI MAE. Management is actively exploring options to
refinance the majority of its short-term, floating-rate debt with long-term,
fixed-rate financing. Additionally, in order to provide additional financial
flexibility, in March 1996, CRIIMI MAE entered into a three-year, $200 million
master repurchase agreement to refinance existing and/or to finance additional
investments in lower rated Subordinated CMBS (see also Note 9).

<PAGE>23

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities

The following table summarizes CRIIMI MAE's debt outstanding as of
March 31, 1996 and December 31, 1995:

<TABLE>
<CAPTION>
Three Months ended March 31, 1996
-------------------------------------------------------------------------
Balance at Eff. rate Average Average Maturity
Type of Debt quarter end at qtr. end Balance Eff. Rate Date
- ------------ ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
FHLMC Funding Note (1) $239,054,636 7.4% $239,300,000 7.4% Sept 2031

FNMA Funding Note (2) 172,191,983 7.4% 187,700,000 7.4% March 2025

CMOs (3) 209,972,141 7.3% 210,100,000 7.3% Jan 2033

Repurchase Agreements -
Mortgages -- N/A -- N/A April 1996

Repurchase Agreements -
Subordinated CMBS 186,260,286 6.7% 187,700,000 6.6% April 1996 -

March 1999

Revolving Credit Facility -- N/A -- N/A N/A

Bank Term Loans 20,577,880 4.7%(4) 20,600,000 4.7%(4) April 1997-
Dec 1998

Working Capital Line of Credit -- N/A -- N/A May 1997
------------
Total $828,056,926
============

(1) As of March 31, 1996 and December 31, 1995, the face amount of the note was $248,307,899 and $248,821,009, respectively, with
unamortized discount of $9,253,263 and $9,335,538, respectively. During the three months ended March 31, 1996, discount
amortization of $82,275 was recorded as interest expense.

(2) As of March 31, 1996 and December 31, 1995, the face amount of the note was $174,960,197 and $198,394,480, respectively, with
unamortized discount of $2,768,214 and $2,893,104, respectively. During the three months ended March 31, 1996, discount
amortization of $124,890 was recorded as interest expense. Additionally, as a result of four mortgage prepayments, principal of
approximately $23 million was paid down during the three months ended March 31, 1996.

(3) As of March 31, 1996 and December 31, 1995, the face amount of the note was $215,411,240 and $215,766,328, respectively, with
unamortized discount of $5,439,099 and $5,492,254, respectively. During the three months ended March 31, 1996, discount
amortization of $53,155 was recorded as interest expense.

(4) The average effective interest rate as of March 31, 1996 and December 31, 1995 includes the impact of a rate reduction
agreement which was in place from July 1995 through March 1996, providing for a reduction in the rate on a portion of the loan based
on balances maintained at the bank.

</TABLE>

<PAGE>24

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities - Continued

<TABLE>
<CAPTION>
Year ended December 31, 1995
--------------------------------------------------------
Balance Eff. Rate Average Average
Type of Debt at year end at year end Balance Eff. Rate
- ------------ ----------- ------------ ------------ ---------
<S> <C> <C> <C>
FHLMC Funding Note (1) $239,485,471 7.4% $ 66,000,000 7.4%

FNMA Funding Note (2) 195,501,376 7.4% 8,700,000 7.4%

CMOs (3) 210,274,074 7.3% 47,300,000 7.3%

Repurchase Agreements -
Mortgages -- N/A 408,700,000 6.7%

Repurchase Agreements -
Subordinated CMBS 187,947,276 7.0% 56,500,000 7.3%

Revolving Credit Facility -- N/A 49,400,000 6.6%

Bank Term Loans 21,227,880 5.2%(4) 21,600,000 6.6%(4)

Working Capital Line of Credit -- N/A 400,000 6.6%
------------
Total $854,436,077
============
</TABLE>

<PAGE>25

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities - Continued

CRIIMI MAE's debt matures as follows:

1996 $180,226,972
1997 5,647,880
1998 3,250,000
1999 17,713,314
2000 --
Beyond 621,218,760
------------
Total $828,056,926
============

Securitized Mortgage Obligations
- --------------------------------
CRIIMI MAE, through three wholly owned financing subsidiaries, issued
approximately $664 million (face amount) of long-term, fixed-rate debt in order
to refinance short-term, floating-rate debt during the third and fourth quarters
of 1995. Changes in interest rates will have no impact on the cost of funds or
the collateral requirements on this debt. Proceeds from the issuance of this
long-term debt, net of original issue discount, were initially applied as
follows: $557 million was used to pay down short-term debt facilities,
approximately $8.0 million was used to pay transaction costs and approximately
$80 million was invested in Subordinated CMBS.

As discussed further in Note 5, the refinancings were completed through
three separate transactions. GNMA Mortgage-Backed Securities with a fair value
of approximately $249 million as of March 31, 1996 are pledged as security for a
funding note payable to Freddie Mac, (the FHLMC Funding Note). Collateralized
Mortgage Obligations (CMOs) are collateralized by FHA-Insured Loans and GNMA
Mortgage-Backed Securities with a fair value of approximately $228 million as of
March 31, 1996. GNMA Mortgage-Backed Securities with a fair value of
approximately $178 million as of March 31, 1996 are pledged as security for a
funding note payable to the Federal National Mortgage Association (the FNMA
Funding Note).

Each of the above-mentioned transactions has been accounted for as a
financing in accordance with Financial Accounting Standards Board Technical
Bulletin 85-2. The discount on the CMOs and the Funding Notes is being
amortized on a level yield basis. Transaction costs were capitalized and are
included in deferred costs on the accompanying consolidated balance sheets as of
March 31, 1996 and December 31, 1995.

Repurchase Agreements-Subordinated CMBS
- -----------------------------------------
As of March 31, 1996, CRIIMI MAE had financed through numerous repurchase
agreements, on average, 90%, 78% and 72% of the respective fair values of the
BBB, BB and B rated tranches of Subordinated CMBS. These agreements mature
between May 1996 and March 1997. The interest rates are generally based on the
one-month London Interbank Offered Rate (LIBOR), plus a spread ranging from 1.0%
to 1.5%. These repurchase agreements mature between May 1996 and March 1997.

On March 28, 1996, CRIIMI MAE entered into a three-year master repurchase
agreement with a lender to finance up to $200 million of investments in lower
rated Subordinated CMBS. Outstanding borrowings under this master repurchase
agreement are secured by the Subordinated CMBS financed and bear interest at
CRIIMI MAE's choice of one or three-month LIBOR, plus a spread of 1.5%. This
master repurchase agreement expires March 28, 1999. As of March 31, 1996,
borrowings of approximately $18 million were outstanding under this facility.

<PAGE>26

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities - Continued

The aforementioned repurchase agreements are secured, generally, by the
rated tranches with an aggregate fair value of approximately $246 million and
$260 million as of March 31, 1996 and December 31, 1995, respectively.

Repurchase Agreements-Mortgages and Revolving Credit Facility
- ---------------------------------------------------------------
Prior to the financings described above, CRIIMI MAE financed the purchase
of FHA-Insured Loans and GNMA Mortgage-Backed Securities through the use of two
separate master repurchase facilities with two separate lenders and a revolving
credit facility. The master repurchase facility with one lender and the
revolving credit facility were both terminated upon the completion of the 1995
refinancings described above. On April 1, 1996, a commitment of $300 million,
available under another master repurchase facility, expired in accordance with
its terms. CRIIMI MAE intends to renew this facility in an amount up to $100
million ($20 million committed and $80 million uncommitted) for a term of three
years.

Bank Term Loans
- ---------------
CRIIMI MAE has two reducing term loans (Bank Term Loans) with a lender. As
of May 1996 and December 31, 1995, Bank Term Loan I was secured by the value of
1,950,000 and 6,950,000 CRI Liquidating shares owned by CRIIMI MAE,
respectively, based on a requirement that collateral valued at 125% and 175% of
the outstanding balance, respectively, secure the loan. Interest is based on
CRIIMI MAE's choice of one, two or three-month LIBOR. Bank Term Loan I requires
a quarterly principal payment based on the greater of (i) the return of capital
portion of the dividend received by CRIIMI MAE on its CRI Liquidating shares
securing Bank Term Loan I or (ii) the amount necessary to bring Bank Term Loan I
to its scheduled outstanding balance at the end of such quarter. Any remaining
amounts outstanding are due by April 1, 1997.

In connection with the Merger, CRIIMI Management assumed certain debt of
the CRI Mortgage Businesses in the principal amount of $9,100,000 (Bank Term
Loan II). Bank Term Loan II is secured by certain cash flows generated by
CRIIMI MAE's direct and indirect interests in the AIM Funds and is guaranteed by
CRIIMI MAE. The loan requires quarterly principal payments of $650,000 and
matures on December 31, 1998. Interest on the loan is based on CRIIMI MAE's
choice of one, two or three-month LIBOR, plus a spread of 1.25%.

<PAGE>27

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities - Continued

Working Capital Line of Credit
- ------------------------------
In February 1995, CRIIMI MAE executed a $10 million working capital line of
credit with a lender, which originally was scheduled to mature May 31, 1996 and
was extended through May 31, 1997. Outstanding borrowings under the line of
credit are secured by shares of CRI Liquidating valued at approximately 125% of
any outstanding borrowings. No amounts were outstanding under the line of
credit as of March 31, 1996 or December 31, 1995.

Other Debt Related Information
- ------------------------------
In January 1996, CRIIMI MAE's management adopted and the Board of Directors
approved a change in its investment policy requiring, among other things,: (1) A
maximum overall debt-to-equity ratio of 5.0 to 1.0, (2) Maximum debt-to-equity
ratios for specific asset types based on management's perceived risk of those
investments and the related funding, and (3) Interest rate hedge agreements in a
notional amount of at least 75% of the outstanding floating-rate debt. This
policy will enable CRIIMI MAE to continue to utilize leverage in taking
advantage of investment opportunities in the marketplace while directing and
monitoring how CRIIMI MAE funds these investments.

As previously stated, changes in interest rates will have no impact on the
cost of funds or the collateral requirements on CRIIMI MAE's fixed-rate debt,
which approximates 73% of CRIIMI MAE's current consolidated debt. Fluctuations
in interest rates will continue to impact the value on that portion of CRIIMI
MAE's investments which are not match-funded and could impact potential returns
to shareholders through increased cost of funds on the floating-rate debt in
place. The flexibility in CRIIMI MAE's leverage is dependent upon, among other
things, the levels of unencumbered assets, which are inherently linked to
prevailing interest rates and changes in the credit of the underlying asset. In
certain circumstances, including, among other things, increases in interest
rates or decreases in credit quality of the underlying asset, CRIIMI MAE would
be required to provide additional collateral in connection with its short-term,
floating-rate borrowing facilities. If CRIIMI MAE did not have adequate
collateral to meet these requirements, it could be forced to sell assets to pay
down such debt. However, CRIIMI MAE had adequate unencumbered assets to meet
its operating, investing and financing requirements for the three months ended
March 31, 1996 and 1995, and management continually monitors the levels of
unencumbered collateral.

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 a number of variables, including changes in interest rates. As
discussed above, in March 1996, CRIIMI MAE entered into a three-year master
repurchase agreement to finance investments in Subordinated CMBS. Management
intends to utilize this facility to replace a portion of existing floating-rate
debt on Subordinated CMBS which is scheduled to mature over the next 12 months
and/or to finance additional investments in lower rated Subordinated CMBS.
Additionally, management is exploring options to refinance the majority of its
short term, floating-rate debt with long-term, fixed-rate financing. Management
continuously monitors CRIIMI MAE's overall financing and hedging strategy in an
effort to ensure that CRIIMI MAE is making optimal use of its borrowing ability
based on market conditions and opportunities.

For the three months ended March 31, 1996, the weighted average cost of
borrowing on all of CRIIMI MAE's borrowings, including amortization of discounts
and deferred financing fees of approximately $650,000 was approximately 7.4%.

<PAGE>28

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Obligations under Financing Facilities - Continued

As of March 31, 1996, CRIIMI MAE's debt-to-equity ratio was approximately 2.9 to
1.0. Under certain of CRIIMI MAE's existing debt facilities, CRIIMI MAE's debt-
to-equity ratio, as defined, may not exceed 5.0 to 1.0.

10. Interest Rate Hedge Agreements

CRIIMI MAE has entered into interest rate hedging agreements to partially
limit the adverse effects of rising interest rates on its floating-rate
borrowings. Interest rate caps provide protection to CRIIMI MAE to the extent
interest rates, based on a readily determinable interest rate index, increase
above the stated interest rate cap, in which case, CRIIMI MAE will receive
payments based on the difference between the index and the cap. The following
hedge agreements were in place at March 31, 1996:

<PAGE>29

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Interest Rate Hedge Agreements - Continued

Notional
Amount Effective Date Maturity Date(c) Cap Index
- ------------ -------------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
$ 50,000,000 June 25, 1993 June 25, 1998 6.5000% 3M LIBOR
50,000,000 July 20, 1993 July 20, 1998 6.2500% 3M LIBOR
35,000,000(a) February 2, 1994 February 2, 1999 6.1250% 1M LIBOR
50,000,000(a) March 25, 1994 March 25, 1998 6.5000% 3M LIBOR
50,000,000 August 27, 1993 August 27, 1997 6.1250% 3M LIBOR
- ------------
$235,000,000(b)
==============
<FN>
(a) Approximately $1.7 million of costs were incurred during 1994 in connection with the purchase of interest rate hedge
agreements. These costs are being amortized using the effective interest method over the term of the interest rate hedge
agreements for financial statement purposes and in accordance with the regulations under Internal Revenue Code Section 446 with
respect to notional principal contracts for tax purposes. No new hedge agreements were entered into during the three months
ended March 31, 1996 and 1995.
(b) CRIIMI MAE's designated interest rate hedge agreements hedge CRIIMI MAE's floating-rate borrowing costs. As of March 31, 1996,
total borrowings of approximately $206.8 million are hedged by the interest rate hedge agreements. CRIIMI MAE expects the
balance of its floating-rate debt to increase in line with the balance of its interest rate caps treated as hedge agreements.
(c) The weighted average remaining term for these interest rate cap agreements is approximately 2 years.
</FN>
</TABLE>

In addition to the above interest rate cap agreements which are treated as
hedges against rising interest rates, CRIIMI MAE holds the following additional
interest rate caps:

<PAGE>30

CRIIMI MAE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Interest Rate Hedge Agreements - Continued

Notional
Amount Effective Date Maturity Date Cap Index
- ------------ -------------------- ----------------- ------ -------
<S> <C> <C> <C> <C>
$ 50,000,000 November 10, 1993 November 10, 1997 6.0000% 3M LIBOR
50,000,000 August 10, 1993 August 10, 1997 6.0000% 3M LIBOR
25,000,000 May 24, 1991 May 24, 1996 9.0000% CP
25,000,000 June 17, 1991 June 17, 1996 8.4500% CP
50,000,000 July 1, 1993 June 3, 1996 6.5000% 3M LIBOR
2,812,500(a) March 31, 1993 December 31, 1996 10.500% 3M LIBOR
- ------------
$202,812,500(b)
============
<FN>
(a) The notional amount of this hedge amortizes based on the expected pay down schedule of Bank Term Loan I.
(b) Due to the refinancings completed during 1995, these interest rate cap agreements are no longer needed to hedge interest rate
changes. These agreements are accounted for at fair value. Management expects to hold these caps and continue to account for them
at fair value until their expiration dates, or until such time as they are needed to hedge against increases in interest rates on
additional floating-rate debt.
</FN>
</TABLE>

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

11. Litigation

In June 1995, Edge Partners, L.P. filed a complaint in the United States
District Court for the District of Maryland against CRIIMI MAE's directors. The
complaint purported to be a derivative action on behalf of CRIIMI MAE and
alleged breach of fiduciary duty by the directors and a misleading proxy
statement in connection with the Merger. The plaintiff sought unspecified
damages, a determination that the shareholder vote in favor of the Merger should
be set aside and other relief.

The defendants filed a motion to dismiss and on December 18, 1995, the case
was dismissed with leave to refile within 30 days of receipt of a transcript of
the order. The plaintiff refiled a complaint in February 1996. The revised
complaint is a class-action suit, alleging breach of fiduciary duty by the
directors and solicitation by a misleading proxy statement in connection with
the Merger. Motions to dismiss have been filed by all the defendants.
Management believes the suit is without merit and does not expect the case to
have a material adverse financial impact on CRIIMI MAE.

<PAGE>31

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

Introduction and Business Strategy
- ----------------------------------

General
- -------
CRIIMI MAE Inc. (CRIIMI MAE), a full service commercial mortgage company
structured as a self-administered real estate investment trust (REIT), uses a
combination of debt and equity to invest in government insured and guaranteed
mortgages secured by multifamily housing complexes located throughout the United
States (Government Insured Multifamily Mortgages) and in uninsured mortgage and
mortgage-related investments backed by multifamily and other commercial
mortgages, such as higher yielding, higher risk, subordinated ownership
interests in bonds issued in commercial loan securitizations (Subordinated
CMBS). In making investments in uninsured mortgage and mortgage-related
investments such as Subordinated CMBS, CRIIMI MAE and its affiliates utilize
their extensive knowledge of multifamily and commercial real estate to perform
due diligence on the underlying collateral. CRIIMI MAE will generally make
investments of this type only when satisfactory arrangements exist whereby
CRIIMI MAE can proactively monitor the performance of the collateral and where
CRIIMI MAE has substantial foreclosure/modification rights with respect to the
underlying collateral. CRIIMI MAE's principal objectives are to provide
increasing dividends to its shareholders and to enhance the value of CRIIMI
MAE's common stock.

Since the Merger, through one of its affiliates, CRIIMI MAE Services
Limited Partnership (the Services Partnership), CRIIMI MAE has increased its
mortgage advisory and servicing activities in conjunction with its purchases of
Subordinated CMBS by acquiring servicing rights for the mortgage loans
collateralizing these investments. These servicing rights allow CRIIMI MAE to
proactively monitor the performance of its investments in Subordinated CMBS and
the underlying assets and provide CRIIMI MAE with substantial
foreclosure/modification rights with respect to the underlying collateral. As
of May 1, 1996 and February 1, 1996, the Services Partnership provided a variety
of servicing functions on a mortgage portfolio of approximately $3.4 billion and
$2.7 billion, respectively.

During the second half of 1995, CRIIMI MAE refinanced (through three
separate transactions) a significant portion of its floating-rate debt with
match-funded, fixed-rate debt that resulted in a better matching of the
maturities of the assets financed and the related liabilities and largely
reduced the impact of short-term interest rate fluctuations on earnings. In
addition to reducing floating-rate debt, the refinancings provided CRIIMI MAE
with additional net proceeds of approximately $80 million which, as of May 1996,
were used primarily for investments in Subordinated CMBS. As of May 15, 1996,
approximately 73% of CRIIMI MAE's total consolidated debt had long-term, fixed-
rates and 27% had short-term, floating rates. The floating-rate debt is
currently hedged with interest rate caps. As previously discussed, management
continues to explore options to refinance the majority of its floating-rate
debt.

<PAGE>32

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

Change in Investment Policy
- ---------------------------
In order to help CRIIMI MAE increase its income and stabilize earnings, and
to allow it to take advantage of current opportunities in the marketplace,
particularly with respect to uninsured mortgage and mortgage-related
investments, the Board of Directors adopted a new investment policy in January
1996. This policy is designed to monitor and direct how CRIIMI MAE funds its
investments in order to try to minimize the risk of loss by evaluating the
perceived levels of risk associated with various investment types. The policy
is also designed to permit a broad range of types of investments by CRIIMI MAE.

The policy states that CRIIMI MAE may invest in government insured or
uninsured assets backed by multifamily and other commercial mortgages. However,
the majority of investments must remain, on an overall basis, in mortgages and
mortgage-related assets backed by multifamily housing.

Specific investment limitations include:

o CRIIMI MAE's overall debt-to-equity ratio may not exceed 5.0 to 1.0.

o Certain specific asset types will have maximum debt-to-equity ratios.

o At least 75% of CRIIMI MAE's floating-rate debt must be hedged.

As of March 31, 1996, CRIIMI MAE's overall debt-to-equity ratio was
approximately 2.9 to 1.0 and all of its floating rate debt was hedged. Total
assets approximated $1.1 billion, 79% of which was invested in mortgages and
mortgage-related assets backed by multifamily housing.

1996 Strategies
- ---------------
For 1996 and beyond, CRIIMI MAE's business strategies are designed to
increase recurring earnings. Management believes the development of CRIIMI MAE
into a full-service commercial mortgage company during 1995 -- with mortgage
servicing and loan origination capabilities -- has strengthened CRIIMI MAE's
ability to keep growing.

Specific strategies for 1996 are summarized below:

o Raise additional equity capital, and invest the proceeds primarily in
uninsured assets, including Subordinated CMBS.

o Begin originating uninsured multifamily and commercial mortgages -- a
process that is underway.

o Begin assembling loan pools for securitization, using mortgages CRIIMI
MAE originates and/or acquires. CRIIMI MAE anticipates retaining the
subordinate bond tranches backed by these pools and servicing the
underlying loans. The senior bonds would be placed with other
investors.

o Build CRIIMI MAE's servicing business as it originates, acquires, and
securitizes assets. As discussed above, the Services Partnership's
mortgage servicing portfolio has increased from $2.7 billion as of
February 1, 1996 to $3.4 billion as of May 1, 1996.

o Continue to explore alternatives to replace short-term, floating-rate
debt with longer-term financing. As discussed in Note 9 of the notes
to the consolidated financial statements, in March 1996 CRIIMI MAE
entered into a three- year master repurchase agreement which will be

<PAGE>33

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

used to replace a portion of existing floating-rate debt on
Subordinated CMBS which is scheduled to mature in the next 12 months
and/or to finance additional investments in lower rated Subordinated
CMBS. Additionally, management continues to explore options to
refinance the majority of its short-term, floating-rate debt with
long-term, fixed-rate financing.

CRIIMI MAE's management believes that continued growth in income from
uninsured mortgage and mortgage-related investments, such as Subordinated CMBS,
net of related interest expense, as well as growth from its other lines of
business - mortgage origination and mortgage servicing - will increase the tax
basis income and financial statement net income even though the contribution of
its subsidiary, CRI Liquidating REIT, Inc. (CRI Liquidating) (as discussed
further below) will terminate after 1997 in accordance with CRI Liquidating's
business plan. This growth in income is based on CRIIMI MAE's business
strategies, as previously discussed. As future events may alter these
assumptions, no assurance can be given that the business plan results will be
achieved.

Results of Operations
- ---------------------
1996 versus 1995
- ----------------
Tax Basis Income
----------------
CRIIMI MAE earned approximately $14.7 million in tax basis income during
the three months ended March 31, 1996 as compared to approximately $8.9 million
during the corresponding period in 1995. On a per share basis, tax basis income
increased to $0.48 per weighted average share for the three months ended March
31, 1996 from $0.34 for the corresponding period in 1995. Ordinary income
increased from approximately $3.6 million for the three months ended March 31,
1995 to approximately $6.6 million for the corresponding period in 1996,
representing an increase from $0.14 per weighted average share for the three
months ended March 31, 1995 to $0.22 per weighted average share for the
corresponding period in 1996. Net capital gains increased from approximately
$5.3 million for the three months ended March 31, 1995 to approximately $8.2
million for the corresponding period in 1996. On a per share basis, net capital
gains increased from $0.20 per weighted average share for the three months ended
March 31, 1995 to $0.26 per weighted average share for the corresponding period
in 1996.

The primary factors resulting in the increase in tax basis income were as
follows: Recurring income increased as a result of additional investments in
Subordinated CMBS made during 1995. The increase in net capital gains was
primarily attributable to an increase in net gains from the disposition of CRI
Liquidating's assets which were made in this year's lower long-term interest
rate environment, as discussed further below. Also contributing to the increase
in tax basis income were increases in equity in earnings from investments and
other investment income as a result of the mortgage servicing and advisory
revenue streams acquired in the Merger during 1995 (as well as in connection
with additional investments in Subordinated CMBS) and an increase in short-term
investment income. Partially offsetting these increases in tax basis income was
an increase in interest expense as a result of additional amounts borrowed under
debt facilities to acquire Subordinated CMBS, as well as the higher rate on the
long-term, fixed-rate debt. Annual and incentive fees paid to CRIIMI MAE's
Adviser decreased as a result of the termination of the CRIIMI MAE advisory
agreement in connection with the Merger. The decrease in CRIIMI MAE's annual and
incentive fees was partially offset by an increase in general and administrative
expenses as a result of the Merger and CRIIMI MAE's growth during 1995. The
non-cash purchase accounting amortization expense described below does not

<PAGE>34

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

impact tax basis income.

Financial Statement Net Income
------------------------------
Net income for financial statement purposes was approximately $11.5 million
for the three months ended March 31, 1996, a 135% increase from approximately
$4.9 million for the corresponding period in 1995. On a per share basis,
financial statement net income increased to $0.38 per weighted average share for
the three months ended March 31, 1996 from $0.19 for the corresponding period in
1995. Net income for financial statement purposes increased primarily for the
same reasons as tax basis income: Greater recurring earnings from additional
investments in Subordinated CMBS during 1995 and higher net capital gains
primarily resulting from the disposition of CRI Liquidating's assets, which were
made in this year's lower long-term interest rate environment. Partially
offsetting these increases to net income, but not affecting tax basis income,
was the non-cash amortization of assets acquired in the Merger. Descriptions of
the changes in financial statement net income are discussed below.

Mortgage Investment Income
- --------------------------
Mortgage investment income decreased by approximately $2.0 million or 12%
to $14.8 million for the three months ended March 31, 1996 as compared to $16.8
million for the corresponding period in 1995. This decrease was primarily the
result of the reduction in CRI Liquidating's asset base during 1995 and 1996.

On a consolidated basis, as of March 31, 1996 and December 31, 1995, CRIIMI
MAE or its subsidiaries owned, directly or indirectly, 175 and 190 Government
Insured Multifamily Mortgages and construction loans, respectively. As of March
31, 1996, these investments had a weighted average net effective interest rate
of approximately 8.09%, a weighted average remaining term of approximately 32
years and an aggregate fair value of approximately $729 million. These amounts
compare to a weighted average net effective interest rate of approximately
8.26%, a weighted average remaining term of approximately 31 years and an
aggregate fair value of approximately $818 million as of December 31, 1995. As
of March 31, 1996, CRIIMI MAE had committed approximately $788,000 for advances
on construction loans.

While CRIIMI MAE and its financing subsidiaries do not intend to sell any
of their mortgage investments, CRI Liquidating's business plan calls for an
orderly liquidation of its portfolio by the end of 1997. In accordance with CRI
Liquidating's business plan, in January 1996, 11 mortgages were disposed of
generating net proceeds of approximately $57 million, representing approximately
52% of the December 31, 1995 tax basis portfolio balance. The remaining
portfolio is expected to be disposed of through sales during 1997 or prepayments
or other dispositions during the remainder of 1996 and 1997.

In addition, during the three months ended March 31, 1996, there were four
prepayments of Government Insured Multifamily Mortgages held by CRIIMI MAE
Financial Corporation III. The four prepayments generated net proceeds of
approximately $23 million and resulted in losses of approximately $272,000 which
are included in losses on mortgage dispositions on the accompanying consolidated
statement of income for the three months ended March 31, 1996. Additionally,
during April 1996, one mortgage investment held by CRIIMI MAE Financial
Corporation III was prepaid. This prepayment does not have a material adverse
impact on the consolidated financial statements.

Income from Investments in Subordinated CMBS
- --------------------------------------------
Income from investments in Subordinated CMBS increased by approximately
$6.8 million to $8.2 million for the three months ended March 31, 1996 as

<PAGE>35

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

compared to $1.4 million for the corresponding period in 1995. This increase
was a result of the acquisition of Subordinated CMBS at purchase prices
aggregating approximately $239 million during the last three quarters of 1995.

In January 1996, CRIIMI MAE's Board of Directors authorized CRIIMI MAE to
invest in other mortgage investments which are not federally insured or
guaranteed provided that specific funding requirements are met based on
management's perceived level of risk of the investment. CRIIMI MAE has reviewed
opportunities for investment in other real estate securities which complement
CRIIMI MAE's existing holdings and in the current investment climate, CRIIMI
MAE's management believes that investments in uninsured mortgages and mortgage-
related investments, such as higher yielding, higher risk Subordinated CMBS,
represent attractive investment opportunities and, as such, are expected to
represent a significant component of CRIIMI MAE's new business activity for the
foreseeable future.

Based on the timing and amount of future credit losses and prepayments
estimated by management, the anticipated yield over the expected weighted
average life for the investments in Subordinated CMBS, as of March 31, 1996, is
approximately 12%. The accounting treatment required under generally accepted
accounting principles requires that the income on Subordinated CMBS be recorded
on a level yield basis given the anticipated yield on these investments. This
currently results in income which is lower for financial statement purposes than
for tax purposes. The leveraged tax basis return on the Subordinated CMBS is
expected to approximate 23% for 1996. This return was determined based on cash
basis interest income, no defaults or unrecoverable losses, net of interest
expense attributable to the financing of the rated tranches at current interest
rates and borrowing amounts and adjusted for amortization of original issue
discount related to the Subordinated CMBS. CRIIMI MAE anticipates the leveraged
return on these investments for financial statement purposes will approximate
22% over the life of the Subordinated CMBS. This return was determined based on
the anticipated yield over the expected weighted average life of the
Subordinated CMBS, which considers, among other things, anticipated losses, net
of interest expense attributable to the financing of the rated tranches at
current interest rates and borrowing amounts.

Management's anticipated returns on the Subordinated CMBS are based upon a
number of assumptions that are currently subject to certain business and
economic uncertainties and contingencies, including, without limitation, the
potential lack of a liquid secondary market for Subordinated CMBS, prevailing
interest rates on the current floating-rate debt financing, renewal of the
repurchase agreements (which provided financing toward the purchase of the rated
tranches of the Subordinated CMBS) at similar terms or the availability of
alternative financing, and the timing and magnitude of credit losses on the
underlying mortgages collateralizing the Subordinated CMBS that are a result of
the general condition of the real estate market, including competition for
tenants and changes in market rental rates. As these uncertainties and
contingencies are difficult to predict and are subject to future events that may
alter these assumptions, no assurance can be given that the anticipated yields
will be achieved.

In making investments in Subordinated CMBS, CRIIMI MAE and its affiliates
apply their knowledge of multifamily and other commercial mortgages to perform
due diligence on the mortgage investments collateralizing the Subordinated CMBS.
This analysis may include reviewing the operating records of the underlying real
estate assets, appraisals, environmental studies, market studies and
architectural and engineering studies, and where deemed necessary, independently
developing projected operating budgets. In addition, site visits are conducted
at a substantial portion of the properties. Further, CRIIMI MAE will generally
make investments of this type only when satisfactory arrangements exist whereby

<PAGE>36

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

CRIIMI MAE can closely monitor the collateral of the pool and where CRIIMI MAE
has substantial foreclosure/modification rights with respect to the underlying
collateral. CRIIMI MAE believes that all transactions entered into to date have
had such satisfactory arrangements.

In April 1996, CRIIMI MAE invested an additional $48.2 million in
Subordinated CMBS and anticipates investing an additional $9 million in
Subordinated CMBS in the next 30 days.

Equity in Earnings from Investments
- -----------------------------------
Equity in earnings from investments increased by approximately $251,000 or
45% to approximately $815,000 for the three months ended March 31, 1996 as
compared to approximately $564,000 for the corresponding period in 1995
primarily due to increases in earnings from the Services Partnership and CRIIMI
MAE Services, Inc. as a result of additional revenue streams acquired in the
Merger as well as servicing fees earned in connection with investments in
Subordinated CMBS.

Other Investment Income
- -----------------------
Other investment income increased by approximately $387,000 or 50% to $1.2
million for the three months ended March 31, 1996 as compared to approximately
$770,000 for the corresponding period in 1995. This increase was primarily
attributable to income earned from the short term investment of CRI
Liquidating's mortgage disposition proceeds received in January 1996 pending the
distribution to shareholders on March 29, 1996. Also contributing to this
increase was the recognition of interest income on the note receivable from CRI
which was acquired by CRIIMI MAE in connection with the Merger.

Interest Expense
- ----------------
Interest expense increased by approximately $3.5 million or 29% to
approximately $15.7 million for the three months ended March 31, 1996 from
approximately $12.1 million for the corresponding period in 1995. This increase
was principally a result of additional amounts borrowed in connection with the
acquisition of Subordinated CMBS during 1995 and the higher rate on the long-
term, fixed-rate financings. Partially offsetting these increases was a
decrease in interest expense as a result of the expiration of CRIIMI MAE's
interest rate collars during the first and third quarters of 1995.

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

Total fees to related party decreased by approximately $691,000 or 80% to
approximately $171,000 for the three months ended March 31, 1996 from
approximately $862,000 for the corresponding period in 1995 primarily as a
result of the termination of CRIIMI MAE's advisory agreement in connection with
the Merger. Contributing to the decrease in fees to related party was a
reduction in the annual fees payable by CRI Liquidating resulting from its
reduced asset base during 1995 and 1996. Partially offsetting the decrease in
the annual fee was the payment by CRI Liquidating in 1996 of approximately
$87,000 of deferred annual fees related to the last three quarters of 1995 as a

<PAGE>37

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

result of achieving certain specified performance goals.

General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased by approximately $81,000 or
7% to $1.3 million for the three months ended March 31, 1996 as compared to
approximately $1.2 million for the corresponding period in 1995. This increase
was primarily due to increases in payroll and related costs, rent and
professional fees as a result of the Merger and the increasing size of CRIIMI
MAE's operations. Partially offsetting these increases was a decrease in
mortgage servicing fees as a result of the reduction in CRI Liquidating's
mortgage base, as discussed above.

Amortization of Assets Acquired in the Merger
- ---------------------------------------------
In connection with the Merger, CRIIMI MAE acquired certain assets, $28.9
million of which are being amortized using the straight line method over 10
years beginning June 30, 1995. Since the Merger was accounted for under the
purchase method of accounting, which resulted in recording the purchased assets
at fair value, there are significant non-cash amortization expenses related to
these assets. As a result, amortization of assets acquired in the Merger was
approximately $722,000 during the three months ended March 31, 1996.

Gains/Losses on Mortgage Dispositions
- -------------------------------------
Net gains on mortgage dispositions increased by approximately $7.9 million
or 501% to approximately $9.4 million for the three months ended March 31, 1996
from approximately $1.6 million for the corresponding period in 1995. Gains or
losses on mortgage dispositions are based on the number, carrying amounts and
proceeds of mortgage investments disposed of during the period. The proceeds
realized from the disposition of a mortgage investment are based on the net
coupon rates of the specific mortgage investments disposed of in relation to
prevailing long-term interest rates at the date of disposition. During the
three months ended March 31, 1996, 11 CRI Liquidating mortgage investments, with
a weighted average net coupon rate of approximately 8.2%, were disposed of
resulting in financial statement gains of approximately $9.7 million and tax
basis gains of approximately $14.5 million. This compares to the disposition of
21 CRI Liquidating mortgage investments with a weighted average net coupon rate
of approximately 7.1% during the corresponding period in 1995, that generated
net financial statement gains of approximately $1.6 million and tax basis gains
of approximately $9.5 million. These increases were partially offset by four
prepayments of CRIIMI MAE Financial Corporation III mortgage investments during
the three months ended March 31, 1996, which resulted in financial statement
losses of approximately $272,000 and tax basis losses of approximately $125,000.

Cash Flow
- ---------
1996 versus 1995
- ----------------
Net cash provided by operating activities increased for the three months
ended March 31, 1996 as compared to the corresponding period in 1995 primarily
due to the increase in net income, as previously discussed. Also contributing
to the increase in net cash provided by operating activities was the receipt
during the first quarter of 1996 of approximately $2.2 million, representing
assignment proceeds from the United States Department of Housing and Urban
Development related to the 1995 disposition of the defaulted mortgage on Guinn
Nursing Home.

Net cash provided by investing activities increased for the three months
ended March 31, 1996 as compared to the corresponding period in 1995 primarily

<PAGE>38

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

as a result of an increase in net proceeds from mortgage dispositions, as
previously discussed.

Net cash used in financing activities increased for the three months ended
March 31, 1996 as compared to the corresponding period in 1995 primarily due to
an increase in net payments on debt obligations as a result of the prepayment of
four mortgages held by CRIIMI MAE Financial Corporation III. Also contributing
to the increase in net cash used in financing activities was an increase in
dividends paid during the first quarter of 1996 and receipt of approximately
$4.5 million in 1995 in connection with the issuance of common stock.

LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------

Financial Flexibility
- --------------------
CRIIMI MAE uses proceeds from long-term, fixed-rate debt refinancings,
repurchase agreements, other borrowings, a working capital line of credit,
return of capital from its investment in CRI Liquidating and issuances of common
stock to meet its capital requirements. As previously discussed, CRIIMI MAE
substantially reduced the impact of changing interest rates on its financial
results through three separate refinancings during the second half of 1995.
Changes in interest rates will have no impact on the cost of funds or the
collateral requirements for approximately 73% of the debt outstanding as of May
15, 1996. Fluctuations in interest rates will continue to impact the value on
that portion of CRIIMI MAE's investments which are not match-funded and could
impact potential returns to shareholders through increased cost of funds on the
floating-rate debt in place. However, CRIIMI MAE has a series of interest rate
cap agreements in place in order to partially limit the adverse effects of
rising interest rates on the remaining floating-rate debt. The caps have an
aggregate notional amount which currently exceeds the amount of floating-rate
debt outstanding. When CRIIMI MAE's cap agreements expire, CRIIMI MAE will have
interest rate risk to the extent interest rates increase on any remaining
floating-rate borrowings unless the caps are replaced or other steps are taken
to mitigate this risk. CRIIMI MAE's investment policy requires that at least
75% of floating-rate debt be hedged.

The flexibility in CRIIMI MAE's leverage is dependent upon, among other
things, the levels of unencumbered assets, which are inherently linked to
prevailing interest rates and changes in the credit of the underlying asset. In
certain circumstances, including, among other things, increases in interest
rates or decreases in credit quality of the underlying asset, CRIIMI MAE would
be required to provide additional collateral in connection with its short-term,
floating-rate borrowing facilities. If CRIIMI MAE did not have adequate
collateral to meet these requirements, it could be forced to sell assets to pay
down such debt. If such assets were unavailable or inadequate to pay down the
debt, there could be a substantial impact on CRIIMI MAE. However, CRIIMI MAE
had adequate unencumbered assets to meet its operating, investing and financing
requirements for the three months ended March 31, 1996 and 1995, and management
continually monitors the levels of unencumbered collateral.

CRIIMI MAE's ability to extend or refinance its 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. Under certain
existing debt facilities, CRIIMI MAE's debt-to-equity ratio may not exceed 5.0
to 1.0. As previously mentioned, as of March 31, 1996, CRIIMI MAE was in
compliance with this and other contractual requirements. Management
continuously monitors CRIIMI MAE's overall financing and hedging strategy in an
effort to ensure that CRIIMI MAE is making optimal use of its borrowing ability

<PAGE>39

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

based on market conditions and opportunities.

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

Dividends
- ---------
CRIIMI MAE's principal objectives are to provide increasing dividends to
its shareholders and to enhance the value of CRIIMI MAE's common stock. Tax
basis income, as well as net income and recurring earnings, increased for the
three months ended March 31, 1996 as compared to the corresponding period in
1995 and, as a result, dividends for the first quarter of 1996 increased.
Specifically, during the first quarter of 1996, CRIIMI MAE increased its
quarterly dividend to $0.30 per share. This compares to dividends of $0.225 per
share paid for the first quarter of 1995 and $0.235 per share paid for the
fourth quarter of 1995. Based on 1996's first quarter results and assumptions
described in CRIIMI MAE's January 29, 1996 press release, management believes a
quarterly dividend of at least $0.30 per share will be sustainable throughout
1996.

<PAGE>40

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

Although the mortgage investments held by CRIIMI MAE and its subsidiaries
yield a fixed monthly mortgage payment once purchased, the cash dividends paid
by CRIIMI MAE and by its subsidiaries may vary during each period due to several
factors. The factors which impact CRIIMI MAE's dividend include (i) the
distributions which CRIIMI MAE receives on its CRI Liquidating shares, (ii) the
level of income earned on CRIIMI MAE's or its subsidiaries' mortgage investments
depending on prepayments, defaults, etc., (iii) the level of income earned on
uninsured investments, such as Subordinated CMBS, which varies depending on
prepayments, defaults, etc. (iv) the fluctuating yields on short-term debt and
the rate at which CRIIMI MAE's LIBOR-based debt is priced, (v) the fluctuating
yields in the short-term money market where the monthly mortgage payments
received are temporarily invested prior to the payment of quarterly dividends,
(vi) the yield at which principal from scheduled monthly mortgage payments,
mortgage dispositions and distributions from the AIM Funds and from CRI
Liquidating can be reinvested, (vii) variations in the cash flow received from
the AIM Funds, and (viii) changes in operating expenses. CRIIMI MAE's dividends
will also be impacted by the timing and amounts of cash flows attributable to
its new lines of business - mortgage servicing, advisory and origination
services.

REIT STATUS
- -----------
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. CRIIMI MAE
and CRI Liquidating, however, may be subject to tax at normal corporate rates on
net income or capital gains not distributed.

CRIIMI MAE intends to conduct its business so as not to become regulated as
an investment company under the Investment Company Act of 1940. The Investment
Company Act exempts entities that are "primarily engaged in the business of
purchasing or otherwise acquiring mortgages and other liens on and interests in
real estate" (Qualifying Interests). Under current interpretation of the staff
of the Securities and Exchange Commission, in order to qualify for this
exemption, the Company must maintain at least 55% of its assets directly in
Qualifying Interests. CRIIMI MAE will closely monitor its compliance with this
requirement and intends to maintain its exempt status.

OTHER EVENTS
- ------------
In June 1995, Edge Partners, L.P. filed a complaint in the United States
District Court for the District of Maryland against CRIIMI MAE's directors. The
complaint purported to be a derivative action on behalf of CRIIMI MAE and
alleged breach of fiduciary duty by the directors and a misleading proxy
statement in connection with the Merger. The plaintiff sought unspecified
damages, a determination that the shareholder vote in favor of the Merger should
be set aside and other relief.

<PAGE>41

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS

Reference is made to Note 11 of the notes to the consolidated financial
statements of CRIIMI MAE Inc., which is incorporated herein by reference.

<PAGE>42

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

A report on Form 8-K (Item 5), dated January 29, 1996, was filed with the
Securities and Exchange Commission on February 7, 1996 with respect to the
expected 1996 dividend, business strategies for 1996 and changes in CRIIMI MAE's
investment policy.

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

Exhibit No. Description
---------- -----------

27 Financial Data Schedule

<PAGE>43

SIGNATURE

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

CRIIMI MAE INC.

May 15, 1996 /s/ Cynthia O. Azzara
------------------------- -----------------------------
DATE Cynthia O. Azzara
Senior Vice President,
Principal Accounting Officer
and Chief Financial Officer<PAGE>

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

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 44,443
<SECURITIES> 1,001,927
<RECEIVABLES> 17,972
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,145,092
<CURRENT-LIABILITIES> 9,345
<BONDS> 828,057
0
0
<COMMON> 309
<OTHER-SE> 281,051
<TOTAL-LIABILITY-AND-EQUITY> 1,145,092
<SALES> 0
<TOTAL-REVENUES> 34,628
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,138
<LOSS-PROVISION> 272
<INTEREST-EXPENSE> 15,675
<INCOME-PRETAX> 11,543
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,543
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,543
<EPS-PRIMARY> .38
<EPS-DILUTED> .00

</TABLE>