<PAGE>1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
------------------
Commission file number 1-10359
-----------------
CRI LIQUIDATING REIT, INC.
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(Exact name of registrant as specified in charter)
Maryland 52-1647537
------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
----------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(301) 468-9200
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
-------------------------------- -----------------------------
Common Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of class)<PAGE>
<PAGE>2
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 by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 14, 1995, 30,422,711 shares of common stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Form 10-K Parts Document
---------------- ---------
I, II, III and IV 1994 Annual Report to Shareholders
III 1995 Notice of Annual Meeting of
Shareholders and Proxy
Statement
/PAGE
<PAGE>
<PAGE>3
CRI LIQUIDATING REIT, INC.
1994 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
------
Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . 5
Item 2. Properties . . . . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . 6
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . 6
PART II
-------
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters . . . . . . 6
Item 6. Selected Financial Data . . . . . . . . . . . 6
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 6
Item 8. Financial Statements and Supplementary Data . 6
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 6
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . 7
Item 11. Executive Compensation . . . . . . . . . . . 7
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . 7
Item 13. Certain Relationships and Related Transactions 7-8<PAGE>
<PAGE>4
PART IV
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Page
----
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . 9-11
Signatures . . . . . . . . . . . . . . . . . . . . . . 12-13
Cross Reference Sheet . . . . . . . . . . . . . . . . . 14
Exhibit Index . . . . . . . . . . . . . . . . . . . . . 15
/PAGE
<PAGE>
<PAGE>5
PART I
ITEM 1. BUSINESS
Development and Description of Business
---------------------------------------
Information concerning the business of CRI Liquidating REIT,
Inc. (the Liquidating Company) is contained in Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and
Results of Operations, and in Notes 1 and 5 of the notes to the
financial statements of the Liquidating Company contained in Part
IV (filed in response to Item 8 hereof), which is incorporated
herein by reference.
Employees
---------
The Liquidating Company has no employees. Services are
performed for the Liquidating Company by CRI Insured Mortgage
Associates Adviser Limited Partnership (the Adviser) and agents
retained by it.
ITEM 2. PROPERTIES
The Liquidating Company does not hold title to any real
estate. The Liquidating Company indirectly holds interests in
real estate through its equity investment in three Participating
Mortgage Investments. These investments were comprised of two
components: 85% of the original investment amount was a
Mortgage-Backed Security; and 15% of the original investment
amount was an uninsured equity contribution to the limited
partnership (a Participation) which owns the underlying property.
During 1993, the Liquidating Company sold the Mortgage-Backed
Securities, but retained its Participations. The aggregate
carrying value of these Participations represents less than 1% of
the Liquidating Company's total assets as of December 31, 1994
and 1993.
Although the Liquidating Company does not own the related
real estate, the Federally Insured Mortgages and Mortgage-Backed
Securities in which the Liquidating Company has invested are
first liens, or are collateralized by first liens, on the
respective residential apartment or townhouse complexes.
In December 1994, the Liquidating Company entered into a
revised option agreement granting the option to an affiliate of
the general partner to purchase the Liquidating Company's limited
partner interest in Laurel Investors Limited Partnership (one of
the Participations), on or before November 30, 1997. In the
event the option is not exercised, the Liquidating Company can
exercise remedies under the Third Amendment to Limited
Partnership Agreement of Laurel Investors Limited Partnership.
It is not anticipated that the exercise of such remedies would
result in any material adverse impact on the results of
operations or financial position of the Liquidating Company.<PAGE>
<PAGE>6
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 9 of the notes to the financial
statements on page 59 of the 1994 Annual Report to
Shareholders, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the security holders to be
voted on during the fourth quarter of 1994.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
(a), (b) and (c) The information required in these
sections is included on pages 17
through 19 of the 1994 Annual Report
to Shareholders, which section is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to Selected Financial Data on pages 17
through 19 of the 1994 Annual Report to Shareholders, which
section is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reference is made to Management's Discussion and Analysis
of Financial Condition and Results of Operations on pages 20
through 33 of the 1994 Annual Report to Shareholders, which
section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to pages 35 through 38 of the 1994 Annual
Report to Shareholders for the financial statements of the
Liquidating Company, which are incorporated herein by reference.
See also Item 14 of this report for information concerning
financial statements and financial statement schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.<PAGE>
<PAGE>7
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a), (b), (c) and (e)
The information required by Item 10 (a), (b), (c) and (e)
with regard to directors and executive officers of the registrant
is incorporated herein by reference to the Liquidating Company's
1995 Notice of Annual Meeting of Shareholders and Proxy Statement
to be filed with the Commission no later than April 30, 1995.
(d) There is no family relationship between any of the
foregoing directors and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein
by reference to the Liquidating Company's 1995 Notice of Annual
Meeting of Shareholders and Proxy Statement and Note 3 of the
notes to the financial statements, included in the 1994 Annual
Report to Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 is incorporated herein
by reference to the Liquidating Company's 1995 Notice of Annual
Meeting of Shareholders and Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with management and others.
The Liquidating Company has five directors, two of whom
are also executive officers. The Liquidating Company's
1995 Notice of Annual Meeting of Shareholders and Proxy
Statement and Note 3 of the notes to the financial
statements, included in the 1994 Annual Report to
Shareholders, which contain a discussion of the
amounts, fees and other compensation paid or accrued by
the Liquidating Company to the directors and officers
and their affiliates, are incorporated herein by
reference.<PAGE>
<PAGE>8
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -
Continued
(b) Certain business relationships.
The Liquidating Company has no business relationship
with entities of which the general and limited partners
of the Adviser to the Liquidating Company are officers,
directors or equity owners other than as set forth in
the Liquidating Company's 1995 Notice of Annual Meeting
of Shareholders and Proxy Statement, which is
incorporated herein by reference.
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.<PAGE>
<PAGE>9
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
1 and 2. Financial Statements and Financial Statement
Schedules
The following financial statements are incorporated herein
by reference in Item 8 from the indicated pages of the 1994
Annual Report to Shareholders:
Page
Description Number(s)
----------- ---------
Balance Sheets as of December 31,
1994 and 1993 35
Statements of Income for the years ended
December 31, 1994, 1993 and 1992 36
Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994, 1993
and 1992 37
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 38
Notes to financial statements 39 - 60
The report of the Liquidating Company's independent public
accountants with respect to the above listed financial
statements appears on page 34 of the 1994 Annual Report to
Shareholders.
All other financial statements and schedules have been
omitted since the required information is included in the
financial statements or the notes thereto, or is not
applicable or required.
(a) 3. Exhibits (listed according to the number assigned
in the table in Item 601 of Regulation S-K)
Exhibit No. 3 - Articles of Incorporation and
Bylaws.
d. Articles of Incorporation of CRI Liquidating
Maryland REIT, Inc. (Incorporated by
reference from Exhibit 3(d) to the Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1993).<PAGE>
<PAGE>10
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K - Continued
e. Bylaws of CRI Liquidating Maryland REIT, Inc.
(Incorporated by reference from Exhibit 3(e)
to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
f. Agreement and Articles of Merger between CRI
Liquidating Maryland REIT, Inc. and CRI
Liquidating REIT, Inc. as filed with the
Office of the Secretary of the State of
Delaware. (Incorporated by reference from
Exhibit 3(f) to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1993).
g. Agreement and Articles of Merger between CRI
Liquidating Maryland REIT, Inc. and CRI
Liquidating REIT, Inc. as filed with the
State Department of Assessment and Taxation
for the State of Maryland. (Incorporated by
reference from Exhibit 3(g) to the Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1993).
Exhibit No. 10 - Material contracts.
a. Revised Form of Advisory Agreement.
(Incorporated by reference from Exhibit No.
10.2 to the Registration Statement No. 33-27502
dated July 18, 1989).
b. Registration Rights Agreement, dated November
27, 1989 between the Registrant and CRI
Insured Mortgage Association, Inc.
(Incorporated by reference from Exhibit 10(b)
to the Annual Report on Form 10-K for 1989).
Exhibit No. 13 - Annual Report to security
holders, Form 10-Q or Quarterly Report to security
holders.
a. 1994 Annual Report to Shareholders.
Exhibit No. 27 - Financial Data Schedule
a. Financial Data Schedule<PAGE>
<PAGE>11
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K - Continued
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
fourth quarter of 1994.
(c) Exhibits
The list of Exhibits required by Item 601 of
Regulation S-K is included in Item (a)(3) above.
(d) Financial Statement Schedules
See Item (a) 1 and 2 above.<PAGE>
<PAGE>12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CRI LIQUIDATING REIT, INC.
February 14, 1995 /s/ William B. Dockser
----------------------- -----------------------
DATE William B. Dockser
Chairman of the Board and
Principal Executive
Officer<PAGE>
<PAGE>13
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:
February 14, 1995 /s/ William B. Dockser
----------------------- -----------------------
DATE William B. Dockser
Chairman of the Board
and Principal Executive
Officer
February 14, 1995 /s/ H. William Willougby
----------------------- -----------------------
DATE H. William Willoughby
Director, President, and
Secretary
February 14, 1995 /s/ Cynthia O. Azzara
----------------------- -------------------------
DATE Cynthia O. Azzara
Vice President, Chief
Financial Officer and
Principal Accounting
Officer
February 14, 1995 /s/ Jay R. Cohen
----------------------- -------------------------
DATE Jay R. Cohen
Executive Vice President
and Treasurer
February 14, 1995 /s/ Garrett G. Carlson, Sr.
----------------------- -------------------------
DATE Garrett G. Carlson, Sr.
Director
February 14, 1995 /s/ G. Richard Dunnells
----------------------- -------------------------
DATE G. Richard Dunnells
Director
February 14, 1995 /s/ Robert F. Tardio
----------------------- -------------------------
DATE Robert F. Tardio
Director<PAGE>
<PAGE>14
CROSS REFERENCE SHEET
The item numbers and captions in Parts I, II, III and IV
hereof and the page and/or pages in the referenced materials
where the corresponding information appears are as follows:
<TABLE><CAPTION>
Item Referenced Materials Page
---- -------------------- ---------------
<S> <C> <C>
3. Legal Proceedings 1994 Annual Report 59
5. Market for the Registrant's 1994 Annual Report 17 through 19
Common Stock and Related
Stockholder Matters
6. Selected Financial Data 1994 Annual Report 17 through 19
7. Management's Discussion and 1994 Annual Report 20 through 33
Analysis of Financial
Condition and Results of
Operations
8. Financial Statements, 1994 Annual Report 34 through 60
including Auditors' Report
and Supplementary Data
11. Executive Compensation 1994 Annual Report 45 through 48
13. Certain Relationships and 1994 Annual Report 45 through 48
Related Transactions
/TABLE
<PAGE>
<PAGE>15
EXHIBIT INDEX
Exhibit
(13) 1994 Annual Report to Shareholders
(27) Financial Data Schedule<PAGE>
<PAGE>16
CRI LIQUIDATING REIT, INC.
ANNUAL REPORT TO SHAREHOLDERS<PAGE>
<PAGE>17
CRI LIQUIDATING REIT, INC.
Selected Consolidated Financial Data
<PAGE><TABLE><CAPTION>
For the years ended December 31,
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
TAX BASIS ACCOUNTING
Tax basis income $ 33,311,906 $ 35,517,491 $ 36,104,737 $ 42,135,788 $ 42,817,534
============ ============ ============ ============ ============
Composition of dividends per
share for income tax purposes:
Ordinary income $ .49 $ .81 $ .86 $ .97 $ 1.41
Non-taxable dividend 1.64 1.61 1.21 1.76 1.11
Long-term capital gains .60 .36 .33 .42 --
------------ ------------ ------------ ------------ ------------
$ 2.73 $ 2.78 $ 2.40 $ 3.15 $ 2.52
============ ============ ============ ============ ============
ACCOUNTING UNDER GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES
Mortgage investment income $ 15,394,255 $ 21,663,403 $ 24,531,636 $ 29,613,222 $ 35,414,176
Other income 568,049 2,947,933 2,731,623 1,907,279 1,192,917
Operating expenses (1,590,592) (2,822,703) (2,852,565) (3,242,595) (3,341,445)
Interest expense -- (2,242,347) (966,679) -- --
Loss on investment in
limited partnership -- -- (731,951) -- --
Net gains from mortgage
dispositions 12,553,281 8,089,840 6,097,102 4,481,534 3,853,503
------------ ------------ ------------ ------------ ------------
Net income $ 26,924,993 $ 27,636,126 $ 28,809,166 $ 32,759,440 $ 37,119,151
============ ============ ============ ============ ============
Net income per weighted
average share outstanding $ .89 $ .91 $ .95 $ 1.08 $ 1.22
============ ============ ============ ============ ============
Dividends per weighted average
share outstanding $ 2.73 $ 2.78 $ 2.40 $ 3.15 $ 2.52
============ ============ ============ ============ ============
Composition of dividends per share
for financial statement purposes:
Net income $ .89 $ .91 $ .95 $ 1.08 $ 1.22
Return of capital 1.84 1.87 1.45 2.07 1.30
------------ ------------ ------------ ------------ ------------
$ 2.73 $ 2.78 $ 2.40 $ 3.15 $ 2.52
============ ============ ============ ============ ============
</TABLE>
<PAGE>18
CRI LIQUIDATING REIT, INC.
<TABLE><CAPTION>
As of December 31,
------------------
1994 1993 1992 1991 1990
------------ ------------ ------------ ------------ ------------<PAGE>
<S> <C> <C> <C> <C> <C>
Investment in mortgages $154,373,576 $243,095,642 $231,808,424 $251,985,901 $351,781,402
============ ============ ============ ============ ============
Mortgages held for disposition $ -- $ -- $ 15,463,528 $ 36,094,540 $ --
============ ============ ============ ============ ============
Total assets $159,425,357 $248,927,134 $254,233,958 $298,940,530 $361,712,226
============ ============ ============ ============ ============
Shareholders' equity $159,271,081 $248,497,177 $254,065,662 $298,272,916 $361,355,062
============ ============ ============ ============ ============
</TABLE>
The selected statements of income data presented above for
the years ended December 31, 1994, 1993 and 1992, and the balance
sheet data as of December 31, 1994 and 1993, are derived from and
are qualified by reference to the Liquidating Company's financial
statements which have been included elsewhere in this Annual
Report to Shareholders. The statements of income data for the
years ended December 31, 1991, 1990 and the balance sheet data as
of December 31, 1992, 1991 and 1990 are derived from audited
financial statements not included in this Annual Report to
Shareholders. This data should be read in conjunction with the
financial statements and the notes thereto.
Market Data
-----------
On November 28, 1989, the Liquidating Company was listed on
the New York Stock Exchange (Symbol CFR). Prior to that date,
there was no public market for the Liquidating Company's shares.
As of December 31, 1994 and 1993, there were 30,422,711 shares
held by approximately 9,200 and 10,000 investors, respectively.
The following table sets forth the high and low closing sales
prices and the dividends per share for the Liquidating Company
shares during the periods indicated:
1994
----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ----------
March 31, $ 8 5/8 $ 7 3/4 $ 1.75
June 30, 6 7/8 5 3/8 .26
September 30, 5 7/8 5 .14
December 31, 5 1/8 4 1/4 .58
--------
$ 2.73
========
<PAGE>19
CRI LIQUIDATING REIT, INC.
1993
-----------------------------------
Sales Price Dividends
Quarter Ended High Low per Share
------------- -------- ------- ----------
March 31, $ 10 $ 9 1/8 $ .62
June 30, 10 1/4 9 .97
September 30, 9 5/8 9 .21<PAGE>
December 31, 9 3/8 7 7/8 .98
--------
$ 2.78
========<PAGE>
<PAGE>20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
General
-------
CRI Liquidating REIT, Inc. (the Liquidating Company) is a
finite-life, self-liquidating real estate investment trust (REIT)
which as of December 31, 1994, owned a portfolio of 44 United
States government insured and guaranteed mortgage investments
secured by multifamily housing complexes located throughout the
United States. Mortgage investments in the portfolio are
comprised of 43 participation certificates evidencing a 100%
undivided beneficial interest in loans insured pursuant to
programs of the United States government through the Federal
Housing Administration (FHA) (FHA-Insured Loans) and one security
backed by a FHA-Insured Loan which has been securitized by
private issuers and guaranteed by the Government National
Mortgage Association (GNMA) as to timely payment of principal and
interest (Mortgage-Backed Securities). As discussed further
below, the Liquidating Company does not intend to acquire any
additional mortgage investments, except as may be necessary in
connection with maintaining its REIT status, and intends to
liquidate its portfolio by 1997.
On January 20, 1995, in accordance with the Business Plan,
the Liquidating Company sold 21 mortgage investments with an
aggregate amortized cost of $48.1 million, ten of which resulted
in financial statement gains and all of which resulted in tax
basis gains. The 21 dispositions resulted in net financial
statement gains of approximately $1.6 million and tax basis gains
of approximately $9.5 million. The sales of these mortgage
investments constitute approximately 33% of the December 31, 1994
tax basis portfolio balance.
The Liquidating Company is governed by a Board of Directors
which includes the two shareholders of C.R.I. Inc. (CRI). The
Board of Directors has engaged CRI Insured Mortgage Associates
Adviser Limited Partnership (the Adviser) to act in the capacity
of adviser to the Liquidating Company. The Adviser's general
partner is CRI, and its limited partners include the shareholders
of CRI. The Adviser and its affiliates (1) manage the
Liquidating Company's assets with the goal of maximizing the
returns to shareholders and (2) conduct the day-to-day operations
of the Liquidating Company. The Adviser and its affiliates
receive fees and expense reimbursements in connection with the
administration and operation of the Liquidating Company. The
Adviser also acts in a similar capacity for CRIIMI MAE Inc.
(CRIIMI MAE) (formerly CRI Insured Mortgage Association, Inc.).
However, if CRIIMI MAE shareholder approval is obtained and
certain other conditions are satisfied, CRIIMI MAE will become a
self-managed and self-administered REIT and the Adviser would no
longer advise CRIIMI MAE.
The Liquidating Company was created in November 1989 in
connection with the merger (the Merger) of three funds which
owned government insured multifamily mortgages (the CRIIMI
Funds), all of which were sponsored by CRI. The Merger resulted<PAGE>
<PAGE>21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
in two new REITs: (i) the Liquidating Company, a finite-life,
self-liquidating REIT, and (ii) CRIIMI MAE, an infinite-life,
growth-oriented REIT. In the Merger, the Liquidating Company
acquired the assets of the CRIIMI Funds. Investors in the CRIIMI
Funds received, at their option, shares of common stock of either
the Liquidating Company or CRIIMI MAE. To allow those investors
who chose CRIIMI MAE shares to maintain their interest in the
original assets of the CRIIMI Funds, CRIIMI MAE received one
share of common stock of the Liquidating Company for each share
of CRIIMI MAE issued in the Merger to investors in the CRIIMI
Funds. As a result, CRIIMI MAE owned approximately 67% of the
Liquidating Company's common stock as of December 31, 1992.
Following the sale of approximately 3.1 million of its shares of
common stock of the Liquidating Company, in November 1993, CRIIMI
MAE reduced its ownership percentage to approximately 57%. The
Liquidating Company shares have been trading on the New York
Stock Exchange under the trading symbol CFR since November 28,
1989.
The Portfolio
-------------
The Liquidating Company's portfolio consists of government
insured multifamily mortgages. As of December 31, 1994, the
Liquidating Company held a total of 44 government insured
multifamily mortgages, 43 of which were FHA-Insured Loans and one
which was a GNMA Mortgage-Backed Security.
As of December 31, 1994, the portfolio consisted of
government insured multifamily mortgages with face values ranging
from approximately $.7 to $13.5 million with an average balance
of approximately $3.8 million. Coupon rates in the portfolio
range from 6.85% to 11.11%. The entire portfolio has a weighted
average net coupon rate of approximately 7.6%. Additionally, the
portfolio has a weighted average net effective interest rate of
approximately 10.02%. Maturities in the portfolio range from
approximately 18 to 30 years as of December 31, 1994, with a
weighted average remaining term based on face value of
approximately 26 years.
The Liquidating Company owns government insured multifamily
mortgages on properties which were acquired by the predecessor
CRIIMI Funds at a discount to face (Discount Mortgage
Investments) on the belief that based on economic, market, legal
and other factors, such Discount Mortgage Investments might be
sold for cash, converted to condominium housing or otherwise
disposed of or refinanced in a manner requiring prepayment or
permitting other profitable disposition three to twelve years
after acquisition by the predecessor CRIIMI Funds. The
Liquidating Company also owns near or at par or premium
government insured multifamily mortgages (Near Par or Premium
Mortgage Investments) on properties which the Adviser does not
expect to incur a significant financial statement loss if
disposed of, refinanced or otherwise prepaid prior to maturity.
On a tax basis, based on current information, including the <PAGE>
<PAGE>22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
current interest rate environment, the disposition of mortgage
investments is expected to result in a gain.
Government Insurance Programs
-----------------------------
The government insured multifamily mortgages in the
Liquidating Company's portfolio include: (i) FHA-Insured Loans
and (ii) GNMA Mortgage-Backed Securities. FHA is part of the
United States Department of Housing and Urban Development (HUD),
and FHA-Insured Loans are insured pursuant to Title II of the
National Housing Act. Should a FHA-Insured Loan default, the
mortgagee is typically entitled to approximately 99% of the face
value of the mortgage. GNMA, which is also part of HUD, was
federally chartered to provide liquidity in the secondary
mortgage market. GNMA Mortgage-Backed Securities are guaranteed
pursuant to Title III of the National Housing Act. If an issuer
of a GNMA Mortgage-Backed Security defaults, GNMA continues to
make interest and principal payments until such mortgage is
assigned to HUD. In the event of a default of a FHA-Insured
Loan underlying a GNMA Mortgage-Backed Security, the issuer or
GNMA will make timely payments of principal and interest until
such mortgage is assigned to HUD and pay 100% of the GNMA
Mortgage-Backed Security's principal balance when such mortgage
is assigned to HUD and GNMA receives the insurance proceeds.
REIT Status
-----------
The Liquidating Company has qualified and intends to
continue to qualify as a REIT under Sections 856-860 of the
Internal Revenue Code. As a REIT, the Liquidating Company does
not pay taxes at the corporate level. Qualification for
treatment as a REIT requires the Liquidating Company to meet
certain criteria, including certain requirements regarding the
nature of its ownership, assets, income and distributions of
taxable income.
Business Plan
-------------
The Liquidating Company intends to dispose of its existing
government insured mortgage investments by the end of 1997
through an orderly liquidation. Consequently, the Liquidating
Company's Adviser developed a business plan (the Business Plan)
which is intended to effect the orderly liquidation of the
portfolio by 1997, which plan of liquidation was approved by the
Liquidating Company's Board of Directors. The Business Plan is
updated for movements in interest rates and assumes that the
portfolio will be liquidated by 1997 through a combination of
defaults on or prepayments of (collectively, Involuntary
Dispositions) and sales of (Voluntary Dispositions) government
insured multifamily mortgages. During the term of the Business
Plan, the Liquidating Company expects to generate cash flow from
scheduled mortgage payments, Involuntary Dispositions, Voluntary
Dispositions, and interest earned on short-term investments.
During the year ended December 31, 1994, the Liquidating Company<PAGE>
<PAGE>23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
disposed of nineteen mortgage investments which constituted
approximately 29% of the December 31, 1993 portfolio balance. In
each of the next three calendar years, the Business Plan assumes
a total annual disposition rate of approximately 38% during 1995
and approximately 31% in both 1996 and 1997 based on the
portfolio balance as of December 31, 1994. The Liquidating
Company intends to make Voluntary Dispositions, in addition to
any Involuntary Dispositions that occur, to attempt to achieve
such rates and to liquidate the portfolio by 1997 in an orderly
manner. Although the Liquidating Company expects to profitably
dispose of its government insured multifamily mortgages, there
can be no assurance as to when any government insured mortgage
will be disposed of by the Liquidating Company or the amount of
proceeds the Liquidating Company would receive from any such
disposition.
As indicated above, on January 20, 1995, in accordance with
the Business Plan, the Liquidating Company sold 21 mortgage
investments resulting in net financial statement gains of
approximately $1.6 million and tax basis gains of approximately
$9.5 million.
Although the Liquidating Company expects to profitably
dispose of its government insured multifamily mortgages, there
can be no assurance as to when any government insured mortgage
investment will be disposed of by the Liquidating Company or the
amount of proceeds the Liquidating Company would receive from any
such disposition. The determination of whether and when to
dispose of a particular government insured multifamily mortgage
will be made by considering a variety of factors, including,
without limitation, the market conditions at that time. As of
December 31, 1994, the carrying value of the mortgage investments
on a tax basis was approximately $123 million; the par value was
approximately $167 million; and the fair market value was
approximately $154 million.
The Business Plan assumes an Involuntary Disposition rate of
approximately 5% during 1995 and approximately 7% in both 1996
and 1997 based on the December 31, 1994 portfolio balance. This
assumed rate is based on the Adviser's estimate of anticipated
Involuntary Dispositions during 1995 and the average of the
historic Involuntary Disposition rates experienced by the
Liquidating Company and the CRIIMI Funds since January 1989 for
1996 and 1997. Each year Voluntary Dispositions will be adjusted
by the Adviser based on the actual and anticipated Involuntary
Dispositions during such year, in an attempt to maintain the
targeted annual disposition rates. During the period from
January 1, 1989 through December 31, 1994, approximately 90% of
the proceeds received by the Liquidating Company from Involuntary
Dispositions have been from defaults on government insured
multifamily mortgages. Accordingly, Involuntary Dispositions are
assumed for purposes of the Business Plan to be defaults and not
prepayments. Defaults on government insured multifamily
mortgages return 99% of the face value in the case of FHA-Insured<PAGE>
<PAGE>24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Loans and 100% of the face value in the case of GNMA Securities,
and prepayments return 100% of face value plus any applicable
prepayment penalty. Decreases in occupancy levels, rental rates
or capital appreciation of any property underlying a government
insured multifamily mortgage may result in the mortgagor being
unable or unwilling to make required payments on the government
insured multifamily mortgage and thereby defaulting. Subsequent
to the January 20, 1995 dispositions, coupon rates in the
portfolio range from 7.43% to 11.11%. Primarily mortgages with
higher coupons were assumed to comprise the Involuntary
Dispositions. Based on the Liquidating Company's experience,
however, mortgages at any one coupon rate are no more likely to
default than mortgages at any other coupon rates.
To estimate proceeds from Voluntary Dispositions, government
insured multifamily mortgages are grouped with similar coupons
and/or maturities and are priced in each successive year assuming
a declining weighted average maturity. Government insured
multifamily mortgages are assumed to be sold based on prices as
of December 31, 1994 and on the assumption that Treasury Rates
(as defined below) remain constant throughout the term of the
Business Plan. Spreads (as defined below) were determined as of
December 31, 1994 and the Business Plan assumes that such Spreads
are held constant throughout the term of the Business Plan.
Changes in interest rates will affect the proceeds received
through Voluntary Dispositions: (i) by increasing the value of
the portfolio in the event of decreases in long-term and
intermediate-term U.S. Treasury Rates (Treasury Rates) or
decreasing the value of the portfolio in the event of increases
in Treasury Rates (assuming the interest rate differential (the
Spread) between Treasury Rates and the yields on government
insured mortgages remains constant) and (ii) if the Adviser deems
appropriate, increasing the pace at which the Liquidating Company
liquidates the portfolio in the event of decreases in Treasury
Rates or decreasing the pace of such liquidation in the event of
increases in Treasury Rates. In the event of a significant
change in the level or expected future level of interest rates,
the Liquidating Company may increase or decrease the rate of
expected dispositions. If interest rates remain generally at the
current levels, the order in which the Liquidating Company may
voluntarily dispose of its portfolio would be: first, high to
low coupon non-putable mortgages, then putable mortgages.
The Liquidating Company owns equity interests
(Participations) in three limited partnerships, each of which
owns the property underlying a government insured multifamily
mortgage previously owned and sold at a tax gain by the
Liquidating Company. The three Participations' carrying values
in the aggregate represent less than 1% of the Liquidating
Company's total assets. It is assumed that the Participations
will be disposed of in 1997, resulting in a $500,000 net return
of capital.<PAGE>
<PAGE>25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
The Liquidating Company intends to invest proceeds from
scheduled mortgage payments, Voluntary Dispositions and
Involuntary Dispositions in high quality short-term investments
until dividends are paid by the Liquidating Company. Based on
current interest rates, the Business Plan assumes a short-term
investment rate of approximately 6% for its entire term. Changes
in short-term interest rates will affect the interest income
earned on amounts invested in short-term investments prior to
distribution to shareholders.
All of the Liquidating Company's expenses which are not
directly based on the book value of the Liquidating Company's
assets are assumed to remain substantially the same based on the
Liquidating Company's prior experience, the expected rate of
inflation and the expected reduction in the Liquidating Company's
asset base. Annual fees and mortgage servicing fees, which are
based on the book value of the Liquidating Company's assets, are
assumed to decrease proportionately with decreases in the
Liquidating Company's assets. Incentive fees which are
anticipated to be due to the Adviser based on sales from CRIIMI I
have reduced the capital gain from the sale. No other incentive
fees are anticipated.
Distributions representing ordinary income are expected to
decline over time as assets are liquidated and shareholders
receive return of capital. Additionally, shareholders should
expect the market price of the common stock and the liquidation
value of the Liquidating Company to decrease as the Liquidating
Company liquidates its assets and distributes return of capital
over time to its shareholders.
Based on the foregoing assumptions, including the
assumptions that the interest rate environment as of December 31,
1994 will be maintained over the remaining term of the Business
Plan, the Liquidating Company expects that an investment in the
Liquidating Company shares made on December 1, 1993, at a price
of $9.00 per share would achieve a total return over the term of
the Business Plan of approximately 2.8%. Based on the foregoing
assumptions, including the assumption that a current interest
rate environment will be maintained over the term of the Business
Plan, the Liquidating Company expects an investment in the
Liquidating Company shares made on December 30, 1994 at a price
of $4.50 per share would achieve a total return over the term of
the Business Plan of approximately 21.8%. Changes in the total
return are principally attributable to changes in the price paid
for the investment in the stock, specific mortgage disposition
assumptions and the change in the interest rate environment from
December 1993 to December 1994.
Settlement of Litigation
------------------------
On March 22, 1990, a complaint was filed on behalf of a
class comprised of certain former investors of CRI Insured
Mortgage Investments III Limited Partnership (CRIIMI III) and CRI<PAGE>
<PAGE>26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Insured Mortgage Investments II, Inc. (CRIIMI II) (the
Plaintiffs) in the Circuit Court for Montgomery County, Maryland
against the Liquidating Company, CRIIMI MAE, CRI Insured Mortgage
Investments Limited Partnership (CRIIMI I) and its general
partner, CRIIMI II, CRIIMI III and its general partner, CRI, and
Messrs. William B. Dockser, H. William Willoughby and Martin C.
Schwartzberg (the Defendants). On November 18, 1993, the Court
entered an order granting final approval of a settlement
agreement between the Plaintiffs and the Defendants. Under the
terms of the settlement, CRIIMI MAE agreed to issue to class
members, including certain former investors of CRIIMI I, warrants
for up to 2.5 million CRIIMI MAE shares exercisable for 18 months
after issuance at an exercise price of $13.17 per share. In
addition, the settlement included a payment of $1,400,000 for
settlement administration costs and Plaintiff's attorneys' fees
and expenses. Insurance provided $1,150,000 of the $1,400,000
cash payment, with the balance paid by CRIIMI MAE. The number of
warrants to be issued was dependent on the number of class
members who submitted proof of claim forms by April 15, 1994.
Based on the proofs of claim submitted as of such date, CRIIMI
MAE issued warrants for approximately 334,000 shares pursuant to
the settlement agreement. In April 1994, CRIIMI MAE filed a
Registration Statement on Form S-3 (Commission File No. 33-53031)
to register up to 375,000 shares of CRIIMI MAE's common stock,
issuable upon the exercise of the warrants of CRIIMI MAE.
Results of Operations
---------------------
1994 Versus 1993
----------------
Total income decreased $8.6 million or 35.1% to $16.0
million for 1994 from $24.6 million for 1993. This decrease was
due primarily to reductions in mortgage investment income and
other investment income, as discussed below.
Mortgage investment income decreased $6.3 million or 28.9%
to $15.4 million for 1994 from $21.7 million for 1993. This
decrease was principally the result of a reduction in the
mortgage base resulting from the disposition of mortgage
investments during 1994 and 1993. It is not anticipated that the
nature of income from mortgage investments resulting from fixed
payments of principal and interest or the expenses related to the
ordinary administration of such mortgage investments will differ
materially in future years. However, mortgage dispositions will
reduce the recurring mortgage income in future periods.
Other investment income decreased $2.3 million or 78.8% to
approximately $617,000 for 1994 from $2.9 million for 1993. This
decrease was primarily attributable to income earned in 1993 from
other short-term investments acquired by the Liquidating Company
during 1993 (approximately $133 million) which were disposed of by
December 31, 1993. These decreases were partially offset by
income earned from the short-term investment of mortgage
disposition proceeds received in 1994.<PAGE>
<PAGE>27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Total expenses decreased $3.5 million or 68.6% to $1.6
million for 1994 from $5.1 million for 1993. This decrease was
principally due to decreases in interest expense, general and
administrative expenses, and annual fees paid to the Adviser, as
discussed below.
Interest expense decreased $2.2 million or 100.0% from $2.2
million for 1993. This decrease was due to the paydown of debt
related to other short-term investments during 1993. Interest
expense was based on the financing of approximately 99% of the
other short-term investments acquired by the Liquidating Company
in 1993 (approximately $133 million) at an interest rate of
approximately 3.35%. The Liquidating Company disposed of these
other short-term investments and repaid the related debt by
December 31, 1993.
General and administrative expenses decreased approximately
$540,000 or 47.1% from $1.1 million to approximately $606,000 for
the year ended December 31, 1994 as compared to 1993 primarily as
a result of a decrease in legal expense as a result of the
settlement of litigation during 1993, as described above.
Annual Fees are paid to the Adviser for managing the
Liquidating Company portfolio. These fees include a base
component equal to a percentage of average invested assets. In
addition, Annual Fees paid to the Adviser by the Liquidating
Company may include a performance-based component that is
referred to as the deferred component. The deferred component,
which is also calculated as a percentage of average invested
assets, is computed each quarter but paid (and expensed) only
upon meeting certain cumulative performance goals. If these
goals are not met, the deferred component accumulates and may be
paid in the future if cumulative goals are met. In addition,
certain incentive fees are paid by the Liquidating Company on a
current basis if certain performance goals are met.
Annual Fees decreased approximately $538,000 or 43.6% to
$696,000 for 1994 from $1.2 million for 1993. This decrease was
primarily a result of the reduction in the Liquidating Company's
mortgage base which is a component used in determining the Annual
Fees payable by the Liquidating Company. The mortgage base has
been decreasing as the Liquidating Company effects the Business
Plan to liquidate by 1997. This decrease was also due to a
reduction in the base component of the Annual Fees from .25% to
.125% of average invested assets formerly held by CRIIMI III,
effective January 1, 1994, in accordance with the Advisory
Agreement. Also contributing to the decreases in Annual Fees was
a decrease in the deferred component paid for the year ended
December 31, 1994 as compared to the corresponding period in 1993
due to specific performance goals being met. During the years
ended December 31, 1994 and 1993, the Liquidating Company paid
deferred Annual Fees of $118,659 and $330,087, respectively. The
amount paid in 1993 included deferred Annual Fees of $86,395 from
1992.<PAGE>
<PAGE>28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Net gains on mortgage dispositions increased $4.5 million or
55.2% to $12.6 million in 1994 from $8.1 million in 1993. The
gains or losses on mortgage dispositions are based on the number,
carrying amounts, and proceeds of mortgage investments disposed
of during the periods. The increase in gains from mortgage
dispositions was primarily due to the sale of seventeen mortgage
investments and prepayment of two mortgage investments in 1994,
fifteen of which resulted in financial statement gains and all of
which resulted in tax basis gains. The nineteen dispositions
resulted in net financial statement gains of approximately $12.6
million and tax basis gains of approximately $18.4 million. This
compares to the disposition of ten mortgage investments during
the year ended December 31, 1993 that generated financial
statement gains of approximately $8.1 million and tax basis gains
of approximately $14.9 million.
1993 Versus 1992
----------------
Total income decreased $2.7 million or 9.7% to $24.6 million
for 1993 from $27.3 million for 1992. This decrease was due
primarily to a reduction in mortgage investment income partially
offset by an increase in other investment income, as discussed
below.
Mortgage investment income decreased $2.9 million or 11.7%
to $21.7 million for 1993 from $24.5 million for 1992. This
decrease was principally the result of a reduction in the
mortgage base resulting from the disposition of mortgage
investments during 1993 and 1992.
Other investment income increased $.8 million or 36.3% to
$2.9 million for 1993 from $2.1 million for 1992. This increase
was primarily attributable to approximately $133 million in other
short-term investments acquired by the Liquidating Company during
1993, all of which were disposed of by December 31, 1993, as
compared to approximately $67 million in other short-term
investments acquired by the Liquidating Company during 1992, all
of which were disposed of by December 31, 1992.
Total expenses increased $1.3 million or 32.6% to $5.1
million for 1993 from $3.8 million for 1992. This increase was
principally due to an increase in interest expense, as discussed
below.
Interest expense increased $1.2 million or 132.0% to $2.2
million for 1993 from $1.0 million for 1992. This increase was
due primarily to the financing of a total of approximately $116
million in other short-term investments in February and October
1993 through November 1993 at an interest rate of approximately
3.35%, versus approximately $56 million which was financed in
July and August 1992 through December 1992 at an interest rate of
4.0% and 3.45%, respectively.<PAGE>
<PAGE>29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Gains on mortgage dispositions increased $2.0 million or
32.7% to $8.1 million in 1993 from $6.1 million in 1992. The
gains or losses on mortgage dispositions are based on the number,
carrying amounts, and the proceeds of mortgage investments
disposed of during the period. The increase in gains was
primarily due to the disposition of ten mortgages during 1993,
nine of which resulted in gains. This compared to the
disposition of three mortgages during 1992, two of which resulted
in gains.
On January 28, 1993, October 15, 1993 and October 28, 1993,
the Liquidating Company entered into investment and financing
agreements with Daiwa Securities America, Inc. (Daiwa). These
transactions assisted in maintaining the Liquidating Company's
REIT status. Pursuant to the terms of these agreements, the
Liquidating Company invested in GNMA mortgage-backed securities
or certificates backed by FHA-Insured project loans
(collectively, the Securities) with unpaid principal balances of
approximately $74.7 million, $40.3 million and $11.9 million,
respectively, at purchase prices of 104.615%, 106.41% and 100.8%,
respectively, of the face values, which earned interest at per
annum pass-through coupon rates of 9.1875%, 13.18% and 8.625%,
respectively. In addition, Daiwa provided financing for
approximately 99% and 86% of the purchase price for the
transactions which occurred on January 28, 1993 and October 15,
1993, respectively, at an interest rate of approximately 3.35%.
The related debt was non-recourse and fully secured with the
Securities which were held by Daiwa in the Liquidating Company's
name. The Liquidating Company disposed of these Securities and
repaid the related debt by the end of 1993. These investments
provided a net interest rate spread (after borrowing costs) of
approximately 4%, 3.5% and 3.5%, respectively.<PAGE>
<PAGE>30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Historical Dispositions
-----------------------
<TABLE><CAPTION>
Net Gain
Recognized for Net Gain
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
---- ------------ ---- ---------- ----- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992 3 0 0 3 $ 6,097,102 $11,202,237
1993 2 5 3 10 8,089,840 14,938,128
1994 3 14 2 19 12,553,281 18,354,126
--- --- --- --- ----------- -----------
8(2) 19 5 32 $26,740,223 $44,494,491
=== === === === =========== ===========
(1) The Liquidating Company may elect to receive insurance benefits in the form of cash when a government
insured multifamily mortgage defaults. In that event, for FHA Insured Loans 90% of the face value of the
mortgage generally is received within approximately 90 days of assignment of the mortgage to HUD and 9%
of the face value of the mortgage is received upon final processing by HUD which may not occur in the
same year as assignment. If the Liquidating Company elects to receive insurance benefits in the form of
debentures, 99% of the face value of the mortgage is received upon final processing by HUD. In the event
of a default on a GNMA Mortgage-Backed Security, 100% of the face value of the security is received upon
final processing by GNMA. Gains from dispositions are recognized upon receipt of funds or debentures and
losses are recognized at the time of assignment.
(2) Five of the eight assignments were sales of government insured multifamily mortgages then in default and
resulted in the Liquidating Company receiving face value or near face value.
(3) In connection with the Merger, the Liquidating Company recorded its investment in mortgages at the lower
of cost or fair value, which resulted in an overall net write down for tax purposes. For financial
statement purposes, carryover basis of accounting was used. Therefore, since the Merger, the net gain
for tax purposes was greater than the net gain recognized for financial statement purposes. As a REIT,
dividends to the Liquidating Company's shareholders are based on net gains recognized for tax purposes.
</TABLE>
For financial statement purposes, the Liquidating Company
accounted for the Merger of the CRIIMI Funds in a manner similar
to the pooling-of-interests method as a result of the common
control existing over the Liquidating Company, the CRIIMI Funds
and CRIIMI MAE. Accordingly, there was no change in the basis
assigned to each of the mortgage investments for financial
statement purposes. However, for tax purposes, the Merger was
treated as a taxable event resulting in a new basis being
assigned to the assets. Specifically, the merger of CRIIMI I into
the Liquidating Company resulted in a taxable gain, while the
merger of CRIIMI II and CRIIMI III into the Liquidating Company
resulted in taxable losses. As a result, the tax bases of the
CRIIMI I assets were adjusted slightly upward and the tax bases
of the CRIIMI II and CRIIMI III assets were adjusted downward.
Consequently, there exists a difference in the bases of the
mortgage investments for financial statement and tax purposes.
Although four of the mortgage dispositions during 1994 resulted
in losses for financial statement purposes, all of the
dispositions resulted in a tax basis gain totalling $18.4<PAGE>
million.
Fair Value of Mortgage Investments
-----------------------------------
The following estimated fair values of the Liquidating
Company's mortgage investments are presented in accordance with
generally accepted accounting principles. These estimated fair <PAGE>
<PAGE>31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
values, however, do not represent the liquidation value or the
market value of the Liquidating Company.
In accordance with the Liquidating Company's implementation
of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115) as of December 31, 1993, the Liquidating
Company's Investment in Mortgages is recorded at fair value, as
estimated below, as of December 31, 1994. The difference between
the amortized cost and the fair value of the mortgage investments
represents the net unrealized gains on the Liquidating Company's
mortgage investments and is reported as a separate component of
shareholders' equity.
The fair value of the mortgage investments is based on the
average of the quoted market prices from three investment banking
institutions which trade insured mortgage loans as part of their
day-to-day activities.
As of December 31, 1994
Amortized Fair
Cost Value
------------ ------------
Investment in Mortgages:
Discount $121,283,765 $139,416,004
Near par or premium 14,837,135 14,957,572
------------ ------------
$136,120,900 $154,373,576
============ ============
Liquidity
---------
The Liquidating Company closely monitors its cash flow and
liquidity position in an effort to ensure that sufficient cash is
available for operations and to continue to qualify as a REIT.
The Liquidating Company's cash receipts, which are derived from
scheduled payments of outstanding principal of and interest on,
and proceeds from the disposition of, mortgage investments held
by the Liquidating Company, plus cash receipts from interest on
temporary investments and cash received from the Liquidating
Company's investment in limited partnerships (Participations),
were sufficient for the years 1994, 1993 and 1992 to meet
operating, investing, and financing cash requirements. It is
anticipated that cash receipts will be sufficient in future years
to meet similar cash requirements. Cash flow was also sufficient
to provide for the payment of dividends to the shareholders.
Because the Liquidating Company is a liquidating entity, a
substantial portion of the dividends paid to shareholders
represents return of capital. For the years 1994, 1993 and 1992,
the Liquidating Company paid dividends of $2.73, $2.78 and $2.40
per share, respectively, of which approximately $1.84, $1.87 and
$1.45 per share, respectively, represented return of capital for
financial statement purposes. For tax purposes, the portion
representing a non-taxable dividend for 1994, 1993 and 1992 was<PAGE>
<PAGE>32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
approximately $1.64, $1.61 and $1.21, respectively. As of
December 31, 1994, there were no material commitments for capital
expenditures.
Although the mortgage investments yield a fixed monthly
mortgage payment once purchased, the cash dividends paid to
shareholders may vary during each year due to (1) the fluctuating
yields in the short-term money market where the monthly mortgage
payments received are temporarily invested prior to the payment
of quarterly dividends, (2) the reduction in the asset base and
monthly mortgage payments due to monthly mortgage payments
received or mortgage dispositions, (3) variations in the cash
flow received from the Participations, and (4) changes in the
Liquidating Company's operating expenses. Mortgage dispositions
may increase the return to shareholders for a period, although
neither the timing nor the amount can be predicted.
Decreases in market interest rates could result in the
prepayment of certain mortgage investments. Although decreases in
interest rates could increase prepayment levels of mortgages on
single-family dwellings, the Liquidating Company's experience
with mortgages on multifamily dwellings has been that decreases
in interest rates do not necessarily result in increased levels
of prepayments primarily due to lockouts (i.e., prepayment
prohibitions), prepayment penalties on existing financing or
difficulties in obtaining refinancing. Decreases in occupancy
levels, rental rates or value of any property underlying a
mortgage investment may result in the mortgagor being unable or
unwilling to make required payments on the mortgage and thereby
defaulting. Whether by prepayment, sale or assignment, the
proceeds of a disposition of a Discount Mortgage Investment are
expected to exceed the carrying amount of the mortgage for
financial statement purposes, while the proceeds from the
disposition of a Near Par or Premium Mortgage Investment may be
slightly less than, the same as or slightly more than, the
financial statement carrying amount of the mortgage. However, the
proceeds of any mortgage disposition, based on current
information, including the current interest rate environment, is
expected to exceed the carrying amount of the mortgage on a tax
basis and, therefore, result in a tax gain.
Changes in interest rates will affect the proceeds received
through Voluntary Dispositions: (i) by increasing the value of
the portfolio in the event of decreases in long-term and
intermediate-term U.S. Treasury Rates (Treasury Rates) or
decreasing the value of the portfolio in the event of increases
in Treasury Rates (assuming the interest rate differential
between Treasury Rates and the yields on government insured
multifamily mortgages remains constant) and (ii) if the Adviser
deems appropriate, increasing the pace at which the Liquidating
Company liquidates the portfolio in the event of decreases in
Treasury Rates or decreasing the pace of such liquidation in the
event of increases in Treasury Rates.<PAGE>
<PAGE>33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
---------------------------------------------
Borrowing Policy
----------------
Subject to customary business considerations, there is no
specific limitation on the maximum amount of debt that the
Liquidating Company may incur. The Liquidating Company does not
intend to incur any indebtedness, except in connection with the
maintenance of its REIT status.
Cash Flow
---------
Net cash provided by operating activities decreased for
1994 compared to 1993 primarily as a result of a decrease in
mortgage investment income due to the reduction in the mortgage
base and other investment income, as previously discussed. Net
cash provided by operating activities decreased in 1993 as
compared to 1992 principally due to the decrease in mortgage
investment income due to the reduced mortgage base and an
increase in interest expense on the financing of other short term
investments, partially offset by the other investment income on
the respective securities financed.
Net cash provided by investing activities increased for
1994 as compared to 1993. This increase was principally due to
an increase in proceeds from mortgage dispositions from
approximately $56.1 million for 1993 to approximately $66.8
million for 1994. Net cash provided by investing activities
increased for 1993 as compared to 1992. This increase was
principally due to an increase in proceeds from mortgage
dispositions during 1993. Additionally, cash of approximately
$128.6 million and approximately $6.1 million was received during
1993 from the sale of other short-term investments and the
redemption of HUD debentures, respectively. However, this was
offset by the purchase of other short-term investments in 1993.
Net cash used in financing activities decreased for 1994
compared to 1993 due to a decrease in dividends paid to
shareholders as a result of the reduction in the mortgage base.
Net cash used in financing activities increased for 1993 compared
to 1992 due to an increase in dividends paid to shareholders.
This increase in dividends was attributable to an increase in net
proceeds received from mortgage dispositions in 1993. Also
during 1993, the Liquidating Company financed the acquisition of
other short-term investments. This debt was repaid in December
1993. <PAGE>
<PAGE>34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
CRI Liquidating REIT, Inc.
We have audited the accompanying balance sheets of CRI
Liquidating REIT, Inc. (the Liquidating Company) as of December
31, 1994 and 1993, and the related statements of income, changes
in shareholders' equity and cash flows for the years ended
December 31, 1994, 1993 and 1992. These financial statements are
the responsibility of the Liquidating Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of the Liquidating Company as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for the years
ended December 31, 1994, 1993, and 1992, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
February 1, 1995
/PAGE
<PAGE>
<PAGE>35
<TABLE>
CRI LIQUIDATING REIT, INC.
BALANCE SHEETS
ASSETS
<CAPTION>
December 31,
1994 1993
------------ ------------
<S> <C> <C>
Investment in mortgages, at fair value
Discount $139,416,004 $225,447,845
Near par or premium 14,957,572 17,647,797
------------ ------------
Total 154,373,576 243,095,642
------------ ------------
Investment in limited partnerships 133,766 436,090
Cash and cash equivalents 3,294,161 2,907,147
Receivables and other assets 1,525,331 2,175,453
Deferred costs, principally paid
to related parties, net of accumulated
amortization of $1,544,925 and
$1,635,320, respectively 98,523 312,802
------------ ------------
Total assets $159,425,357 $248,927,134
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 154,276 $ 429,957
------------ ------------
Commitments and contingencies
Shareholders' equity:
Common stock 304,227 304,227
Net unrealized gains on investment
in mortgages 18,252,676 51,349,764
Additional paid-in capital 140,714,178 196,843,186
------------ ------------
Total shareholders' equity 159,271,081 248,497,177
------------ ------------
Total liabilities and
shareholders' equity $159,425,357 $248,927,134
============ ============
The accompanying notes are an integral part
of these financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>36
<TABLE>
CRI LIQUIDATING REIT, INC.
STATEMENTS OF INCOME
<CAPTION>
For the years ended December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income:
Mortgage investment
income
Stated interest $ 14,441,449 $ 20,363,560 $23,267,100
Discount
amortization 959,320 1,306,553 1,269,828
Premium
amortization (6,514) (6,710) (5,292)
------------ ------------ ------------
15,394,255 21,663,403 24,531,636
Other investment
income 617,081 2,904,328 2,130,771
(Loss) income from
investment in
limited
partnerships (49,032) 43,605 600,852
------------ ------------ ------------
15,962,304 24,611,336 27,263,259
------------ ------------ ------------
Expenses:
Annual fee to
related party 696,342 1,234,291 1,214,409
General and
administrative 606,035 1,145,354 1,126,881
Interest expense -- 2,242,347 966,679
Amortization of
deferred costs 151,014 251,203 305,057
Mortgage servicing
fees 137,201 191,855 206,218
------------ ------------ ------------
1,590,592 5,065,050 3,819,244
------------ ------------ ------------
Income before
mortgage dispositions
and loss on invest-
ment in limited
partnership 14,371,712 19,546,286 23,444,015
Mortgage dispositions:
Gains 12,612,197 8,110,395 6,110,209
Losses (58,916) (20,555) (13,107)
Loss on investment
in limited
partnership -- -- (731,951)
------------ ------------ ------------
Net income $26,924,993 $ 27,636,126 $ 28,809,166
=========== ============ ============
Net income per
share $ .89 $ .91 $ .95
=========== ============ ============
Weighted average
shares
outstanding 30,422,711 30,422,711 30,422,711
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>37
<TABLE>
CRI LIQUIDATING REIT, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1993 and 1992
Net
Unrealized
Gains on Additional Total
Common Stock Investment Paid-In Undistributed Shareholders'
Shares Par Value in Mortgages Capital Net Income Equity
----------- --------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1991 30,425,901 $ 304,259 $ -- $297,968,657 $ -- $298,272,916
Net income -- -- -- -- 28,809,166 28,809,166
Dividends of
$0.95 per share -- -- -- -- (28,809,166) (28,809,166)
Return of capital of
$1.45 per share -- -- -- (44,207,254) -- (44,207,254)
Adjustment to
amounts issued (3,190) (32) -- 32 -- --
----------- --------- ----------- ------------ ------------ ------------
Balance, December
31, 1992 30,422,711 304,227 -- 253,761,435 -- 254,065,662
Net income -- -- -- -- 27,636,126 27,636,126
Dividends of $0.91
per share -- -- -- -- (27,636,126) (27,636,126)
Return of capital of
$1.87 per share -- -- -- (56,939,013) -- (56,939,013)
Net unrealized gains on
investment in
mortgages -- -- 51,349,764 -- -- 51,349,764
Reimbursement of
dividends from
prior years -- -- -- 20,764 -- 20,764
----------- --------- ----------- ------------ ------------ ------------
Balance, December
31, 1993 30,422,711 304,227 51,349,764 196,843,186 -- 248,497,177
Net income -- -- -- 26,924,993 26,924,993
Dividends of $0.89
per share -- -- -- (26,924,993) (26,924,993)
Return of capital of
$1.84 per share -- -- -- (56,129,008) -- (56,129,008)
Adjustment to net
unrealized gains on
investment in
mortgages -- -- (33,097,088) -- (33,097,088)
----------- --------- ------------ ------------ ------------ ------------
Balance, December
31, 1994 30,422,711 $ 304,227 $ 18,252,676 $140,714,178 $ -- $159,271,081
=========== ========= ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>38
CRI LIQUIDATING REIT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
For the years ended December 31,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 26,924,993 $ 27,636,126 $ 28,809,166
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization of deferred costs 151,014 251,203 305,057
Mortgage discount amortization (959,320) (1,306,553) (1,269,828)
Mortgage premium amortization 6,514 6,710 5,292
Other short-term investment
premium amortization -- 4,072,781 1,226,457
Gains on mortgage
dispositions (12,612,197) (8,110,395) (6,110,209)
Losses on mortgage
dispositions 58,916 20,555 13,107
Loss on investment in
limited partnership -- 731,951
Other operating activities -- -- (69,086)
Equity losses (earnings) from
investment in limited
partnerships 49,032 (43,605) (600,852)
Interest received under the
equity method of accounting
but treated as reduction of
investment in limited
partnerships -- 308,093 972,704
Changes in assets and liabilities:
Decrease in receivables and
other assets 650,122 614,086 1,412,097
(Decrease) increase in accounts
payable and accrued
expenses (275,681) 261,661 (499,318)
--------- ---------- ---------
Net cash provided by operating
activities 13,993,393 23,710,662 24,926,538
---------- ---------- ----------
Cash flows from investing
activities:
Proceeds from mortgage
dispositions 66,837,015 56,077,712 45,263,903
Purchase of other short-term
investments -- (132,977,702) (66,751,139)
Proceeds from sale of other
short-term investments -- 128,617,469 65,491,782
Receipt of mortgage and other
short-term investment
principal from scheduled
payments 2,294,050 3,062,993 3,008,210
Decrease in deferred costs 63,265 97,330 89,355
Annual return from investment
in limited partnerships 253,292 253,292 253,292
Proceeds from sale/redemption of
HUD debentures -- 6,062,502 2,334,150
------------ ------------ ------------
Net cash provided by
investing activities 69,447,622 61,193,596 49,689,553
------------ ------------ ------------
Cash flows from financing
activities:
Dividends and return of
capital paid to
shareholders (83,054,001) (84,554,375) (73,016,420)
Proceeds from short-term
debt -- 115,631,517 56,150,273
Payment on short-term debt -- (115,631,517) (56,150,273)
------------ ------------ ------------
Net cash used in financing
activities (83,054,001) (84,554,375) (73,016,420)
------------ ------------ ------------
Net increase in cash and
cash equivalents 387,014 349,883 1,599,671
Cash and cash equivalents,
beginning of year 2,907,147 2,557,264 957,593
------------ ------------ ------------
Cash and cash equivalents,
end of year $ 3,294,161 $ 2,907,147 $ 2,557,264
============ ============ ============
The accompanying notes are an integral part
of these financial statements.
/TABLE></PAGE
<PAGE>
<PAGE>39
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization
CRI Liquidating REIT, Inc. (the Liquidating Company) is a
finite-life, self-liquidating real estate investment trust (REIT)
which as of December 31, 1994, owned a portfolio of 44 United
States government insured and guaranteed mortgage investments
secured by multifamily housing complexes located throughout the
United States. Mortgage investments in the portfolio are
comprised of 43 participation certificates evidencing a 100%
undivided beneficial interest in loans insured pursuant to
programs of the United States government through the Federal
Housing Administration (FHA) (FHA-Insured Loans) and one security
backed by a FHA-Insured Loan which has been securitized by
private issuers and guaranteed by the Government National
Mortgage Association (GNMA) as to timely payment of principal and
interest (Mortgage-Backed Securities). As discussed further
below, the Liquidating Company does not intend to acquire any
additional mortgage investments, except as may be necessary in
connection with maintaining its REIT status, and intends to
liquidate its portfolio by 1997.
The Liquidating Company is governed by a Board of Directors
which includes the two shareholders of C.R.I. Inc. (CRI). The
Board of Directors has engaged CRI Insured Mortgage Associates
Adviser Limited Partnership (the Adviser) to act in the capacity
of adviser to the Liquidating Company. The Adviser's general
partner is CRI, and its limited partners include the shareholders
of CRI. The Adviser and its affiliates (1) manage the
Liquidating Company's assets with the goal of maximizing the
returns to shareholders and (2) conduct the day-to-day operations
of the Liquidating Company (See Note 3). The Adviser and its
affiliates receive fees and expense reimbursements in connection
with the administration and operation of the Liquidating Company.
The Adviser also acts in a similar capacity for CRIIMI MAE Inc.
(CRIIMI MAE) (formerly CRI Insured Mortgage Association, Inc.).
However, if CRIIMI MAE shareholder approval is obtained and
certain other conditions are satisfied, CRIIMI MAE will become a
self-managed and self-administered REIT.
The Liquidating Company was created in November 1989 in
connection with the merger (the Merger) of three funds which
owned government insured multifamily mortgages (the CRIIMI
Funds), all of which were sponsored by CRI. The Merger resulted
in two new REITs: (i) the Liquidating Company, a finite-life,
self-liquidating REIT, and (ii) CRIIMI MAE, an infinite-life,
growth-oriented REIT. In the Merger, the Liquidating Company
acquired the assets of the CRIIMI Funds. Investors in the CRIIMI
Funds received, at their option, shares of common stock of either
the Liquidating Company or CRIIMI MAE. To allow those investors
who chose CRIIMI MAE shares to maintain their interest in the
original assets of the CRIIMI Funds, CRIIMI MAE received one
share of common stock of the Liquidating Company for each share
of CRIIMI MAE issued in the Merger to investors in the CRIIMI
Funds. As a result, CRIIMI MAE owned approximately 67% of the<PAGE>
<PAGE>40
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization - Continued
Liquidating Company's common stock as of December 31, 1992.
Following the sale of approximately 3.1 million of its shares of
common stock of the Liquidating Company, in November 1993, CRIIMI
MAE reduced its ownership percentage to approximately 57%. The
Liquidating Company shares have been trading on the New York
Stock Exchange under the trading symbol CFR since November 28,
1989.
Prior to the Merger, the Liquidating Company did not have
any assets or liabilities and did not engage in any activities
other than those incident to its formation and the Merger. As a
result of the common control existing over the Liquidating
Company, the CRIIMI Funds and CRIIMI MAE, the Merger was
accounted for at historical cost in a manner similar to the
pooling-of-interests method. However, for tax purposes, the
Merger was treated as a taxable event resulting in a new basis
being assigned to the assets. Specifically, the merger of CRI
Insured Mortgage Investment Limited Partnership (CRIIMI I) into
the Liquidating Company resulted in a taxable gain, while the
merger of CRI Insured Mortgage Investments II, Inc. (CRIIMI II)
and CRI Insured Mortgage Investments III Limited Partnership
(CRIIMI III) into the Liquidating Company resulted in taxable
losses. As a result, the tax bases of the CRIIMI I assets were
adjusted upward and the tax bases of the CRIIMI II and CRIIMI III
assets were adjusted downward.
The Liquidating Company intends to dispose of its existing
government insured mortgage investments by the end of 1997
through an orderly liquidation. Consequently, the Liquidating
Company's Adviser developed a business plan (the Business Plan)
which is intended to effect the orderly liquidation of the
portfolio by 1997, which plan of liquidation was approved by the
Liquidating Company's Board of Directors. The Business Plan is
updated for movements in interest rates and assumes that the
portfolio will be liquidated by 1997 through a combination of
defaults on or prepayments of (collectively, Involuntary
Dispositions) and sales of (Voluntary Dispositions) government
insured multifamily mortgages. During the term of the Business
Plan, the Liquidating Company expects to generate cash flow from
scheduled mortgage payments, Involuntary Dispositions, Voluntary
Dispositions, and interest earned on short-term investments.
During the year ended December 31, 1994, the Liquidating Company
disposed of nineteen mortgage investments which constituted
approximately 29% of the December 31, 1993 portfolio balance.
The Business Plan assumes a total annual disposition rate of
approximately 38% during 1995 and approximately 31% in both 1996 and
1997 based on the portfolio balance as of December 31, 1994. The
Liquidating Company intends to make Voluntary Dispositions, in
addition to any Involuntary Dispositions that occur, to attempt to
achieve such rates and to liquidate the portfolio by 1997 in an
orderly manner. Although the Liquidating Company expects to
<PAGE>41
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization - Continued
profitably dispose of its government insured multifamily mortgages,
there can be no assurance as to when any government insured mortgage
will be disposed of by the Liquidating Company or the amount of
proceeds the Liquidating Company would receive from any such
disposition.
As discussed in Note 11, on January 20, 1995, the
Liquidating Company sold 21 mortgage investments with an
aggregate amortized cost of $48.1 million, ten of which resulted
in financial statement gains and all of which resulted in tax
basis gains.
The Liquidating Company has qualified and intends to
continue to qualify as a REIT under Sections 856-860 of the
Internal Revenue Code (the Code). As a REIT, the Liquidating
Company does not pay taxes at the corporate level. Qualification
for treatment as a REIT requires the Liquidating Company to meet
certain criteria, including certain requirements regarding the
nature of its ownership, assets, income and distributions of
taxable income.
2. Summary of Significant Accounting Policies
Method of accounting
--------------------
The financial statements of the Liquidating Company are
prepared on the accrual basis of accounting in accordance
with generally accepted accounting principles.
Reclassifications
-----------------
Certain amounts in the balance sheet as of December 31,
1993 and the income statements for the years ended December
31, 1992 and 1993 have been reclassified to conform with the
1994 presentation.
Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of money market
funds, time and demand deposits, commercial paper and
repurchase agreements with original maturities of three
months or less.
Statements of cash flows
------------------------
No cash payments for interest were made during 1994.
Cash payments made for interest during 1993 and 1992
totalled $2,242,347 and $966,679, respectively. <PAGE>
<PAGE>42
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
Investment in Mortgages
-----------------------
In May 1993, the Financial Accounting Standards Board
issued Statement on Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). This statement requires that most
investments in debt and equity securities be classified into
one of the following investment categories based upon the
circumstances under which such securities might be sold:
Held to Maturity, Available for Sale, and Trading.
Generally, certain debt securities for which an enterprise
has both the ability and intent to hold to maturity should
be accounted for using the amortized cost method and all
other securities must be recorded at their fair values.
This statement was adopted as of December 31, 1993.
The Liquidating Company intends to liquidate its
portfolio by 1997. In order to achieve this objective, the
Liquidating Company will sell certain of its mortgage
investments. Consequently, the Adviser believes that the
securities held by the Liquidating Company fall into the
Available for Sale category. As such, as of December 31,
1994, all mortgage investments are recorded at fair value
with the net unrealized gains on its investment in mortgages
reported as a separate component of shareholders' equity.
Subsequent increases or decreases in the fair value of
Available for Sale securities shall be included as a
separate component of equity. Realized gains and losses for
securities classified as Available for Sale will continue to
be reported in earnings, as discussed below. Prior to
December 31, 1993, the Liquidating Company accounted for its
investment in mortgages at amortized cost.
The difference between the cost and the unpaid
principal balance at the time of purchase is carried as a
discount or premium and amortized over the remaining
contractual life of the mortgage using the effective
interest method. The effective interest method provides a
constant yield of income over the term of the mortgage.
Mortgage investment income is comprised of amortization
of the discount plus the stated mortgage interest payments
received or accrued less amortization of the premium.
The Liquidating Company's investment in mortgages is
comprised of Federally Insured Mortgages (as defined below)
and Mortgage-Backed Securities guaranteed by GNMA. Payment
of principal and interest on Federally Insured Mortgages is
insured by HUD. Payment of principal and interest on
Mortgage-Backed Securities is guaranteed by GNMA pursuant to
Title 3 of the National Housing Act. <PAGE>
<PAGE>43
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
At any point in time, the Liquidating Company may be
aware of certain mortgages which have been assigned to HUD
or for which the servicer has received proceeds from a
prepayment. In addition, at certain times the Liquidating
Company may have entered into a contract to sell certain
mortgages. Gains from dispositions of mortgages are
recognized upon the receipt of funds or HUD debentures.
Losses on dispositions of mortgages are recognized when it
becomes probable that a mortgage will be disposed of and
that the disposition will result in a loss.
Investment in limited partnerships
----------------------------------
The investment in limited partnerships, which do not
carry any GNMA or HUD guarantees, are accounted for under
the equity method. Under this method, the Liquidating
Company's investment in the Participations is adjusted for
the Liquidating Company's share of net earnings or losses
and reduced by distributions from the limited partnerships.
In addition, mortgage investment income from the mortgages
of such limited partnerships, which were sold during 1993,
has been reduced and income from the investment in limited
partnerships has been increased to the extent the underlying
interest expense is included in the Liquidating Company's
share of net earnings or losses from the Participations.
When received by the Liquidating Company, these interest
amounts, as with distributions, reduce the investment in the
Participations.
Deferred costs
--------------
Included in deferred costs are mortgage selection fees,
which were paid to the former general partners or adviser to
the CRIIMI Funds. These deferred costs are being amortized
using the effective interest method on a specific mortgage
basis from the date of the acquisition of the related
mortgage to the expected dissolution date of the Liquidating
Company (see Note 1). Upon disposition of a mortgage, the
related unamortized fee is treated as part of the mortgage
investment balance in order to measure the gain or loss on
the disposition.
Also included in deferred costs are organizational and
software costs which are amortized using the straight-line
method.
Borrowing Policy
----------------
The Liquidating Company's Articles of Incorporation do
not limit the amount or percentage of indebtedness which the
Liquidating Company may incur. The Liquidating Company does
not intend to incur any indebtedness, except in connection<PAGE>
<PAGE>44
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies - Continued
with the maintenance of its REIT status. During 1993, the
Liquidating Company entered into transactions in which it
incurred debt in connection with the purchase of government
guaranteed mortgage-backed securities and government insured
certificates backed by project loans. This debt was
nonrecourse and fully secured with the purchased government
guaranteed mortgage-backed securities and government insured
certificates backed by project loans. As of December 31,
1993, the Liquidating Company disposed of these government
guaranteed mortgage-backed securities and government insured
certificates backed by project loans, and repaid the related
debt.
Interest expense was based on the seller financing of a
portion of the purchase price of the other short-term
investments in government guaranteed mortgage-backed
securities and government insured certificates backed by
project loans (see Note 7).
Income taxes
------------
The Liquidating Company has qualified and intends to
continue to qualify as a REIT as defined in the Code and, as
such, will not be taxed on that portion of its taxable
income which is distributed to shareholders provided that at
least 95% of such taxable income is distributed. The
Liquidating Company intends to distribute substantially all
of its taxable income and, accordingly, no provision for
income taxes has been made in the accompanying financial
statements. The Liquidating Company, however, may be
subject to tax at normal corporate rates on net income or
capital gains not distributed.
Per share amounts
-----------------
Net income, dividends and return of capital per share
amounts for 1994, 1993 and 1992 represent net income,
dividends and return of capital, respectively, divided by
the weighted average equivalent shares outstanding during
each year. The per share amounts are based on the weighted
average shares outstanding, including shares held for
issuance pending presentation of units in the CRIIMI Funds.
Common stock
------------
The Liquidating Company has authorized 30,425,901
shares of $.01 par value common stock and issued 30,422,711
shares as of December 31, 1994 and 1993, respectively. All
shares issued are outstanding.<PAGE>
<PAGE>45
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties
Below is a summary of the amounts paid or accrued to related
parties during the years 1994, 1993 and 1992.
<TABLE><CAPTION>
For the years ended December 31,
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Adviser:
------
Annual fee $ 696,342(c) $ 1,234,291(c) $ 1,214,409
Incentive fee (a) 394,812 256,290 --
------------ ------------ ------------
Total $ 1,091,154 $ 1,490,581 $ 1,214,409
============ ============ ============
CRI:
---
Expense reimburse-
ment (b) $ 285,423 $ 254,039 $ 244,457
============ =========== ===========
(a) Included as a component of net (loss) gains from mortgage
dispositions on the accompanying statements of income.
(b) Included as general and administrative expenses on the
accompanying statements of income.
(c) As a result of reaching the Carryover CRIIMI I Target Yield
(as defined below) during 1994 and 1993, the Liquidating
Company paid deferred annual fees during 1994 and 1993 of
$118,659 and $330,087 (which included $86,395 for 1992),
respectively.
</TABLE></PAGE>
The Liquidating Company has entered into an agreement with
the Adviser (see Note 1) (the Advisory Agreement) under which the
Adviser is obligated to evaluate and negotiate voluntary mortgage
dispositions, provide administrative services for the Liquidating
Company and conduct the Liquidating Company's day-to-day affairs.
The Advisory Agreement is for a term through November 27,
1995. The Advisory Agreement, absent a notice of termination or
non-renewal, will be automatically renewed for successive
three-year terms. The Advisory Agreement may be terminated
solely for cause, as defined in the Advisory Agreement, by the
Liquidating Company or the Adviser. Notice of non-renewal must
be given at least 180 days prior to the expiration date of the
Advisory Agreement. If the Liquidating Company terminates the
Advisory Agreement other than for cause, or the Adviser
terminates the Advisory Agreement for cause, in addition to
compensation otherwise due, the Liquidating Company will be
required to pay the Adviser a fee equal to the Annual Fee (as
described below) payable for the previous fiscal year. If the
Advisory Agreement is not renewed, no termination fee will be
payable.
Under the Advisory Agreement, the Adviser receives
compensation from the Liquidating Company as follows:<PAGE>
<PAGE>46
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties - Continued
o An Annual Fee for managing the Liquidating Company's
portfolio of mortgages. The Annual Fee is calculated
separately for each of the remaining mortgage pools
from the former CRIIMI Funds. With respect to CRIIMI I,
the Annual Fee will equal 0.75% of Average Invested
Assets invested in mortgage investments transferred by
CRIIMI I in the Merger, one-third of which will be
deferred and paid on a cumulative basis only during
such quarters as the Carryover CRIIMI I Target Yield,
as discussed below, is achieved on a cumulative basis.
Any such deferred amounts will be paid only out of
proceeds of mortgage dispositions attributable to
CRIIMI I mortgage investments representing market
discount.
With respect to CRIIMI II, the Annual Fee will equal
0.75% of Average Invested Assets invested in existing
mortgage investments transferred by CRIIMI II in the
Merger, one-fourth of which will be deferred and paid
on a cumulative basis only during such quarters as the
Carryover CRIIMI II Target Yield, as discussed below,
is achieved on a cumulative basis. Any such deferred
amounts will be paid only out of operating income
attributable to CRIIMI II mortgage investments.
With respect to CRIIMI III, the Annual Fee will equal
0.25% of Average Invested Assets invested in mortgage
investments transferred by CRIIMI III in the Merger.
After December 31, 1993, this fee was reduced to 0.125%
for any quarter that the Carryover CRIIMI III
Cumulative Annual Fee Yield, as discussed below, is not
achieved.
The Carryover CRIIMI I Target Yield will be achieved
during any quarter that the former CRIIMI I mortgage
investments transferred in the Merger generate a
cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of
13.33% per annum based on financial statement income.
The Carryover CRIIMI II Target Yield will be achieved
during any quarter that the former CRIIMI II mortgage
investments transferred in the Merger generate a
cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of
11.66% per annum based on financial statement income.
The Carryover CRIIMI III Cumulative Annual Fee Yield
will be achieved during any quarter, commencing after
December 31, 1993, that the former CRIIMI III mortgage
investments transferred in the Merger generate a
cumulative yield (including gains or losses on mortgage
dispositions) on amounts invested in such assets of
10.89% per annum based on financial statement income. <PAGE>
<PAGE>47
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties - Continued
Detail of the Annual Fees paid for the years 1994, 1993
and 1992 is as follows:<PAGE>
<TABLE><CAPTION>
For the year ended December 31, 1994
Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------ ---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.40% $ 237,051 $ 118,659 $ 355,710 $ -- $ --
CRIIMI II 11.66% 10.58% 266,215 -- 266,215 88,297 1,961,817
CRIIMI III 10.89% 7.95% 74,417 -- 74,417 -- --
---------- --------- --------- ---------- ----------
Totals $ 577,683 $ 118,659 $ 696,342 $ 88,297 $1,961,817
========== ========= ========= ========== ==========
</TABLE></PAGE>
<TABLE><CAPTION>
For the year ended December 31, 1993
Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------- ---------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.33% $ 314,595 $ 243,692 $ 558,287 $ -- $ --
CRIIMI II 11.66% 10.05% 484,147 -- 484,147 162,390 1,873,520
CRIIMI III 10.89% 8.05% 191,857 -- 191,857 -- --
----------- ----------- ----------- ---------- ----------
Totals $ 990,599 $ 243,692 $ 1,234,291 $ 162,390 $1,873,520
=========== =========== =========== ========== ==========
</TABLE></PAGE>
<TABLE><CAPTION>
For the year ended December 31, 1992
Cumulative Actual Annual Fees Paid Annual
Target/Annual Cumulative Annual Deferred Fees Cumulative
Yield Yield Component Component Total Deferred Deferred
------------- ---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CRIIMI I 13.33% 13.24% $ 344,090 $ 85,650 $ 429,740 $ 86,395 $ 86,395
CRIIMI II 11.66% 9.92% 540,204 -- 540,204 180,068 1,711,130
CRIIMI III 10.89% 8.07% 244,465 -- 244,465 -- --
----------- ----------- ----------- --------- ----------
Totals $ 1,128,759 $ 85,650 $ 1,214,409 $ 266,463 $1,797,525
=========== =========== =========== ========= ==========
/TABLE></PAGE
<PAGE>
<PAGE>48
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
3. Transactions with Related Parties - Continued
o The Adviser is also entitled to certain Incentive Fees
(the Incentive Fee) in connection with the disposition
of certain mortgage investments. Like the Annual Fee,
the Incentive Fees are calculated separately with
respect to mortgage investments transferred in the
Merger by CRIIMI I and CRIIMI II. No Incentive Fees
are payable with respect to mortgage investments
transferred by CRIIMI III.
During any quarter in which either the Carryover CRIIMI
I or CRIIMI II Target Yields have been achieved on a
cumulative basis and the Adviser has been paid any
deferred amounts of the Annual Fee, the Incentive Fee
will equal approximately 9.08% of net disposition
proceeds representing the financial statement gain on
the related CRIIMI I or CRIIMI II mortgage investments
disposed of.
The Carryover CRIIMI I Adjusted Contribution and the
Carryover CRIIMI II Adjusted Share Capital equal the
aggregate Adjusted Contribution of CRIIMI I investors
(initial investment of investors reduced by all amounts
distributed to them representing distributions of
principal on their original mortgage investments other
than distributions of proceeds of mortgage dispositions
representing market discount that have been applied to
the Target Yield) and the aggregate Share Capital of
CRIIMI II investors (initial investment of investors
reduced by all amounts distributed to them representing
distributions of principal on their original mortgage
investments other than distributions of proceeds of
mortgage dispositions representing market discount that
have been applied to the Target Yield), respectively,
as of November 27, 1989, the consummation date of the
Merger. Subsequent to November 27, 1989, the Carryover
CRIIMI I Adjusted Contribution and the Carryover CRIIMI
II Adjusted Share Capital are reduced by all amounts of
principal received from their respective former mort-
gage investments, whether as part of regular mortgage
payments or as proceeds of mortgage dispositions,
except for proceeds of mortgage dispositions repre-
senting market discount that have been applied to the
respective Target Yield.<PAGE>
<PAGE>49
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
4. Fair Value of Financial Instruments
In accordance with the Liquidating Company's implementation
of Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115) as of December 31, 1993, the Liquidating
Company's Investment in Mortgages is recorded at fair value, as
estimated below, as of December 31, 1994 and December 31, 1993.
The difference between the amortized cost and the fair value of
the mortgage investments represents the net unrealized gains on
the Liquidating Company's mortgage investments and is reported as
a separate component of shareholders' equity.
The following estimated fair values of the Liquidating
Company's financial instruments are presented in accordance with
generally accepted accounting principles. These estimated fair
values, however, do not represent the liquidation value or the
market value of the Liquidating Company.
<TABLE><CAPTION>
As of December 31, 1994 As of December 31, 1993
Amortized Cost Fair Value Amortized Cost Fair Value
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Investment in Mortgages:
Discount $121,283,765 $139,416,004 $174,762,284 $225,447,845
Near par or premium 14,837,135 14,957,572 16,983,594 17,647,797
------------ ------------ ------------ ------------
136,120,900 154,373,576 191,745,878 243,095,642
------------ ------------ ------------ ------------
Cash and cash equivalents 3,294,161 3,294,161 2,907,147 2,907,147
Accrued interest receivable 1,196,387 1,196,387 1,946,369 1,946,369
</TABLE></PAGE>
The following methods and assumptions were used to estimate
the fair value of each class of financial instruments:
Investment in mortgages
-----------------------
The fair value of the mortgage investments is based on
the average of the quoted market prices from three
investment banking institutions which trade insured mortgage
loans as part of their day-to-day activities.
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amount approximates fair value because of
the short maturity of these instruments.
<PAGE>50
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
As of December 31, 1994, the Liquidating Company owned
44 mortgages. These mortgage investments have a weighted
average net coupon rate of approximately 7.6%, a weighted
average net effective interest rate of approximately 10.02%,
and a weighted average remaining term based on face value of
approximately 26 years. Based on the carrying value as of
December 31, 1994, approximately 90% of the 44 mortgage
investments were purchased at a discount (Discount Mortgage
Investments) and 10% were purchased near or at par or for a
premium (Near Par or Premium Mortgage Investments). A
discussion of these types of mortgages is as follows:
Federally Insured Mortgages
---------------------------
The Liquidating Company owns Federally Insured
Mortgages on properties which were acquired by the
predecessor CRIIMI Funds at a discount to face on the belief
that based on economic, market, legal and other factors,
such Discount Mortgage Investments might be sold for cash,
converted to condominium housing or otherwise disposed of or
refinanced in a manner requiring prepayment or permitting
other profitable disposition three to twelve years after
acquisition by the predecessor CRIIMI Funds. The Liquidating
Company also owns near or at par or premium Federally
Insured Mortgages on properties which the Adviser does not
expect to incur a significant financial statement loss if
disposed of, refinanced or otherwise prepaid prior to
maturity. On a tax basis, based on current information,
including the current interest rate environment, the
disposition of mortgage investments is expected to result in
a gain.
Mortgage-Backed Securities
--------------------------
The Liquidating Company also owns Mortgage-Backed
Securities issued by private entities for which the monthly
principal and interest payments of the underlying mortgages
are guaranteed by GNMA (GNMA Mortgage-Backed Securities) or
which are backed by Federally Insured Mortgages. In the
original selection of Mortgage-Backed Securities, the
properties underlying such securities were evaluated
utilizing criteria similar to those employed in selecting
the Liquidating Company's Federally Insured Mortgages.
Participating Mortgages
-----------------------
As of December 31, 1992, the Liquidating Company also
owned three Participating Mortgage Investments. Each
Participating Mortgage Investment consisted of two
components: 85% of the original investment amount was a
Mortgage-Backed Security; and 15% of the original investment
amount was an uninsured equity contribution to the limited<PAGE>
<PAGE>51
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
partnership which owns the underlying property. The equity
contributions represent a purchase of 50 percent ownership
interests in the three limited partnerships and entitle the
Liquidating Company to participate in 50 percent of the net
available cash flow from operations and/or a portion of the
residual value, if any, of the property underlying the GNMA
Mortgage-Backed Security. In addition, the Liquidating
Company is entitled to an annual return on its
Participations. During 1993, the Liquidating Company sold
the mortgage investment components of each of its
Participating Mortgage Investments but retained the
Participation components for all three Participating
Mortgage Investments.
General
-------
The safekeeping and servicing of the mortgage
investments (excluding the Participations) is performed by
various trustees and servicers under the terms of the
Servicing Agreements.
Descriptions of the mortgage investments owned by the
Liquidating Company which exceed approximately 3% of the
aggregate carrying value of the total mortgage investments
as of December 31, 1994, summarized information regarding
other mortgage investments and mortgage investment income
earned in 1994, 1993 and 1992, including interest earned on
the disposed mortgage investments, are as follows:<PAGE>
<PAGE>52
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
<TABLE><CAPTION>
Carrying
Face Value of
Amount of Mortgages
Complex Name Mortgages(B) (A),(C),(D)
- ------------ ------------ ------------
<S> <C> <C>
Federally Insured
Mortgages (FHA)
- ---------------
Discount
- --------
Cloverset Valley
Apts. $ 9,846,791 $ 9,152,039
Cinnamon Run I 10,429,771 9,694,186
Crestwood Villas 6,632,442 6,164,831
Crooked Creek Apts. 6,231,137 5,791,422
Pleasantdale Apts. 6,361,176 5,665,077
Villa de Mission 7,522,189 6,992,624
1120 North LaSalle 13,503,221 12,027,256
Firethorn I 6,796,175 6,316,475
Windrush Apts. 6,685,966 6,214,155
Other
(29 mortgages) 78,605,516 71,397,939
Near Par or Premium
- -------------------
Other
(5 mortgages) 11,581,234 11,871,525
Mortgage-Backed
Securities (GNMA)
Near Par or Premium
- ---------------------
Other
(1 mortgage) 2,997,210 3,086,047
------------ ------------
Investment in Mortgages $167,192,828 $154,373,576
============ ============
Investment in Limited
Partnerships $ -- $ 133,766
============ ============
</TABLE>
<PAGE>53
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
<TABLE><CAPTION>
Mortgage Mortgage Mortgage
Investment Investment Investment
Effective Income Income Income Final
Interest Earned Earned Earned Maturity
Complex Name Rate in 1994 in 1993 in 1992 Date
- ------------ ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Federally Insured
Mortgages (FHA)
- -----------------
Discount
- --------
Cloverset
Valley Apts. 11.28% $ 806,970 $ 810,494 $ 813,643 April 2023
Cinnamon Run I 11.18% 855,700 859,709 863,296 November 2022
Crestwood Villas 10.21% 537,407 540,597 543,479 July 2022
Crooked Creek
Apts. 11.27% 510,143 512,330 514,285 June 2023
Pleasantdale
Apts. 10.62% 513,352 515,557 517,541 September 2024
Villa de
Mission 11.12% 622,834 626,418 629,627 March 2021
1120 North
LaSalle 9.78% 1,084,825 1,091,728 1,097,990 February 2022
Firethorn I 12.28% 561,154 563,026 564,683 September 2023
Windrush Apts. 12.29% 552,993 554,892 556,573 June 2023
Other
(29 mortgages) 8.35%- 6,329,418 6,409,245 6,462,168 September 2012-
12.48% March 2025
Near Par or Premium
- -------------------
Other
(5 mortgages) 9.22%- 1,134,337 1,143,151 1,151,149 February 2023-
10.79% June 2025
Mortgage-Backed
Securities (GNMA)
Near Par or Premium
- ---------------------
Other
(1 mortgage) 10.14% 294,014 295,749 297,318 September 2022
----------- ------------ -----------
Subtotals $13,803,147 $ 13,922,896 $14,011,752
Less Liquidating
Company's share
of mortgage interest
relating to
investment in
limited partnerships
accounted for under
the equity method
(see Note 2) -- (308,093) (972,704)
Mortgage
Dispositions:
1992 9.48%- -- -- 916,225
12.04%
1993 8.44%- -- 2,625,933 5,116,300
11.79%
1994 8.44%-
12.12% 1,591,108 5,422,667 5,460,063
------------ ------------ -----------
Mortgage Investment
Income $ 15,394,255 $ 21,663,403 $24,531,636
============ ============ ===========
(Loss) Income from
Investment in Limited
Partnerships $ (49,032) $ 43,605 $ 600,852
============ ============ ===========
</TABLE>
<PAGE>54
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
(A) All mortgages are collateralized by first liens on
residential apartment or townhouse complexes which have diverse
geographic locations and are Federally Insured Mortgages or
Mortgage-Backed Securities issued or sold pursuant to a program
of GNMA. Payment of principal and interest on Federally Insured
Mortgages is insured by HUD. Payment of the principal and
interest on Mortgage-Backed Securities is guaranteed by GNMA
pursuant to Title 3 of the National Housing Act. The investment
in limited partnerships is not federally insured or guaranteed.
(B) Principal and interest are payable at level amounts over the
life of the mortgage investment. Total annual debt service
payable to the Liquidating Company (including the annual return
on one Participation) for the mortgage investments held as of
December 31, 1994, is approximately $15 million.
(C) Reconciliations of the carrying amount of the mortgage
investments for the years ended December 31, 1994 and 1993
follow:
<TABLE><CAPTION>
For the year ended For the year ended
December 31, 1994 December 31, 1993
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Balance at beginning of year $ 243,095,642 $ 247,240,444
Additions during year:
Amortization of discount 959,320 1,306,553
Net unrealized gains on
investment in mortgages -- 51,349,764
Deductions during year:
Principal payments $ 2,294,050 $ 2,744,035
Mortgage dispositions 54,283,734 54,050,374
Adjustment to net unrealized
gains on investment
in mortgages 33,097,088 --
Amortization of premium 6,514 89,681,386 6,710 56,801,119
---------- ------------- ------------ ------------
Balance at end of year $ 154,373,576 $243,095,642
============= ============
</TABLE></PAGE>
(D) Principal Amount of Loans Subject to Delinquent Principal or
Interest is not presented since all required payments with respect to
these Federally Insured Mortgages or Mortgage-Backed Securities are
current and none of these mortgages are delinquent as of December 31,
1994.<PAGE>
<PAGE>55
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
5. Investment in Mortgages - Continued
Historical Dispositions
-----------------------
<TABLE><CAPTION>
Net Gain
Recognized for Net Gain
Financial Recognized
Type of Dispositions Statement For Tax
Year Assignment(1) Sale Prepayment Total Purposes Purposes(3)
- ---- ------------ ---- ---------- ----- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1992 3 0 0 3 $ 6,097,102 $ 11,202,237
1993 2 5 3 10 8,089,840 14,938,128
1994 3 14 2 19 12,553,281 18,354,126
--- --- --- --- ----------- -----------
8(2) 19 5 32 $26,740,223 $44,494,491
=== === === === =========== ===========
(1) The Liquidating Company may elect to receive insurance benefits in the form
of cash when a government insured multifamily mortgage defaults. In that
event, for FHA Insured Loans 90% of the face value of the mortgage generally
is received within approximately 90 days of assignment of the mortgage to
HUD and 9% of the face value of the mortgage is received upon final processing
by HUD which may not occur in the same year as assignment. If the Liquidating
Company elects to receive insurance benefits in the form of debentures, 99%
of the face value of the mortgage is received upon final processing by HUD.
In the event of a default on a GNMA Mortgage-Backed Security, 100% of the
face value of the security is received upon final processing by GNMA. Gains
from dispositions are recognized upon receipt of funds or debentures and
losses are recognized at the time of assignment.
(2) Five of the eight assignments were sales of government insured multifamily
mortgages then in default and resulted in the Liquidating Company receiving
face value or near face value.
(3) In connection with the Merger, the Liquidating Company recorded its investment
in mortgages at the lower of cost or fair value, which resulted in an over-
all net write down for tax purposes. For financial statement purposes,
carryover basis of accounting was used. Therefore, since the Merger, the
net gain for tax purposes was greater than the net gain recognized for
financial statement purposes. As a REIT, dividends to the Liquidating
Company's shareholders are based on net gains recognized for tax purposes.
</TABLE></PAGE>
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income
On an annual basis, the Liquidating Company expects to
distribute to its shareholders virtually all of its tax basis
income.<PAGE>
<PAGE>56
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income - Continued
Reconciliations of the financial statement net income to the
tax basis income for the years ended December 31, 1994, 1993 and
1992 are as follows:
<TABLE><CAPTION>
1994 1993 1992
----------- ----------- ------------
<S> <C> <C> <C>
Financial statement net
income $26,924,993 $27,636,126 $28,809,166
Adjustments:
Nondeductible expense:
Amortization of deferred
costs 122,750 251,203 305,057
Additional income (loss) due
to basis differences:
Mortgage dispositions 5,800,845 6,848,288 5,105,135
Loss on investment in limited
partnership -- -- 731,951
Reamortization of mortgages 477,071 589,793 664,204
(Loss) Income from investment
in limited partnerships (13,753) 192,081 490,766
Amortization of premium - other
short-term investments -- 3,862,866 1,201,037
Disposition of other short-term
investments -- (3,862,866) (1,202,579)
----------- ----------- -----------
Tax basis income $33,311,906 $35,517,491 $36,104,737
=========== =========== ===========
Tax basis income per share $ 1.09 $ 1.17 $ 1.19
=========== =========== ===========
</TABLE></PAGE>
Differences in the financial statement net income and the
tax basis income principally relate to differences in the tax
bases of assets and liabilities and their related financial
reporting amounts resulting from the Merger and the acquisition
of other short-term investments. Such differences relate to
investments in mortgages, other short-term investments, and
deferred costs.<PAGE>
<PAGE>57
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
6. Reconciliation of Financial Statement Net Income to Tax
Basis Income - Continued
Dividends to shareholders consist of ordinary income,
capital gain and return of capital. Shareholders should expect
distributions representing ordinary income and the market price
of the Liquidating Company shares to decrease as the Liquidating
Company liquidates its assets and distributes return of capital
over time to its shareholders. For the year ended December 31,
1994, dividends of $2.73 per share were paid to shareholders. The
nature of these dividends for income tax purposes on a per share
basis is as follows:
<TABLE><CAPTION>
Non-taxable Capital Ordinary
Dividend Gain Income Total Record Date
--------- ------- -------- ------- ------------------
<S> <C> <C> <C> <C> <C>
Quarter ended
March 31, 1994 $ 1.05 $ 0.39 $ 0.31 $ 1.75 March 24, 1994
Quarter ended
June 30, 1994 0.15 0.06 0.05 0.26 June 20, 1994
Quarter ended
September 30,
1994 0.09 0.03 0.02 0.14 September 19, 1994
Quarter ended
December 31,
1994 0.35 0.12 0.11 0.58 December 19, 1994
--------- ------- ------ -------
Year-to-date
December 31,
1994 $ 1.64 $ 0.60 $ 0.49 $ 2.73
========= ======= ====== =======
</TABLE>
7. Other Short-term Investments
On January 28, 1993, October 15, 1993 and October 28, 1993,
the Liquidating Company entered into investment and financing
agreements with Daiwa Securities America, Inc. (Daiwa). These
transactions assisted in maintaining the Liquidating Company's
REIT status. Pursuant to the terms of these agreements, the
Liquidating Company invested in GNMA mortgage-backed securities
or certificates backed by FHA-Insured project loans
(collectively, the Securities) with unpaid principal balances of
approximately $74.7 million, $40.3 million and $11.9 million,
respectively, at purchase prices of 104.615%, 106.41% and 100.8%,
respectively, of the face values, which earned interest at per
annum pass-through coupon rates of 9.1875%, 13.18% and 8.625%,
respectively. In addition, Daiwa provided financing for
approximately 99% and 86% of the purchase price for the
transactions which occurred on January 28, 1993 and October 15,
1993, respectively, at an interest rate of approximately 3.35%.
The related debt was non-recourse and fully secured with the
Securities which were held by Daiwa in the Liquidating Company's
name. The Liquidating Company disposed of these Securities and
repaid the related debt by the end of 1993. These investments<PAGE>
<PAGE>58
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
7. Other Short-term Investments - Continued
provided a net interest rate spread (after borrowing costs) of
approximately 4%, 3.5% and 3.5%, respectively.<PAGE>
8. Summary of Quarterly Results of Operations (Unaudited)
The following is a summary of unaudited quarterly results of
operations for the years ended December 31, 1994, 1993 and 1992:
<TABLE><CAPTION>
1994
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 4,521,596 $ 3,956,781 $ 3,821,785 $ 3,662,142
Net gain (loss) on mortgage
dispositions 11,826,341 456,640 (782) 271,082
Net income 15,787,800 4,042,601 3,474,928 3,619,664
Net income per share .52 .13 .11 .13
</TABLE></PAGE>
<TABLE><CAPTION>
1993
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 6,473,945 $ 6,445,357 $ 6,125,585 $ 5,566,449
Net gain on
mortgage dispositions 2,058,901 436,123 509,567 5,085,249
Net income 7,338,417 5,583,956 5,167,514 9,546,239
Net income per share .24 .18 .17 .31
</TABLE></PAGE>
<TABLE><CAPTION>
1992
Quarter ended
March 31 June 30 September 30 December 31
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income (primarily mortgage
investment income) $ 7,030,851 $ 6,395,139 $ 7,095,501 $ 6,741,768
Net gain on
mortgage dispositions 5,409,909 4,170 620,747 62,276
Loss on investment in limited
partnership -- -- -- (731,951)
Net income 11,624,859 5,649,572 6,523,786 5,010,949
Net income per share .38 .19 .21 .17
</TABLE></PAGE>
<PAGE>59
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
9. Settlement of Litigation
On March 22, 1990, a complaint was filed on behalf of a
class comprised of certain former investors of CRIIMI III and<PAGE>
CRIIMI II (the Plaintiffs) in the Circuit Court for Montgomery
County, Maryland against the Liquidating Company, CRIIMI MAE,
CRIIMI I and its general partner, CRIIMI II, CRIIMI III and its
general partner, CRI, and Messrs. William B. Dockser, H. William
Willoughby and Martin C. Schwartzberg (the Defendants). On
November 18, 1993, the Court entered an order granting final
approval of a settlement agreement between the Plaintiffs and the
Defendants. Under the terms of the settlement, CRIIMI MAE agreed
to issue to class members, including certain former investors of
CRIIMI I, warrants for up to 2.5 million CRIIMI MAE shares
exercisable for 18 months after issuance at an exercise price of
$13.17 per share. In addition, the settlement included a payment
of $1,400,000 for settlement administration costs and Plaintiff's
attorneys' fees and expenses. Insurance provided $1,150,000 of
the $1,400,000 cash payment, with the balance paid by CRIIMI MAE.
The number of warrants to be issued was dependent on the number
of class members who submitted proof of claim forms by April 15,
1994. Based on the proofs of claim submitted as of such date,
CRIIMI MAE issued warrants for approximately 334,000 shares
pursuant to the settlement agreement. In April 1994, CRIIMI MAE
filed a Registration Statement on Form S-3 (Commission File No.
33-53031) to register up to 375,000 shares of CRIIMI MAE's common
stock, issuable upon the exercise of the warrants of CRIIMI MAE.
10. Investment in Limited Partnerships
The Liquidating Company owns equity interests
(Participations) in three limited partnerships, each of which
owns the property underlying a government insured multifamily
mortgage previously owned and sold at a tax gain by the
Liquidating Company.
In December 1994, the Liquidating Company entered into a
revised option agreement granting the option to an affiliate of
the general partner to purchase the Liquidating Company's limited
partner interest in Laurel Investors Limited Partnership (one of
the Participations), on or before November 30, 1997. In the
event the option is not exercised, the Liquidating Company can
exercise remedies under the Third Amendment to Limited
Partnership Agreement of Laurel Investors Limited Partnership.
It is not anticipated that the exercise of such remedies would
result in any material adverse impact on the results of
operations or financial position of the Liquidating Company.
11. Subsequent Event
On January 20, 1995, in accordance with the Business Plan,
the Liquidating Company sold 21 mortgage investments with an
aggregate amortized cost of $48.1 million at December 31, 1994,
ten of which resulted in a financial statement gain and all of
which resulted in tax basis gains. The 21 dispositions resulted
in net financial statement gains of approximately $1.6 million<PAGE>
<PAGE>60
CRI LIQUIDATING REIT, INC.
NOTES TO FINANCIAL STATEMENTS
11. Investment in Limited Partnerships - Continued
and tax basis gains of approximately $9.5 million. The sales of
these mortgage investments constitute approximately 33% of the
December 31, 1994 tax basis portfolio balance. As a result of
the sales, the Liquidating Company received aggregate net
proceeds of approximately $49.7 million.<PAGE>
<PAGE>61
<TABLE><CAPTION>
Directors and Executive Officers
- --------------------------------
Liquidating Company
Name Position Principal Occupation
- ---------------------- --------------------- ------------------------
<S> <C> <C>
William B. Dockser Chairman of the Board Chairman of the Board
and Shareholder -
C.R.I., Inc.
H. William Willoughby Director, President President, Secretary,
and Secretary Director and Share-
holder - C.R.I., Inc.
Garrett G. Carlson, Sr. Director Chairman of the Board-
SCA Realty, Inc.;
President - Can
American Realty
Corporation and
Canadian Financial
Corporation
G. Richard Dunnells Director Partner - Holland &
Knight
Robert F. Tardio Director Retired
Jay R. Cohen Executive Vice Senior Vice President,
President and Mortgages - C.R.I.,
Treasurer Inc.
Cynthia O. Azzara Vice President Vice President and
and Chief Chief Financial
Financial Officer Officer
/TABLE></PAGE
<PAGE>
<PAGE>62
The Annual Report to the Securities and Exchange Commission on
Form 10-K is available to Shareholders and may be obtained by
writing:
Investor Services/CRI Liquidating REIT, Inc.
C.R.I., Inc.
The CRI Building
11200 Rockville Pike
Rockville, Maryland 20852
CRI Liquidating REIT, Inc. shares are traded on the New York
Stock Exchange under the symbol CFR.
/PAGE
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE 1994 ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 3,294
<SECURITIES> 154,374
<RECEIVABLES> 1,525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 159,425
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 304
0
0
<OTHER-SE> 158,967
<TOTAL-LIABILITY-AND-EQUITY> 159,425
<SALES> 0
<TOTAL-REVENUES> 28,516
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,925
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,925
<EPS-PRIMARY> .89
<EPS-DILUTED> 0
</TABLE>
