<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
----------------------------
Commission File No. 1-13038
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Full title and address of plan)
CRESCENT REAL ESTATE EQUITIES COMPANY
777 Main Street, Suite 2100
Fort Worth, Texas 76102
(Name of issuer and address of principal executive offices)
<PAGE> 2
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
-------------------------------
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants...........................................................1
Statement of Net Assets Available for Plan Benefits with Fund Information
as of December 31, 1997......................................................................2
Statement of Net Assets Available for Plan Benefits with Fund Information
as of December 31, 1996......................................................................3
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information for the year ended December 31, 1997.............................................4
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information for the year ended December 31, 1996.............................................5
Notes to Financial Statements......................................................................6
Schedule I - Item 27a - Supplemental Schedule of Assets Held for Investment
Purposes as of December 31, 1997.............................................................11
Schedule II - Item 27d - Supplemental Schedule of Reportable Transactions
for the Year Ended December 31, 1997.........................................................12
</TABLE>
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees of
Crescent Real Estate Equities, Ltd. 401(k) Plan:
We have audited the accompanying statements of net assets available for plan
benefits of the Crescent Real Estate Equities, Ltd. 401(k) Plan (the "Plan") as
of December 31, 1997 and 1996, and the related statements of changes in net
assets available for plan benefits for the years then ended. These financial
statements, and the supplemental schedules referred to below, are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 net assets available for plan benefits of the Plan
as of December 31, 1997 and 1996, and the changes in net assets available for
plan benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
Held for Investment Purposes and Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The Fund information in
the statements of net assets available for plan benefits and the statements of
changes in net assets available for plan benefits is presented for purposes of
additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits for each fund.
The supplemental schedules and Fund information have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
The schedule of reportable transactions that accompanies the Plan's financial
statements does not disclose, for the period of January 1, 1997 through July 10,
1997, the historical cost of certain transactions or gains and losses on sales
for assets held by the Plan custodian. Disclosure of this information is
required by the Department of Labor Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974.
ARTHUR ANDERSEN LLP
Dallas, Texas
June 18, 1998
1
<PAGE> 4
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
---------------------------------------------------------------
BOND SMALL PRINCIPAL T. ROWE
BOND & EMPHASIS COMPANY INTERNATIONAL STABLE PRICE
MORTGAGE BALANCED BLEND STOCK VALUE MID-CAP
ACCOUNT ACCOUNT ACCOUNT ACCOUNT FUND GROWTH
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Mutual funds $33,332 $30,743 $114,463 $139,404 $319,230 $209,121
Equities -- -- -- -- -- --
Participant loans -- -- -- -- -- --
Receivables:
Company's contribution 1,349 3,424 5,095 5,320 3,344 10,204
------- ------- -------- -------- -------- --------
TOTAL ASSETS 34,681 34,167 119,558 144,724 322,574 219,325
------- ------- -------- -------- -------- --------
LIABILITIES
Excess contributions payable -- -- 2,927 1,892 1,061 230
------- ------- -------- -------- -------- --------
TOTAL LIABILITIES -- -- 2,927 1,892 1,061 230
------- ------- -------- -------- -------- --------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $34,681 $34,167 $116,631 $142,832 $321,513 $219,095
======= ======= ======== ======== ======== ========
<CAPTION>
NON PARTICIPANT
PARTICIPANT DIRECTED DIRECTED
--------------------------------------------- ----------
VANGUARD CRESCENT
U.S. GROWTH VANGUARD STOCK LOAN OPERATING,
FUND WELLINGTON FUND FUND INC. STOCK TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Mutual funds $462,929 $217,352 $ -- $ -- $ -- $1,526,574
Equities -- -- 1,390,959 -- 37,262 1,428,221
Participant loans -- -- -- 15,981 -- 15,981
Receivables:
Company's contribution 14,662 5,564 44,194 -- -- 93,156
-------- -------- ---------- ------- ------- ----------
TOTAL ASSETS 477,591 222,916 1,435,153 15,981 37,262 3,063,932
-------- -------- ---------- ------- ------- ----------
LIABILITIES
Excess contributions payable 868 420 9,224 -- -- 16,622
-------- -------- ---------- ------- ------- ----------
TOTAL LIABILITIES 868 420 9,224 -- -- 16,622
-------- -------- ---------- ------- ------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $476,723 $222,496 $1,425,929 $15,981 $37,262 $3,047,310
======== ======== ========== ======= ======= ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
2
<PAGE> 5
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE
FIDELITY FIDELITY MONEY NATIONWIDE
DREYFUS MAGELLAN ASSET MARKET GUARANTEED STOCK LOAN
BONDS FUND MANAGER FUND ACCOUNT FUND FUND TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Mutual funds $78,995 $528,078 $267,698 $20,647 $ -- $ -- $ -- $ 895,418
Guaranteed investment contract -- -- -- -- 308,968 -- -- 308,968
Equities -- -- -- -- -- 306,338 -- 306,338
Participant loans -- -- -- -- -- -- 21,485 21,485
Receivables:
Company's contribution 2,775 18,127 8,102 486 4,225 10,975 -- 44,690
------- -------- -------- ------- -------- -------- ------- ----------
TOTAL ASSETS 81,770 546,205 275,800 21,133 313,193 317,313 21,485 1,576,899
------- -------- -------- ------- -------- -------- ------- ----------
LIABILITIES
Excess contributions payable 2,024 24,419 19,175 600 7,035 -- -- 53,253
------- -------- -------- ------- -------- -------- ------- ----------
TOTAL LIABILITIES 2,024 24,419 19,175 600 7,035 -- -- 53,253
------- -------- -------- ------- -------- -------- ------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $79,746 $521,786 $256,625 $20,533 $306,158 $317,313 $21,485 $1,523,646
======= ======== ======== ======= ======== ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE> 6
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN
BENEFITS WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------------------------
NATIONWIDE
FIDELITY FIDELITY MONEY NATIONWIDE BOND &
DREYFUS MAGELLAN ASSET MARKET GUARANTEED MORTGAGE
BONDS FUND MANAGER FUND ACCOUNT ACCOUNT
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 1,669 $ 90,914 $ 29,877 $ -- $ -- $ 1,172
Interest and dividends -- -- -- 408 9,582 --
Contributions:
Company's -- -- -- -- -- 1,349
Participants' 6,833 68,389 31,046 2,928 13,021 6,578
Rollovers 11 15,780 1,193 -- 22,639 58
-------- --------- --------- ------- --------- --------
Total Contributions 6,844 84,169 32,239 2,928 35,660 7,985
-------- --------- --------- ------- --------- --------
TOTAL ADDITIONS 8,513 175,083 62,116 3,336 45,242 9,157
-------- --------- --------- ------- --------- --------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants -- -- -- -- -- --
Benefits paid to participants (3,317) (11,923) (395) (4,051) (28,097) (272)
-------- --------- --------- ------- --------- --------
TOTAL DEDUCTIONS (3,317) (11,923) (395) (4,051) (28,097) (272)
-------- --------- --------- ------- --------- --------
LOANS ISSUED TO PARTICIPANTS -- -- -- -- -- --
LOAN PRINCIPAL REPAYMENTS 212 880 258 -- 354 53
FORFEITURES 321 1,267 1,486 (3,481) 407 --
INTERFUND TRANSFERS (85,475) (687,093) (320,090) (16,337) (324,064) 25,743
-------- --------- --------- ------- --------- --------
NET CHANGE (79,746) (521,786) (256,625) (20,533) (306,158) 34,681
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 79,746 521,786 256,625 20,533 306,158 --
-------- --------- --------- ------- --------- --------
END OF YEAR $ -- $ -- $ -- $ -- $ -- $ 34,681
======== ========= ========= ======= ========= ========
<CAPTION>
PARTICIPANT DIRECTED
--------------------------------------------------------------------------
BOND SMALL PRINCIPAL T. ROWE
EMPHASIS COMPANY INTERNATIONAL STABLE PRICE VANGUARD
BALANCED BLEND STOCK VALUE MID-CAP U.S. GROWTH
ACCOUNT ACCOUNT ACCOUNT FUND GROWTH FUND
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) 1,199 $ 2,948 $ (767) $ 8,292 14,688 $ 22,374
Interest and dividends -- -- -- -- -- 3,686
Contributions:
Company's 3,424 5,095 5,320 3,344 10,204 14,662
Participants' 10,322 32,557 33,763 30,832 59,086 98,190
Rollovers 147 4,201 29,509 11,086 9,361 85,121
-------- --------- --------- --------- -------- ---------
Total Contributions 13,893 41,853 68,592 45,262 78,651 197,973
-------- --------- --------- --------- -------- ---------
TOTAL ADDITIONS 15,092 44,801 67,825 53,554 93,339 224,033
-------- --------- --------- ---------- -------- ---------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants -- (2,927) (1,892) (1,061) (230) (868)
Benefits paid to participants (280) (5,155) (5,180) (17,346) (1,869) (5,485)
-------- --------- --------- --------- -------- ---------
TOTAL DEDUCTIONS (280) (8,082) (7,072) (18,407) (2,099) (6,353)
-------- --------- --------- --------- -------- ---------
LOANS ISSUED TO PARTICIPANTS -- (1,236) (1,045) -- (525) (1,750)
LOAN PRINCIPAL REPAYMENTS -- 25 24 106 41 24
FORFEITURES -- -- -- -- -- --
INTERFUND TRANSFERS 19,355 81,123 83,100 286,260 128,339 260,769
-------- --------- --------- --------- -------- ---------
NET CHANGE 34,167 116,631 142,832 321,513 219,095 476,723
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR -- -- -- -- -- --
-------- --------- --------- --------- -------- ---------
END OF YEAR $ 34,167 $ 116,631 $ 142,832 $ 321,513 219,095 $ 476,723
======== ========= ========= ========= ======== =========
<CAPTION>
NON PARTICIPANT
PARTICIPANT DIRECTED DIRECTED
--------------------------------------- --------
CRESCENT
VANGUARD STOCK LOAN OPERATING,
WELLINGTON FUND FUND INC. STOCK TOTAL
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 9,728 $ 356,484 $ -- $ 35,756 $ 574,334
Interest and dividends 4,271 20,788 722 1,506 40,963
Contributions:
Company's 5,564 44,194 -- -- 93,156
Participants' 38,531 230,012 -- -- 662,088
Rollovers 89,286 30,742 -- -- 299,134
--------- ----------- --------- ---------- -----------
Total Contributions 133,381 304,948 -- -- 1,054,378
--------- ----------- --------- ---------- -----------
TOTAL ADDITIONS 147,380 682,220 722 37,262 1,669,675
--------- ----------- --------- ---------- -----------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants (420) (9,224) -- -- (16,622)
Benefits paid to participants (419) (45,600) -- -- (129,389)
--------- ----------- --------- ---------- -----------
TOTAL DEDUCTIONS (839) (54,824) -- -- (146,011)
--------- ----------- --------- ---------- -----------
LOANS ISSUED TO PARTICIPANTS -- (6,200) 10,756 -- --
LOAN PRINCIPAL REPAYMENTS -- 15,005 (16,982) -- --
FORFEITURES -- -- -- -- --
INTERFUND TRANSFERS 75,955 472,415 -- -- --
--------- ----------- --------- ---------- -----------
NET CHANGE 222,496 1,108,616 (5,504) 37,262 1,523,664
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR -- 317,313 21,485 -- 1,523,646
--------- ----------- --------- ---------- -----------
END OF YEAR $ 222,496 $ 1,425,929 $ 15,981 $ 37,262 $ 3,047,310
========= =========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE> 7
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND
INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NATIONWIDE
FIDELITY FIDELITY MONEY NATIONWIDE
DREYFUS MAGELLAN ASSET MARKET GUARANTEED
BONDS FUND MANAGER FUND ACCOUNT
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain $ 1,510 $ 45,076 $ 24,677 $ -- $ --
Interest income -- -- -- 578 17,801
Contributions:
Company's 2,775 18,127 8,102 486 4,225
Participants' 21,015 156,642 72,864 2,713 42,298
Rollovers 3,594 47,888 7,932 215 410
---------- ---------- ---------- ---------- ----------
Total Contributions 27,384 222,657 88,898 3,414 46,933
---------- ---------- ---------- ---------- ----------
TOTAL ADDITIONS 28,894 267,733 113,575 3,992 64,734
---------- ---------- ---------- ---------- ----------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants 2,024 24,419 19,175 600 7,035
Benefits paid to participants 7,508 94,266 16,675 12,340 123,186
---------- ---------- ---------- ---------- ----------
TOTAL DEDUCTIONS 9,532 118,685 35,850 12,940 130,221
---------- ---------- ---------- ---------- ----------
LOANS ISSUED TO PARTICIPANTS (1,800) (2,238) -- (1,000) (3,000)
LOAN PRINCIPAL REPAYMENTS 291 1,934 1,005 -- 485
FORFEITURES (269) (2,740) (699) 4,440 (732)
INTERFUND TRANSFERS (1,604) (878) (442) 12,291 3,728
---------- ---------- ---------- ---------- ----------
NET CHANGE 15,980 145,126 77,589 6,783 (65,006)
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 63,766 376,660 179,036 13,750 371,164
---------- ---------- ---------- ---------- ----------
END OF YEAR $ 79,746 $ 521,786 $ 256,625 $ 20,533 $ 306,158
========== ========== ========== ========== ==========
<CAPTION>
STOCK CASH LOAN
FUND ACCOUNT FUND TOTAL
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain $ 92,230 $ -- $ -- $ 163,493
Interest income -- -- 2,074 20,453
Contributions:
Company's 10,975 -- -- 44,690
Participants' 86,351 10,716 -- 392,599
Rollovers -- -- -- 60,039
---------- ---------- ---------- ----------
Total Contributions 97,326 10,716 -- 497,328
---------- ---------- ---------- ----------
TOTAL ADDITIONS 189,556 10,716 2,074 681,274
---------- ---------- ---------- ----------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants -- -- -- 53,253
Benefits paid to participants -- -- 7,824 261,799
---------- ---------- ---------- ----------
TOTAL DEDUCTIONS -- -- 7,824 315,052
---------- ---------- ---------- ----------
LOANS ISSUED TO PARTICIPANTS -- -- 8,038 --
LOAN PRINCIPAL REPAYMENTS -- -- (3,715) --
FORFEITURES -- -- -- --
INTERFUND TRANSFERS (2,379) (10,716) -- --
---------- ---------- ---------- ----------
NET CHANGE 187,177 -- (1,427) 366,222
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 130,136 -- 22,912 1,157,424
---------- ---------- ---------- ----------
END OF YEAR $ 317,313 $ -- $ 21,485 $1,523,646
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
5
<PAGE> 8
CRESCENT REAL ESTATE EQUITIES, LTD.
401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN:
The following description of the Crescent Real Estate Equities, Ltd. (the
"Company") 401(k) Plan (the "Plan") provides only general information.
Participants should refer to the Plan agreement for a more comprehensive
description of the Plan's provisions.
General - The Plan was established on July 1, 1994. The Plan is a defined
contribution plan covering all employees of the Company who have completed
one month of service and are age twenty-one or older. Eligible employees
may elect to participate in the Plan on the first day of the month, (as
amended on September 9, 1996), after their first month of service. It is
subject to the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Nationwide Life Insurance
Company ("Nationwide") served as the asset custodian for the Plan for the
year ended December 31, 1996 through July 10, 1997 at which time the Plan's
assets were transferred to The Principal Financial Group ("Principal"), the
new asset custodian. Principal shared responsibilities as the asset
custodian with Nationwide for the period from April 4, 1997 through July
10, 1997 by receiving all employee contributions and rollovers for this
period.
Contributions - Each year, participants may contribute up to 15 percent of
pretax annual compensation, as defined in the Plan. A participant's
contribution may not exceed an amount determined by the Internal Revenue
Service each calendar year ($9,500 in 1997 and 1996). The participants may
change their percent contribution election monthly. The Company matches 25
percent of participants' contributions up to the first four percent of base
compensation. In addition to the matching contribution, the Company may
make a discretionary contribution which is determined and approved by the
board of directors annually. No discretionary contribution payment was made
for the years ended December 31, 1997 and 1996. All Company contributions
are invested based upon participant account elections.
Participant accounts - Each participant's account is credited with the
participant's contribution and allocations of (a) Company's contribution,
(b) Plan earnings, and (c) forfeited balances of terminated participants'
non-vested accounts. Allocations are based on participant earnings or
account balances, as defined.
Vesting - Participants are immediately vested in their voluntary
contributions plus actual earnings thereon. Vesting in the Company's
matching and discretionary contribution portion of the participants'
accounts inclusive of forfeitures plus actual earnings thereon is based on
years of continuous service. A participant is 100 percent vested after five
years of credited service. The vesting schedule is as follows:
Years of
Service Percentage
--------- ----------
1 20%
2 40%
3 60%
4 80%
5 100%
6
<PAGE> 9
Investment options - Upon enrollment in the Plan, a participant is able to
direct employee contributions into one of or in a combination of any six
investment options for the year ended December 31, 1996 and for the period
from January 1 through April 3, 1997. For the period from April 4, 1997
through December 31, 1997, the participant is able to direct employee
contributions into nine investment options. A brief description of each
investment option is provided below for both 1997 and 1996:
1997
----
1. Bond & Mortgage Account -
Funds are loaned to companies through bonds and commercial
mortgages with durations ranging from five to ten years.
2. Bond Emphasis Balanced Account -
Funds are invested primarily in stocks, bonds, government
securities and real estate through other separate accounts of
Principal.
3. Small Company Blend Account -
Funds are invested in stocks of smaller, seasoned companies
seeking long term growth to be above average.
4. International Stock Account -
Funds are invested in common stocks of companies located outside
the U.S. primarily in Western Europe and Asia.
5. Principal Stable Value Fund -
Funds are primarily invested in insurance contracts issued by
insurance companies and investments from other financial
institutions which offer stability of principal.
6. T. Rowe Price Mid-Cap Growth -
Funds are invested in mid size companies that have the potential
of increased earnings of at least 12% per year.
7. Vanguard U.S. Growth Fund -
Funds are invested in companies in traditional growth industries
such as technology and health care.
8. Vanguard Wellington -
Funds are invested 60% to 70% in stocks with the remainder
invested in bonds.
9. Stock Fund -
Funds are invested in common shares of Crescent Real Estate
Equities Company.
1996
----
1. Dreyfus Bonds -
Funds were invested in corporate and government instruments
seeking current income and preservation of capital.
7
<PAGE> 10
2. Fidelity Magellan Fund-
A mutual fund investing primarily in common stocks and
convertible securities, both domestic and foreign.
3. Fidelity Asset Manager -
A mutual fund investing in stocks, bonds and short-term
instruments seeking high total return with reduced risk over
the long term.
4. Nationwide Money Market Fund-
Funds were invested in a diversified portfolio of high quality
money market instruments maturing in 397 days or less.
5. Nationwide Guaranteed Account -
Funds were invested in a guaranteed return investment contract
that provides an annual interest guarantee, based on the
investment yield realized on Nationwide's General Account, the
crediting interest yield was 4.6% and 5.6% for 1997 (through
July 10, 1997) and 1996, respectively. The average yield was
6.0% and 5.2% for 1997 (through July 10, 1997) and 1996,
respectively.
6. Stock Fund -
Funds are invested in common shares of Crescent Real Estate
Equities Company.
Participants may change their investment options daily for any of the funds
except the Stock Fund. Investment option changes that affect the Stock Fund
may be done monthly.
Participant notes receivable - Participants may borrow from their fund
accounts, a minimum of $1,000 and a maximum equal to the lesser of $50,000
or 50 percent of their vested account balance. Loans are available to all
participants only after the trustees have evaluated the applicant's credit
worthiness and purpose and terms of the loan. Loan transactions are treated
as a transfer to (from) the investment fund from (to) the Participant Loan
fund. Loan terms range from one to five years or a reasonable period of
time greater than 5 years for the purchase of a principal residence. The
loans are secured by the balance in the participant's account and bear
interest at the prime rate listed in the Wall Street Journal plus 1%. The
interest rate must be one that a bank or other professional lender would
charge for making a loan in a similar circumstance. The interest rate at
December 31, 1997 and 1996 was 10.5% and 9.25%, respectively. Principal and
interest have a definite repayment period which provides for payments to be
made not less frequently than quarterly.
Payment of benefits - Upon termination of service due to death, total and
permanent disability, or retirement, a participant may elect to either
receive a lump-sum amount equal to the value of the participant's vested
interest in his or her account or select the installment plan, only if the
participant's account balance exceeds $3,500 ($5,000 after December 31, 1997
as amended in the restated plan document effective March 17, 1997). For
termination of service due to other reasons, a participant may receive the
value of the vested interest in his or her account as a lump-sum
distribution.
Disposition of forfeitures - Forfeitures attributable to the Company
matching contributions shall be allocated among the participants' accounts
annually determined by the percentage which the participant's account
balance for the year bears to the total of all participants' accounts for
the year. Forfeitures for 1997 and 1996 were $3,481 and $4,440,
respectively.
8
<PAGE> 11
2. SUMMARY OF ACCOUNTING POLICIES:
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method
of accounting in conformity with generally accepted accounting principles
("GAAP").
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Actual results could
differ from those estimates.
Certain of the funds in which the Plan invests utilize several investment
strategies including the use of derivative investments. Derivatives are
used to hedge against currency and interest rate fluctuations. Derivative
investments underlying funds are stated at fair market value. The Plan's
exposure is limited to the fund(s) utilizing the derivative investment.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value, except for its investment
contract, which is valued at contract value. Shares of registered
investment companies are valued at quoted market prices, which represent the
net asset value of shares held by the Plan at year end. The Company shares
are valued at quoted market price. Participant loans are valued at cost,
which approximates fair value.
The contract value of the Nationwide Guaranteed Account is determined by
summing principal, contributions and interest earned less administrative
expenses. The contract was included in the financial statements at contract
value, which approximates fair value, as reported to the Plan by Nationwide.
Purchases and sales of securities are recorded on a trade date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
Payment of Benefits
Benefits are recorded when paid.
3. ASSETS HELD FOR INVESTMENT PURPOSES:
The fair market value of the following investments represent 5% or more of
the Plan's net assets available for plan benefits at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Principal Stable Value Fund $ 319,230 $ -
T. Rowe Price Mid-Cap Growth 209,121 -
Vanguard U. S. Growth Fund 462,929 -
Vanguard Wellington 217,352 -
Dreyfus Bonds - 78,995
Fidelity Magellan Fund - 528,078
Fidelity Asset Manager - 267,698
Nationwide Guaranteed Account - 308,968
Stock Fund 1,390,959 306,338
</TABLE>
9
<PAGE> 12
4. PLAN TERMINATION:
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
Amounts will be distributed in accordance with Plan provisions.
5. TAX STATUS:
The Plan is designed to be a qualified plan under Section 401(a) of the
Internal Revenue Code (the "Code") and therefore, the Plan and related trust
is exempt from federal income tax under Section 501(a) of the Code.
The Plan filed its determination letter application on January 25, 1995 with
the Internal Revenue Service and received a favorable determination letter
dated March 23, 1996 from the Internal Revenue Service as to the
qualification for tax exempt status. The Plan was restated effective March
17, 1997, and the Company has requested a new Internal Revenue Service
determination letter for the restated Plan. The plan administrator believes
a favorable letter will be received.
6. RELATED PARTY TRANSACTIONS:
All administrative expenses and accounting fees of the Plan are to be paid
by the Company. The Company paid approximately $21,750 and $12,995 for
administrative and accounting fees on behalf of the Plan during fiscal years
1997 and 1996, respectively. Under the terms of the Plan, the Plan is not
responsible for reimbursing the Company for any fees paid by the Company.
Effective June 12, 1997, all participants received a stock dividend of one
share of Crescent Operating, Inc. stock for each ten shares of Crescent Real
Estate Equities Company common stock held.
10
<PAGE> 13
SCHEDULE I
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
ITEM 27A - SUPPLEMENTAL SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
PLAN NUMBER: 001
EIN: 75-2526839
<TABLE>
<CAPTION>
(b) (c) (d) (e)
IDENTITY OF DESCRIPTION CURRENT
(a) ISSUER OF INVESTMENT COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
* The Principal Financial Group Mutual Fund - Bond & Mortgage Account $ 32,160 $ 33,332
* The Principal Financial Group Mutual Fund - Bond Emphasis Balanced Account 29,544 30,743
* The Principal Financial Group Mutual Fund - Small Company Blend Account 111,515 114,463
* The Principal Financial Group Mutual Fund - International Stock Account 140,171 139,404
* The Principal Financial Group Mutual Fund - Principal Stable Value Fund 310,938 319,230
T. Rowe Price Associates Mutual Fund - T. Rowe Price Mid-Cap Growth 194,433 209,121
Vanguard Mutual Fund - Vanguard U. S. Growth Fund 440,555 462,929
Vanguard Mutual Fund - Vanguard Wellington 207,624 217,352
* Crescent Real Estate
Equities Company Common Shares (Par value $.01) 1,034,475 1,390,959
* Participant Loans Loans to Participants
(Interest rates range from 9.25% to 10.5%) -- 15,981
* Crescent Operating, Inc. Common Stock (Par value $.01) 1,506 37,262
----------- ----------
$ 2,502,921 $ 2,970,776
=========== ===========
</TABLE>
* in column (a) indicates each identified person/entity known to be
a party-in-interest.
This supplemental schedule lists assets held for investment purposes at
December 31, 1997, as required by the Department of Labor Rules and
Regulations for Reporting and Disclosure.
11
<PAGE> 14
SCHEDULE II
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
ITEM 27d - SUPPLEMENTAL SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
PLAN NUMBER: 001
EIN: 75-2526839
<TABLE>
<CAPTION>
(a) (b) (c) (d) (f)
EXPENSE
IDENTITY DESCRIPTION INCURRED
OF OF PURCHASE SELLING WITH
ISSUER ASSET PRICE PRICE TRANSACTION
- -----------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL TRANSACTIONS:
<S> <C> <C> <C> <C>
The Principal Financial Group Small Company Blend Account $ 80,765 $ -- $ --
The Principal Financial Group International Stock Account 83,100 -- --
The Principal Financial Group T. Rowe Price Mid-Cap Growth 128,339 -- --
The Principal Financial Group Vanguard U.S. Growth Fund 260,769 -- --
Crescent Real Estate Equities Company Common Stock (Par Value $.01) 477,935 -- --
The Principal Financial Group Principal Stable Value Fund 293,972 -- --
SERIES OF TRANSACTIONS:
Dreyfus A Bonds Plus, Inc. Mutual Fund - Dreyfus Bonds $ -- $ 90,933 $ --
Fidelity Investments Mutual Fund - Fidelity Magellan Fund 105,838 -- --
Fidelity Investments Mutual Fund - Fidelity Magellan Fund -- 724,830 --
Fidelity Investments Mutual Fund - Fidelity Asset Manager -- 339,661 --
Nationwide Life Insurance Company Nationwide Guaranteed Account @ 5.6% -- 359,364 --
The Principal Financial Group Principal Money Market Fund 1,435,799 -- --
The Principal Financial Group Principal Money Market Fund -- 1,442,924 --
The Principal Financial Group Small Company Blend Account 118,312 -- --
The Principal Financial Group International Stock Account 146,822 -- --
The Principal Financial Group T. Rowe Price Mid-Cap Growth 199,533 -- --
The Principal Financial Group Vanguard U.S. Growth Fund 461,267 -- --
The Principal Financial Group Vanguard Wellington 217,296 -- --
Crescent Real Estate Equities Company Common Stock (Par Value $.01) 777,511 -- --
The Principal Financial Group Principal Stable Value Fund 338,741 -- --
<CAPTION>
(a) (g) (h) (i)
CURRENT VALUE
IDENTITY COST OF ASSET ON NET
OF OF TRANSACTION GAIN
ISSUER ASSET DATE (LOSS)
- ------------------------------------------------------------------------------------------------
INDIVIDUAL TRANSACTIONS:
<S> <C> <C> <C>
The Principal Financial Group $ 80,765 $ 80,765 $ --
The Principal Financial Group 83,100 83,100 --
The Principal Financial Group 128,339 128,339 --
The Principal Financial Group 260,769 260,769 --
Crescent Real Estate Equities Company 477,935 477,935 --
The Principal Financial Group 293,972 293,972 --
SERIES OF TRANSACTIONS:
Dreyfus A Bonds Plus, Inc. $ * $ 90,933 $ *
Fidelity Investments 105,838 105,838 --
Fidelity Investments * 724,830 *
Fidelity Investments * 339,661 *
Nationwide Life Insurance Company * 359,364 *
The Principal Financial Group 1,435,799 1,435,799 --
The Principal Financial Group 1,435,799 1,435,799 7,125
The Principal Financial Group 118,312 118,312 --
The Principal Financial Group 146,822 146,822 --
The Principal Financial Group 199,533 199,533 --
The Principal Financial Group 461,267 461,267 --
The Principal Financial Group 217,296 217,296 --
Crescent Real Estate Equities Company 777,511 777,511 --
The Principal Financial Group 338,741 338,741 --
</TABLE>
Column (e) Lease Rental has been excluded from this schedule because
it does not apply for this Plan
This supplemental schedule lists individual and series of transactions in excess
of 5% of the fair market value of plan assets at the beginning of the
year as required by the Department of Labor Rules and Regulations for Reporting
and Disclosure.
* This information is not provided by Nationwide Life Insurance Company.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this annual report to be signed on its behalf by
the undersigned thereunto duly authorized, on the 29th day of June, 1998.
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
BY: /s/ Dallas E. Lucas
-----------------------------------
Dallas E. Lucas
Trustee
13
