<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
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 1998
------------------------
Commission File No. 1-13038
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
(Full title 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, 1998................................................................ 2
Statement of Net Assets Available for Plan Benefits with Fund Information
as of December 31, 1997................................................................ 3
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information for the Year Ended December 31, 1998....................................... 4
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information for the Year Ended December 31, 1997....................................... 5
Notes to Financial Statements................................................................... 6
Schedule I - Item 27a - Supplemental Schedule of Assets Held for Investment
Purposes as of December 31, 1998....................................................... 11
Schedule II - Item 27d - Supplemental Schedule of Reportable Transactions
for the Year Ended December 31, 1998................................................... 12
Schedule III - Item 27e - Supplemental Schedule of Nonexempt Transactions
for the Year Ended December 31, 1998................................................... 13
</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, 1998 and 1997, 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, 1998 and 1997, 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, Reportable Transactions, and Nonexempt 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.
ARTHUR ANDERSEN LLP
Dallas, Texas
May 13, 1999
<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, 1998
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------------------------
BOND SMALL PRINCIPAL
BOND & EMPHASIS COMPANY INTERNATIONAL STABLE
MORTGAGE BALANCED BLEND STOCK VALUE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT FUND
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Pooled separate account $ 57,152 $ 86,100 $ 208,231 $ 227,333 $ --
Common collective trust -- -- -- -- 412,997
Mutual funds -- -- -- -- --
Equities -- -- -- -- --
Participant loans -- -- -- -- --
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 57,152 86,100 208,231 227,333 412,997
---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 57,152 $ 86,100 $ 208,231 $ 227,333 $ 412,997
========== ========== ========== ========== ==========
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------------------------------
T. ROWE
PRICE VANGUARD
MID-CAP U.S. GROWTH VANGUARD STOCK LOAN
GROWTH FUND WELLINGTON FUND FUND
---------- ---------- ---------- ---------- ----------
ASSETS
Investments, at fair market value:
Pooled separate account $ -- $ -- $ -- $ -- $ --
Common collective trust -- -- -- -- --
Mutual funds 533,194 1,013,061 352,403 -- --
Equities -- -- -- 1,157,642 --
Participant loans -- -- -- -- 74,294
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 533,194 1,013,061 352,403 1,157,642 74,294
---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 533,194 $1,013,061 $ 352,403 $1,157,642 74,294
========== ========== ========== ========== ==========
<CAPTION>
NON PARTICIPANT
DIRECTED
----------
CRESCENT
OPERATING,
INC. STOCK TOTAL
---------- ----------
ASSETS
Investments, at fair market value:
Pooled separate account $ -- $ 578,816
Common collective trust -- 412,997
Mutual funds -- 1,898,658
Equities 6,657 1,164,299
Participant loans -- 74,294
---------- ----------
TOTAL ASSETS 6,657 4,129,064
---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 6,657 $4,129,064
========== ==========
</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, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
--------------------------------------------------------------------------------------
BOND SMALL PRINCIPAL T. ROWE
BOND & EMPHASIS COMPANY INTERNATIONAL STABLE PRICE VANGUARD
MORTGAGE BALANCED BLEND STOCK VALUE MID-CAP U.S. GROWTH
ACCOUNT ACCOUNT ACCOUNT ACCOUNT FUND GROWTH FUND
-------- -------- -------- ------------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Pooled separate accounts $ 33,332 $ 30,743 $114,463 $ 139,404 $ -- $ -- $ --
Common collective trust -- -- -- -- 319,230 -- --
Mutual funds -- -- -- -- -- 209,121 462,929
Equities -- -- -- -- -- -- --
Participant loans -- -- -- -- -- -- --
Receivables:
Company's contribution 1,349 3,424 5,095 5,320 3,344 10,204 14,662
-------- -------- -------- ------------- --------- -------- -----------
TOTAL ASSETS 34,681 34,167 119,558 144,724 322,574 219,325 477,591
-------- -------- -------- ------------- --------- -------- -----------
LIABILITIES
Excess contributions payable -- -- 2,927 1,892 1,061 230 868
-------- -------- -------- ------------- --------- -------- -----------
TOTAL LIABILITIES -- -- 2,927 1,892 1,061 230 868
-------- -------- -------- ------------- --------- -------- -----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 34,681 $ 34,167 $116,631 $ 142,832 $ 321,513 $219,095 $ 476,723
======== ======== ======== ============= ========= ======== ===========
<CAPTION>
NON PARTICIPANT
DIRECTED
---------------------------------------- ----------
CENTRAL
VANGUARD STOCK LOAN OPERATING,
WELLINGTON FUND FUND INC. STOCK TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments, at fair market value:
Pooled separate accounts $ -- $ -- $ -- $ -- $ 317,942
Common collective trust -- -- -- -- 319,230
Mutual funds 217,352 -- -- -- 889,402
Equities -- 1,390,959 -- 37,262 1,428,221
Participant loans -- -- 15,981 -- 15,981
Receivables:
Company's contribution 5,564 44,194 -- -- 93,156
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS 222,916 1,435,153 15,981 37,262 3,063,932
---------- ---------- ---------- ---------- ----------
LIABILITIES
Excess contributions payable 420 9,224 -- -- 16,622
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES 420 9,224 -- -- 16,622
---------- ---------- ---------- ---------- ----------
NET ASSETS AVAILABLE FOR
PLAN BENEFITS $ 222,496 $1,425,929 $ 15,981 $ 37,262 $3,047,310
========== ========== ========== ========== ==========
</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, 1998
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------------------------
BOND SMALL
BOND & EMPHASIS COMPANY INTERNATIONAL
MORTGAGE BALANCED BLEND STOCK
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 3,534 $ 4,655 $ (16,120) $ 14,683
Interest and dividends -- -- -- --
Contributions:
Company's 2,878 5,709 9,887 8,642
Participants' 20,972 28,433 70,735 62,540
Rollovers 3,981 14,263 40,354 22,084
----------- ----------- ----------- -----------
Total Contributions 27,831 48,405 120,976 93,266
----------- ----------- ----------- -----------
TOTAL ADDITIONS 31,365 53,060 104,856 107,949
----------- ----------- ----------- -----------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants (9,116) (344) (5,445) (7,939)
Other Expenses (165) (204) (496) (590)
----------- ----------- ----------- -----------
TOTAL DEDUCTIONS (9,281) (548) (5,941) (8,529)
----------- ----------- ----------- -----------
LOANS ISSUED TO PARTICIPANTS -- -- (4,742) (6,363)
LOAN PRINCIPAL REPAYMENTS 282 -- 1,001 920
FORFEITURES 531 314 -- --
INTERFUND TRANSFERS (426) (893) (3,574) (9,476)
----------- ----------- ----------- -----------
NET CHANGE 22,471 51,933 91,600 84,501
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 34,681 34,167 116,631 142,832
----------- ----------- ----------- -----------
END OF YEAR $ 57,152 $ 86,100 $ 208,231 $ 227,333
=========== =========== =========== ===========
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------------
PRINCIPAL T. ROWE
STABLE PRICE VANGUARD
VALUE MID-CAP U.S. GROWTH VANGUARD
FUND GROWTH FUND WELLINGTON
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 19,515 $ 75,211 $ 176,994 $ (6,896)
Interest and dividends -- -- 4,540 10,681
Contributions:
Company's 9,816 22,539 35,825 13,849
Participants' 62,035 134,416 235,504 84,711
Rollovers 26,773 72,629 87,515 37,402
----------- ----------- ----------- -----------
Total Contributions 98,624 229,584 358,844 135,962
----------- ----------- ----------- -----------
TOTAL ADDITIONS 118,139 304,795 540,378 139,747
----------- ----------- ----------- -----------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants (19,190) (12,274) (20,349) (6,678)
Other Expenses (632) (532) (1,168) (551)
----------- ----------- ----------- -----------
TOTAL DEDUCTIONS (19,822) (12,806) (21,517) (7,229)
----------- ----------- ----------- -----------
LOANS ISSUED TO PARTICIPANTS (1,520) (966) (9,523) (5,485)
LOAN PRINCIPAL REPAYMENTS 1,723 1,133 2,460 614
FORFEITURES (145) (103) (149) (122)
INTERFUND TRANSFERS (6,891) 22,046 24,689 2,382
----------- ----------- ----------- -----------
NET CHANGE 91,484 314,099 536,338 129,907
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 321,513 219,095 476,723 222,496
----------- ----------- ----------- -----------
END OF YEAR $ 412,997 $ 533,194 $ 1,013,061 $ 352,403
=========== =========== =========== ===========
<CAPTION>
NON PARTICIPANT
PARTICIPANT DIRECTED DIRECTED
----------------------------- ---------------
CRESCENT
STOCK LOAN OPERATING,
FUND FUND INC. STOCK TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ (701,860) $ -- $ ($ 30,391) $ (460,675)
Interest and dividends 69,828 2,232 1,393 88,674
Contributions:
Company's 57,724 -- -- 166,869
Participants' 335,409 -- -- 1,034,755
Rollovers 104,180 -- -- 409,181
----------- ----------- ----------- -----------
Total Contributions 497,313 -- -- 1,610,805
----------- ----------- ----------- -----------
TOTAL ADDITIONS (134,719) 2,232 (28,998) 1,238,804
----------- ----------- ----------- -----------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants (67,437) -- (1,176) (149,948)
Other Expenses (2,697) -- (67) (7,102)
----------- ----------- ----------- -----------
TOTAL DEDUCTIONS (70,134) -- (1,243) (157,050)
----------- ----------- ----------- -----------
LOANS ISSUED TO PARTICIPANTS (38,717) 67,316 -- --
LOAN PRINCIPAL REPAYMENTS 3,102 (11,235) -- --
FORFEITURES (326) -- -- --
INTERFUND TRANSFERS (27,493) -- (364) --
----------- ----------- ----------- -----------
NET CHANGE (268,287) 58,313 (30,605) 1,081,754
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 1,425,929 15,981 37,262 3,047,310
----------- ----------- ----------- -----------
END OF YEAR $ 1,157,642 $ 74,294 $ 6,657 $ 4,129,064
=========== =========== =========== ===========
</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, 1997
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-------------------------------------------------------------------------------
NATIONWIDE BOND
FIDELITY FIDELITY MONEY NATIONWIDE BOND & EMPHASIS
DREYFUS MAGELLAN ASSET MARKET GUARANTEED MORTGAGE BALANCED
BONDS FUND MANAGER FUND ACCOUNT ACCOUNT ACCOUNT
--------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <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 $ 1,199
Interest and dividends -- -- -- 408 9,582 -- --
Contributions:
Company's -- -- -- -- -- 1,349 3,424
Participants' 6,833 68,389 31,046 2,928 13,021 6,578 10,322
Rollovers 11 15,780 1,193 -- 22,639 58 147
--------- --------- --------- ---------- ---------- --------- ---------
Total Contributions 6,844 84,169 32,239 2,928 35,660 7,985 13,893
--------- --------- --------- ---------- ---------- --------- ---------
TOTAL ADDITIONS 8,513 175,083 62,116 3,336 45,242 9,157 15,092
--------- --------- --------- ---------- ---------- --------- ---------
DEDUCTIONS:
Deductions from net assets attributed to:
Refunds to participants -- -- -- -- -- -- --
Benefits paid to participants (3,317) (11,923) (395) (4,051) (28,097) (272) (280)
--------- --------- --------- ---------- ---------- --------- ---------
TOTAL DEDUCTIONS (3,317) (11,923) (395) (4,051) (28,097) (272) (280)
--------- --------- --------- ---------- ---------- --------- ---------
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 19,355
--------- --------- --------- ---------- ---------- --------- ---------
NET CHANGE (79,746) (521,786) (256,625) (20,533) (306,158) 34,681 34,167
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR 79,746 521,786 256,625 20,533 306,158 -- --
--------- --------- --------- ---------- ---------- --------- ---------
END OF YEAR $ -- $ -- $ -- $ -- $ -- $ 34,681 $ 34,167
========= ========= ========= ========== ========== ========= =========
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------
SMALL PRINCIPAL T. ROWE
COMPANY INTERNATIONAL STABLE PRICE VANGUARD
BLEND STOCK VALUE MID-CAP U.S. GROWTH
ACCOUNT ACCOUNT FUND GROWTH FUND
----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Additions to net assets attributed to:
Net realized/unrealized gain (loss) $ 2,948 $ (767) $ 8,292 $ 14,688 $ 22,374
Interest and dividends -- -- -- -- 3,686
Contributions:
Company's 5,095 5,320 3,344 10,204 14,662
Participants' 32,557 33,763 30,832 59,086 98,190
Rollovers 4,201 29,509 11,086 9,361 85,121
----------- ----------- ----------- ----------- -----------
Total Contributions 41,853 68,592 45,262 78,651 197,973
----------- ----------- ----------- ----------- -----------
TOTAL ADDITIONS 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 (5,155) (5,180) (17,346) (1,869) (5,485)
----------- ----------- ----------- ----------- -----------
TOTAL DEDUCTIONS (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 81,123 83,100 286,260 128,339 260,769
----------- ----------- ----------- ----------- -----------
NET CHANGE 116,631 142,832 321,513 219,095 476,723
NET ASSETS AVAILABLE FOR PLAN
BENEFITS:
BEGINNING OF YEAR -- -- -- -- --
----------- ----------- ----------- ----------- -----------
END OF YEAR $ 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.
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, 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 from January 1, 1997 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 - Prior to August 31,1998, participants were able to
contribute up to 15% of pre-tax annual compensation, but as of September 1,
1998, the Plan was amended to allow up to 25% of pre-tax annual
compensation. A participant's contribution may not exceed an amount
determined by the Internal Revenue Service each calendar year ($10,000 and
$9,500 in 1998 and 1997, respectively). The participants may change their
percent contribution election monthly. Prior to August 31, 1998, the Company
matched 25 percent of participants' contributions up to the first four
percent of base compensation. Effective September 1, 1998, the Company
matches a percentage of participants' contributions up to the first seven
percent of base compensation. The matching percentage for active
participants as of September 1, 1998 are based on the following elective
deferral period:
<TABLE>
<CAPTION>
Elective Percentage
Deferral Period Matched
---------------- ----------
<S> <C>
9/1/98 - 8/31/99 25%
9/1/99 - 8/31/00 50%
9/1/00 - 8/31/01 75%
After 9/1/01 100%
</TABLE>
The matching percentage for all employees hired after September 1, 1998 is
based on the following vesting years of service:
<TABLE>
<CAPTION>
Vesting Years Percentage
of Service Matched
------------- ----------
<S> <C>
Less than 2 25%
2 50%
3 75%
4 or more 100%
</TABLE>
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, 1998 and 1997. All Company contributions are
invested based upon participant account elections.
6
<PAGE> 9
Participant accounts - Each participant's account is credited with the
participant's contribution and allocations of Company's contribution and
Plan earnings. 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:
<TABLE>
<CAPTION>
Years of
Service Percentage
--------- ----------
<S> <C>
1 20%
2 40%
3 60%
4 80%
5 100%
</TABLE>
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 period from January 1 through April 3, 1997. For
the period from April 4, 1997 through December 31, 1998, the participant is
able to direct employee contributions into nine investment options. A brief
description of each investment option is provided below for both 1998 and
1997:
April 4, 1997 - December 31, 1998
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.
7
<PAGE> 10
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. As of December 31, 1998 this stock was
trading at 22 15/16.
January 1, 1997 - April 3, 1997
1. Dreyfus Bonds -
Funds were invested in corporate and government instruments
seeking current income and preservation of capital.
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% for 1997 (through July 10,
1997). The average yield was 6.0% and 5.2% for 1997 (through
July 10, 1997).
6. Stock Fund -
Funds were 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 loans - 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, 1998 and
1997 was 10.5%. 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.
8
<PAGE> 11
Disposition of forfeitures - Forfeitures attributable to the Company
matching contributions shall be first applied to pay expenses under the
Plan, which would otherwise be paid by the Company. Forfeitures not used to
pay expenses shall be applied to reduce future Company contributions.
Forfeitures for 1998 and 1997 were $845 and $3,481, respectively.
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.
Reclassifications
Certain amounts previously reported in the 1997 financial statements have
been reclassified to conform with the 1998 presentation.
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, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Small Company Blend $ 208,231 $ --
International Stock Account 227,333 --
Principal Stable Value Fund 412,997 319,230
T. Rowe Price Mid-Cap Growth 533,194 209,121
Vanguard U. S. Growth Fund 1,013,061 462,929
Vanguard Wellington 352,403 217,352
Stock Fund 1,157,642 1,390,959
</TABLE>
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<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 obtained a new Internal Revenue Service
determination letter dated August 21, 1998, for the restated Plan. The Plan
was amended effective September 1 and 2, 1998, and the Company believes the
Plan is still operating in compliance with the applicable laws and
regulations.
6. RELATED PARTY TRANSACTIONS:
All administrative expenses and accounting fees of the Plan are to be paid
by the Company. The Company paid approximately $13,415 and $21,750 for
administrative and accounting fees on behalf of the Plan during fiscal years
1998 and 1997, 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.
7. NONEXEMPT TRANSACTIONS:
Certain nonexempt transactions between the Plan and the Company have been
identified and are listed in Schedule III.
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<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, 1998
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> <C>
* The Principal Financial Group Pooled Separate Account - Bond & Mortgage Account $ 53,278 $ 57,152
* The Principal Financial Group Pooled Separate Account - Bond Emphasis Balanced Account 80,479 86,100
* The Principal Financial Group Pooled Separate Account - Small Company Blend Account 221,357 208,231
* The Principal Financial Group Pooled Separate Account - International Stock Account 214,701 227,333
* The Principal Financial Group Common Collective Trust - Principal Stable Value Fund 388,448 412,997
T. Rowe Price Associates Mutual Fund - T. Rowe Price Mid-Cap Growth 457,170 533,194
Vanguard Mutual Fund - Vanguard U. S. Growth Fund 832,705 1,013,061
Vanguard Mutual Fund - Vanguard Wellington 359,339 352,403
* Crescent Real Estate Equities Company Common Shares (Par value $.01) 1,701,011 1,157,642
* Participant Loans Loans to Participants (Interest rates range from 9.25%
to 10.5%) 74,294 74,294
* Crescent Operating, Inc. Common Stock (Par value $.01) 18,837 6,657
---------- -----------
$4,401,619 $ 4,129,064
========== ===========
</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, 1998, 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, 1998
Plan Number: 001
EIN: 75-2526839
<TABLE>
<CAPTION>
(a) (b) (c)
Identity Description
of of Purchase
Issuer Asset Price
- -------------------------------- --------------------------------- --------------
<S> <C> <C>
SERIES OF TRANSACTIONS:
The Principal Financial Group T. Rowe Price Mid-Cap Growth $ 276,907
T. Rowe Price Mid-Cap Growth --
The Principal Financial Group Vanguard U.S. Growth Fund 409,405
Vanguard U.S. Growth Fund --
The Principal Financial Group Vanguard Wellington 159,135
Vanguard Wellington --
Crescent Real Estate Equities Common Stock (Par Value $.01) 601,985
Company Common Stock (Par Value $.01) --
</TABLE>
<TABLE>
<CAPTION>
(d) (f) (g) (h) (i)
Expense Current Value
Incurred Cost of Asset on Net
Selling with of Transaction Gain
Price Transaction Asset Date (Loss)
---------- ------------ ----------- -------------- ---------
<S> <C> <C> <C> <C>
$ -- $ -- $ 276,907 $ 276,907 $ --
18,574 -- 16,980 16,980 1,594
-- -- 409,405 409,405 --
36,267 -- 30,974 30,974 5,293
-- -- 159,135 159,135 --
17,185 -- 16,586 16,586 599
-- -- 601,985 601,985 --
158,909 -- 193,050 193,050 (34,141)
</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.
12
<PAGE> 15
SCHEDULE III
CRESCENT REAL ESTATE EQUITIES, LTD. 401(k) PLAN
ITEM 27c - SUPPLEMENTAL SCHEDULE OF NONEXEMPT TRANSACTIONS
AS OF DECEMBER 31, 1998
PLAN NUMBER: 001
EIN: 75-2526839
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
RELATIONSHIP TO PLAN, DESCRIPTION OF TRANSPORTATIONS, INCLUDING INTEREST
EMPLOYER, OR OTHER MATURITY DATE, RATE OF INTEREST, AMOUNT INCURRED
IDENTITY OF PARTY INVOLVED PARTY IN INTEREST COLLATERAL AND PAR OR MATURITY VALUE LOANED ON LOAN
- -------------------------------------- --------------------- -------------------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Crescent Real Estate Equities Company Sponsor Landing of moneys from the Plan to the employer
(loan repayments not timely remitted to the Plan).
as follows:
Deemed loans May 2, 1997 through November 14,
1997, maturity December 29, 1998, with interest
at 10.5% $ 2,356 $ 412
</TABLE>
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<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on their behalf by
the undersigned hereunto duly authorized on the 28th day of June 1999.
Dated: June 28, 1999 CRESCENT REAL ESTATE EQUITIES, LTD, 401(k) PLAN
By: /s/ BRUCE A. PICKER
--------------------------------------------
Bruce A. Picker
Trustee
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